SK Telecom Co., Ltd. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018; filed April 29, 2019. This is an annual report, not a standalone fourth-quarter filing, and the supplied filing text does not provide clear Q4-only financial results. Consolidated statements are prepared under IFRS as issued by the IASB and audited by KPMG Samjong, which gave an unqualified opinion.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | ₩16,874.0 billion | ₩17,520.0 billion |
| Operating revenue and other income | ₩16,945.9 billion | ₩17,552.0 billion |
| Operating profit | ₩833.8 billion | ₩1,224.6 billion |
| Profit before income tax | ₩3,976.0 billion | ₩3,403.3 billion |
| Profit for the year | ₩3,132.0 billion | ₩2,657.6 billion |
| Net cash from operating activities | ₩4,332.6 billion | ₩3,855.8 billion |
| Capital expenditures | ₩2,792.4 billion | ₩2,715.9 billion |
| Cash and cash equivalents | ₩1,506.7 billion | ₩1,457.7 billion |
| Working capital | ₩1,111.3 billion surplus | ₩907.3 billion deficit |
| Total assets / total equity | ₩42,369.1 / ₩22,349.3 billion | ₩33,428.7 / ₩18,029.2 billion |
- Operating margin was 4.9%, down from 7.0%; net margin was 18.5%, up from 15.1%.
- Net cash used in investing activities was ₩4,047.7 billion; net cash used in financing activities was ₩238.3 billion.
- Debt included ₩80.0 billion of short-term borrowings, ₩984.3 billion of current long-term debt and ₩8,587.6 billion of long-term debt excluding current maturities. Total liabilities were ₩20,019.9 billion.
- Cash, short-term financial instruments and short-term investment securities totaled ₩2,747.5 billion. The company also reported ₩430.0 billion of available local-bank credit lines.
- Dividends declared for 2018 were ₩10,000 per share, including a ₩1,000 interim dividend; the annual dividend was ₩9,000 per share. Cash dividend payments during 2018 were ₩706.1 billion.
Material changes versus the prior comparable year
- Revenue declined 3.7% and operating profit fell 31.9%, while profit for the year rose 17.9%. The profit increase chiefly reflected equity-method gains from SK hynix: SK Telecom’s share of associate profits rose to ₩3,238.1 billion from ₩2,175.9 billion.
- Cellular-services revenue fell 6.7% to ₩12,378.9 billion, led by an 8.2% decline in wireless-service revenue. SK Telecom attributed pressure to increased rate discounts, lower roaming revenue and IFRS 15 revenue allocation. Wireless ARPU fell 7.6% to ₩32,243; ARPU including MVNO subscribers fell 8.2% to ₩28,615.
- Fixed-line telecommunications revenue increased 7.6% to ₩2,932.6 billion, supported by broadband and media services, IPTV subscriber growth and T-commerce. E-commerce revenue fell 4.5% to ₩618.1 billion as the company prioritized improving 11st profitability.
- Operating expenses declined 1.3%, but labor costs rose 16.4% to ₩2,288.7 billion, partly due to the ADT Caps acquisition and expanded operations. Impairment losses on property, equipment and intangible assets increased to ₩255.8 billion from ₩54.9 billion; goodwill impairment was ₩166.8 billion, including Shopkick-related charges.
- The company acquired a 55% interest in Life & Security Holdings, parent of ADT Caps, for ₩696.7 billion; obtained SK Infosec in a treasury-share exchange; and raised its interest in id Quantique to 65.6%. Consolidated goodwill increased to ₩2,938.6 billion.
Outlook, commentary and risks
- Management expected 2019 capital expenditures to exceed 2018 levels, particularly for 5G expansion and commercialization, LTE and Wi-Fi upgrades, IoT and AI platforms, and related R&D. Funding was expected principally from operating cash flow and borrowing, but spending plans remain subject to market and technology developments.
- 5G service began on a limited business-customer basis in December 2018; commercial 5G plans launched in April 2019. The company also planned to phase out CDMA services by year-end 2019 and had discontinued WiBro service in January 2019.
- Management cited rate discounts, interconnection-rate reductions and intense competition as pressures on wireless revenue and profitability. The Korean market is highly penetrated, and competition from operators, MVNOs and potential new entrants could intensify.
- Liquidity improved, but the ₩1,111.3 billion working-capital surplus was substantially affected by IFRS 15 capitalization of subscriber-acquisition commissions. IFRS 15 also reduced reported 2018 revenue by ₩85.8 billion and operating profit by ₩19.7 billion versus prior accounting treatment; comparative statements were not restated.
- IFRS 16 adoption in 2019 was expected to recognize right-of-use assets and lease liabilities, preliminarily estimated at ₩500–₩700 billion. Management expected lease expense to fall while depreciation and interest expense rose.
- Key risks include regulation of rates and spectrum, foreign-ownership limits, cybersecurity and service interruptions, foreign-exchange exposure, financing and 5G investment returns, and cyclical performance of SK hynix. KCC fines included ₩21.4 billion in January 2018 and ₩975 million in March 2019; a 2012 FTC fine of ₩21.9 billion remained under Supreme Court appeal.
- SK Telecom held a 20.1% stake in SK hynix, whose results materially affected consolidated earnings. A semiconductor downturn could reduce equity-method income and the value of the holding.
Most important facts for investors to verify
- Review the audited statements and notes for the distinction between operating-profit measures under IFRS and K-IFRS, and the effects of IFRS 15 on reported revenue, expenses and working capital.
- Assess whether 5G subscriber adoption and revenue can justify higher 2019 capital spending, and track network rollout, service quality and investment returns.
- Monitor wireless ARPU, discount-plan uptake, churn and cellular segment margins against continuing price and regulatory pressure.
- Evaluate cash generation against debt maturities, frequency-license payments, dividends and acquisition commitments; verify the impact of IFRS 16 on leverage and reported earnings.
- Track SK hynix earnings and valuation, Shopkick impairment exposure, and integration and returns from security and other acquisitions.
- Follow the outcome of pending legal and regulatory matters, including the DRAM price-fixing claims against SK hynix, and changes to Korean telecom regulation and foreign-ownership limits.