SK Telecom Co., Ltd. — FY2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; filed April 29, 2020. This is an annual report, not a standalone fourth-quarter filing, and the supplied text does not provide clear Q4-only financial results. Financial statements are consolidated and prepared under IFRS as issued by the IASB. Amounts below are in Korean won (₩), generally billions unless stated otherwise.
Business context and key financial metrics
SK Telecom is a Korean telecommunications and technology group operating in cellular services, fixed-line telecommunications, security, commerce and other businesses. Wireless services remained its largest segment. The company launched commercial 5G services in April 2019 and reported 2.084 million 5G subscribers at year-end.
| Metric | FY2019 | FY2018 | Change or context |
|---|---|---|---|
| Revenue | ₩17,743.7bn | ₩16,874.0bn | Up 5.2% |
| Operating profit | ₩1,000.9bn | ₩833.8bn | Up 20.0%; operating margin 5.6%, versus 4.9% |
| Profit before income tax | ₩1,162.7bn | ₩3,976.0bn | Down 70.8% |
| Profit for the year | ₩861.9bn | ₩3,132.0bn | Down 72.5%; net margin 4.8%, versus 18.5% |
| Profit attributable to parent owners | ₩889.9bn | ₩3,127.9bn | Basic and diluted EPS: ₩12,144, versus ₩44,066 |
| Operating cash flow | ₩3,986.1bn | ₩4,332.6bn | Down 8.0% |
| Capital expenditures | ₩3,375.9bn | ₩2,792.4bn | Up 20.9%; simple operating cash flow less capex was about ₩610bn |
| Cash used in investing activities | ₩3,582.5bn | ₩4,047.7bn | Net outflow |
| Cash used in financing activities | ₩636.8bn | ₩238.3bn | Net outflow |
At year-end, total assets were ₩44,611.6bn, total liabilities ₩21,788.1bn and equity ₩22,823.5bn. Cash and cash equivalents were ₩1,270.8bn; cash, short-term financial instruments and short-term investment securities together totaled ₩2,268.1bn. Working capital was a surplus of ₩314.6bn, down from ₩1,111.3bn.
Year-end short-term borrowings and current long-term debt totaled about ₩1,037.9bn. Long-term debt excluding current maturities was ₩9,226.0bn; debt instruments included ₩7,253.9bn of non-current debentures and ₩1,972.1bn of non-current borrowings. Lease liabilities of ₩712.7bn were additionally recognized under IFRS 16. The reported debt-to-equity ratio was 95.46%, versus 89.58% in 2018.
Material changes versus prior year
- Revenue growth was led primarily by security services, including a full year of ADT Caps revenue after its 2018 acquisition. Security segment revenue increased to ₩1,109.5bn from ₩284.3bn; segment operating profit was ₩133.6bn, compared with a loss of ₩11.3bn.
- Cellular services revenue declined 1.7% to ₩12,172.4bn. Wireless service revenue fell 2.4%, and cellular interconnection revenue fell 7.1%; higher 5G handset sales partly offset the declines. Cellular segment operating profit dropped 29.7% to ₩914.1bn.
- Fixed-line segment revenue increased 4.5% to ₩2,948.2bn, but segment operating profit fell 43.3% to ₩139.2bn. IPTV subscribers rose to 5.2 million, while fixed-line telephone subscribers and revenue declined.
- Commerce revenue decreased 2.4% to ₩710.7bn as the company focused on optimizing 11st; the segment moved from an ₩85.0bn operating loss to a small ₩2.0bn profit. Other businesses’ operating loss narrowed to ₩78.9bn from ₩247.3bn.
- The steep fall in net profit mainly reflected the drop in equity-method gains from associates, particularly SK Hynix: SK Telecom’s share of profits from associates and joint ventures fell to ₩449.5bn from ₩3,270.9bn. SK Hynix’s reported profit fell to ₩2,016.4bn from ₩15,540.0bn.
- Operating expenses increased 4.6% to ₩16,846.0bn, including higher depreciation and amortization and labor costs. Adoption of IFRS 16 shifted some lease costs from rent to depreciation and interest; 2018 comparisons were not restated.
Outlook, management commentary, risks and unusual items
- Management expected 2020 capital expenditures to be lower than 2019, while continuing 5G expansion, LTE maintenance, Wi-Fi, IoT, AI and other platform investments. The company said plans could change with market conditions and business needs.
- Management identified the COVID-19 outbreak as a source of uncertainty for demand, subscriber payments, 5G migration, supply chains, network operations, financing and investment values. The filing stated that the duration and full impact could not be predicted.
- Wireless ARPU declined 3.6% to ₩31,076 in 2019, mainly due to subscriber discounts and government-related rate reductions; growth in higher-priced unlimited-data and 5G plans partially offset the decline. Average monthly wireless churn was 1.2%, unchanged from 2018.
- 5G network investment, competition and pricing pressure, regulation of the dominant wireless provider, spectrum availability, foreign-exchange movements and cybersecurity were identified as material risks. The filing also discussed potential adverse effects from weakness in SK Hynix’s business and share value.
- A KCC investigation into alleged excessive or discriminatory handset subsidies associated with 5G subscriber acquisition was pending at filing. The company said a significant fine could be imposed; the outcome was not clear in the filing.
- In 2019, SK Telecom acquired a 34.6% interest in digital advertising company Incross, formed or expanded strategic investments including Wavve, and completed a share exchange with Kakao. The planned SK Broadband–Tbroad merger and Tbroad Nowon acquisition had approvals and were expected to close in April 2020.
- For 2019, the company reported dividends of ₩10,000 per share, including an interim dividend; the annual report states an aggregate dividend declaration of ₩730.1bn. It also reported a ₩69.5bn gain on business transfers among other income items.
- The auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The audit highlighted goodwill impairment testing for the security services unit as a critical audit matter; its recoverable amount exceeded carrying value by only ₩11.3bn.
Most important facts for investors to verify
- Review the audited statements and notes for the drivers of the sharp year-over-year decline in net profit, especially SK Hynix earnings and equity-method accounting.
- Verify the 2020 capex plan and whether 5G subscriber growth and monetization support the expanded network investment.
- Assess liquidity and refinancing needs against contractual cash obligations of ₩2,255.2bn due within one year and the reported ₩314.6bn working-capital surplus.
- Track the KCC 5G subsidy investigation, any resulting penalties and the status and integration of the Tbroad transactions.
- Monitor COVID-19 effects, wireless ARPU and churn, and the sensitivity of security goodwill valuation to revenue growth, labor costs and discount-rate assumptions.