SK Telecom Annual Report 2014 Partner for New Possibilities Overview Business & Strategy Governance & Leadership Financial & Non-Financial Statement Appendix Partner for SK Telecom Annual Report 2014 SK Telecom New Possibilities Partner for New Possibilities New for Partner SK Telecom Annual Report 2014 | | 2014 Report Annual Telecom SK Overview About this Report Business & Strategy As an Integrated Annual Report prepared for the purpose of reporting the annual perfor- tions and information section. Such data, however, were included in case they are likely to mance to the investors and stakeholders, this Report comprises not only the financial perfor- have a significant impact on the stakeholders’ decisions, in consideration of SK Telecom’s Governance & Leadership mance records of SK Telecom, but also comprehensive information on value creation includ- financial and operational control and the actual influence and effects of its business. As for ing non-financial performance, future prospects and efforts to improve the company value. the geographical boundaries, this Report covers data for the company’s major places of Partner for New Possibilities Sustainability and annual reports had been issued separately by SK Telecom until 2012, but business, which is the Republic of Korea, while the temporal scope is between January 1 starting in 2013, the two reports have been compiled and issued as a single report. This Re- and December 31, 2014. This Report, however, may disclose a portion of the qualitative data port is the second integrated report published by SK Telecom, and the final approval of this generated until April 2015. In case of any changes in the previously reported data requiring Report from the BOD was given on June 24, 2015. attention, such data were re-calculated based on the 2014 data. The reporting period of this Report is one financial year, and the preceding report was the <SK Telecom Annual Report Integrated Reporting under International Guidelines 2013> issued in July 2014. The International Integrated Reporting Council provides the International Integrated Report- ing (IR) Framework, a standard framework for the Integrated Reporting (IR) of both financial SK Telecom, an active member of UNGC LEAD, was listed in the Dow Jones Sustainability and non-financial performances. This Report was prepared in accordance with the guiding Indices (DJSI) World Index for the seventh consecutive year since 2008, and has been des- principles and report content suggested in the IR Framework 1.0, a standard framework ignated as a Telecommunication Industry Leader for 5 years in a row since 2010. In addition, Financial & Non-Financial Statement SK Telecom Annual Report 2014 | SK Telecom for the Integrated Reporting (IR) of both financial and non-financial performances, and the SK Telecom has been participating in the Carbon Disclosure Project (CDP) and the business comprehensive requirements of the GRI G4 Guideline, a standards guideline for sustainability network program of the International Integrated Reporting Council (IIRC). reports provided by the Global Reporting Initiative (GRI). As one of the UN Global Compact (UNGC) LEAD companies, SK Telecom has been undertaking management activities con- forming to the 10 principles of UNGC, and this Report was prepared in accordance with the documentation principles prescribed in the Communication on Progress (COP) of UNGC. Scope and Boundary of the Report In this Report, the terms, “SK Telecom” and “the company,” refer to SK Telecom, an individual company, excluding its subsidiaries that are subject to consolidated financial statements in accordance with the Korean version of International Financial Reporting Standards (K-IF- RS). The financial data were prepared based on consolidated data, while the non-financial data on the environmental performance and fulfillment of the corporate social responsibility were prepared on an individual basis. When explaining the performance of SK Telecom’s subsidiaries, the respective names of the subsidiaries were used in this Report. The data presented in this Report exclude those for SK Telecom’s overseas branches, subsidiaries, invested companies, and supply chains unless otherwise indicated in the generation descrip- Appendix SK Telecom Annual Report 2014 Partner for New Possibilities 2 3 Overview About Us Inside This Year’s Report Business & Strategy About This Report 2 About Us 4 New Possibilities 6 SK Telecom, in the end of 2014, accounted for about 50% share of the domestic subscribers 1. Overview 3. Governance & Leadership of mobile communication services companies in South Korea, the world’s ‘best’ and Korean CEO’s Message 18 Governance Report 80 Governance & Leadership ‘first’ leading technology and services in the ICT ecosystem. Business Model 22 1) Board of Directors Profiles 80 Partner for New Possibilities The Year 2014 26 2) Governance Model 82 Highlights of the SK Telecom are shown below. Based on the end of 2014 1) Financial Performance and Outlook 26 3) Corporate Citizenship Committee 88 Number of Subscribers About 28.61 million 2) Key Operating Performance 30 Risk Report 92 Number of Executives & Employees 4,253 3) Performance of Major Subsidiaries 32 1) Risk Governance 92 Number of Subsidiary Companies 40 4) Economic Value Generated and Distributed 36 2) Risk Profile and Strategy 94 Stock Exchange Registration Status Korea Stock Exchange New York Stock Exchange 5) Review of the Year 2014 38 Ethical Management 96 London Stock Exchange 1) Code of Ethics 96 Shareholders Status 2. Business & Strategy Value Creation Strategies 42 4. Financial & Non-Financial Statement Financial & Non-Financial Statement SK Telecom Annual Report 2014 | SK Telecom SK Corp. 1) Vision & Mission 42 Financial Statements 102 2) Next-Generation Platform Strategy 46 Financial MD&A 110 Market Context & Issues 48 Non-financial Statements 114 1) Where We Operate 48 Non-financial MD&A 116 2) Our Target & Goals 50 Report of External Auditor 128 Citibank ADR Business Cases 52 Third Party Assurance Statement 130 National Pension Fund 1) Customer Experience Innovation 52 Greenhouse Gas Assurance Statement 134 2) Next-Generation Network Leadership 58 3) Convergence 62 5. Appendix Shareholders Payback (Non-Consolidated Basis) Unit: KRW 4) Creation of Shared Value Using ICT 66 Materiality Report 138 Net Income 1,028.5 billion 5) Solutions to Climate Change 70 CEO Statement on Human Rights 142 Earnings per Share 14,262 6) HR Recruitment & Investment 74 UN Global Compact 144 Total Dividend 666.8 billion SASB Index 145 Dividend Payout Ratio 64.8% GRI Index 146 Appendix Dividend per Share 9,400 Non-Consolidated Financial Statement 154 SK Telecom Annual Report 2014 Partner for New Possibilities 4 5 Overview Connectivity New SK Telecom’s core competitiveness is network quality. SK Telecom is innovating its products and services for Possibilities the sole purpose of raising its customer’s values, and creating a new ICT environment that is built above a high-speed data network. During the past 30 years, SK Telecom’s network has connected people with people and evolved towards a new tomorrow. SK Telecom has rewritten Business & Strategy the history of Korea’s telecommunication industry by inventing new services and introducing advanced technology, and is now fearlessly preparing to evolve into the Next-Generation Platform provider. SK Telecom continues to journey into “New Possibilities”, where its customer’s tomorrow is happier and more plentiful than today. Expandability SK Telecom is evolving into a Next-Generation Platform provider by surpassing the telecommunications industry’s limitations, eliminating boundaries between industries and Governance & Leadership through confident convergence and innovation. Partner for New Possibilities SK Telecom’s new transformation will mark a new turning point in the history of Korean ICT development. Sustainability Financial & Non-Financial Statement SK Telecom Annual Report 2014 | SK Telecom SK Telecom is the market leader in the ICT industry. As the market leader, SK Telecom has the responsibility to endeavor for society’s sustainable future, an obligation we fulfill with pride. SK Telecom will strive to reduce the digital devide between regions and generations and create social values that can bring happiness to all members of society. Appendix SK Telecom Annual Report 2014 Partner for New Possibilities 6 7 Overview Connectivity Preparing the 5G era with pride, no fear in being the very first. Business & Strategy Satisfying customer’s needs is more important than the competition for speed. SK Telecom is leading the network competition by improving customer values and providing endless technical innovations, in order to bring more happiness its 28.61 million subscribers. SK Telecom, with its proud and fearless pioneering spirit, is now making preparations to welcome the age of 5G, which will open a new, unimaginable world of ICT. Governance & Leadership Partner for New Possibilities Financial & Non-Financial Statement SK Telecom Annual Report 2014 | SK Telecom LTE-A 1st 1G-28s Provided nationwide service of First in the world to develop Commercialized 3band LTE-A, Broadband LTE-A, which is a 2FA(frequency assignment) Giga which downloads 1GB contents in three times faster than LTE June 2014 WiFi technology that doubles only 28 seconds December 2014 the data capacity October 2014 85 cities X 1,000 Expanded the 3band Displayed possibilities of 5G LTE-A service to 85 cities technology, which is 1.000 times nationwide January 2015