SK Telecom Co., Ltd. — FY2021 Form 20-F
Reporting period: Year ended December 31, 2021; filed April 28, 2022. This is an annual report, not a standalone fourth-quarter report, and the supplied filing text does not provide clear Q4-only financial values. Financial statements are prepared under IFRS as issued by the IASB and presented in Korean won.
Business context and reporting comparability
SK Telecom is a leading Korean wireless carrier, with fixed-line, broadband and media operations. Effective November 1, 2021, it spun off its semiconductor and other non-telecommunications investment businesses to SK Square, including its interest in SK hynix. Those operations are reported as discontinued operations; comparative income statements were recast, but the December 31, 2020 balance sheet was not. Accordingly, 2021 continuing-operation results and year-end balance-sheet comparisons require care.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue from continuing operations | ₩16.749 trillion | ₩16.088 trillion |
| Operating profit | ₩1.432 trillion; 8.5% margin | ₩1.035 trillion; 6.4% margin |
| Profit from continuing operations | ₩1.271 trillion | ₩684.0 billion |
| Profit from discontinued operations, net of tax | ₩1.148 trillion | ₩816.6 billion |
| Total profit for the year | ₩2.419 trillion | ₩1.501 trillion |
| Net cash from operating activities | ₩5.031 trillion | ₩5.822 trillion |
| Capital expenditures | ₩2.916 trillion | ₩3.558 trillion |
| Cash and cash equivalents | ₩872.7 billion | ₩1.370 trillion |
Revenue rose 4.1% and operating profit rose 38.4%. Total profit increased 61.2%, reflecting stronger continuing results and discontinued-operation earnings, including SK hynix profits recognized before the spin-off. The 2021 operating-cash-flow decline of 13.6% was attributed mainly to higher income tax paid and customer-contract acquisition costs.
- Segments: Cellular services revenue increased 3.0% to ₩12.719 trillion; fixed-line telecommunications revenue increased 7.2% to ₩3.678 trillion; other revenue increased 14.6% to ₩352.4 billion.
- Drivers: Wireless service revenue grew with more higher-priced 5G subscribers; broadband/IPTV revenue benefited from subscriber growth and higher-priced plans. Wireless device sales declined 2.4%, with the company citing limited availability of flagship devices.
- Margins: Cellular segment operating margin improved to 8.5% from 8.2%; fixed-line margin rose to 8.1% from 7.1%.
- Liquidity: Working capital was negative ₩607.8 billion at year-end, versus positive ₩597.1 billion in 2020. Cash, short-term financial instruments and short-term investment securities totaled ₩1.386 trillion. The company reported ₩480.0 billion of available local-bank credit lines.
- Debt: Year-end short-term borrowings and current portion of long-term debt were ₩1.443 trillion; long-term debt excluding current maturities was ₩7.391 trillion. Total debt on those reported balances was approximately ₩8.834 trillion. Lease liabilities were ₩1.534 trillion.
Material changes, outlook and risks
- The spin-off materially changed the group’s scope: year-end total assets fell to ₩30.911 trillion from ₩47.907 trillion, and equity to ₩12.335 trillion from ₩24.396 trillion. The reported debt-to-equity ratio rose to 150.6% from 96.4%; the balance-sheet change includes the spin-off and is not a like-for-like operating comparison.
- Management expected 2022 capital expenditures to be similar to 2021, chiefly for 5G expansion, LTE and Wi-Fi maintenance, IoT/AI, data infrastructure and R&D. It said planned funding would rely primarily on operating cash flow, borrowings and debt or equity offerings; it had not arranged firm financing for all current and future needs.
- Management’s strategy emphasizes core wireless and fixed-line operations and growth initiatives in media, enterprise, subscriptions, metaverse and connected-intelligence businesses. In February 2022, it announced the “SKT 2.0” five-business-group plan. No numerical earnings or revenue guidance is provided in the filing text.
- Key risks include intense competition and pricing pressure, regulation of rates and interconnection, spectrum availability and substantial network investment, execution and integration of reorganizations, cybersecurity and service disruptions, foreign-exchange exposure, and COVID-19-related effects on roaming and device demand. The company cited an average monthly wireless churn rate of 0.8% in 2021, down from 1.2% in 2020.
- Contractual cash obligations totaled ₩13.710 trillion, including ₩2.461 trillion due within one year. Debt instruments include covenants, including a maximum net debt-to-EBITDA ratio of 3.50 and minimum EBITDA-to-interest ratio of 4.00, assessed on a separate-company basis.
- Legal items include a ₩3.2 billion FTC fine each for SK Telecom and SK Broadband, paid in full, with a revocation proceeding initiated and pending. The filing says other listed KCC fines were paid and remedial steps taken; it reports no other significant pending or threatened proceedings to the company’s knowledge.
- The company said it may have been a PFIC for U.S. tax purposes in 2021, but did not expect PFIC status in the current year or reasonably foreseeable future. The filing also describes a 49% foreign-ownership limit and related potential licensing and control consequences.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The auditor change to Ernst & Young Han Young for 2022–2024 followed statutory auditor rotation requirements; the filing reports no disagreements or reportable events.
Most important facts for investors to verify
- Use the recast continuing-operations income statement, and distinguish it from total profit that includes discontinued operations; do not treat annual results as Q4-only figures.
- Review the spin-off’s effects on the 2020-versus-2021 balance-sheet comparison, debt-to-equity ratio, cash balances and continuing cash generation.
- Check the 2022 capital-spending plan against actual spending, operating cash flow, debt maturities and liquidity needs.
- Assess whether 5G and fixed-line subscriber growth can sustain revenue and margins amid discounting, competition and regulatory obligations.
- Review the pending FTC proceeding, debt covenant headroom, foreign-ownership exposure and the PFIC tax disclosure for U.S. holders.
- Consider the auditor’s critical audit matter: goodwill impairment testing for the fixed-line telecommunications cash-generating unit depends on forecast revenue, perpetual growth and discount-rate assumptions.