SK Telecom Co Ltd (SKM) 2012 Q1 法說會逐字稿

(Interpreted). Now we will begin the conference of the fiscal year 2012 first quarter earnings results by SK Telecom.

(Interpreted). Good afternoon. My name is [Hyung-Joo Park], the IRO of SK Telecom. Today's conference call will consist of SKT's CFO Seung-Yun Ahn's earnings presentation on the first quarter 2012 results and future management plan and strategic direction, followed by a Q&A session. To help deepen your understanding, we have with us the executives of the relevant business units. Today's conference call will provide consecutive interpretation. Let me remind you that all the forward-looking statements are subject to change depending on the macroeconomic and market situation. Now I present to you our CFO, Seung-Yun Ahn.

(Interpreted). Good afternoon. My name is Seung-Yun Ahn, the CFO of SK Telecom. Let me extend my deepest appreciation to all the investors and analysts for taking part in today's earnings call for the first quarter 2012.

As the global telecom industry enters into a mature stage diverse efforts are being made throughout the world to overcome the stagnant growth. Against such challenging backdrop SK Telecom is continuing to maintain our leadership in MNO as well as in our premium service, 4G LTE, as part of our efforts to help create a new data market. We are also maintaining our endeavors to secure global competitiveness by developing a new ecosystem comprising the overall ICT industry through openness and collaboration.

However, the emergence of diverse destructive models is threatening the industry's core businesses. The investment cycle following the traffic explosion coupled with the tariff reduction carried out in 2011 resulted in a 26.4% year-on-year drop in operating income. The regulatory landscape involving additional tariff cut pressure among others is also posing challenges for us.

Let me now discuss our Q1 consolidated results. Boosted by the growth in our smartphone subscribers and LTE subscribers, our Q1 of 2012 revenue recorded KRW3,990b, edging up slightly quarter on quarter and rising 2% year on year. Operating income came in at KRW450b. Due to the base effect of the previous quarter with special one-off expenses, the Q1 operating income expanded 38.8% quarter on quarter. However, the tariff reductions, including the monthly fee reduction implemented in 2011 led to a 26.4% decrease year on year. EBITDA marked KRW1,100b, up 21.3% quarter on quarter but down 9.5% year on year. Net income stood at KRW320b, rising 65.4% quarter on quarter but coming down 39.8% year on year.

That was the earnings highlight. Let me now touch upon our management plan and strategic direction for the future. As the MNO market leader with fundamental competitive edge, SKT was able to acquire 1m LTE subscribers as of the end of January 2012 in the shortest period since launching the LTE service by leveraging our unmatched network and marketing competitiveness visa vie our competitors. As of the end of April, we secured 2.4m LTE subscribers, further accelerating our subscriber growth and further widening the gap with the peers.

As of April the LTE subscriber growth reached 25,000, jumping 47% month over month, which is equivalent to 60% of the total daily subscriber acquisition. Since our 4G LTE service is solidifying its position as the core service of our telecom business, we believe we could even exceed our original guidance for the year and LTE subscriber number of 6m.

Historically, competition intensified whenever new networks were first introduced, but the market leader eventually secured the upper hand in profitability as the market stabilized in time. Considering the fact that the likelihood of another new-generation network technology emerging in the near future is quite low, it would be critical to retain the market leadership in the early stage of the LTE services, thereby securing mid to long-term profitability.

SKT will no doubt refrain from subscriber acquisition through cost-intensive marketing competition and rather focus on winning subscribers by leveraging our unsurpassed networks technology, diverse content utilization, as well as our exceptional distribution power. We will fortify our MNO leadership in the 4G space as well.

At the Mobile World Congress in February SK Telecom showcased the world's first hybrid network employing both mobile telephony network and WiFi simultaneously at the data speed of 100 megabytes per second, which was recognized as one of the most advanced technologies globally. We are committed to retaining our undisputed leadership in the LTE technology as well. Also we plan to apply Korea's first and most superior technology this year to enhance the LTE transmission speed while doubling the speed in 2013 through the carrier aggregation technology which is key to the LTE advanced network. Through such effort, we will help shape the future of the ICT sector with superior services.

The fact that SKT ranked number one in the National Customer Satisfaction Index for 15 consecutive years while being ranked number one in KCC Quality ranking in all three categories, voice, wireless internet and broadband, is a testament to our strong leadership in our unmatched network.

In the B2B business we will work towards becoming a distant number one in corporate LTE space, while proactively targeting new markets comprising tablet PCs and machine-to-machine to continue expanding our customer base with a focus on value. Also by expanding our fixed-mobile convergence management support solution offerings for enterprise productivity enhancement we expect to achieve KRW1.5 trillion in unconsolidated revenue for SK Telecom while reaching KRW2.6 trillion consolidated revenue including SK Broadband and SK Telink in 2012.

In the healthcare area we are leveraging our a company jointly setup with Seoul National University Hospital called Health Connect, which was launched in January, to develop a solution to innovate healthcare service models and hospital processes. According to Ministry of Knowledge and Economy, the size of the Korean mobile healthcare-related market will reach around KRW3 trillion by 2014, auguring well for the growth potential going forward.

SK Telink will serve the role as the core growth pillar of SK Telecom in the future. To that end SK Telink will reinforce its core platform business prowess comprising T Store, T Map, Commerce and social platform among others, while seeking global expansion through diverse ways to help shape the growth story of SK Telecom.

One of SK Telink's growth pillars is the digital content market, T Store, which boasts 13.7m subscribers, 6.3m monthly unique visitors, and 720m cumulative downloads. Our efforts to grow the customer base by opening our services to the subscribers of other telcos already resulted in 1.5m user acquisition. The utilization of diverse devices including tablet will only accelerate the growth of the digital contents market. Going forward, we will pursue the integration of the existing competencies of Melon, Hoppin and cloud using T Store as the basic platform.

In terms of its global business, we are currently pursuing business in Japan and the US. We entered into the Japanese application market in November 2011 with the brand called [Quick] while establishing a US entity called ADF in January 2012 to launch developed apps from Korea and to launch apps to be developed by the US entity. We are also making preparations to enter into the Southeast Asian market.

In the Commerce business the 11th Street posted KRW1.1 trillion in GMV, which is gross merchandise value, and exceeded KRW75.2b in revenue for the first quarter, growing 18.7% and 23.1% quarter on quarter, respectively. It is steadily maintaining its number two position for five consecutive months, further solidifying its position in the open market space. Leveraging its experience and knowhow in Korea, 11th Street is pursuing global expansion into Turkey and Southeast Asia based on global partnership.

Especially the mobile 11th Street GMV for the first quarter alone recorded KRW44.3b, which is more than 55% of the mobile GMV of KRW81b for the entire 2011. We expect the 2012 annual mobile GMV to reach KRW150b. We will continue to reinforce customer convenience in handling functions such as simplified settlement while expanding the dedicated products for the mobile platform to further accelerate the mobile-based commerce market growth trend.

In the case of the social platform business area, the Company acquired by SK Planet, Tic Toc, will continue to focus on socializing its mobile communication services through ongoing service expansions and evolution. We will also try to create a global mobile social platform through successful global expansion.

Moreover, SK Planet is significantly invigorating its internal capabilities by embedding core technologies in the R&D area by reinforcing its R&D human resources to stimulate growth in its global and new businesses. It is also building a lean, agile and flexible corporate environment and culture optimized for the platform business through efforts such as the introduction of the in-house venture scheme called Planet-X.

SK Planet has already supported and trained 15,000 application developers through T Academy. It is vitalizing win-win collaborations from the ecosystem perspective by way of building an open platform architecture, comprehensively offering its core functions to the third parties. Through such openness and collaboration, SK Planet is seeking to grow beyond becoming Korea number one, but strive to be a leader in Asia and create a global top-tier platform company.

Dear investors and analysts, year 2012 will be year one of gearing up for new growth, which interlinks our MNO platform and semiconductor businesses. We seek to fulfill all the critical prerequisites, including strategy, service and products to be recognized as a company with the comprehensive portfolio with both highly-valued investment assets and organic growth potential.

The Vision 2020 announced in March has the slogan of Partner for New Possibilities, which crystallizes our commitment. Reaching enterprise value of KRW100 trillion and ranking among the global top 100 companies by 2020 is the Company objective called 100 and 100, through which we will further enhance our Company value. To achieve this goal SK Telecom, SK Planet and SK Hynix will secure a differentiating capability in their respective businesses while creating synergy between companies so that our expanded innovative products and services could lead the future of the ICT industry.

I would like to thank all the investors and analysts once again for your unwavering support. Thank you.

(Interpreted). We will now begin the Q&A session. Please go ahead with questions.

(Interpreted). Now Q&A session will begin. (Operator Instructions). The first question will be provided by Sam Min from Morgan Stanley and the next question will be provided by Yang Jong In from Korea Investment Securities. Mr. Sam Min, please go ahead with your question.

Hi. Thank you. I have two questions. My first question is on ARPU. So, again we saw ARPU fall in the first quarter, and I was wondering if you can break down what led to the fall, whether it was the tariffs cost impact or the tariffs discount impact through competition, and what your outlook is in the second quarter and in the second half of this year?

My second question is on marketing expenses. It fell in the first quarter. I was wondering what drove that decline and whether that's sustainable, particularly with KT now starting to have a more competitive LTE offering. Thank you very much.

(Interpreted). Let me first address your first question regarding ARPU. As you have mentioned, during the first quarter ARPU has trended down slightly. On a year-on-year basis it was down by about KRW110b year on year. And it was mainly because of the tariff cut pressure as well as the emergence of the destructive business model such as KakaoTalk in the market. On a quarter-on-quarter basis, however, it came down by KRW43.6b and it was mainly because of the reduced number of working days during this quarter compared to the previous quarter.

If I may share with you our outlook for the ARPU going forward, with the wider adoption of LTE and smartphones and smartphone users, I believe that we will continue to pursue our strategy of retaining and maintaining our core high-end subscribers, and I believe that the overall data consumption pattern is changing in the industry as well. So overall, through such ARPU-enhancing factors in the industry I believe that coming -- starting from Q3 we will begin to see some recovery/pickup in the ARPU trend.

(Interpreted). The next question will be presented by [Yang Jong In] from Korea Investment Securities and the following question will be presented by Stanley Yang from Nomura Securities. Mr. Yang Jong In, please go ahead with your question.

(Interpreted). I have the following three questions. First of all, starting from the month of May your blacklist system has been introduced in the market. So my first question is how do you believe that such introduction will be impacting the overall dominance in the overall handset-related supply chain in the country will change going forward?

And how will that also impact the tariff system as well as the distribution network?

My second question has to do with additional pressure for tariff reduction coming from the political circle lately. So, what is the Company view about such pressure? And also, how do you foresee the regulatory environment regarding tariff cut reduction in the future?

My third question has to do with your subscriber market share target for the future. Recently there has been more active utilization of MVNO services in the market. So, do you still plan to maintain your strategy of keeping the market share above slightly, by 60% level, in the future as well?

(Interpreted). Before I answer those three questions coming from Mr. Yang, let me actually address the second part of the question I did not take an answer coming from Mr. Sam Min earlier, regarding the marketing expense area.

For your information, the overall marketing expense for the first quarter came down by about KRW60b mainly because of the overall size reduction of the market itself. And also on a quarter-on-quarter basis the marketing expense came down by about KRW120b. Again it was partially affected by this market size reduction. But at the same time there was the overall acquisition cost per subscriber reduction that was taking place and also there were less TV commercials and other such advertisement expense conducted during the quarter. So overall that has led to such reduction on a quarter-on-quarter basis.

I believe you also asked about our outlook regarding the future marketing expense trend in light of the fact that KT will be introducing more full-fledged LTE offerings in the market. As of the month of April I believe that companies such as KT has begun introducing more aggressive marketing efforts for the MNP acquisition in the LTE space, so therefore I believe that there is some possibilities that the market may intensify in terms of competition.

I believe that until now the main competition in the LTE space had to do with the coverage ratio that was provided by each telco. But now that all three major telcos are offering nationwide coverage in LTE going forward I believe that most of the competition will be coming from the speed and the quality of the service, and moreover coming from the contents bank that can be provided as the actual services to be delivered on top of LTE.

SKT, as you are well aware, has very unmatched quality and speed in terms of its network capabilities, and we also offer diverse contents to be distributed on our network as well. Therefore, we will work towards securing more subscribers in the LTE space and thereby further solidify our leadership in the MNO area and the LTE space as well.

Of course there is some possibility that the market during the second quarter might somehow get a little more fiercer in terms of competition. However, if I may give you some outlook for the second half of this year, I believe that during the second half the competition will stabilize even further coming to some type of balance in the market and there will be the impact coming from the introduction of new handsets in the LTE space. And also towards the end of the year each telco will be burdened with actually meeting the guidance targets for the result in terms of marketing expenses as well. So overall we believe that the market competition will subside towards the second half of the year.

Therefore, SK Telecom will continue to focus on assisting in terms of market stabilization, but at the same time, we will make sure that we maintain our leadership in the LTE and also the smartphone space.

Let me first answer your question, Mr. Yang, regarding your first question about the blacklist introduction. Basically I believe that the introduction of this blacklist system, which enables consumers to choose their own fit in this environment, has to move in the direction where it eventually leads to their choice of choosing from relatively lower-priced handsets and more diverse handsets so that you could ultimately contribute to their reduction in the overall tariffs regarding the telecommunication expenses. To that end I believe that the manufacturers have to work on this area as well.

SK Telecom, even on this such rapidly-changing environment, will continue to provide Korea's best level of services to our subscribers and also tap into our very advantageous position in our distribution area so that we could contribute to the overall consumer benefit.

And regarding the possible introduction of some discounted tariff plan in the overall scheme of the blacklist system, there are consultations continuing between telcos and KCC as we speak, but nothing has been finalized yet for us to communicate with you.

Let me now move on to your next question regarding the possibilities of further tariff cuts. As you are well aware, we have already implemented major tariff reduction in the month of September last year, but it hadn't been that long since the last implementation of tariff cuts. So I believe that the subscribers are already enjoying the benefits of such tariff cuts as well as the reduction on tariffs of SMS services as well.

As I mentioned in my opening statement, I believe that the recent pressure to cut tariffs in the industry is directly impacting the bottom line of the telcos in Korea, and we do also share concerns with the rest of the industry that it could possibly impede future CapEx and also technology development investment that can be called for in huge volumes in the future. But moreover, I believe that we are concerned that it could, overall, it could possibly impede the overall development of the ICT sector as a whole.

And according to Korea Index announced data, all of the 11 countries surveyed, if you actually apply the exchange rates, we are actually one of the lowest or the second-lowest country in terms of the tariffs regarding the telecom services. So I believe that we are already providing sufficiently low prices. In our view rather than actually going through the route of applying artificial price reduction that cannot be satisfactory for neither telcos nor the subscribers, but rather we should go towards the route of further stimulating market competition so that the users can benefit from the overall systematic enhancement in the market.

Of course there are always possibilities to further discuss about lowering tariffs for those marginal consumers in the very lowest bracket of the income bracket for future implementation. But if you look at the current landscape, I don't think that it's necessary the telecommunications part that is the main culprit of the high expenses on the telecommunication sector among the households, but it is rather the highly-priced handsets and those prices are more negatively impacting the overall expenditure.

Let me now move on to your third question regarding our market share target. Regarding our policies to maintain our current market share target, I believe it comes with various benefits. As the market leader, we continue to maintain negotiating power with the handset makers, and we could provide overall control of the market dynamics in a very positive way, and also we could possibly further discourage some of the competitors' desire to overtake our market share through very negative and erosive manner. And so I believe that as a market leader, having such control in the market could actually provide a very virtuous benefit to the industry as a whole.

So SK Telecom's position on market share target is that our market share is actually not caused by some price-cutting efforts on our part, but also it is the results of our fundamental competitiveness of the Company. So we continue to maintain our policy to have these leading fundamentals of the Company and thereby maintaining the overall market share at the current level. But at the same time, we will work on further enhancing the quality of our subscriber base as well.

(Interpreted). The next question will be presented by Stanley Yang from Nomura Securities and the following question will be presented by Kim Hongseek from NH Investment Securities. Mr. Stanley Yang, please go ahead with your question.

(Interpreted). I actually have one question with a couple of sub-questions below that. If you look at the operating income before the first quarter it came down by about [26%] year on year, which was a little lower than we anticipated. So could you share with us the reasons why? Was it because of the standalone SKT's own operating income deterioration or was it because of the less-than-expected results coming from your subsidiaries.

And my second question is if it actually came from the standalone SKT's earnings reduction then considering how your marketing expense has come down, it must have come from the non-marketing expense area. Then which categories were they? I see one item under depreciation and amortization, but other than that, could you be specific as to where such reduction came from?

And another point I would like to ask is if it actually came from the non-marketing expense in increase during the first quarter, was it one-off factors or is it something structural that will continue in the future?

The third part of my question is as follows. Your annual guidance on operating income that you communicated with us in the beginning of the year was to maintain the flat level compared to the previous year. If that is the case, because of the lower than anticipated operating income posted during Q1 it means that you will have to do a lot better during the rest of the three quarters. So what measures do you have in mind to increase your operating income going forward? And seeing how during the second quarter you had some concerns that marketing expenses might peak slightly because of intensifying competition, how do you plan to manage that as well?

(Interpreted). The fact that our operating income during Q1 has come down by 26% year on year is actually mainly coming from the earnings reduction of SK Telecom itself, which takes up the lion's share of the overall results.

As you have mentioned, our marketing expenses has come down by year-on-year basis. However, there are other factors that actually suppress the overall operating income during Q1. And one of the largest reasons, as I told you before, came from the tariff reductions. And of course there was the depreciation line item that you have mentioned and also there were some commission-related items that have gone up, especially regarding the handset installment receivables related commission.

And if you have more detailed questions regarding specific numbers, we will make sure that we answer your questions later on when you contact our IR department.

And I believe that your second part of the question was asking whether we could maintain our annual guidance on operating income for the rest of the year seeing we have posted lower-than-anticipated numbers during Q1. And I guess that you were asking about the impact on our overall maintenance of the annual guidance. Of course when we set up our business plan before the beginning of this year of course were aware of the fact that there will be tariff reductions so they will be fully reflected in our business plan. So seeing how LTE subscriber number is growing at a very robust pace, we plan to increase our revenue coming from the LTE side so that we could offset some of those negative impacts.

At the same time we are making various efforts internally to innovate various cost-cutting measures so that we could offset our cost factors as well. And we are anticipating and preparing for any possible pressures for cost increase going forward as well.

(Interpreted). The next question will be presented by Kim Hongseek from NH Investment & Securities and the following question will be presented by Kim Hoi Jae from Daishin Securities. Mr. Kim Hongseek, please go ahead with your question.

(Interpreted). I have the following three questions. First of all, I believe that SK Telecom's market share has been drastically decreasing lately and if you exclude the reselling portion of your overall new subscriber acquisition your overall share currently stands at about 50.2%. Your existing market share target has always been 50.5%. So I was wondering whether your market share policy itself has changed recently.

And also as the number of the reselling portion increases I believe that it is bound to impact your ARPU in a negative way in the future. So going forward, as you continue to see the increasing number of reselling portion and it could possible erode into ARPU, so going forward, when you announce your ARPU number is that going to include such reselling portion?

The third question is I was wondering why SKT has been so I guess reactive or not as proactive in terms of protecting your subscriber market share target. Is it because of the capital pressure coming from the recent expenditure carried out in the process of Hynix acquisition or is it because of your strategy, dealing with certain frequency allocation plan in the future?

(Interpreted). First of all, as you mentioned, during the first quarter our market share has shown a slight reduction in a temporary manner during the first quarter. That is true. However, the result of our balancing policy to rebalance the share of the new acquisition versus the handset changing subscriber portion.

As I told you before, it was the direct result of our policy. What I mean by that is that a lot of the subscribers tend to churn out of our existing services if they simply want to change their handset in order to receive certain benefits. And we are focusing on reinforcing our handset-changing subscriber-related benefits to the same level as the new acquisition-related customer benefits. So that has led to, I guess, a temporary phenomenon that shows a trend of one-off net addition reduction trend.

However, in the long run I think this is only going to reinforce our profitability going forward because, as much as you see the number of those new acquisitions coming from simply canceling from their existing services just for the purpose of changing their handsets, I believe that this will result in less churning-out ratio for the purpose of handset change at the same time. So although it might look like a temporary reduction in our net addition, ultimately it will only help our profitability by helping us retain our high-quality subscribers and ultimately enhancing the quality of our subscriber base.

So I think that I could possibly answer your third question at the same time by saying that our first-quarter market utilization as policy has nothing to do with being less proactive in terms of subscriber retention. It is actually a way to reinforce our overall profitability.

And to answer your second question, all the numbers that we are announcing in terms of the subscriber number and ARPU, they are all inclusive of the MVNO subscribers. Until now the number of MVNO subscribers has been minimal enough so it did not really impact the overall trend of ARPU to date. However, going forward, if the number of MVNO subscribers grows very significantly we will then revisit this issue and decide whether or not we will include those numbers in our ARPU calculations.

(Interpreted). The next question will be presented by Kim Hoi Jae from Daishin Securities and the following question will be presented by John Kim from Deutsche Securities. Mr. Kim Hoi Jae, please go ahead with your question.

(Interpreted). I have the following two questions. During the first quarter what was the revenue, operating income and net income of SK Planet? If you could actually break it down per business category, that would be appreciated.

And also can you provide us with the annual guidance and also the mid- to long-term guidance for SK Planet as well?

My second question has to do with Hynix and the related synergy. Aside from what SKT can do to support Hynix, what can Hynix do in order to support SKT's business in the future? If you are preparing for any specific business initiatives, please share them with us.

(Interpreted). To address your questions regarding SK Planet, we have with us the Head of the Management Planning Division of SK Planet with us and he will address your question.

(Interpreted). I am the Management Planning Division Head at SK Planet. Let me answer your question regarding the results of SK Planet for the first quarter of 2012. Actually the first quarter revenue for SK Planet was KRW244.9b, operating income stood at -- actually it was a loss by about KRW2.99b, and net income was KRW2.9b. To elaborate a little bit about the reason for the revenue reduction on a quarter-on-quarter basis, actually we have changed the methodology of recognizing the revenue coming from [make] from the existing gross revenue method, which comprises the overall purchase methodology into a revenue-sharing methodology, which is a net revenue basis.

Let me now move on to our guidance or the target for 2012. Our revenue target for 2012 is KRW1.1 trillion. Actually it is a bit the real value coming from the platform business. It really comes from the power of the subscriber base and we have to project the synergy between the business models and the future growth potential as well. So considering how this year, 2012, is actually the year one of the actual business in earnest, rather than targeting on the financial target, we should look at the mid- to long-term sustainability as the real success factor. So therefore I don't believe that we should actually have a specific target or guidance for the net income or bottom line as the main key index.

If I may give you more a long-term picture, our existing stance that by 2016 we will reach the revenue size of KRW3.5 trillion and enterprise value of KRW5 trillion has not been changed. So we will stick with such guidance for the mid- to long-term figures.

(Interpreted). Let me elaborate one more time that I believe that SK Planet's platform business, we should not actually be taking from the short-term business target perspective or financial target perspective, but rather look at the power of being able to ensure sustainability in the mid to long term.

Regarding our power indices for different business lines under SK Planet, we have of course internal targets and objectives for respective businesses, such as T Store, T Map and 11th Street, which is ecommerce, as well as Tic Toc. And we do have certain internal targets that we will be able to communicate with you on a one-on-one arrangement rather than through the conference call.

Let me answer the second question regarding the synergy coming from Hynix. If we look at the big picture of what defines the synergy, I believe that, number one, it could come from sharing each of the respective influence in their respective value chains. And secondly it could come from sharing the user experience of their respective customer base so that we could seek a common growth. And thirdly we could possibly seek new business models together and entering into such models together.

Let me cite some examples. For example, SK Hynix before the acquisition by SK Telecom has been working very hard to enter into a partnership arrangement with Qualcomm, for instance, in the packaging business relating application process or AP. However, they were not successful before the acquisition. But upon acquisition, using SK Telecom's existing influence and relationship with Qualcomm we were able to successfully lead their relationship into a successful one in this particular category.

Likewise I believe that Hynix has a very extensive global vendor network throughout the world as well. And as SK Telecom is planning to launch various global businesses going forward, I believe that Hynix could leverage their own relationship to support our networking in the --- in our respective business areas as well.

And another example is that Hynix has very extensive experience through which we could gain an insight in terms of intelligence regarding the hardware business. In other words, as we move into the overall wider ICT business for SK Telecom, we could help identify the trend in the industry using or tapping into Hynix's intelligence. Using such intelligence of Hynix I believe that we could possibly pursue common initiatives between Hynix and SK Telecom to ensure future growth by defining what businesses would be bidding for such collaboration. For instance, we could possibly enter into the so-called non-memory area of the business together, jointly.

As you are well aware, it hasn't been that long since the acquisition of Hynix by SK Telecom. In the short run I believe that we should foremost focus on further enhancing SK Hynix's own core business in the semiconductor area so that they may emerge as a true bona fide global top-tier company. And I believe that in this regard enhancing enterprise value of Hynix will ultimately help SK Telecom in a very direct way. So we think of that as a very big factor for us to benefit from. But at the same time, as the market is actually quite interested in possible collaboration and in synergy, we at SK Telecom will do our utmost to identify and research into possible synergy initiatives so that we could realize such benefits in actuality.

(Interpreted). The next question will be presented by John Kim from Deutsche Securities. And the following question will be presented by Josh Bae from UBS. Mr. John Kim, please go ahead with your question.

Yes. Thank you for the opportunity. I have two questions. First is regarding Hynix. I understand that SK Hynix is performing due diligence on Altiga. Can you reiterate your stance regarding further acquisitions of Hynix stake? For what time period do you feel comfortable that SKT will not be making any further investments into Hynix? And if the Hynix creditors decide to sell down their stake, would that prompt you to reconsider that statement?

Second is on shareholder return. Can you share if SKT's share performance reflects senior management's compensation in any way? Your share price, as you know, is trading near record lows. So I wonder if this has triggered the management to consider any actions to increase investor confidence in your stock. And also if the management is quite comfortable that Hynix is not going to require any further investments by SKT, can you tell me what's preventing the management from deciding to increase your dividends?

(Interpreted). Let me answer your first question regarding Hynix. Regarding the due diligence being performed on Altiga by Hynix at the moment, I believe that Hynix will do a very prudent job, looking into the company and making the right judgment. But in any case, let me reassure you that it does not mean that there will be any additional capital support coming from SK Telecom in this overall endeavor. In other words, whatever that is decided by Hynix will be actually supported by -- within the means of the financial capacity of the company itself.

And regarding your related question about the possibilities of additional acquisition of the Hynix shares from the existing creditors, to answer that question, as long as we could safely maintain our current management control of the Company, we currently do not have any plans to acquire additional shares of Hynix.

And regarding your question about share price of the Company and whether it is directly linked to the compensation scheme of the management, no, it is not directly related to it. However, as we have announced in our Vision 2020 recently, the Vision 2020 objective for the Company includes SKT's growth targets, which means that the enterprise value will be increased quite a bit. So that's gist of the overall objectives of the Company. So to that end we are making our utmost effort and in the future whatever we make such business directions or management decision principles we will always put enterprise value enhancement at the core.

As you have mentioned, SK Telecom's share price at the moment is among the lowest in our history. But I believe that the situation right now is pretty much similar with KT and LG U+ as well.

And if I may elaborate a little bit, as of the end of last year, our ex-dividend share price had been remaining at a very low level. And I believe that if you look at the dividend ratio of our Company, our current price of the stock is quite attractive. So I think that going forward there will be more buying, I guess, movement in the market, taking advantage of such attractive valuation. And I believe that recently the share of foreign ownership of our shares has gone up to 46.5% recently.

And as you are well aware, after the acquisition of Hynix our share price has gone down by about KRW20,000 and I believe that it was because of some negative sentiment regarding the acquisition. But as the market witnessed the high growth potential of Hynix and also as the Company realizes the earnings potential and seeing how the business climate for the semiconductor industry is actually moving in favor of the Company, I'm sure the Company will begin to realize its potential. So as such event takes place in the order that I just delineated, I believe that there will be more positive awareness or sentiment in the market towards Hynix, which will then further offset the negative sentiment of the recent past and more than offset it by actually adding more value.

And as I told you before, the platform business of SK Planet is actually going quite smoothly at the moment. And I don't think that SK Planet's positive results is being fully reflected in our share price yet. And therefore the revaluation of the platform business going forward and, at the same time, seeing how the quality and quantity of our LTE subscriber base is going to enhance in the future, starting from the second half, I think that those positive factors will be reflected more positively in our overall valuation.

And to answer your question regarding the shareholder return policy, our basic principle is to continue to maintain our financial stability whilst striking the right balance between the shareholder return and the growth of the Company. So at the moment our current stance is to maintain the current level of cash dividend. And going forward, looking at the business performance and the financial results of the Company, we will consider various options in the future, including possible buyback of treasury shares.

Apologies, I have a very quick follow-up question. With respect to your statement regarding control on Hynix, do you feel that the current stake that you have in Hynix is enough to retain control?

(Interpreted). Yes. If you look at the current landscape of the industry, I believe that having the current 21% stakeholding would be sufficient in maintaining our management control.

(Interpreted). Only one participant is waiting with his question. The next question will be presented by Josh Bae from UBS. Mr. Josh Bae, please go ahead with your question.

Hi. Thank you for the call. Three quick questions. First is on your guidance for the year. About a third of the year has passed now. How comfortable are you with your guidance for KRW2.3 trillion CapEx and operating profit to be flat year over year? Do you see upside or downside to these targets?

Second is on your non-operating line. If you could share with us a breakdown, in particular I'm curious to know how big the gain from [entry] was, also what the impact from Hynix was. And if there were any other sizeable items, that would be helpful.

Third is on your labor cost. You discussed that the labor cost increased due to your subsidiaries. If you could please elaborate on this, that would be helpful. Thank you.

(Interpreted). To answer your question regarding the annual guidance, we are making our best efforts to keep the guidance target of operating profit year on year flat. And also regarding the revenue target, we are making various efforts to make sure that we maintain at least the growth rate of the previous year.

And regarding CapEx, of course there are many investments that are currently being made on the CapEx side, but within our capacity as much as possible we would do our utmost to keep within the overall budget of KRW2.3 trillion as our annual guidance, including the LTE-related investment.

Now let me go into the non-operating income items, and namely the equity method related gain or loss items are as follows as the major ones. If we look at the Q1 results, we have reflected KRW65.9b in disposition gain from entry-related shares. And also from the Hynix side, we have recorded minus KRW34.6b in terms of the equity method loss.

Regarding the labor cost increase during the first quarter, I mentioned that it has something to do with our subsidiaries. Especially in our platform business related to Internet business, there was some payout of incentive bonuses through the subsidiaries in order to attract and secure top talent pool because in that particular industry there is a strong competition to secure such talent.

(Interpreted). (Operator Instructions).

(Interpreted). If there are no further questions, we would like to conclude the Q&A session at this point. This concludes the Q&A session. We will now invite the closing remarks by our CFO.

(Interpreted). Thank you for staying with us until the very end of SK Telecom's earnings call. As a solid leader in the MNO market with fundamental competitiveness, SK Telecom will leverage its unmatched network and marketing competitive edge to further widen the gap with the competitors in the 4G LTE service as well and become a true market leader. Also we will try to establish our new growth framework linking MNO platform and semiconductor businesses to become a company with a comprehensive investment portfolio, with both asset value and growth potential. We will continue to do our utmost to significant enhance our inter-enterprise value through these efforts.

We ask all the investors and analysts for your continuous interest and support for SKT's efforts. The management at SK Telecom will continue to communicate with the investors and analysts through various means to expand exchange of views between us. Once again, thank you for taking part today.

(Interpreted). This concludes our earnings conference call for Q1 2012.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.