Exhibit 15.1
Consolidated Financial Statements of Snow Corporation
Report of Independent Auditors
To the Board of Directors of SNOW Corporation
We have audited the accompanying consolidated financial statements of SNOW Corporation and its subsidiaries (“Group”), which comprise the consolidated statements of financial position as of December 31, 2018 and 2017, and January 1, 2017, and the related consolidated statements of profit or loss, comprehensive loss, changes in equity and cash flows for the years ended December 31, 2018 and 2017.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of SNOW Corporation and its subsidiaries as of December 31, 2018 and 2017, and January 1, 2017, and the results of their operations and their cash flows for the years ended December 31, 2018 and 2017, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
June 27, 2019
1
Snow Corporation
Consolidated Statements of Financial Position
(In thousands of Korean won)
Notes | January 1, 2017 | December 31, 2017 | December 31, 2018 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | 6, 20 | 24,176,192 | 20,386,988 | 104,258,127 | ||||||||||||
Trade and other receivables | 7, 13, 18, 20 | 184,117 | 640,234 | 4,864,462 | ||||||||||||
Other financial assets, current | 13, 20 | 20,000,000 | 205,700 | 800,000 | ||||||||||||
Other current assets | 10 | 726,684 | 2,198,435 | 3,437,537 | ||||||||||||
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Total current assets | 45,086,993 | 23,431,357 | 113,360,126 | |||||||||||||
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Non-current assets | ||||||||||||||||
Property and equipment | 8 | 383,013 | 1,644,630 | 4,669,914 | ||||||||||||
Goodwill | 9 | — | 626,138 | 2,525,462 | ||||||||||||
Other intangible assets | 9 | 231,384 | 309,504 | 717,651 | ||||||||||||
Investments in associates and joint ventures | 25 | 1,464,220 | 3,841,925 | 3,972,610 | ||||||||||||
Othernon-current financial assets | 13, 21 | 440,089 | 4,591,196 | 15,913,064 | ||||||||||||
Othernon-current assets | 10 | 6,799 | — | 4,935,023 | ||||||||||||
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Totalnon-current assets | 2,525,505 | 11,013,393 | 32,733,724 | |||||||||||||
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Total assets | 47,612,498 | 34,444,750 | 146,093,850 | |||||||||||||
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Liabilities | ||||||||||||||||
Current liabilities | ||||||||||||||||
Trade and other payables | 13, 20 | 3,120,165 | 6,470,631 | 9,089,468 | ||||||||||||
Other financial liabilities, current | 13, 20 | — | 163,650 | 4,459,624 | ||||||||||||
Advances received | 18 | — | — | 596,818 | ||||||||||||
Provisions, current | 11 | 71,608 | 580,000 | — | ||||||||||||
Other current liabilities | 10 | 2,392,508 | 3,986,961 | 5,154,875 | ||||||||||||
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Total current liabilities | 5,584,281 | 11,201,242 | 19,300,785 | |||||||||||||
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Non-current liabilities | ||||||||||||||||
Other financial liabilities,non-current | 13, 20, 21 | 2,805 | 7,556 | 74,009,538 | ||||||||||||
Deferred tax liabilities | 12 | — | — | 1,273,600 | ||||||||||||
Provisions,non-current | 11 | 117,279 | 378,317 | 675,444 | ||||||||||||
Defined benefits liabilities | 14 | 3,172,269 | 6,546,075 | 10,978,932 | ||||||||||||
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Totalnon-current liabilities | 3,292,353 | 6,931,948 | 86,937,514 | |||||||||||||
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Total liabilities | 8,876,634 | 18,133,190 | 106,238,299 | |||||||||||||
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Shareholders’ equity | ||||||||||||||||
Share capital | 16 | 2,266,665 | 3,790,555 | 5,012,065 | ||||||||||||
Share premium | 16 | 52,817,531 | 103,395,538 | 236,741,078 | ||||||||||||
Accumulated deficit | (16,423,074 | ) | (90,789,338 | ) | (199,434,330 | ) | ||||||||||
Accumulated other comprehensive income/(loss) | 74,742 | (85,195 | ) | (793,042 | ) | |||||||||||
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Equity attributable to the shareholders of the Company | 38,735,864 | 16,311,560 | 41,525,771 | |||||||||||||
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Non-controlling interests | 24 | — | — | (1,670,220 | ) | |||||||||||
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Total shareholders’ equity | 38,735,864 | 16,311,560 | 39,855,551 | |||||||||||||
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Total liabilities and shareholders’ equity | 47,612,498 | 34,444,750 | 146,093,850 | |||||||||||||
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See Notes to Consolidated Financial Statements
2
Snow Corporation
Consolidated Statements of Profit or Loss
(In thousands of Korean won)
Notes | 2017 | 2018 | ||||||||
Revenues: | 5, 18 | 2,734,378 | 13,166,879 | |||||||
Operating expenses: | ||||||||||
Payment processing and licensing expenses | (705,899 | ) | (2,959,209 | ) | ||||||
Employee compensation expenses | 14 | (21,567,930 | ) | (37,723,838 | ) | |||||
Marketing expenses | (41,242,506 | ) | (49,601,580 | ) | ||||||
Infrastructure and communication expenses | (221,622 | ) | (912,879 | ) | ||||||
Outsourcing and other service expenses | (9,507,888 | ) | (14,784,211 | ) | ||||||
Depreciation and amortization expenses | 8, 9 | (487,403 | ) | (1,035,930 | ) | |||||
Other operating expenses | 19 | (3,832,886 | ) | (10,369,897 | ) | |||||
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Total operating expenses | (77,566,134 | ) | (117,387,544 | ) | ||||||
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Loss from operating activities | (74,831,756 | ) | (104,220,665 | ) | ||||||
Finance income | 19 | 586,181 | 8,429,867 | |||||||
Finance costs | 19 | (819,201 | ) | (6,885,505 | ) | |||||
Share of loss of associates and joint venture | 25 | (158,587 | ) | (3,703,485 | ) | |||||
Loss on foreign currency transactions, net | (123,242 | ) | (30,340 | ) | ||||||
Othernon-operating income | 19 | 198,418 | 1,151,994 | |||||||
Othernon-operating expenses | 19 | (1,012 | ) | (89,448 | ) | |||||
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Loss before tax | (75,149,199 | ) | (105,347,582 | ) | ||||||
Income tax expenses | 12 | (725,724 | ) | (1,281,001 | ) | |||||
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Loss for the year | (75,874,923 | ) | (106,628,583 | ) | ||||||
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Attributable to: | ||||||||||
The shareholders of the Company | (75,874,923 | ) | (105,661,916 | ) | ||||||
Non-controlling interests | 24 | — | (966,667 | ) |
See Notes to Consolidated Financial Statements
3
Snow Corporation
Consolidated Statements of Comprehensive Loss
(In thousands of Korean won)
Notes | 2017 | 2018 | ||||||||||
Loss for the year | (75,874,923 | ) | (106,628,583 | ) | ||||||||
Other comprehensive income/(loss) | ||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||
Remeasurement of defined benefit liability | 12, 14 | 1,508,659 | (2,983,076 | ) | ||||||||
Items that may be reclassified to profit or loss | ||||||||||||
Exchange differences on translation of foreign operations: | ||||||||||||
Loss arising during the year | 12 | (159,937 | ) | (736,618 | ) | |||||||
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Total other comprehensive (loss)/income for the year, net of tax | 1,348,722 | (3,719,694 | ) | |||||||||
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Total comprehensive loss for the year, net of tax | (74,526,201 | ) | (110,348,277 | ) | ||||||||
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Attributable to: | ||||||||||||
The shareholders of the Company | (74,526,201 | ) | (109,357,263 | ) | ||||||||
Non-controlling interests | 24 | — | (991,014 | ) |
See Notes to Consolidated Financial Statements
4
Snow Corporation
Consolidated Statements of Changes in Equity
(In thousands of Korean won)
Equity attributable to the shareholders of the Company | ||||||||||||||||||||||||||||||||||||
Accumulated other comprehensive income/(loss) | ||||||||||||||||||||||||||||||||||||
Notes | Share capital | Share premium | Accumulated deficit | Currency translation adjustment | Reassessment of defined benefit liability | Total | Non- controlling interests | Total shareholders’ equity | ||||||||||||||||||||||||||||
Balance at January 1, 2017 | 2,266,665 | 52,817,531 | (16,423,074 | ) | 74,742 | — | 38,735,864 | — | 38,735,864 | |||||||||||||||||||||||||||
Comprehensive (loss)/income | ||||||||||||||||||||||||||||||||||||
Loss for the year | — | — | (75,874,923 | ) | — | — | (75,874,923 | ) | — | (75,874,923 | ) | |||||||||||||||||||||||||
Other comprehensive (loss)/income | — | — | — | (159,937 | ) | 1,508,659 | 1,348,722 | — | 1,348,722 | |||||||||||||||||||||||||||
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Total comprehensive (loss)/income for the year | — | — | (75,874,923 | ) | (159,937 | ) | 1,508,659 | (74,526,201 | ) | — | (74,526,201 | ) | ||||||||||||||||||||||||
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Transfer to accumulated deficit | — | — | 1,508,659 | — | (1,508,659 | ) | — | — | — | |||||||||||||||||||||||||||
Other | — | 10,600 | — | — | — | 10,600 | — | 10,600 | ||||||||||||||||||||||||||||
Transactions with equity holders | — | |||||||||||||||||||||||||||||||||||
Issuance of common share | 16 | 1,523,890 | 50,567,407 | — | — | — | 52,091,297 | — | 52,091,297 | |||||||||||||||||||||||||||
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Balance at December 31, 2017 | 3,790,555 | 103,395,538 | (90,789,338 | ) | (85,195 | ) | — | 16,311,560 | — | 16,311,560 | ||||||||||||||||||||||||||
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See Notes to Consolidated Financial Statements
5
Snow Corporation
Consolidated Statements of Changes in Equity (continued)
(In thousands of Korean won)
Equity attributable to the shareholders of the Company | ||||||||||||||||||||||||||||||||||||
Accumulated other comprehensive loss | ||||||||||||||||||||||||||||||||||||
Notes | Share capital | Share premium | Accumulated deficit | Currency translation adjustment | Reassessment of defined benefit liability | Total | Non- controlling interests | Total shareholders’ equity | ||||||||||||||||||||||||||||
Balance at January 1, 2018 | 3,790,555 | 103,395,538 | (90,789,338 | ) | (85,195 | ) | — | 16,311,560 | — | 16,311,560 | ||||||||||||||||||||||||||
Comprehensive loss | ||||||||||||||||||||||||||||||||||||
Loss for the year | — | — | (105,661,916 | ) | — | — | (105,661,916 | ) | (966,667 | ) | (106,628,583 | ) | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | (712,271 | ) | (2,983,076 | ) | (3,695,347 | ) | (24,347 | ) | (3,719,694 | ) | |||||||||||||||||||||||
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Total comprehensive loss for the year | — | — | (105,661,916 | ) | (712,271 | ) | (2,983,076 | ) | (109,357,263 | ) | (991,014 | ) | (110,348,277 | ) | ||||||||||||||||||||||
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Transfer to accumulated deficit | — | — | (2,983,076 | ) | — | 2,983,076 | — | — | — | |||||||||||||||||||||||||||
Transactions with equity holders | ||||||||||||||||||||||||||||||||||||
Issuance of common share | 16 | 1,221,510 | 128,770,759 | — | — | — | 129,992,269 | — | 129,992,269 | |||||||||||||||||||||||||||
Change in interests in a subsidiary | — | 4,574,781 | — | 4,424 | — | 4,579,205 | (679,206 | ) | 3,899,999 | |||||||||||||||||||||||||||
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Total transaction with equity holders | 1,221,510 | 133,345,540 | — | 4,424 | — | 134,571,474 | (679,206 | ) | 133,892,268 | |||||||||||||||||||||||||||
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Balance at December 31, 2018 | 5,012,065 | 236,741,078 | (199,434,330 | ) | (793,042 | ) | — | 41,525,771 | (1,670,220 | ) | 39,855,551 | |||||||||||||||||||||||||
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See Notes to Consolidated Financial Statements
6
Snow Corporation
Consolidated Statements of Cash Flows
(In thousands of Korean won)
Notes | 2017 | 2018 | ||||||||
Cash flows from operating activities | ||||||||||
Loss before tax | (75,149,199 | ) | (105,347,582 | ) | ||||||
Adjustments for: | ||||||||||
Depreciation and amortization expenses | 8, 9 | 487,403 | ) | 1,035,930 | ||||||
Finance income | (586,181 | ) | (8,429,867 | ) | ||||||
Finance costs | 819,201 | 6,885,505 | ||||||||
Share-based payment expense | — | 3,900,000 | ||||||||
Share of loss of associates and joint ventures | 25 | 158,587 | 3,703,485 | |||||||
Gain on disposal of financial assets at fair value through profit or loss | — | (282,371 | ) | |||||||
(Gain)/loss on disposal of property and equipment and intangible assets, net | (1,319 | ) | 150,941 | |||||||
Gain on reversal of assets retirement obligations | — | (264,434 | ) | |||||||
Changes in: | ||||||||||
Trade and other receivables | 7,18 | (458,182 | ) | (4,230,681 | ) | |||||
Trade and other payables | 3,196,246 | 2,603,690 | ||||||||
Advances received | 7,18 | — | 609,525 | |||||||
Provisions | 11 | 508,392 | (580,000 | ) | ||||||
Defined benefit liability | 14 | 1,479,741 | 1,449,781 | |||||||
Other current assets | (1,402,699 | ) | (1,187,061 | ) | ||||||
Othernon-current assets | (7,621 | ) | (4,940,838 | ) | ||||||
Other current liabilities | 240,985 | 1,158,734 | ||||||||
Other financial liabilities,non-current | — | 1,499,669 | ||||||||
Others | 10,844 | (1,901 | ) | |||||||
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Cash used by operating activities | (70,703,802 | ) | (102,267,475 | ) | ||||||
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Interest received | 389,170 | 351,026 | ||||||||
Interest paid | (13,664 | ) | (4,687 | ) | ||||||
Income taxes paid | (43,586 | ) | (3,164 | ) | ||||||
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Net cash used by operating activities | (70,371,882 | ) | (101,924,300 | ) | ||||||
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Cash flows from investing activities | ||||||||||
Proceeds from maturities of time deposits | 20,000,000 | — | ||||||||
Purchase of debt instruments | (1,629,958 | ) | (1,883,545 | ) | ||||||
Proceeds from sales of debt instruments | — | 440,271 | ||||||||
Acquisition of property and equipment and intangible assets | 8,9,17 | (1,197,554 | ) | (4,151,729 | ) | |||||
Proceeds from disposal of property and equipment and intangible assets | 8,9,17 | 15,901 | 87,630 | |||||||
Payments for execution of assets retirement obligations | — | (50,200 | ) | |||||||
Acquisition of subsidiaries, net of cash acquired | 17, 23 | (4,100,145 | ) | (2,086,866 | ) | |||||
Investment in associates and joint venture | 25 | (2,339,067 | ) | (3,851,451 | ) | |||||
Proceeds from business acquisition | 17, 23 | 5,900,000 | — | |||||||
Execution of loans | (600,007 | ) | (1,000,000 | ) | ||||||
Repayments of loans | 705,460 | 405,700 | ||||||||
Payment of office security deposits | (395,364 | ) | (3,121,644 | ) | ||||||
Refund of office security deposits | 210,000 | 434,584 | ||||||||
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Net cash (used in)/provided by investing activities | 16,569,266 | (14,777,250 | ) | |||||||
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Cash flows from financing activities | ||||||||||
Changes in short-term borrowings | 13, 20 | 167,460 | 4,486,052 | |||||||
Payments for common shares issuance costs | 16 | (9,729 | ) | (7,557 | ) | |||||
Proceeds from increase in share capital | 16 | 50,001,751 | 129,999,826 | |||||||
Issuance of redeemable convertible preferred shares by a subsidiary | 21 | — | 65,674,465 | |||||||
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Net cash provided by financing activities | 50,159,482 | 200,152,786 | ||||||||
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Net (decrease)/increase in cash and cash equivalents | (3,643,134 | ) | 83,451,236 | |||||||
Cash and cash equivalents at the beginning of the year | 24,176,192 | 20,386,988 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (146,070 | ) | 419,903 | |||||||
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Cash and cash equivalents at the end of the year | 6 | 20,386,988 | 104,258,127 | |||||||
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See Notes to Consolidated Financial Statements
7
Snow Corporation
Notes to Consolidated Financial Statements
1. | Reporting Entity |
Snow Corporation (“the Company”) was incorporated at August 1, 2016 through the investment by NAVER Corporation (“NAVER”), which is domiciled in Korea, under the Commercial Code of the Republic of Korea, followed by the additional investment to the Company by LINE Corporation (“LINE”), which is domiciled in Japan. The Company develops and operates mobile contents as well as mobile applications and also provides advertising services. As of December 31, 2018, LINE and its subsidiaries (collectively “the LINE Group”) and NAVER respectively have 34.0% and 66.0% of the ownership of the Company. NAVER also has ownership in LINE with 73.4% as of December 31, 2018. NAVER is the ultimate parent company of the Company and its subsidiaries (collectively “the Group”) as well as the LINE Group. The Company’s headquarter is located at 117,Bundangnaegok-ro,Bundang-gu,Seongnam-si,Gyeonggi-do, Republic of Korea.
2. | Basis of Preparation |
The consolidated financial statements has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). As aforementioned in Note 1 “Reporting entity”, The Company was incorporated on August 1, 2016. LINE’s board of directors approved the investment in the Company on September 29, 2016, and on October 18, 2016, LINE has acquired newly issued voting shares of the Company by paying 49,999,800 thousand won in cash, resulting in a 25.0% ownership interest. The Company acquired camera application business from LINE Plus Corporation as of May 1, 2017. The camera application business includes services such as B612, LINE Camera, Foodie, and Looks. The Company newly issued 208,455 common shares in exchange for the camera application business. As a result, the LINE Group’s ownership interest in the Company increased to 48.6%. LINE Group’s ownership interest of the Company is 45.0% and 34.0% as of December 31, 2017 and December 31, 2018, respectively.
As mentioned above, the Group has been included in LINE Group’s consolidated financial statement as an equity investment from October 18, 2016. These financial statements were prepared pursuant to Rule3-09 of SEC RegulationS-X for inclusion in the amendment of the Form20-F of LINE. Accordingly, the Group’s financial information should include the consolidated statements of financial position as of December 31, 2017 and 2018, and the consolidated statements of profit or loss, the consolidated statements of comprehensive loss, the consolidated statements of changes in equity and the consolidated statements of cash flows for the period from October 18, 2016 to December 31, 2016 and for the years ended December 31, 2017 and 2018 pursuant to Rule3-09 of SEC RegulationS-X. However, the Group only presents and discloses the consolidated statements of financial position as of January 1, 2017, December 31, 2017 and 2018, and the consolidated statements of profit or loss, the consolidated statements of comprehensive loss, the consolidated statements of changes in equity and the consolidated statements of cash flows for the years ended December 31, 2017 and 2018, due to the application of an exception for first time adopters stated in 6340.1 and 6340.2 of U.S. Securities and Exchange Commission’s Financial Reporting Manual.
The Group first adopted IFRS from January 1, 2018. In accordance with IFRS 1,First-time adoption of International Financial Reporting Standards (“IFRS 1”), the Group’s transition date to IFRS was January 1, 2017. While the Company has prepared its separate financial statements under the Korean IFRS as issued by the Korean Accounting Standards Board, the Group did not previously prepare and did not publicly issue any consolidated financial statements since the Group was not required to prepare the consolidated financial statements in accordance with paragraph 4 of Korean IFRS 1110 mainly because all shares of the Company were held by NAVER and LINE Group and were not listed. Therefore, no reconciliation of equity according to IFRS 1 is required for the purpose of these consolidated financial statements. The Group did not apply any optional exemptions from retrospective application of IFRS.
8
Snow Corporation
Notes to Consolidated Financial Statements (continued)
2. | Basis of Preparation (continued) |
The Group’s consolidated financial statements are presented in thousands of Korean won, which is also the Company’s functional currency. The consolidated financial statements were approved by the Board of Directors on June 26, 2019.
3. | Significant Accounting Policies |
The significant accounting policies applied by the Group in preparing its consolidated financial statements are set out below. The accounting policies have been applied consistently.
(1) | Basis of Consolidation |
The consolidated financial statements include the accounts of the Group, which are directly or indirectly controlled. Control is generally conveyed by ownership of the majority of voting rights. The Group controls an entity when the Group has power over the entity, is exposed, or has rights, to variable returns from the involvement with the entity and has the ability to affect those returns through its power over the entity.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. If the end of the reporting period of a subsidiary differs from that of the Company, the subsidiary prepares, for the purpose of preparing consolidation financial statements, additional financial statements as of the same date as the consolidated financial statements of the Group.
Non-controlling interest in a subsidiary is accounted for separately from the parent’s ownership interests in a subsidiary. Profit or loss and each component of other comprehensive income are attributed to the shareholders of the parent andnon-controlling interest, even if this results in thenon-controlling interest having a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Any difference between the adjustment to thenon-controlling interest and the fair value of the consideration paid or received is recognized directly in shareholders’ equity as “equity attributable to the shareholders of the Company”.
Intercompany balances and transactions have been eliminated upon consolidation.
(2) | Basis of Measurement |
The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments measured at fair value, which is the price that would be received to sell such financial instruments or paid to transfer the related liability in an orderly transaction between market participants at the measurement date.
(3) | Business Combinations |
(a) | Business Combinations |
In accordance with IFRS 3Business Combinations, each identifiable asset and liability is measured at fair value as of acquisition date except for the following:
– | Deferred tax assets or liabilities which are recognized and measured in accordance with IAS 12Income Taxes; and |
– | Employee benefit arrangements which are recognized and measured in accordance with IAS 19Employee Benefits |
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Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(3) | Business Combinations (continued) |
(a) | Business Combinations (continued) |
Leases and insurance contracts are classified on the basis of the contractual terms and other factors at the inception of the contract or at the date of modification, which could be the acquisition date if the terms of the contract have been modified in a manner that would change its classification.
Contingent liabilities assumed in a business combination are recognized when such liabilities are present obligations and their fair value can be measured reliably.
The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer. Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed in the periods in which the costs are incurred and the services are received.
The Group measures goodwill at the acquisition date as:
– | the fair value of the consideration transferred; plus |
– | the recognized amount of anynon-controlling interest in the acquiree; plus |
– | if the business combination is achieved in stages, the fair value of thepre-existing equity interest in the acquiree; less |
– | the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. |
Subsequent to initial recognition, goodwill is measured at cost less any accumulated impairment losses.
(b) | Business combinations under common control |
A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and in which control is not transitory. The Group has accounted for the acquisition of business combination under common control based on the carrying amounts recorded in the consolidated financial statements of the acquired companies.
(4) | Associates and Joint Arrangements |
(a) | Associates |
An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity, unless it can be clearly demonstrated that it is not the case.
The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognized at cost and the carrying amount is
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Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(4) | Associates and Joint Arrangements (continued) |
(a) | Associates (continued) |
adjusted to recognize the Group’s share of the profit or loss and changes in equity of the associate after the date of acquisition. Gains and losses from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Intra-group losses are recognized as an expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.
If an associate uses accounting policies different from those of the Group for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method.
When the Group’s share of losses exceeds its interest in associates, the carrying amount of that interest, including any long-term investments, is reduced to nil and the recognition of further losses is discontinued.
(b) | Joint arrangements |
A joint arrangement is an arrangement in which two or more parties have joint control. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement.
Joint operations are joint arrangements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in joint operations in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
Joint ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity method.
(5) | Foreign Currencies |
(a) | Foreign currency transactions |
Transactions in foreign currencies are translated to the respective functional currencies of Group’s entities at exchange rates as of the transaction date. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using exchange rate as of the reporting date.Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the date of the initial transactions.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of equity instruments at FVOCI, which are recognized in other comprehensive income.
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Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(5) | Foreign Currencies (continued) |
(b) | Foreign operations |
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at the exchange rates as of the reporting date. The income and expenses of foreign operations are translated to the presentation currency at the average foreign exchange rates of the reporting period. Foreign currency differences are recognized in other comprehensive income.
When a foreign operation is disposed of, the relevant amount after the translation is reclassified to profit or loss as part of profit or loss on disposal. In the event that a partial disposal does not lead to a loss of control in a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed tonon-controlling interest. For partial disposals that involve the loss of control in a foreign operation, the relevant proportion is reclassified to profit or loss.
(6) | Cash and Cash Equivalents |
Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments with maturity dates that are within three months from the purchase dates. Such investments are highly liquid and readily convertible to known amounts of cash. Cash and cash equivalents are subject to an insignificant risk of changes in value, and are used by the Group in managing its short-term commitments.
(7) | Financial Assets |
(a) | Classification of financial assets |
Based on the Group’s business model for managing the financial assets and the characteristics of contractual cash flows of the financial assets, the Group classifies the financial assets by following categories. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
i. | Financial assets at amortized cost |
Financial assets measured at amortized cost include debt instruments of which contractual cash flows represent solely payments of principal and interest on the principal amount outstanding, and which are held within a business model whose objective is achieved solely by collecting contractual cash flows.
ii. | Financial assets at fair value through profit or loss |
Financial assets measured at fair value through profit or loss (“FVPL”) include financial assets that are not classified as financial asset at amortized cost or financial assets at fair value through other comprehensive income.
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Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(7) | Financial Assets (continued) |
(b) | Measurement of financial assets |
i. | Initial measurement |
At initial recognition, the Group measures financial assets at fair value. Financial assets not classified as financial assets at fair value through profit or loss are measured at fair value, including any transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets measured at fair value through profit or loss are expensed in profit or loss.
ii. | Subsequent measurement |
Debt instruments:
(i) | Financial assets at amortized cost |
Financial assets at amortized cost are measured at amortized cost using the effective interest method, and related interest income are included in finance income. When the financial asset is derecognized, the difference between amortized cost and consideration received is recognized in profit or loss. When there are changes in the amount of expected credit loss of the financial asset, an impairment gain or loss is recognized in profit or loss.
(ii) | Fair value through profit or loss |
Subsequent to initial recognition, financial assets are measured at fair value. Gains or losses arising from changes in the fair value of debt instruments are recognized in profit or loss.
Equity instruments:
Where the Group has irrevocably elected to designate equity instruments as financial assets measured at fair value through other comprehensive income, any changes in the book value resulting from fair value measurement are recognized as other comprehensive income. There is no subsequent reclassification of cumulative gains or losses previously recognized in other comprehensive income to profit or loss. The accumulated other comprehensive income of the equity instruments measured at FVOCI on which the Group made an irrevocable election are transferred to retained earnings, when such equity instruments are sold. Where the Group has not elected to designate equity instruments as financial assets measured at fair value through other comprehensive income, any changes in the book value resulting from fair value measurement are recognized in profit or loss.
Dividends from equity instruments are recognized in profit or loss as “Finance income” when the Group’s right to receive payments are established.
(c) | Derivative financial instruments |
The Group may use derivative financial instruments, such as exchange forward contracts to hedge its foreign exchange risk. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequentlyre-measured at fair value. Any
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(7) | Financial Assets (continued) |
(c) | Derivative financial instruments (continued) |
gains or losses arising from changes in the fair value of derivatives are recognized in profit or loss. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
(d) | Derecognition of a financial asset |
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.
(e) | Offsetting financial instruments |
Financial assets and liabilities bear the legally enforceable right of settlement on the recognized assets and liabilities. It is disclosed in net mount on the balance sheet in case where either financial assets or liabilities are settled at the net amount, or are realized the asset concurrently having an intention to settle the liabilities. The legally enforceable right ofset-off is not influenced by future events and means that it is enforceable in the normal business processes even in the event of default or insolvency and bankruptcy.
(8) | Financial Liabilities |
(a) | Initial recognition and classification |
The Group recognizes financial liabilities in the Consolidated Statements of Financial Position when the Group becomes a party to the contractual provisions of the financial liability. Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or payables.
(b) | Initial measurement of financial liabilities |
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
(c) | Subsequent measurement |
The measurement of financial liabilities depends on their classification, as described below:
i. | Financial liabilities measured at amortized cost |
Financial liabilities measured at amortized cost include loans and borrowing that are not classified as financial liabilities at fair value through profit or loss
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Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(8) | Financial Liabilities (continued) |
(c) | Subsequent measurement (continued) |
ii. | Financial liabilities measured at fair value through profit or loss |
Financial liabilities at fair value through profit or loss include debt instruments and financial liabilities designated upon initial recognition as at fair value through profit or loss.
The Group derecognizes financial liabilities from the Consolidated Statements of Financial Position when it is extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expires).
(9) | Share Capital |
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and stock options are recognized as a deduction from equity, net of any tax effects.
(10) | Property and Equipment |
Property and equipment are measured and recognized at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Cost includes any other costs directly attributable to bring the assets to a working condition for their intended use and the costs of dismantling and removing the assets and restoring the site on which they are located.
The cost of replacing a part of property and equipment is included in the carrying amount of the asset or recognized as a separate asset, as necessary, if it is probable that the future economic benefits embodied within the part will flow into the Group and if the cost can be reliably measured. Accordingly, the carrying amount of the replaced part is derecognized. The costs of day to day servicing of property and equipment are recognized in profit or loss as incurred.
Land and assets held withinconstruction-in-progress are not depreciated. Depreciation of property and equipment is computed using the straight-line method based on the depreciable amount of the assets over their respective useful lives as provided below. A component that is significant compared with the total cost of an item of property and equipment is depreciated separately over its useful life.
Gains or losses arising from the derecognition of an item of property and equipment are determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other operating income or expenses.
The estimated useful lives are as follows:
Estimated useful lives (years) | ||
Furniture and fixtures | 3-5 | |
Others | 4-5 |
Depreciation methods, useful lives and residual values are reviewed at each fiscalyear-end and adjusted, as appropriate, if expectations differ from previous estimates. The change is accounted for as a change in an accounting estimate.
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(11) | Intangible Assets |
Intangible assets are initially measured at cost, and carried at cost less accumulated amortization and accumulated impairment losses after initial recognition.
Within intangible assets with finite lives and other intangible assets with finite lives are amortized mainly using the straight-line method over the useful lives of the respective assets as provided below. Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The residual value of intangible assets is assumed to be zero.
The estimated useful lives for the intangible assets with finite lives are as follows:
Estimated useful lives (years) | ||
Software | 3-5 | |
Industrial rights | 5 |
The amortization periods and methods for intangible assets with finite useful lives are reviewed at each fiscalyear-end. If expectations differ from previous estimates, the changes will be accounted for as a change in an accounting estimate.
(12) | Leases |
Lease Transactions
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. In the event that fulfillment of the arrangement is dependent on the use of specific assets or the arrangement transfers a right to use the asset, such assets are defined as a lease transaction.
(a) | Finance Leases |
Leases that transfer substantially all risks and benefits of ownership of the leased item to the lessee are classified as finance leases.
(b) | Operating Leases |
All lease arrangements, except finance leases that have been capitalized in the Consolidated Statements of Financial Position, are classified as operating leases.
Group as lessee
For operating lease transactions, lease payments are recognized as an expense using the straight-line method over the lease term in the Consolidated Statements of Profit or Loss.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.
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Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(13) | Impairment of Financial Assets |
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and lease receivables, the Group applies the simplified approach, which requires expected lifetime credit losses to be recognized from initial recognition of the receivables.
(14) | Impairment ofNon-financial Assets |
The Group’s Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use.Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
(15) | Employee Compensation |
(a) | Short-term employee compensation |
Short-term employee compensations are employee compensations that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service. The undiscounted short-term employee compensations are accounted for on an accrual basis over the period in which employees have provided the services.
(b) | Defined benefit plans |
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s obligation represents the estimated amount of future benefits that employees have earned in return for their services in the current and prior periods. The calculation is performed annually by an independent actuary using the projected unit credit method. The calculation is reviewed and approved by the management of the Group.
The assets or the liabilities relating to the defined benefit plans were recognized in the Consolidated Statement of Financial Position as the present value of obligations as of the reporting date, excluding the fair value of plan assets.
Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service in the current period. Past service cost, which is the change in the present value of the defined benefits obligation for employee services in prior periods, resulting in the current period from the introduction of, or change to post-employment benefits, is recognized in full in profit or loss in the period in which the plan amendment occurs.
Remeasurement of the net defined benefit liability is mainly comprised of actuarial gains and losses resulting from experience adjustments and the effects of changes in actuarial assumptions. Experience adjustments are the effects of differences between the previous actuarial assumptions and what has actually occurred. The Group recognizes all remeasurements of the net defined benefit liability in other comprehensive income when incurred, and then reclassified to accumulated deficit immediately.
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(15) | Employee Compensation (continued) |
(b) | Defined benefit plans (continued) |
The discount rate used in the present valuation calculation is the yield at the reporting date on high-quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.
Net interest on the net defined benefit liability is determined by multiplying the net defined benefit liability by the discount rate noted above, taking account of any changes in the net defined benefit liability during the reporting period, as a result of contribution and benefit payments. Interest on the net defined benefit liability is recognized in profit or loss.
(c) | Defined contribution plans |
Defined contribution plans are post-employment benefit plans under which an employer pays fixed contributions into a separate fund and will have no legal or constructive obligation to pay further contributions. The amount of the retirement benefit to be paid to employees is based on the contribution to the fund made by the Group and its employees as well as the return of the investment managed by the fund.
When an employee provides a service for a certain period of time, the provision in connection with the defined contribution plan in exchange for the service is recognized as provision with contributions already paid to the fund deducted. If the contributions already paid exceed the contributions to be paid for the services rendered prior to the end of the reporting period, the excess of the future contributions will be recognized as prepaid expenses, unless related contributions are included in depreciation of assets in accordance with other accounting standards.
Contributions to the defined contribution plans are recognized as expenses when the related services are rendered by employees, and contributions payable are recognized as liabilities.
(16) | Marketing Expenses |
The Group incurs marketing expenses to increase brand awareness and to promote the launching of new services.
The Group’s marketing expenses are primarily related to online advertising such as NAVER, Google and Facebook, and advertising on mobile applications, and expenses incurred for brand promotional events. Marketing personnel compensation expenses are not included in marketing expenses, and are recorded as part of the employee compensation expenses. Expenditures related to marketing activities are recognized as expenses when incurred.
(17) | Provisions |
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
There are uncertainties about the amount and timing of the cash outflows related to provisions. The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(17) | Provisions (continued) |
The Group’s provisions mainly consist of provision for restoration obligations for leased property.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
A provision may only apply to expenditures for which the provision was originally recognized.
(18) | Revenue |
The Group mainly conducts development and operation of mobile applications and contents as well as providing advertising services.
The major source of the revenue is advertisement service and sales of goods including its virtual credits in the form of virtual coins that users can use in the mobile application and contents.
The Group recognizes revenue differently, depending on the type of transactions, which is described below. Revenue is measured at the fair value of the consideration of services provided in the ordinary course of business, less applicable sales and other taxes, where appropriate.
(a) | Advertisement Services |
The Group provides advertisement services for advertisers by displaying advertisements on their mobile applications in various methods such as sponsored stickers and sponsored quiz shows.
The Group’s performance obligation is to present advertisements through sponsored stickers or sponsored quiz shows to users. Revenues from advertising are recognized over the advertising specific periods of typically two weeks on a straight-line basis if the contract is to expose advertisements for a specific period. If the advertising contract includes the rights to receive payments based on specific actions such as impressions, the Group recognizes revenue when such specific actions under the contract is fulfilled.
When another party is involved in providing goods or services to a customer, the Group shall determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent). The Group determines whether it is a principal or an agent for each specified goods or services promised to the customer. The Group is a principal if it controls the specified good or service before that good or service is transferred to a customer. However, The Group does not necessarily control a specified good if the Group obtains legal title to that good only momentarily before legal title is transferred to a customer. The Group which is a principal may satisfy its performance obligation to provide the specified goods or services itself or it may engage another party to satisfy some or all of the performance obligation on its behalf.
The Group provides directly advertisement service for customers and considers itself the principal in providing the service to customers.
(b) | Sales of items with virtual coins |
The Group provides personalized characters within its mobile application services and sells virtual coins which allows purchases of items of such characters to its users.
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(18) | Revenue (continued) |
(b) | Sales of items with virtual coins (continued) |
Virtual coins, which are the prepaid payment instruments may be purchased with credit cards or cash. Most of theend-user purchases are processed through payment processing service providers such as Apple App Store and Google Play. A processing fee is charged by the payment processing service providers for each transaction processed which are recognized as “outsourcing and other service expenses” on the Group’s consolidated statements of profit or loss. Upon the initial sales of the Group’s virtual coins, the Group records proceeds received as contract liabilities on the consolidated statements of financial position. As prescribed in the terms and conditions between the Group and end users, the Group’s virtual coins are not refundable. However, in the event of legal dispute with end users, the Korean Framework Act on Consumers may require the Group to refund the advances received to the end users. When virtual coins are redeemed for the purchase of the virtual items within this service by users, balances of the end users’ virtual coins are reduced by the price of the purchase, and the related contract liabilities are reclassified to revenues as described in the following paragraphs.
Mobile application itself is free to download; however,in-app consumable virtual items developed by the Group such as various types of fashion and decoration items are purchased with the Group’s virtual coins within mobile application.
The performance obligation of the Group with respect to the consumable virtual items purchased by end users is to make the consumable virtual items available to the users for their use at any given time. The period from the time the end user first purchased the consumable virtual item until the user consumed the item is the performance obligation period; however, consumable virtual items offered by the Group are generally consumed upon purchase by end users,, Accordingly, the Group recognizes revenues attributable to consumable virtual items upon purchases of such items by end users..
(19) | Finance Income and Finance Costs |
Finance income mainly comprises interest income from demand deposits and gain on valuation of financial assets.
Finance costs mainly comprise interest expense on borrowings and loss on valuation of financial liabilities. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.
(20) | Income Taxes |
Income tax expenses comprise current and deferred tax. Current tax and deferred tax are recognized in profit or loss, except to the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income.
(a) | Current tax |
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years.
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(20) | Income Taxes (continued) |
(a) | Current tax (continued) |
The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, andnon-taxable ornon-deductible items from the accounting profit.
(b) | Deferred tax |
Deferred tax is recognized using the asset-liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow, in a manner that the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied on the same taxable entity by the same tax authority.
(21) | Operating Segments |
The Group identifies operating segments based on the internal report regularly reviewed by the Group’s Chief Operating Decision Maker to make decisions about resources to be allocated to segments and assess performance. An operating segment of the Group is a component for which discrete financial information is available. The Chief Operating Decision Maker has been identified as the Company’s board of directors.
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(22) | Share Based Payments |
The Group has granted shares to external consultants. The fair values of the share based payments are measured at the grant dates. Compensation expenses related to shares are recognized for the year that the consulting service rendered. Refer to Note 27 Share Based Payments for more details.
(23) | Financial Guarantee Contracts |
Financial guarantee contracts are recognized as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value, subsequently at the higher of following and recognized in the statement of financial position within ‘Provisions’.
The amount determined in accordance with the expected credit loss model under IFRS 9 Financial Instruments and the amount initially recognized less, where appropriate, the cumulative amount of income recognized in accordance with IFRS15 Revenue from Contracts with Customers.
(24) | Standards Issued but not yet Effective |
The standards and interpretations that are issued but not yet effective as of December 31, 2018 are disclosed below. The standards and interpretations issued but not yet effective has not been adopted early by the Group.
– | IFRS 16Leases |
The IASB issued IFRS 16Leases. IFRS 16 governs the accounting for leases and the related contractual rights and obligations. Lessees will no longer make a distinction between finance and operating leases as they have been required to do thus far under IAS 17. At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., theright-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on theright-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. The Group will adopt IFRS 16 for the annual reporting period beginning on January 1, 2019, which is the mandatory effective date. The Group intends to use simplified approach and does not plan to restate the amounts in the comparable reporting periods prior to adoption of IFRS 16. So far, the most significant impact identified is that the Group will recognize newright-of-use assets and lease liabilities for its operating leases of certain office space and stores. In addition, the nature of expenses related to those leases will change as a lease expenses shall be recognized with depreciation charge for theright-of-use asset and interest paid on the lease liability under IFRS 16, replaced from the straight-line operating expense with IAS 17.
On the reporting date, the Group expects to recognize theright-of-use assets and lease liabilities of 10,061 million won and 18,086 million won, respectively, as of January 1, 2019 due to the adoption of IFRS 16. The operating lease expenses are expected to decrease by 2,864 million won, and total in depreciation expenses of theright-of-use assets and interest expenses on lease liabilities are expected to increase by 2,965 million won. As of the reporting date, the Group bears commitments of
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Snow Corporation
Notes to Consolidated Financial Statements (continued)
3. | Significant Accounting Policies (continued) |
(24) | Standards Issued but not yet Effective (continued) |
– | IFRS 16Leases (continued) |
11,272 million won fornon-cancellable operating leases (refer to Note 15 Lease-Group as Lessee). Due to the adoption of IFRS 16, cash flows from operating activities are expected to increase by approximately 2,864 million won and cash flows from financing activities are expected to decrease by 2,864 million won, compared to those under IAS 17, due to the principal payment of lease liabilities being classified to financing activities.
4. | Significant Accounting Judgments, Estimates and Assumptions |
The preparation of the Group’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. These estimates and assumptions are based on the best judgment of management in light of historical experience and various factors deemed to be reasonable as of the fiscal year end date. Given their nature, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The estimates and assumptions are continuously reviewed by management. The effects of a change in estimates and assumptions are recognized in the period of the change or in the period of the change and future periods. Among estimates and assumptions made by management, the following estimates and assumptions are ones that may have a material effect on the amounts recognized in the consolidated financial statements of the Group:
(a) | Recoverability of deferred tax assets |
Regarding temporary differences, which are differences between carrying value of an asset or liability in the Consolidated Statements of Financial Position and its tax base, the Group recognizes deferred tax assets and deferred tax liabilities. The deferred tax assets and deferred tax liabilities are calculated using the tax rates based on tax laws that have been enacted or substantively enacted by the end of the reporting period and the tax rates that are expected to apply to the period when the deferred tax asset is realized or the deferred tax liability is settled.
Deferred tax assets are recognized for all deductible temporary differences, unused tax losses carryforward and unused tax credits carryforward to the extent that it is probable that taxable income will be available. The estimation of future taxable income is calculated based on financial budgets approved by management of the Group, and it is based on management’s subjective judgments and assumptions. The Group considers these estimates to be significant because any adjustments in the assumed conditions and amendments of tax laws in the future may significantly affect the amounts of deferred tax assets and deferred tax liabilities.
(b) | Methods of determining fair value for financial instruments measured at fair value |
Financial assets and financial liabilities held by the Group are measured at the following fair values:
– | quoted prices in active markets for identical assets or liabilities; |
– | fair value calculated using observable inputs other than quoted prices for the assets or liabilities, either directly or indirectly; and |
– | fair value calculated using valuation techniques incorporating unobservable inputs. |
23
Snow Corporation
Notes to Consolidated Financial Statements (continued)
4. | Significant Accounting Judgments, Estimates and Assumptions (continued) |
(b) | Methods of determining fair value for financial instruments measured at fair value (continued) |
In particular, the fair value estimates using valuation techniques that incorporate unobservable inputs are based on the judgment and assumptions of Group management, such as experience assumptions, and the use of specific numerical calculation models, such as discounted cash flow models.
(c) | Provisions |
The Group recognizes asset retirement obligations related to assets leased under operating leases in the Consolidated Statements of Financial Position. These provisions are recognized based on the best estimates of the costs expected to be incurred for the restoration of the operating lease properties to the state as specified in the rental agreements upon termination of the operating leases. The estimation takes risks and uncertainty related to the obligations into account as of the fiscal year end date.
(d) | Defined benefit plans |
The cost of the defined benefit plan and the present value of the obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions, including the determination of the discount rate and future salary increases.
The Group determines the discount rate based on market returns of high-quality corporate bonds consistent with currencies and estimated payment terms applicable to the defined benefit obligations as of the reporting date in order to calculate present value of the defined benefit obligations. Estimated future salary increases are based on historical salary increases and expected future inflation rates.
Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Further details about the Group’s defined benefit obligations are presented in Note 14 Employment Benefits.
5. | Segment Information |
(1) | Description of Reportable Segment |
The Group operates in a single operating segment. The Group periodically reports its current business status to the Chief operating decision maker (“CODM”), and profit or loss from the single operating segment is not different from the reported amount in the statements of profit or loss of the Group.
24
Snow Corporation
Notes to Consolidated Financial Statements (continued)
5. | Segment Information (continued) |
(2) | Revenues from Major Services |
The Group’s revenues from continuing operations from its major services for the years ended December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Advertising(1) | 2,508,087 | 9,180,961 | ||||||
Sales of virtual items(2) | — | 2,715,341 | ||||||
Other | 226,291 | 1,270,577 | ||||||
|
|
|
| |||||
Total | 2,734,378 | 13,166,879 | ||||||
|
|
|
|
(1) | Revenues from Advertising primarily consist of fees received for sponsored stickers on camera apps or Sponsored quiz shows on live quiz apps. |
(2) | Revenues from sales of virtual items are primarily recognized whenend-users purchase virtual items with the virtual coins within mobile applications which provides personalized character services. |
(3) | Geographic Information |
Revenues from external customers
Revenues from external customers classified by country or region were based on the locations of customers for the years ended December 31, 2017 and 2018. Revenues attributable to advertising have been classified based on the geographical locations where the services were provided.
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Korea | 1,201,313 | 8,257,726 | ||||||
Japan | 1,229,903 | 2,571,159 | ||||||
China | — | 1,661,952 | ||||||
Other | 303,162 | 676,042 | ||||||
|
|
|
| |||||
Total | 2,734,378 | 13,166,879 | ||||||
|
|
|
|
Non-current operating assets
Non-current operating assets mainly consist of property and equipment and intangible assets.
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Korea | 614,397 | 2,101,723 | 7,045,285 | |||||||||
China | — | 478,549 | 867,742 | |||||||||
|
|
|
|
|
| |||||||
Total | 614,397 | 2,580,272 | 7,913,027 | |||||||||
|
|
|
|
|
|
25
Snow Corporation
Notes to Consolidated Financial Statements (continued)
5. | Segment Information (continued) |
(4) | Major Customers |
Single customers accounted for 10 percent or more of the Group’s total revenues for the years ended December 31, 2017 and 2018 are as follows:
For the year ended December 31, 2017
(In thousands of Korean won) | ||||||||
Revenues | Ratio | |||||||
NAVER Corporation | 339,000 | 12 | % |
No single customer accounted for 10 percent or more of the Group’s total revenues for the year ended December 31, 2018.
6. | Cash and Cash Equivalents |
The breakdown of cash and cash equivalents as of January 1, 2017, December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Demand deposits | 24,176,192 | 20,386,988 | 104,258,127 |
7. | Trade and Other Receivables |
Trade and other receivables as of January 1, 2017, December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Trade and other receivables, current | 184,117 | 1,179,919 | 4,867,370 | |||||||||
Allowance for doubtful accounts, general(1) | — | (539,685 | ) | (2,908 | ) | |||||||
|
|
|
|
|
| |||||||
Total trade and other receivables | 184,117 | 640,234 | 4,864,462 | |||||||||
|
|
|
|
|
|
(1) | Allowance of doubtful accounts relating to trade receivables amount to 2,908 thousand won as of December 31, 2018 and allowance of doubtful accounts relating to other receivables amount to 539,685 thousand won as of December 31, 2017. |
For movement in the allowance of doubtful accounts for trade and other receivables, refer to Note 20 Financial Risk Management.
26
Snow Corporation
Notes to Consolidated Financial Statements (continued)
8. | Property and Equipment |
(1) | Changes in property and equipment for the year ended December 31, 2017 are as follows: |
(In thousands of Korean won) | ||||||||||||
Furniture and fixtures | Others(1) | Total | ||||||||||
Acquisition cost | ||||||||||||
Balance at January 1, 2017 | 309,824 | 117,279 | 427,103 | |||||||||
Acquisitions | 1,110,321 | — | 1,110,321 | |||||||||
Disposals | (24,788 | ) | — | (24,788 | ) | |||||||
Acquisition through business combinations, etc. | 331,099 | — | 331,099 | |||||||||
Exchange differences | (1,002 | ) | — | (1,002 | ) | |||||||
Other | — | 261,039 | 261,039 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2017 | 1,725,454 | 378,318 | 2,103,772 | |||||||||
|
|
|
|
|
| |||||||
Accumulated depreciation and impairment | ||||||||||||
Balance at January 1, 2017 | (39,203 | ) | (4,887 | ) | (44,090 | ) | ||||||
Disposals | 6,174 | — | 6,174 | |||||||||
Depreciation | (356,731 | ) | (64,601 | ) | (421,332 | ) | ||||||
Exchange differences | 106 | — | 106 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2017 | (389,654 | ) | (69,488 | ) | (459,142 | ) | ||||||
|
|
|
|
|
| |||||||
Carrying amounts | ||||||||||||
Balance at January 1, 2017 | 270,621 | 112,392 | 383,013 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2017 | 1,335,800 | 308,830 | 1,644,630 | |||||||||
|
|
|
|
|
|
(1) | Others consist of the estimated amount of restoration costs charged to asset retirement obligation during the year ended December 31, 2017. |
27
Snow Corporation
Notes to Consolidated Financial Statements (continued)
8. | Property and Equipment (continued) |
(2) | Changes in property and equipment for the year ended December 31, 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||
Furniture and fixtures | Others | Total | ||||||||||
Acquisition cost | ||||||||||||
Balance at January 1, 2018 | 1,725,454 | 378,318 | 2,103,772 | |||||||||
Acquisitions | 3,437,023 | — | 3,437,023 | |||||||||
Disposals | (136,045 | ) | (314,634 | ) | (450,679 | ) | ||||||
Acquisition through business combinations | 8,195 | — | 8,195 | |||||||||
Exchange differences | (4,858 | ) | — | (4,858 | ) | |||||||
Other | — | 611,762 | 611,762 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2018 | 5,029,769 | 675,446 | 5,705,215 | |||||||||
|
|
|
|
|
| |||||||
Accumulated depreciation and impairment | ||||||||||||
Balance at January 1, 2018 | (389,654 | ) | (69,488 | ) | (459,142 | ) | ||||||
Disposals | 63,306 | 149,589 | 212,895 | |||||||||
Depreciation | (671,993 | ) | (118,159 | ) | (790,152 | ) | ||||||
Exchange differences | 1,098 | — | 1,098 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2018 | (997,243 | ) | (38,058 | ) | (1,035,301 | ) | ||||||
|
|
|
|
|
| |||||||
Carrying amounts | ||||||||||||
Balance at January 1, 2018 | 1,335,800 | 308,830 | 1,644,630 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2018 | 4,032,526 | 637,388 | 4,669,914 | |||||||||
|
|
|
|
|
|
28
Snow Corporation
Notes to Consolidated Financial Statements (continued)
9. | Goodwill and Other Intangible Assets |
(1) | Changes in goodwill and other intangible assets for the year ended December 31, 2017 are as follows: |
(In thousands of Korean won) | ||||||||||||||||
Goodwill | Software | Industrial rights | Total | |||||||||||||
Acquisition cost | ||||||||||||||||
Balance at January 1, 2017 | — | 247,166 | — | 247,166 | ||||||||||||
Acquisitions | — | 139,195 | 4,177 | 143,372 | ||||||||||||
Acquisition through business combinations, etc.(1) | 626,138 | — | 820 | 626,958 | ||||||||||||
Other | — | — | (42 | ) | (42 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2017 | 626,138 | 386,361 | 4,955 | 1,017,454 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated amortization and impairment | ||||||||||||||||
Balance at January 1, 2017 | — | (15,782 | ) | — | (15,782 | ) | ||||||||||
Amortization | — | (65,698 | ) | (374 | ) | (66,072 | ) | |||||||||
Other | — | — | 42 | 42 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2017 | — | (81,480 | ) | (332 | ) | (81,812 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Carrying amounts | ||||||||||||||||
Balance at January 1, 2017 | — | 231,384 | — | 231,384 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2017 | 626,138 | 304,881 | 4,623 | 935,642 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | The balances were related to the Group’s acquisition of Spring Camp Inc. and Yiruike Information Technology (Beijing) PTE. LTD. in 2017. See Note 23 Business Combinations for further details. |
29
Snow Corporation
Notes to Consolidated Financial Statements (continued)
9. | Goodwill and Other Intangible Assets (continued) |
(2) | Changes in goodwill and other intangible assets for the year ended December 31, 2018 are as follows: |
(In thousands of Korean won) |
Goodwill | Software | Industrial rights | Others | Total | ||||||||||||||||
Acquisition cost | ||||||||||||||||||||
Balance at January 1, 2018 | 626,138 | 386,361 | 4,955 | — | 1,017,454 | |||||||||||||||
Acquisitions | — | 616,618 | 23,937 | 18,690 | 659,245 | |||||||||||||||
Acquisition through business combinations(1) | 1,899,324 | — | — | — | 1,899,324 | |||||||||||||||
Disposals | — | (537 | ) | — | — | (537 | ) | |||||||||||||
Exchange differences | — | (7,842 | ) | — | — | (7,842 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2018 | 2,525,462 | 994,600 | 28,892 | 18,690 | 3,567,644 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Accumulated amortization and impairment | ||||||||||||||||||||
Balance at January 1, 2018 | — | (81,480 | ) | (332 | ) | — | (81,812 | ) | ||||||||||||
Disposal | — | 390 | — | — | 390 | |||||||||||||||
Amortization | — | (240,520 | ) | (2,766 | ) | (2,492 | ) | (245,778 | ) | |||||||||||
Other | — | 2,669 | — | — | 2,669 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2018 | — | (318,941 | ) | (3,098 | ) | (2,492 | ) | (324,531 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Carrying amounts | ||||||||||||||||||||
Balance at January 1, 2018 | 626,138 | 304,881 | 4,623 | — | 935,642 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2018 | 2,525,462 | 675,659 | 25,794 | 16,198 | 3,243,113 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The balances were related to the Group’s acquisition of Heartit Inc. (“Heartit”) in 2018. See Note 23 Business Combinations for further details. |
10. | Other Current Assets, OtherNon-current Assets and Other Current liabilities |
Other current assets, othernon-current assets and other current liabilities as of January 1, 2017, December 31, 2017 and 2018 are as follow:
(1) | Other current assets as of January 1, 2017, December 31, 2017 and 2018 are as follow: |
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Inventories | — | — | 289,495 | |||||||||
Prepaid expenses | 348,757 | 1,677,878 | 1,996,080 | |||||||||
Value added taxes receivable | 350,610 | 443,870 | 1,035,326 | |||||||||
Other | 27,317 | 76,687 | 116,636 | |||||||||
|
|
|
|
|
| |||||||
Total | 726,684 | 2,198,435 | 3,437,537 | |||||||||
|
|
|
|
|
|
30
Snow Corporation
Notes to Consolidated Financial Statements (continued)
10. | Other Current Assets, OtherNon-current Assets and Other Current liabilities (continued) |
(2) | Othernon-current assets as of January 1, 2017, December 31, 2017 and 2018 are as follow: |
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Long-term prepaid expenses | 6,799 | — | 4,935,023 |
(3) | Other current liabilities as of January 1, 2017, December 31, 2017 and 2018 are as follow: |
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Accrued expenses | 2,311,167 | 3,523,402 | 4,253,283 | |||||||||
Withholdings | 81,341 | 443,558 | 800,789 | |||||||||
Other | — | 20,001 | 100,803 | |||||||||
|
|
|
|
|
| |||||||
Total | 2,392,508 | 3,986,961 | 5,154,875 | |||||||||
|
|
|
|
|
|
11. | Provisions |
Changes in provisions for the years ended December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||||||
Restoration obligations for operating lease properties(1) | Other(2) | Total | ||||||||||
Balance at January 1, 2017 | 175,724 | 13,163 | 188,887 | |||||||||
Arising during the year | 261,038 | 580,000 | 841,038 | |||||||||
Utilized | (58,445 | ) | — | (58,445 | ) | |||||||
Reversal | — | (13,163 | ) | (13,163 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2017 | 378,317 | 580,000 | 958,317 | |||||||||
|
|
|
|
|
| |||||||
Arising during the year | 611,761 | — | 611,761 | |||||||||
Utilized | (50,200 | ) | — | (50,200 | ) | |||||||
Reversal | (264,434 | ) | (580,000 | ) | (844,434 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2018 | 675,444 | — | 675,444 | |||||||||
|
|
|
|
|
|
(1) | The Group records provisions for restoration obligations related to its operating lease properties as the Group is required to restore these properties upon termination of the operating leases to the state specified in the rental agreements. |
(2) | Other mainly consisted of the joint liability guarantee obligations of BravePops Co., Ltd. to other investors. |
31
Snow Corporation
Notes to Consolidated Financial Statements (continued)
12. | Income Taxes |
(1) | Current and deferred taxes related to each component of other comprehensive income for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
Pretax | Tax | Post tax | Pretax | Tax | Post tax | |||||||||||||||||||
Remeasurement of defined benefit plans | 1,508,659 | — | 1,508,659 | (2,983,076 | ) | — | (2,983,076 | ) | ||||||||||||||||
Foreign currency translation adjustments | (159,937 | ) | — | (159,937 | ) | (736,618 | ) | — | (736,618 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,348,722 | — | 1,348,722 | (3,719,694 | ) | — | (3,719,694 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
No current and deferred taxes related to items directly charged or credited to equity for the years ended December 31, 2017 and 2018.
(2) | Deferred Tax Assets and Deferred Tax Liabilities |
The movements in deferred tax assets and deferred tax liabilities for the years ended December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||||||||||
Beginning balance as of January 1, 2017 | Amounts recorded under profit or loss | Acquisition through business combinations, etc. | Ending balance as of December 31, 2017 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Tax losses | 3,104,394 | 15,087,249 | — | 18,191,643 | ||||||||||||
Depreciation | 3,808 | 17,333 | — | 21,141 | ||||||||||||
Provisions | 41,555 | 141,573 | — | 183,128 | ||||||||||||
Accrued expenses | 567,422 | 842,159 | — | 1,409,581 | ||||||||||||
Post-employment benefits | 608,761 | (361,698 | ) | 725,724 | 972,787 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Sub total | 4,325,940 | 15,726,616 | 725,724 | 20,778,280 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Deferred tax liabilities: | ||||||||||||||||
Financial assets at fair value though profit or loss | — | (46,916 | ) | — | (46,916 | ) | ||||||||||
Accrued income | (14,082 | ) | 12,799 | — | (1,283 | ) | ||||||||||
Other property and equipment | (24,726 | ) | (23,277 | ) | — | (48,003 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Sub total | (38,808 | ) | (57,394 | ) | — | (96,202 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Assessment of the recoverability of deferred tax assets | (4,287,132 | ) | (15,669,222 | ) | (725,724 | ) | (20,682,078 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
32
Snow Corporation
Notes to Consolidated Financial Statements (continued)
12. | Income Taxes (continued) |
(2) | Deferred Tax Assets and Deferred Tax Liabilities (continued) |
(In thousands of Korean won) | ||||||||||||
Beginning balance as of January 1, 2018 | Amounts recorded under profit or loss | Ending balance as of December 31, 2018 | ||||||||||
Deferred tax assets: | ||||||||||||
Tax losses | 18,191,643 | 23,430,947 | 41,622,590 | |||||||||
Depreciation | 21,141 | 15,512 | 36,653 | |||||||||
Advances received | — | 127,096 | 127,096 | |||||||||
Financial assets at fair value | — | 264,315 | 264,315 | |||||||||
Financial liabilities at fair value through profit or loss | — | 1,402,523 | 1,402,523 | |||||||||
Other receivables | — | 122,378 | 122,378 | |||||||||
Provision | 183,128 | (34,777 | ) | 148,351 | ||||||||
Accrued expenses | 1,409,581 | (717,000 | ) | 692,581 | ||||||||
Investment in associates and joint venture | — | 142,625 | 142,625 | |||||||||
Post-employment benefits | 972,787 | 1,400,950 | 2,373,737 | |||||||||
|
|
|
|
|
| |||||||
Sub total | 20,778,280 | 26,154,569 | 46,932,849 | |||||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities: | ||||||||||||
Financial assets at fair value | (46,916 | ) | (1,646,879 | ) | (1,693,795 | ) | ||||||
Accrued income | (1,283 | ) | (893 | ) | (2,176 | ) | ||||||
Other property and equipment | (48,003 | ) | (91,980 | ) | (139,983 | ) | ||||||
|
|
|
|
|
| |||||||
Sub total | (96,202 | ) | (1,739,752 | ) | (1,835,954 | ) | ||||||
|
|
|
|
|
| |||||||
Assessment of the recoverability of deferred tax assets | (20,682,078 | ) | (25,688,417 | ) | (46,370,495 | ) | ||||||
|
|
|
|
|
| |||||||
Total | — | (1,273,600 | ) | (1,273,600 | ) | |||||||
|
|
|
|
|
|
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Below is a breakdown of the deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets were recognized:
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Deductible temporary differences | 5,552,482 | 11,320,161 | 21,304,305 | |||||||||
Unused tax losses | 13,749,304 | 82,548,043 | 183,230,029 | |||||||||
|
|
|
|
|
| |||||||
Total | 19,301,786 | 93,868,204 | 204,534,334 | |||||||||
|
|
|
|
|
|
33
Snow Corporation
Notes to Consolidated Financial Statements (continued)
12. | Income Taxes (continued) |
(2) | Deferred Tax Assets and Deferred Tax Liabilities (continued) |
Below is a breakdown of the unused tax losses by expiry date for which no deferred tax assets were recognized:
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
2026 | 13,749,304 | 13,919,566 | 13,962,736 | |||||||||
2027 | — | 68,628,477 | 71,733,462 | |||||||||
2028 | — | — | 97,533,831 | |||||||||
|
|
|
|
|
| |||||||
Total | 13,749,304 | 82,548,043 | 182,230,029 | |||||||||
|
|
|
|
|
|
The Group did not recognize deferred tax assets for the temporary differences amounting to 58,434,708 thousand won (2017: 5,064,526 thousand won) from the investments in subsidiaries, associates and joint venture because of the uncertainty of future taxable income in the foreseeable future as of December 31, 2018.
The Group did not recognize deferred tax liabilities for the temporary differences amounting to 4,395,332 thousand won (2017: 555,421 thousand won) from the investments in subsidiaries and associates as of December 31, 2018. The Group has determined that the undistributed profits of its subsidiaries or associate will not be distributed in the foreseeable future.
(3) | The components of income tax expenses for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Current income tax: | ||||||||
Current income tax expenses | — | 7,402 | ||||||
Deferred tax: | ||||||||
Changes related to origination and reversal of temporary differences(1)(2) | 725,724 | 1,273,600 | ||||||
|
|
|
| |||||
Income tax expenses | 725,724 | 1,281,002 | ||||||
|
|
|
|
(1) | These balances represent the deferred tax benefit or expense from the increase and decrease of temporary differences, the reversal of previously written-down deferred tax assets and write-downs of deferred tax assets. The reason for having negative amount of deferred tax for the year ended December 31, 2017 is because deferred tax assets increased due to the merger of the camera application business, but the deferred tax assets were unrecognized as assessment of the recoverability of deferred tax assets. |
(2) | Deferred tax liabilities are recognized for temporary difference related to gain on valuation of financial assets at fair value through profit or loss during the year ended December 31, 2018. |
34
Snow Corporation
Notes to Consolidated Financial Statements (continued)
12. | Income Taxes (continued) |
(4) | The income tax expenses calculated by applying the statutory tax rates to the Group’s profit or loss before tax differ from the actual tax expenses in the consolidated statements of profit or loss for the years ended December 31, 2017 and 2018 for the following reasons: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Accounting loss before tax | (75,149,199 | ) | (105,347,582 | ) | ||||
Income tax benefits at a statutory rate of 21.84% (2017: 21.98%) | (16,516,491 | ) | (23,006,433 | ) | ||||
Permanentnon-deductible expenses | 567,823 | 8,537 | ||||||
Non-taxable income | — | (714,921 | ) | |||||
Assessment of the recoverability of deferred tax assets | 15,669,222 | 25,688,417 | ||||||
Business combination | 725,724 | — | ||||||
Others | 279,446 | (694,598 | ) | |||||
|
|
|
| |||||
Income tax expenses at an effective tax rate at 1.21% (2017: 0.97%) | 725,724 | 1,281,002 | ||||||
|
|
|
|
35
Snow Corporation
Notes to Consolidated Financial Statements (continued)
13. | Financial Assets and Financial Liabilities |
The carrying amounts and fair value of financial instruments, except for cash and cash equivalents, by line item in the Consolidated Statements of Financial Position and by category as defined in IFRS 9Financial Instrument, as of January 1, 2017, December 31, 2017 and 2018 are as follows:
The fair value is not disclosed for those financial instruments whose fair value approximates their carrying amount due to their short-term and/or variable-interest bearing nature among those not measured at fair value in the Consolidated Statements of Financial Position. Refer to Note 21 Fair Value Measurements for more details on the fair value information of the financial instruments whose fair value is disclosed in this footnote.
(In thousands of Korean won) | ||||||||||||||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||||||||||||||
Book value | Fair value | Book value | Fair value | Book value | Fair value | |||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Trade and other receivables | ||||||||||||||||||||||||
Financial assets at amortized cost | 184,117 | 640,234 | 4,864,462 | |||||||||||||||||||||
Other financial assets, current | ||||||||||||||||||||||||
Financial assets at amortized cost | ||||||||||||||||||||||||
Time deposits | 20,000,000 | — | — | |||||||||||||||||||||
Short-term loans | — | 205,700 | 800,000 | |||||||||||||||||||||
Other financial assets,non-current | ||||||||||||||||||||||||
Financial assets at amortized cost Leasehold deposits | 190,000 | 190,000 | 581,234 | 581,234 | 3,271,693 | 3,023,180 | ||||||||||||||||||
Financial assets at FVPL | ||||||||||||||||||||||||
Financial assets at fair value through profit or loss(1) | 250,089 | 250,089 | 4,009,962 | 4,009,962 | 12,641,371 | 12,641,371 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Sub-total | 440,089 | 440,089 | 4,591,196 | 4,591,196 | 15,913,064 | 15,664,551 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 20,624,206 | 5,437,130 | 21,577,526 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Trade and other payables | ||||||||||||||||||||||||
Financial liabilities at amortized cost | 3,120,165 | 6,470,631 | 9,089,468 | |||||||||||||||||||||
Other financial liabilities, current | ||||||||||||||||||||||||
Financial liabilities at amortized cost | ||||||||||||||||||||||||
Short-term borrowings(2) | — | 163,650 | 4,459,624 | |||||||||||||||||||||
Other financial liabilities,non-current | ||||||||||||||||||||||||
Financial liabilities at amortized cost | ||||||||||||||||||||||||
Office security deposits received under sublease agreement | 2,805 | 2,805 | 7,556 | 7,556 | 1,507,226 | 1,382,969 | ||||||||||||||||||
Financial liabilities at FVPL | ||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss(3) | — | — | — | — | 72,502,312 | 72,502,312 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Sub-total | 2,805 | 2,805 | 7,556 | 7,556 | 74,009,538 | 73,885,281 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 3,122,970 | 6,641,837 | 87,558,630 | |||||||||||||||||||||
|
|
|
|
|
|
(1) | As of January 1, 2017 and December 31, 2017 and 2018, these financial assets are composed by compound financial instrument and equity securities. A valuation loss, net of 590,710 thousand won was recognized for financial assets at fair value through profit or loss for the year ended December 31, 2017. A valuation gain, net of 6,905,765 thousand won was recognized for financial assets at fair value through profit or loss for the year ended December 31, 2018. |
36
Snow Corporation
Notes to Consolidated Financial Statements (continued)
13. | Financial Assets and Financial Liabilities (continued) |
(2) | The weighted average interest rate of the remaining outstanding short-term borrowings as of December 31, 2017 and 2018 was 3.08% and 3.09%. |
(3) | SNOW China Limited (“SNOW China”), a subsidiary of the Group, entered into a contract with 3rd party investors as of December 20, 2017 that SNOW China would have approved the issuance of at least 1,915,100 series A preferred shares that might be redeemed, purchased back by SNOW China or converted into the ordinary shares, upon the occurrence of certain events including the date that is the sixth anniversary of the original issue date of the preferred shares and fully executed on January 17, 2018 in the amount of 49,965 thousand USD (equivalent to 54,679,182 thousand won). Furthermore, SNOW China issued additional 383,200 series A preferred shares in the amount of 9,997 thousand USD (equivalent to 10,995,283 thousand won) to other 3rd party investors on April 16, 2018. The Group determined that such series A preferred shares shall be deemed as redeemable convertible preferred shares and were accounted for as financial liabilities at fair value through profit or loss. A valuation loss of 5,610,094 thousand won was recognized for this financial liabilities at fair value through profit or loss for the year ended December 31, 2018. |
14. | Employment Benefits |
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The legal and regulatory framework for the plans is based on the applicable Korean Employee Retirement Benefit Security Act (“ERBSA”). Post-employment defined benefit plan provides lump sum payments to eligible employees. Furthermore, the plans expose the Group to actuarial risks, such as interest rate risk, salary increase risk, and longevity risk. Interest rate risk refers to the risk of fluctuation of bond yields. A decrease in the bond yields will increase the defined benefit obligations liability. The salary increase risk refers to the risk that an increase in future salary will increase the defined benefit obligations liability. Longevity risk refers to the risk that an increase in life expectancy of the plan participants will increase the defined benefit obligations liability.
(1) | Defined benefit liabilities as of January 1, 2017, December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Present value of defined benefit obligations | 3,172,269 | 6,546,075 | 10,978,932 | |||||||||
Plan assets | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Defined benefits liabilities | 3,172,269 | 6,546,075 | 10,978,932 | |||||||||
|
|
|
|
|
|
(2) | Expenses related to defined benefit plans are recognized in the Consolidated Statements of Profit or Loss as operating expenses for the years ended December 31, 2017 and 2018 are comprised of the following: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Current service costs | 1,523,616 | 2,062,212 | ||||||
Interest costs | 165,931 | 216,064 | ||||||
|
|
|
| |||||
Total | 1,689,547 | 2,278,276 | ||||||
|
|
|
|
37
Snow Corporation
Notes to Consolidated Financial Statements (continued)
14. | Employment Benefits (continued) |
(3) | Movements in the present value of the defined benefit obligations for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Defined benefit obligations at the beginning of year | 3,172,269 | 6,546,075 | ||||||
Current service costs | 1,523,616 | 2,062,212 | ||||||
Interest costs | 165,931 | 216,064 | ||||||
Remeasurement losses/(gains): | ||||||||
Actuarial gains arising from changes in financial assumptions | (891,282 | ) | 2,051,172 | |||||
Experience adjustments | (617,377 | ) | 931,903 | |||||
Payments from the plan | (125,193 | ) | (844,304 | ) | ||||
Net transfer | (84,614 | ) | 15,810 | |||||
Increase due to business combinations | 3,402,725 | — | ||||||
|
|
|
| |||||
Defined benefit obligations at the end of year | 6,546,075 | 10,978,932 | ||||||
|
|
|
|
(4) | There were no movements in the plan assets for the years ended December 31, 2017 and 2018. |
(5) | Significant judgment is required when selecting key assumptions for measuring defined benefit expenses for a period and the defined benefit obligations at the period end for each defined benefit plan. The principal actuarial assumptions used include discount rates and salary increase rates. |
The Group determined the discount rate based on market returns of high-quality corporate bonds consistent with the currencies and estimated payment terms corresponding to the defined benefit obligations as of the reporting date in order to calculate the present value of the defined benefit obligations.
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||
Discount rate | 3.1% | 3.4% | 2.7%-3.2% | |||
Weighted average of salary increase | 8.1% | 7.0% | 9.1% |
(6) | Economic factors and conditions often affect multiple assumptions simultaneously; as such, the effects of changes in key assumptions are not necessarily linear. The following sensitivity analysis illustrates the impact of changes in certain significant actuarial assumptions, leaving all other assumptions constant, as of December 31, 2017 and 2018: |
(In thousands of Korean won) | ||||||||
Impact on the defined benefit obligations | ||||||||
Assumptions and | December 31, 2017 | December 31, 2018 | ||||||
Discount rate | ||||||||
100 basis point increase | (552,359 | ) | (1,029,964 | ) | ||||
100 basis point decrease | 642,556 | 1,212,029 | ||||||
Salary increase rate | ||||||||
100 basis point increase | 612,862 | 1,129,503 | ||||||
100 basis point decrease | (539,572 | ) | (986,438 | ) |
38
Snow Corporation
Notes to Consolidated Financial Statements (continued)
14. | Employment Benefits (continued) |
(7) | The average duration of the defined benefit plan obligations as of December 31, 2017 and 2018 were 9.13 and 10.2 years, respectively. |
The following table shows estimated future benefit payments within ten years from December 31, 2018. Actual payments may differ from those shown because of uncertain future events.
(In thousands of Korean won) | ||
Years | Estimated future | |
2019 | 534,706 | |
2020 | 718,768 | |
2021 | 901,070 | |
2022 | 1,095,575 | |
2023 | 1,299,098 | |
2024–2028 | 9,699,792 |
15. | Leases—Group as Lessee |
Operating lease commitments—Group as lessee
The Group has entered into commercial lease agreements for certain office space.
Future minimum rentals payable undernon-cancelable operating leases are as follows:
(In thousands of Korean won) | ||||||||
December 31, 2017 | December 31, 2018 | |||||||
Within one year | 681,523 | 2,864,303 | ||||||
After one year but not more than five years | 42,000 | 8,407,463 | ||||||
|
|
|
| |||||
Total | 723,523 | 11,271,766 | ||||||
|
|
|
|
39
Snow Corporation
Notes to Consolidated Financial Statements (continued)
16. | Issued Capital and Reserves |
The movements in issued capital and reserves for the years ended December 31, 2017 and 2018 are as follows:
(1) | Authorized shares and shares issued |
The movements of shares issued for the years ended December 31, 2017 and 2018 are as follows:
Authorized shares | Shares issued (Share capital with par value) | Share capital (In thousands of Korean won) | ||||||||||
Common shares | ||||||||||||
January 1, 2017 | 50,000,000 | 453,333 | 2,266,665 | |||||||||
Issuance of common shares(1)(2) | — | 304,778 | 1,523,890 | |||||||||
|
|
|
|
|
| |||||||
December 31, 2017 | 50,000,000 | 758,111 | 3,790,555 | |||||||||
|
|
|
|
|
| |||||||
Issuance of common shares(3) | — | 244,302 | 1,221,510 | |||||||||
|
|
|
|
|
| |||||||
December 31, 2018 | 50,000,000 | 1,002,413 | 5,012,065 | |||||||||
|
|
|
|
|
|
(1) | The Company acquired camera application business from LINE Plus Corporation as of May 1, 2017. The camera application business includes services such as B612, LINE Camera, Foodie, and Looks. The Company newly issued 208,455 common shares in exchange for the camera application business. As a result of issuing the common shares, the Company’s share capital increased by 1,042,275 thousand won. The number of newly issued common shares was determined based on the ratio of the fair value of camera application business as well as cash and cash equivalent transferred comparing to the enterprise value of the Company. |
(2) | The Company issued 77,063 and 19,260 common shares due to the third-party allotment for NAVER Corporation and LINE Corporation respectively. As a result of issuing the new shares, the Company’s share capital increased by 481,615 thousand won. |
(3) | The Company issued 244,302 common shares due to the third-party allotment for NAVER Corporation. As a result of issuing the new shares, the Company’s share capital increased by 1,221,510 thousand won. |
40
Snow Corporation
Notes to Consolidated Financial Statements (continued)
16. | Issued Capital and Reserves (continued) |
(2) | Share premium and accumulated deficit |
Share premium
The movements in share premium for the years ended December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||||||
Business acquisition(1) | Others(2) | Share premium total | ||||||||||
January 1, 2017 | — | 52,817,531 | 52,817,531 | |||||||||
Issuance of common shares(3)(4) | 1,057,000 | 49,520,136 | 50,577,136 | |||||||||
Cost related to issuance of common shares(5) | (5,051 | ) | (4,678 | ) | (9,729 | ) | ||||||
Other | — | 10,600 | 10,600 | |||||||||
|
|
|
|
|
| |||||||
December 31, 2017 | 1,051,949 | 102,343,589 | 103,395,538 | |||||||||
Issuance of common shares(6) | — | 128,778,316 | 128,778,316 | |||||||||
Cost related to issuance of common shares(5) | — | (7,557 | ) | (7,557 | ) | |||||||
Change in interests in subsidiaries(7) | — | 4,574,781 | 4,574,781 | |||||||||
|
|
|
|
|
| |||||||
December 31, 2018 | 1,051,949 | 235,689,129 | 236,741,078 | |||||||||
|
|
|
|
|
|
(1) | The Company acquired camera application business from LINE Plus Corporation as of May 1, 2017. |
(2) | Others mainly consist of additionalpaid-in-capital. |
(3) | The Company acquired camera application business from LINE Plus Corporation as of May 1, 2017. The camera application business includes services such as B612, LINE Camera, Foodie, and Looks. The Company newly issued 208,455 common shares in exchange for the camera application business. As a result of issuing the common shares, the Company’s share premium increased by 1,057,000 thousand won. The number of newly issued common shares was determined based on the ratio of the fair value of camera application business as well as cash and cash equivalent transferred comparing to the enterprise value of the Company. |
(4) | The Company issued 77,063 and 19,260 common shares due to the third-party allotment for NAVER Corporation and LINE Corporation respectively. As a result of issuing the new shares, the Company’s share premium increased by 49,520,136 thousand won. |
(5) | Incremental costs directly attributable to the issuance of common shares are recognized as a deduction from equity in accordance with IAS 32Financial Instruments: Presentation. |
(6) | The Company issued 244,302 common shares due to the third-party allotment for NAVER Corporation. As a result of issuing the new shares, the Company’s share premium increased by 128,778,316 thousand won. |
(7) | The increase in share premium of 4,574,781 thousand won was due to the transfer of the common shares of SNOW China Limited to a third-party. See Note 27 Share Based Payments for further details. |
41
Snow Corporation
Notes to Consolidated Financial Statements (continued)
17. | Supplemental Cash Flow Information |
Materialnon-cash transactions
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Other payables from acquisition of intangible assets | 3,250 | (884 | ) | |||||
Other payables from acquisition of property and equipment | 52,889 | (20,887 | ) | |||||
Advance payment from acquisition of property and equipment | — | (33,690 | ) | |||||
Other receivables from disposal of property and equipment | (4,032 | ) | 640 | |||||
Liabilities arising from the merger of the camera application business | 3,800,725 | — |
Movements on liabilities from financing activities
(In thousands of Korean won) | ||||
Net liabilities as of January 1, 2017 | — | |||
Cash flows | 167,460 | |||
Items such as foreign currency translation adjustments | (3,810 | ) | ||
|
| |||
Net liabilities as of December 31, 2017 | 163,650 | |||
|
| |||
Cash flows | 4,486,052 | |||
Proceeds from issuance of redeemable convertible preferred shares | 65,674,465 | |||
Loss on valuation of financial liabilities at fair value through profit or loss | 5,610,094 | |||
Items such as foreign currency translation adjustments | 1,027,675 | |||
|
| |||
Net liabilities as of December 31, 2018 | 76,961,936 | |||
|
|
18. | Revenue from Contracts with Customers |
The Group has recognized the following amounts relating to revenue in the Consolidated Statement of Profit or Loss for the year ended December 31, 2018:
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Revenue from contracts with customers | ||||||||
Revenue(1) | 2,734,378 | 13,166,879 |
(1) | Refer to Note 5 Segment Information for further details of revenue. |
Trade and other receivables, contract assets and contract liabilities
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Trade and other receivables | 184,117 | 640,234 | 4,864,462 | |||||||||
Contract liabilities- Unused balance of virtual coins(1) | — | — | 596,818 |
(1) | Represents as advances received in the statement of financial position. |
42
Snow Corporation
Notes to Consolidated Financial Statements (continued)
18. | Revenue from Contracts with Customers (continued) |
There were no significant balance of contract assets and contract liabilities as of January 1, 2017 and December 31, 2017 and 2018.
As unsatisfied performance obligations will be fulfilled mainly within a year, the transaction price allocated to unsatisfied contract is not disclosed, based on the practical expedient as permitted under IFRS 15. Additionally, the payment term for advertisement service is typically within three months and there were no significant financing components within the services provided to customers by the Group. Moreover, there were no significant contract costs as of December 31, 2018.
19. | Other Income and Expenses, Finance Income and Costs |
(1) | Other operating expenses for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Rent | 854,867 | 2,107,669 | ||||||
Travel | 266,087 | 529,268 | ||||||
Supplies | 202,163 | 342,022 | ||||||
Taxes and dues | 89,275 | 271,939 | ||||||
Professional fees(1) | 932,030 | 5,112,437 | ||||||
Training | 355,236 | 464,543 | ||||||
Utility expenses | 314,530 | 843,032 | ||||||
Others | 818,698 | 698,987 | ||||||
|
|
|
| |||||
Total | 3,832,886 | 10,369,897 | ||||||
|
|
|
|
(1) | Professional fees included expenses incurred in connection with the consulting service provided by external consultants, amounting to 3,900,000 thousand won. The Company transferred the common shares of SNOW China Limited to the consultants for the consideration of the consulting service provided. Refer to Note 27 Share Based Payments. |
(2) | Othernon-operating income for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Gain on reversal of asset retirement obligations | — | 264,434 | ||||||
Gain on disposal financial assets at fair value through profit or loss | — | 282,371 | ||||||
Others | 198,418 | 605,189 | ||||||
|
|
|
| |||||
Total | 198,418 | 1,151,994 | ||||||
|
|
|
|
43
Snow Corporation
Notes to Consolidated Financial Statements (continued)
19. | Other Income and Expenses, Finance Income and Costs (continued) |
(3) | Finance income for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Interest income | 371,352 | 356,674 | ||||||
Gain on valuation of financial assets at fair value through profit or loss | 214,829 | 8,073,193 | ||||||
|
|
|
| |||||
Total | 586,181 | 8,429,867 | ||||||
|
|
|
|
(4) | Finance costs for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Interest expenses | 13,662 | 85,038 | ||||||
Loss on valuation of financial assets at fair value through profit or loss | 805,539 | 1,167,428 | ||||||
Loss on valuation of financial liabilities at fair value through profit or loss | — | 5,610,094 | ||||||
Others | — | 22,945 | ||||||
|
|
|
| |||||
Total | 819,201 | 6,885,505 | ||||||
|
|
|
|
20. | Financial Risk Management |
The Group has exposure to the following risks from its use of financial instruments:
– | Credit risk |
– | Liquidity risk |
– | Market risk |
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout the Group’s consolidated financial statements.
(1) | Risk Management Framework |
The Group is exposed to financial risks arising from its operating activities, such as market risks (foreign currency risk, interest rate risk and price risk), credit risks, and liquidity risks. The Group’s overall risk management policy mainly focuses on financial market fluctuation and minimizing negative influence on the Group’s financial performance.
The Group’s risks are managed by policies that are approved by the Board of Directors. The Board reviews and approves written policies for the overall risk management, as well as for specific areas, such as foreign currency risk, interest rate risk, credit risk, use of derivative financial instruments andnon-derivative financial instruments, and investment of excess liquidity.
44
Snow Corporation
Notes to Consolidated Financial Statements (continued)
20. | Financial Risk Management (continued) |
(2) | Credit Risk |
Credit risk arises from cash and cash equivalents, contractual cash flows of debt investments and deposits with banks and financial institutions, as well as credit exposures to corporate and individual customers, including outstanding receivables.
The Group has two types of financial assets that are subject to the expected credit loss model:
– | Trade receivables and other receivables carried at amortized cost; and |
– | Other financial assets carried at amortized cost. |
While cash equivalents are also subject to the impairment requirement, the identified impairment loss was immaterial.
(a) | Maximum amounts of possible financial loss to the Group due to credit risk as of January 1, 2017, December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Book value | Book value | Book value | ||||||||||
Demand deposits | 24,176,192 | 20,386,988 | 104,258,127 | |||||||||
Trade and other receivables | 184,117 | 640,234 | 4,864,462 | |||||||||
Time deposits | 20,000,000 | — | — | |||||||||
Short-term loan | — | 205,700 | 800,000 | |||||||||
Leasehold deposits | 190,000 | 581,234 | 3,271,693 | |||||||||
|
|
|
|
|
| |||||||
Total | 44,550,309 | 21,814,156 | 113,194,282 | |||||||||
|
|
|
|
|
|
(b) | Impaired orpast-due financial assets |
The Group applies the simplified approach to measure the loss allowance at an amount equal to lifetime expected credit losses for trade and other receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.
Set out below is the information about the credit risk exposure on the Group’s trade and other receivables using a provision matrix as of December 31, 2018:
(In thousands of Korean won) | ||||||||
<180 days | >180 days | |||||||
Expected credit loss rate | 0% | 42.33% | ||||||
Total book value (Trade receivable) | 4,573,899 | 6,869 | ||||||
Total book value (Other receivable) | 286,602 | — | ||||||
|
|
|
| |||||
Expected credit loss | — | 2,908 | ||||||
|
|
|
|
45
Snow Corporation
Notes to Consolidated Financial Statements (continued)
20. | Financial Risk Management (continued) |
(2) | Credit Risk (continued) |
(b) | Impaired orpast-due financial assets (continued) |
Below is the movement in the allowance for doubtful accounts attributable to trade and other receivables:
(In thousands of Korean won) | ||||
Allowance for doubtful accounts | ||||
Balance at January 1, 2017 | — | |||
Provision for the year | 539,685 | |||
Reversal | — | |||
Utilized | — | |||
|
| |||
Balance at December 31, 2017 | 539,685 | |||
|
| |||
Provision for the year | 2,908 | |||
Reversal | — | |||
Utilized | (539,685 | ) | ||
|
| |||
Balance at December 31, 2018 | 2,908 | |||
|
|
Receivables for which an impairment allowance was recognized are written off against the allowance when there is no expectation of recovering additional cash. No expectation of recovering additional cash is included those that do not comply with debt adjustments with the Group.
Impairment losses on trade receivables are presented as net of bad debt expense in the income statement.
Other financial assets carried at amortized cost include demand deposits, shot-term loans and leasehold deposits. As at January 1, 2017 and December 31, 2017 and 2018, all other financial assets carried at amortized cost are considered to have low credit risk and therefore no provision for losses has been recognized.
(3) | Liquidity Risk |
The Group continuously monitors its forecast of liquidity reserve to maintain sufficient cash for its operating activities. In forecasting the liquidity reserve, the Group considers its financing plan, compliance with commitments, internal financial ratios as well as requirements under external regulations and laws, such as restrictions on currencies.
46
Snow Corporation
Notes to Consolidated Financial Statements (continued)
20. | Financial Risk Management (continued) |
(3) | Liquidity Risk (continued) |
(a) Financial liabilities
The book values of financial liabilities based on the remaining maturities as of January 1, 2017, December 31, 2017 and 2018 are as follows. The amounts below include estimated interest from financial liabilities scheduled to be paid.
(In thousands of Korean won) | ||||||||||||||||
January 1, 2017 | ||||||||||||||||
Book value | Contractual cash outflows | Less than one year | One to five years | |||||||||||||
Trade and other payables | 3,120,165 | 3,120,165 | 3,120,165 | — | ||||||||||||
Other financial liabilities, current | — | — | — | — | ||||||||||||
Other financial liabilities,non-current | 2,805 | 2,805 | — | 2,805 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 3,122,970 | 3,122,970 | 3,120,165 | 2,805 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2017 | ||||||||||||||||
Book value | Contractual cash outflows | Less than one year | One to five years | |||||||||||||
Trade and other payables | 6,470,631 | 6,470,631 | 6,470,631 | — | ||||||||||||
Other financial liabilities, current | 163,650 | 168,539 | 168,539 | — | ||||||||||||
Other financial liabilities,non-current | 7,556 | 7,556 | — | 7,556 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 6,641,837 | 6,646,726 | 6,639,170 | 7,556 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2018 | ||||||||||||||||
Book value | Contractual cash outflows | Less than one year | One to five years | |||||||||||||
Trade and other payables | 9,089,468 | 9,089,468 | 9,089,468 | — | ||||||||||||
Other financial liabilities, current | 4,459,624 | 4,520,983 | 4,520,983 | — | ||||||||||||
Other financial liabilities,non-current | 74,009,538 | 74,009,538 | — | 74,009,538 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 87,558,630 | 87,619,989 | 13,610,451 | 74,009,538 | ||||||||||||
|
|
|
|
|
|
|
|
(4) | Market Risk |
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: foreign currency risk, interest rate risk, and other price risk. Financial instruments affected by market risk include borrowings, deposits, debt instruments and derivative financial instruments.
(a) | Exchange rate risk |
The Group is exposed to the foreign currency risk arising from changes in foreign exchange rates especially for United States Dollar (“USD”), Chinese Ren Min Bi (“RMB”), Japanese Yen (“JPY”),
47
Snow Corporation
Notes to Consolidated Financial Statements (continued)
20. | Financial Risk Management (continued) |
(4) | Market Risk (continued) |
(a) | Exchange rate risk (continued) |
Hong Kong Dollar (“HKD”), Taiwan Dollar (“TWD”), Euro (“EUR”), and Singapore Dollar (“SGD”) as it operates its business globally. Foreign currency risks arises from the recognized assets and liabilities.
January 1, 2017 | ||||||||||||||||
Currency | Amount (In thousands) | Exchange rate | Won equivalent (In thousands) | |||||||||||||
Monetary liabilities: | ||||||||||||||||
Trade and other payables | USD | (192 | ) | 1,208.50 | (232,032 | ) | ||||||||||
RMB | (116 | ) | 173.61 | (20,139 | ) | |||||||||||
JPY | (1,538 | ) | 10.37 | (15,949 | ) | |||||||||||
SGD | (68 | ) | 834.60 | (56,753 | ) | |||||||||||
December 31, 2017 | ||||||||||||||||
Currency | Amount (In thousands) | Exchange rate | Won equivalent (In thousands) | |||||||||||||
Monetary assets: | ||||||||||||||||
Cash and cash equivalents | USD | 20 | 1,071.40 | 21,428 | ||||||||||||
JPY | 5,311 | 9.49 | 50,401 | |||||||||||||
Trade receivables | USD | 50 | 1,071.40 | 53,570 | ||||||||||||
JPY | 28,503 | 9.49 | 270,493 | |||||||||||||
December 31, 2017 | ||||||||||||||||
Currency | Amount (In thousands) | Exchange rate | Won equivalent (In thousands) | |||||||||||||
Monetary liabilities: | ||||||||||||||||
Trade and other payables | USD | (1,114 | ) | 1,071.40 | (1,193,540 | ) | ||||||||||
RMB | (16,507 | ) | 163.65 | (2,701,371 | ) | |||||||||||
JPY | (24,691 | ) | 9.49 | (234,318 | ) | |||||||||||
TWD | (443 | ) | 35.92 | (15,913 | ) | |||||||||||
EUR | (12 | ) | 1,279.25 | (15,351 | ) | |||||||||||
SGD | (40 | ) | 800.63 | (32,025 | ) | |||||||||||
December 31, 2018 | ||||||||||||||||
Currency | Amount (In thousands) | Exchange rate | Won equivalent (In thousands) | |||||||||||||
Monetary assets: | ||||||||||||||||
Cash and cash equivalents | USD | 768 | 1,118.10 | 858,701 | ||||||||||||
JPY | 14,504 | 10.13 | 146,926 | |||||||||||||
Trade receivables | USD | 63 | 1,118.10 | 70,440 | ||||||||||||
JPY | 14,146 | 10.13 | 143,299 |
48
Snow Corporation
Notes to Consolidated Financial Statements (continued)
20. | Financial Risk Management (continued) |
(4) | Market Risk (continued) |
(a) | Exchange rate risk (continued) |
December 31, 2018 | ||||||||||||||||
Currency | Amount (In thousands) | Exchange rate | Won equivalent (In thousands) | |||||||||||||
Monetary liabilities: | ||||||||||||||||
Trade and other payables | USD | (463 | ) | 1,118.10 | (517,680 | ) | ||||||||||
RMB | (15 | ) | 162.76 | (2,441 | ) | |||||||||||
JPY | (9,227 | ) | 10.13 | (93,470 | ) | |||||||||||
TWD | (180 | ) | 36.58 | (6,584 | ) | |||||||||||
SGD | (109 | ) | 818.28 | (89,193 | ) |
The effects on profit or loss before tax from operations and shareholders’ equity as a result of exchange rate fluctuations as of December 31, 2017 and 2018, are as follows:
(In thousands of Korean won) | ||||||||||||||||
December 31, 2017 | ||||||||||||||||
Shareholders’ equity | Profit or (loss) before tax | |||||||||||||||
Currency | Appreciation of functional currency by 5% | Depreciation of functional currency by 5% | Appreciation of functional currency by 5% | Depreciation of functional currency by 5% | ||||||||||||
USD | (43,623 | ) | 43,623 | (55,927 | ) | 55,927 | ||||||||||
RMB | (105,353 | ) | 105,353 | (135,068 | ) | 135,068 | ||||||||||
JPY | 3,377 | (3,377 | ) | 4,329 | (4,329 | ) | ||||||||||
TWD | (622 | ) | 622 | (797 | ) | 797 | ||||||||||
EUR | (599 | ) | 599 | (768 | ) | 768 | ||||||||||
SGD | (1,249 | ) | 1,249 | (1,601 | ) | 1,601 | ||||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2018 | ||||||||||||||||
Shareholders’ equity | Profit or (loss) before tax | |||||||||||||||
Currency | Appreciation of functional currency by 5% | Depreciation of functional currency by 5% | Appreciation of functional currency by 5% | Depreciation of functional currency by 5% | ||||||||||||
USD | 16,047 | (16,047 | ) | 20,573 | (20,573 | ) | ||||||||||
RMB | (95 | ) | 95 | (122 | ) | 122 | ||||||||||
JPY | 7,674 | (7,674 | ) | 9,838 | (9,838 | ) | ||||||||||
TWD | (257 | ) | 257 | (329 | ) | 329 | ||||||||||
SGD | (3,479 | ) | 3,479 | (4,460 | ) | 4,460 |
The tables above demonstrate the sensitivity to a change in EUR, SGD, USD, RMB, TWD and JPY assuming all other variables are constant.
49
Snow Corporation
Notes to Consolidated Financial Statements (continued)
20. | Financial Risk Management (continued) |
(4) | Market Risk (continued) |
(b) | Interest Rate Risk |
Interest rate risks is the risks of changes in interest income and expenses from deposits or borrowings due to fluctuations on the future market interest rates. Interest rate risks relates primarily to deposits with floating interest rates. The Group manages interest rate risks for the purpose of maximizing the Company’s value by minimizing uncertainties associated with fluctuations of interest rates.
(In thousands of Korean won) | ||||||||||||||||
December 31, 2017 | ||||||||||||||||
Shareholders’ equity | Profit or (loss) before tax | |||||||||||||||
Increase of 50 basis points | Decrease of 50 basis points | Increase of 50 basis points | Decrease of 50 basis points | |||||||||||||
Interest expenses | 73,481 | (73,481 | ) | 94,206 | (94,206 | ) | ||||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2018 | ||||||||||||||||
Shareholders’ equity | Profit or (loss) before tax | |||||||||||||||
Increase of 50 basis points | Decrease of 50 basis points | Increase of 50 basis points | Decrease of 50 basis points | |||||||||||||
Interest expenses | 255,520 | (255,520 | ) | 327,590 | (327,590 | ) |
(5) | Capital management |
The Group manages its capital for a purpose to protect its ability to continuously provide returns to its shareholders and stakeholders as a going concern and maintain an optimal capital structure to minimize any costs associated with its capital. The Group monitors capital using adebt-to-equity ratio, which is calculated as the total liabilities divided by the total equity.
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Total liabilities | 8,876,634 | 18,133,190 | 106,238,299 | |||||||||
Total shareholders’ equity | 38,735,864 | 16,311,560 | 39,855,551 | |||||||||
Debt/equity ratio | 23% | 111% | 267% |
21. | Fair Value Measurements |
(1) | Fair value hierarchy |
The Group referred to the levels of the fair value hierarchy for financial instruments measured at fair value in the consolidated financial statements based on the following inputs:
– | Level 1 inputs are quoted prices in active markets for identical assets or liabilities. |
– | Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
50
Snow Corporation
Notes to Consolidated Financial Statements (continued)
21. | Fair Value Measurements (continued) |
(1) | Fair value hierarchy (continued) |
– | Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable, which reflect the reporting entity’s own assumptions that market participants would use in establishing a price. |
Transfers between levels of the fair value hierarchy are recognized as if they have occurred at the beginning of the reporting period.
Assets measured at fair value on a recurring basis in the Consolidated Statements of Financial Position as of January 1, 2017, December 31, 2017 and 2018 are as follows:
(In thousands of Korean won) | ||||||||||||||||
January 1, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets | ||||||||||||||||
Financial assets at fair value through profit or loss | — | — | 250,089 | 250,089 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets | ||||||||||||||||
Financial assets at fair value through profit or loss | — | — | 4,009,962 | 4,009,962 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets | ||||||||||||||||
Financial assets at fair value through profit or loss | — | — | 12,641,371 | 12,641,371 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Liabilities designated as financial liabilities at fair value through profit or loss | — | — | 72,502,312 | 72,502,312 | ||||||||||||
|
|
|
|
|
|
|
|
51
Snow Corporation
Notes to Consolidated Financial Statements (continued)
21. | Fair Value Measurements (continued) |
(2) | Assets and liabilities not measured at fair values in the Consolidated Statements of Financial Position, but for which fair values are disclosed as of January 1, 2017, December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||||||
January 1, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets | ||||||||||||||||
Other financial assets,non-current | ||||||||||||||||
Leasehold deposits | — | 190,000 | — | 190,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Other financial liabilities,non-current | ||||||||||||||||
Office security deposits received under sublease agreement | — | 2,805 | — | 2,805 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets | ||||||||||||||||
Other financial assets,non-current | ||||||||||||||||
Leasehold deposits | — | 581,234 | — | 581,234 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Other financial liabilities,non-current | ||||||||||||||||
Office security deposits received under sublease agreement | — | 7,556 | — | 7,556 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(In thousands of Korean won) | ||||||||||||||||
December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets | ||||||||||||||||
Other financial assets,non-current | ||||||||||||||||
Leasehold deposits | — | 3,023,180 | — | 3,023,180 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities | ||||||||||||||||
Other financial liabilities,non-current | ||||||||||||||||
Office security deposits received under sublease agreement | — | 1,382,969 | — | 1,382,969 | ||||||||||||
|
|
|
|
|
|
|
|
There have been no transfers among Level 1, Level 2 and Level 3 during the years ended December 31, 2017 and 2018.
52
Snow Corporation
Notes to Consolidated Financial Statements (continued)
21. | Fair Value Measurements (continued) |
(3) | Reconciliations from the opening balance to the closing balance of financial instruments categorized within Level 3 are as follows: |
(In thousands of Korean won) | ||||||||||||
2017 | 2018 | |||||||||||
Financial assets at fair value through profit or loss | Financial assets at fair value through profit or loss | Liabilities designated as financial liabilities at fair value through profit or loss | ||||||||||
Fair value at the beginning of the year | 250,089 | 4,009,962 | — | |||||||||
Total (loss)/gain for the year: | ||||||||||||
Included in profit or loss | (590,710 | ) | 6,905,765 | (5,610,094 | ) | |||||||
Included in other comprehensive income | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Comprehensive (loss)/income | (590,710 | ) | 6,905,765 | (5,610,094 | ) | |||||||
Purchases | 1,629,958 | 1,850,485 | — | |||||||||
Issuance of redeemable convertible preferred shares | — | — | (65,674,465 | ) | ||||||||
Sales and settlements | — | (124,841 | ) | — | ||||||||
Increase due to business combination | 2,720,625 | — | — | |||||||||
Effect of exchange rate changes | — | — | (1,217,753 | ) | ||||||||
|
|
|
|
|
| |||||||
Fair value at the end of the year | 4,009,962 | 12,641,371 | (72,502,312 | ) | ||||||||
|
|
|
|
|
|
(4) | Valuation techniques and inputs |
Assets and liabilities measured at fair value on a recurring basis in the Group’s Consolidated Statements of Financial Position
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss categorized within Level 3 mainly consist of unlisted equity securities and private equity investment funds. Assets measured at fair value on a recurring basis in the Group’s Consolidated Statements of Financial Position as of December 31, 2017 and 2018.
Valuation technique | Significant | 2017 | 2018 | |||
Market approach | Price book value ratio | — | 1 - 3.6 | |||
Price per sales ratio | 3.75 | 0.6 - 2.5 | ||||
Price earning ratio | — | 51.9 | ||||
Firm value per sales | — | 2.8 | ||||
Option evaluation model | Volatility of underlying assets | 20.5 - 24.5% | 8.5% | |||
Discount rate | 2.5% | 13.1% | ||||
Discount cash flow model | Discount rate | 10.3 - 11.9% | 12.3 - 19.7% |
Liabilities designated as financial liabilities at fair value through profit or loss
Liabilities designated as financial liabilities at fair value through profit or loss categorized within Level 3 mainly consist of redeemable convertible preference stock. Liabilities measured at fair value using mainly a
53
Snow Corporation
Notes to Consolidated Financial Statements (continued)
21. | Fair Value Measurements (continued) |
(4) | Valuation techniques and inputs (continued) |
Liabilities designated as financial liabilities at fair value through profit or loss (continued)
binomial option pricing model. Below is the quantitative information regarding the valuation technique and significant unobservable inputs used in measuring the fair value of redeemable convertible preference shares:
Valuation technique | Significant | 2018 | ||
Discount cash flow model | Discount rate | 11.9% | ||
Option evaluation model | Volatility of underlying assets | 51.8% | ||
Discount rate | 11.9% |
22. | Related Party Transactions |
Note 24 Principal Subsidiaries provides information about the Group’s structure, including details of the subsidiaries and the parent company. The following table provides the total amount of outstanding balances and related party transactions entered into for the years ended December 31, 2017 and 2018.
(1) | Significant related party transactions during the year ended December 31, 2017 and outstanding balances as of January 1, 2017 and December 31, 2017 with related parties are as follows: |
(In thousands of Korean won) | ||||||||||||||||
Transaction amount | Outstanding receivable/(payable) balances | |||||||||||||||
Relationship | Name | Transaction | 2017 | January 1, 2017 | December 31, 2017 | |||||||||||
Parent company | NAVER Corporation | Revenue | 339,000 | — | — | |||||||||||
Companies that have significant influence on the group | LINE Corporation | Expense | 358,680 | — | — | |||||||||||
Receivable | — | — | 270,522 | |||||||||||||
LINE Plus Corporation | Transfer of camera application business(1) | 2,099,275 | — | — | ||||||||||||
Associates | Alchera Inc | Expense | 512,041 | — | — | |||||||||||
SpringCamp Early Stage Fund I | Revenue | 188,219 | — | — | ||||||||||||
Other related parties | NAVER I&S.Corp. | Expense | 498,628 | — | — | |||||||||||
Payable | — | — | (124,161 | ) | ||||||||||||
NAVER Business Platform | Expense(2) | 2,743,597 | — | — | ||||||||||||
Payable | — | (167,154 | ) | (330,126 | ) | |||||||||||
NAVER China | Expense | 169,280 | — | — | ||||||||||||
Payable | — | — | (210,255 | ) | ||||||||||||
LINE Fukuoka Corp. | Expense | 589,951 | — | — | ||||||||||||
Payable | — | — | (88,943 | ) | ||||||||||||
Camp Mobile Corporation | Payable | — | (233,370 | ) | — |
(1) | In May, 2017, Snow Corporation acquired camera application business of LINE Plus Corporation. Refer to Note 23 Business Combinations for further details. |
(2) | NAVER Business Platform Corp. has provided IT infrastructure services and related development services to the Group. |
54
Snow Corporation
Notes to Consolidated Financial Statements (continued)
22. | Related Party Transactions (continued) |
(2) | Significant related party transactions and outstanding balances with related parties during the year ended December 31, 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||
Relationship | Name | Transaction | Transaction amount | Outstanding receivable/ (payable) balances | ||||||||
Parent company | NAVER Corporation | Revenue | 200,339 | — | ||||||||
Expense | 303,533 | — | ||||||||||
Receivable | — | 114,503 | ||||||||||
Payable | — | (182,330 | ) | |||||||||
Companies that have significant influence on the group | LINE Corporation | Expense | 331,112 | — | ||||||||
Receivable | — | 143,323 | ||||||||||
Associates | Alchera Inc | Expense | 293,959 | — | ||||||||
SpringCamp Early Stage Fund I | Revenue | 619,726 | — | |||||||||
Brave Pops | Expense | 120,000 | — | |||||||||
Other related parties | NAVER WEBTOON | Revenue | 100,000 | — | ||||||||
Corporation | Receivable | — | 110,000 | |||||||||
Payable | — | (59,415 | ) | |||||||||
NAVER I&S.Corp. | Expense | 703,043 | — | |||||||||
Payable | — | (222,559 | ) | |||||||||
NAVER Business Platform | Expense(1) | 3,069,645 | — | |||||||||
Payable | — | (420,600 | ) | |||||||||
NAVER China | Expense | 265,608 | — | |||||||||
Payable(2) | — | (4,545,862 | ) | |||||||||
LINE Friends Corporation | Expense | 252,485 | — | |||||||||
Payable | — | (250,000 | ) | |||||||||
LINE Biz Plus Corporation | Revenue | 178,317 | — | |||||||||
LINE Fukuoka Corp. | Expense | 797,392 | — | |||||||||
LINE Financial Plus Corporation | Revenue(3) | 1,056,611 | — | |||||||||
Payable | — | (1,496,986 | ) | |||||||||
AXIS Co., LTD. | Receivable | — | 806,150 |
(1) | NAVER Business Platform Corp. has provided IT infrastructure services and related development services to the Group. |
(2) | The Group entered multiple borrowing agreements with NAVER China during a year ended December 31, 2018. |
(3) | The Group subleased a part of its head office to LINE Financial Plus Corporation. |
55
Snow Corporation
Notes to Consolidated Financial Statements (continued)
22. | Related Party Transactions (continued) |
(3) | Financial transactions with related parties for the years ended December 31, 2017 and 2018 are as follows: |
(In thousands of Korean won) | ||||||||||||
Relationship | Name | Transaction | 2017 | 2018 | ||||||||
Associates | Laiqu Technology (Shenzhen) Co., Ltd. | Investment in cash | 164,067 | 678,157 | ||||||||
Fast Cowell Private Equity Fund | Investment in cash | 1,500,000 | — | |||||||||
BravePops Co., Ltd. | Investment in cash | — | 648,294 | |||||||||
Joint venture | Playlist Corporation | Investment in cash | 600,000 | 2,400,000 | ||||||||
Other related parties | Search Solutions, Inc. | Borrowing | 3,300,000 | — | ||||||||
Repayment | 3,300,000 | — | ||||||||||
AXIS Co., LTD. | Rental | — | 800,000 | |||||||||
Investment in cash | — | 1,500,000 | ||||||||||
NAVER China | Borrowing | 163,650 | 4,459,624 | |||||||||
Repayment | — | 163,650 |
(4) | The total compensation of key management personnel for the years ended December 31, 2017 and 2018, was as follows: |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Salaries | 1,242,960 | 1,341,343 | ||||||
Severance benefits | 165,552 | 154,567 | ||||||
|
|
|
| |||||
Total | 1,408,512 | 1,495,910 | ||||||
|
|
|
|
56
Snow Corporation
Notes to Consolidated Financial Statements (continued)
23. | Business Combinations |
Acquisition in 2017
Merger of camera application business
As of May 1, 2017, the Group merged the camera application business which was separated from LINE Plus Corporation and newly issued 208,455 shares of its common shares.
Assets acquired and liabilities assumed
(In thousands of Korean won) | ||||
Assets acquired and liabilities assumed | ||||
Assets | ||||
Cash and cash equivalents | 5,900,000 | |||
Property and equipment | 225,494 | |||
Deferred tax assets | 725,724 | |||
|
| |||
Total | 6,851,218 | |||
|
| |||
Liabilities | ||||
Other liabilities, current | 1,349,218 | |||
Other liabilities,non-current | 3,402,725 | |||
|
| |||
Total | 4,751,943 | |||
|
| |||
Total identifiable net assets at fair value | 2,099,275 | |||
|
| |||
Goodwill | — | |||
|
| |||
Total consideration | 2,099,275 | |||
|
|
The Group accounted for its business combination with the camera application business of LINE Plus Corporation, a subsidiary of the Group’s parent company, in accordance with the accounting of business combinations of entities under common control.
The assets and liabilities of the camera application business transferred to the Group are recognized at book values as of the transaction date that are recorded in the consolidated financial statements of NAVER Corporation, the ultimate parent company. There was no difference between the considerations paid in exchange for the acquisition of the camera application business and book values of the net assets acquired.
(In thousands of Korean won) | ||||
Analysis of cash flows on acquisition: | ||||
Total consideration related to the acquisition | — | |||
Net cash and cash equivalents acquired at the acquisition date | 5,900,000 | |||
|
| |||
Net cash flows on acquisition (included in cash flows from investing activities) | 5,900,000 | |||
|
|
57
Snow Corporation
Notes to Consolidated Financial Statements (continued)
23. | Business Combinations (continued) |
Other business combinations
Acquisition of Spring Camp Inc.
On March 30, 2017, the Group acquired 100% shares of Spring Camp Inc., which engages in the financial investment business. The Group’s goodwill arising from the acquisition reflects the effect of synergy from the human resources and business operation acquired, and details of the accounting for goodwill are summarized as follows:
Assets acquired and liabilities assumed
The identifiable assets and liabilities of Spring Camp Inc., which are measured at fair value as of the date of acquisition, were as follows:
(In thousands of Korean won) | ||||
Assets acquired and liabilities assumed | ||||
Assets | ||||
Cash and cash equivalents | 1,060,833 | |||
Other assets, current | 602,433 | |||
Property and equipment | 104,534 | |||
Other assets,non-current | 3,062,366 | |||
|
| |||
Total | 4,830,166 | |||
|
| |||
Liabilities | ||||
Other liabilities, current | 16,229 | |||
|
| |||
Total | 16,229 | |||
|
| |||
Total identifiable net assets at fair value | 4,813,937 | |||
|
| |||
Goodwill | 186,063 | |||
|
| |||
Total consideration | 5,000,000 | |||
|
|
(In thousands of Korean won) | ||||
Analysis of cash flows on acquisition: | ||||
Total consideration related to the acquisition | (5,000,000 | ) | ||
Net cash and cash equivalents acquired at the acquisition date | 1,060,833 | |||
|
| |||
Net cash flows on acquisition (included in cash flows from investing activities) | (3,939,167 | ) | ||
|
|
Acquisition of Yiruike Information Technology (Beijing) PTE. LTD.
On November 1, 2017, the Group acquired 100% shares of Yiruike Information Technology (Beijing) PTE.LTD., which engages in the mobile camera application business. The Group’s goodwill arising from the acquisition reflects the effect of synergy from the human resources and business operation acquired.
58
Snow Corporation
Notes to Consolidated Financial Statements (continued)
23. | Business Combinations (continued) |
Other business combinations (continued)
Acquisition of Yiruike Information Technology (Beijing) PTE. LTD. (continued)
All consideration related to the acquisition is 164 million won. Goodwill of 440 million won represented the value of expected synergies arising from the acquisition.
Acquisition in 2018
Acquisition of Heartit
On June 22, 2018, the Group acquired 100% shares of Heartit. The Group’s goodwill arising from the acquisition reflects the effect of synergy from the human resources and business operation acquired, and details of the accounting for goodwill are summarized as follows:
Assets acquired and liabilities assumed
The identifiable assets and liabilities of the Heartit, which are measured at fair value as of the date of acquisition, were as follows:
(In thousands of Korean won) | ||||
Assets acquired and liabilities assumed | ||||
Assets | ||||
Cash and cash equivalents | 333 | |||
Other assets, current | 251,953 | |||
Property and equipment | 8,196 | |||
Other assets,non-current | 11,076 | |||
|
| |||
Total | 271,558 | |||
|
| |||
Liabilities | ||||
Other liabilities, current | 19,255 | |||
Other liabilities,non-current | 64,427 | |||
|
| |||
Total | 83,682 | |||
|
| |||
Total identifiable net assets at fair value | 187,876 | |||
|
| |||
Goodwill | 1,899,324 | |||
|
| |||
Total consideration | 2,087,200 | |||
|
| |||
(In thousands of Korean won) | ||||
Analysis of cash flows on acquisition: | ||||
Total consideration related to the acquisition | (2,087,200 | ) | ||
Net cash and cash equivalents acquired at the acquisition date | 333 | |||
|
| |||
Net cash flows on acquisition (included in cash flows from investing activities) | (2,086,867 | ) | ||
|
|
All consideration was paid in cash. Goodwill of 1,899 million won represented the value of expected synergies arising from the acquisition.
59
Snow Corporation
Notes to Consolidated Financial Statements (continued)
24. | Principal Subsidiaries |
Information on subsidiaries
The Group has 10 consolidated subsidiaries. The significant subsidiaries of the Group include the following subsidiaries:
Percentage of ownership | ||||||||||||||||
Name | Primary business activities | Country of | January 1, 2017 | December 31, 2017 | December 31, 2018 | |||||||||||
SNOW China Limited(1) | Mobile camera app | Hong Kong (China) | 100.0 | % | 100.0 | % | 96.2 | % | ||||||||
SNOW Japan Corporation | Mobile camera app | Japan | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Spring Camp Inc. | Investment | Korea | — | 100.0 | % | 100.0 | % | |||||||||
SNOW China (Beijing) Co., Ltd | Mobile camera app | China | — | 100.0 | % | 100.0 | % | |||||||||
Yiruike Information Technology (Beijing) PTE. LTD. | Mobile camera app | China | — | 100.0 | % | 100.0 | % | |||||||||
Heartit Inc.(2) | Social Media | Korea | — | — | 100.0 | % |
(1) | The Company transferred a portion of common shares of SNOW China Limited to a third-party in May 2018. As a result, shares of the Group was reduced by 3.8%, arriving to 96.2%. Refer to Note 27 Share Based Payments for further details. |
(2) | The Company acquired Heartit Inc. in June 2018, resulting in the 100.0% ownership. |
Ultimate parent company of the Group
The parent company of the Group is NAVER, which is domiciled in Korea and listed on the Korean Stock Exchange.
60
Snow Corporation
Notes to Consolidated Financial Statements (continued)
25. | Investments in Associates and Joint Venture |
(1) | Details of investments in the Group’s certain associates and joint ventures, that are individual immaterial are as follows: |
(In thousands of Korean won) | ||||||||||||||||||||||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||||||||||||||||||||||
Name | Primary business activities | Country of incorporation | Percentage of ownership | Carrying amount | Percentage of ownership | Carrying amount | Percentage of ownership | Carrying amount | ||||||||||||||||||||||||
Associates | ||||||||||||||||||||||||||||||||
Alchera, Inc(1) | | AI & AR technology development | | Korea | 30.0 | % | 1,464,220 | 25.2 | % | 1,862,085 | 24.5 | % | 1,510,954 | |||||||||||||||||||
Fandom Co., Ltd. | | Internet contents business | | Korea | — | — | 20.0 | % | 150,578 | 20.0 | % | 84,419 | ||||||||||||||||||||
Laiqu Technology (Shenzhen) Co., Ltd.(2) | | AR Device | |
| China |
|
| — |
|
| — |
|
| 20.0 | % |
| 140,653 |
|
| 22.7 | % |
| 354,976 |
| ||||||||
Fast Cowell Private Equity Fund | Investment | Korea | — | — | 21.1 | % | 1,495,655 | 21.1 | % | 1,459,812 | ||||||||||||||||||||||
Joint venture | ||||||||||||||||||||||||||||||||
Playlist Corporation | | Internet contents business | | Korea | — | — | 50.0 | % | 119,757 | 50.0 | % | 363,142 |
(1) | In November 2018, the Company’s ownership in Alchera, Inc, decreased from 25.2% to 24.5% as a result of the issuance of new shares by Alchera, Inc. |
(2) | In February 2018, the Company’s ownership in Laiqu Technology (Shenzhen) Co., Ltd., increased from 20.0% to 26.0% as a result of the issuance of new shares by Laiqu Technology (Shenzhen) Co., Ltd. As a result of the issuance of new shares by Laiqu Technology (Shenzhen) Co., Ltd., the Company’s ownership in Laiqu Technology (Shenzhen) Co., Ltd., decreased from 26.0% to 24.0% and 24.0% to 22.7% in March 2018 and November 2018, respectively. |
(2) | The aggregate amount of individually immaterial associates accounted for by the equity-method is summarized as follows: |
(In thousands of Korean won) | ||||||||||||
January 1, 2017 | December 31, 2017 | December 31, 2018 | ||||||||||
Carrying amount of the interests | 1,464,220 | 3,722,168 | 3,609,468 |
(In thousands of Korean won) | ||||||||
2017 | 2018 | |||||||
Loss for the year | (1,279,080 | ) | (1,753,288 | ) | ||||
Other comprehensive income for the year, net of tax | 641 | — | ||||||
|
|
|
| |||||
Total comprehensive loss for the year, net of tax | (1,278,439 | ) | (1,753,288 | ) | ||||
|
|
|
|
61
Snow Corporation
Notes to Consolidated Financial Statements (continued)
25. | Investments in Associates and Joint Venture (continued) |
(3) | Summarized financial information for investments in joint ventures |
Summarized financial information for investments in joint ventures are excluded as the balance of the investments as well as the profit/loss are both immaterial.
26. | Commitments and contingencies |
(1) | As of December 31, 2018, 240 shares of common stock held by the CEO of AXIS Co., LTD. is pledged for a loan of 800,000 thousand won to AXIS Co., LTD. |
(2) | Details of payment guarantees provided by the others as at December 31, 2018 are as follows: |
(In thousands of Korean won) | ||||||
Amount | Warranties | |||||
Seoul Guarantee Insurance | 123,000 | Payment | ||||
Korea Credit Guarantee Fund | 600,000 | Loan payment guarantee |
27. | Share Based Payments |
The Group granted 279,633 shares of SNOW China to NBT Inc. for the consulting services provided for the year ended at December 31, 2018.
The Group recognized the share based payment as expense with a corresponding increase in equity because the vesting condition was satisfied in the result of the completion of the service by NBT at grant date.
The compensation cost of shares granted to NBT Inc. for the year ended at December 31, 2018 was calculated based on the fair value of the shares rendered.
(In thousands of Korean won) | ||||
2018 | ||||
Fair value of share based payment granted during the year(1) | 3,900,000 | |||
Fair value per share at grant date | 13.96 | |||
Discount rate | 20.6% |
(1) | The expense of share based compensation recognized as a cost incurred during the year is 3,900,000 thousand won and is related to share based payment. |
28. | Subsequent Events |
On January 2, 2019, the Group additionally injected 1,500 million won in capital for Playlist Corporation, a joint venture of Snow Corporation and NAVER WEBTOON Corporation. This investment did not change the percentage of ownership.
62