Good morning and good evening. First of all, thank you all for joining Samsung Electronics strategic update conference call. This conference will start with a presentation followed by a division Q&A session. If you have a question, please press star one, that is star and one on your phone during the Q&A. For cancellation, please press star two, that is star and two on your phone. Now we shall commence the presentation by Samsung Electronics.
Morning. This is Robert Yi. We are pleased to announce comprehensive roadmap that Samsung Electronics is taking to enhance long-term sustainable value for our shareholders. With me representing the company management team are Dr. Kwon Oh-hyun, our CEO, and Lee Sang-hoon Sajang, our CFO. Before we begin, I would like to remind you that some of the statements we'll be making today are forward-looking based on the environment as we currently see it. All such statements are subject to certain risks and uncertainties. With that, I will turn the call over to Dr. Kwon for introductory remarks.
Thank you, Robert. Thank you for joining us today and for your continued interest in and support of the growth and development of Samsung Electronics. At Samsung Electronics, we have a steadfast focus on investment in innovation, manufacturing quality, customer satisfaction, marketing excellence, prudent risk assessment, and capital allocation, and we are committed to further enhancing long-term sustainable value creation for shareholders. We continue to execute the strategic long-term vision of the Samsung Electronics and deliver success that goes well beyond quarterly results. Our priorities are clear. We aim to develop the most compelling solutions, direct investment resources to highest potential and timeless opportunities, continue to concentrate on our core competencies and maximize competitiveness, and be good stewards of capital and deliver values to our shareholders. We will continuously review aspects of our progress on these priorities with our board and shareholders to ensure alignment with our long-term visions.
These reviews will include capital allocation and returns to shareholders, board composition, corporate structure, and governance guidelines. We will continue to welcome constructive dialogues with our shareholders on these topics. Samsung Electronics continues to focus on its core business, serving a mission to become a global leader in its technologies. We are advancing our cutting-edge component businesses such as semiconductor and flexible OLED and strive to provide global consumers with the highest quality mobile devices, TVs, and home appliances, as well as convergence technology that connects these devices. Also, we are working timelessly to build leading positions in next generation technologies, including IoT, cloud, AR/VR, AI, and automotive electronics by developing new technologies and making strategic investments. Our acquisition of Harman will enable us to apply our core competencies to drive innovation in the auto industry and achieve market leadership in the cutting-edge automotive technologies of the future.
Our continuous focus on our core competencies is producing strong business results. In 2016, we are on track to deliver improved operating profit and EBITDA year-over-year, even as we continue to invest for long-term growth. Specifically, our CapEx this year expected to be over 27 trillion KRW, a record high for the company, driven by our semiconductors and display businesses. As we stated during our last earnings call, we are focused on achieving solid earnings growth through normalizations of the mobile businesses, while improving earnings for components through expansion of V-NAND and OLED panels. We are confident in the future profitability of our business, and we'll continue to manage it for the long term. I'll ask Robert to share details of today's announcement.
Thank you, Dr. Kwon. Complementing our efforts to strengthen our core competencies, we remain committed to a strong long-term shareholder return program. In 2015, we announced a three-year initiative that has been well-received by the market. As of third quarter 2016, we completed four rounds of share repurchases totaling 11.4 trillion KRW, the largest in our company's history. Today, we are pleased to announce five enhancements to our shareholder return program that will deliver further shareholder value, which you will find outlined on slide number 9. First, we'll set the 2016 and 2017 percent of free cash flow allocated to shareholder return at 50%, which is at the top of the 30%-50% range we announced in 2015. Second, we'll increase 2016 total dividends by 30% compared to 2015, which would result in a total dividend amount of 4 trillion KRW.
Coupled with the reduction in the total number of shares from our recently completed 11.4 trillion KRW share repurchase program, 2016 dividends per share are expected to increase by 36% year-on-year to about 28,500 KRW. This represents a significant improvement in our dividend yield. Third, the remaining portion of 50% of free cash flow after the dividend payouts, plus 0.8 trillion KRW from 2015, will be used to repurchase shares starting at the end of January 2017. The repurchased shares will be canceled. Fourth, we will initiate quarterly dividend payment starting Q1 2017. This will provide more evenly distributed dividends to our shareholders. As we apply these changes, including the quarterly dividend payments, the total cash used for shareholder return in the calendar year 2017 could be a very significant amount. Finally, we'll seek to further enhance our capital allocation policy to improve the shareholder returns beyond 2017.
The specifics of the future policies will be determined following the outcome of the corporate structure review, which I will discuss later in the presentation. Looking forward, we'll continue to implement and improve our return policy, balancing the principles of investment for the long-term growth and sustainable shareholder value creation. At Samsung Electronics, we have a record of successful long-term capital management and have repeatedly demonstrated our ability to act decisively to create sustainable long-term value for all shareholders, as demonstrated by our improvements in total shareholder returns over extended periods and our shares outperforming the KOSPI. In order to seize compelling opportunities and operate our business efficiently and effectively, we need to be well-positioned to make large-scale capital investments, meet our working capital needs, invest decisively in groundbreaking technologies, and withstand challenges that inevitably arise in business environment.
We hold a view that maintaining a strong balance sheet that gives us the financial flexibility to pursue our long-term strategy goals through all economic cycle is very important for sustainable growth. This practice has proven successful over time and is clearly demonstrated by our ability to quickly rebound from and generate superior returns following the global financial and economic crisis of 2008. We have concluded that based on our historical and expected capital expenditures, required working capital, M&A, and other financing needs, achieving these objectives going forward will require maintaining a net cash balance of KRW 65 trillion-KRW 70 trillion on a sustained basis. This is roughly in line with global peers based on certain metrics, such as net debt to equity and % of total assets.
It is also important to note that our net cash requirements are also influenced by our ability to access overseas cash to fund shareholder returns and our commitment to maintaining leverage at a level consistent with our current credit ratings. We plan to review our cash position every three years to address business and economic developments and return excess cash beyond the target balance to shareholders. Looking at slide nine, Samsung Electronics' board is currently comprised of nine members, of whom five are independent. The independent board members have added significant value to the company, leveraging their extensive knowledge and experience in business, government, and academia. They are all leaders in their respective fields with diverse backgrounds in terms of sector experience in IT, financial markets, legal, public health, CSR, and public affairs. This has resulted in a highly positive and productive governance dynamic.
As part of our ongoing efforts to enhance shareholder value, the board has been evaluating our governance structure and, in particular, our board composition. We are very pleased to share with you the following upcoming developments. First, in recognition of the role that Samsung Electronics plays in global market, the board is pursuing plan to invite new board members with international corporate experience. With the help of our outside advisors, the board is reviewing a number of highly qualified candidates from diverse backgrounds. The goal is to nominate at least one candidate with a robust global C-suite experience in time for the candidate or candidates to be confirmed at the annual shareholders meeting in March 2017. Second, the board plans to further strengthen our corporate governance procedures at the board level by creating a new governance committee comprised of our independent board members.
The committee will address board decisions and proposals that are linked to enhancing shareholder value and will assume the responsibilities of the current corporate social responsibility committee. Currently, the board has six committees, and with the exception of the management committee, all of the committees are primarily comprised of independent directors. The new governance committee will be 100% independent. The board believes that these changes and ongoing efforts to enhance the overall diversity and breadth of the business experience on the board will reinforce our commitment to shareholders to create long-term sustainable value. We remain committed to simplifying our business over time. We are currently reviewing opportunities to optimize the value creation for our shareholders, including a possible holding company structure, and the potential benefits and feasibilities of listing our shares on additional international exchanges.
Determining the optimal structure is a highly complex undertaking with a significant strategic, operational, financial, legal, regulatory, tax, and accounting considerations. It would require multiple steps over an extended period of time. We have retained advisors to conduct a review of the optimal company structure, and based on discussions with them, we expect the review process will require at least six months. We want to be absolutely clear that the review does not indicate the management or the board's intention one way or another. We remain absolutely neutral at this point, and will make a decision only after the review is complete. Our primary consideration will be the extent to which any structure contributes to the long-term value creation for our stakeholders. With that, I would like to turn it over to Dr. Kwon for closing remarks.
Samsung Electronics has faced multiple challenges in 2016, all of us are committed to creating sustainable growth by overcoming current challenges and taking this opportunity to make a leap to the next level. Despite the uncertain global economic outlook in 2017 and heightened competition for our key products, we will continue our efforts to improve our performance by leading technology innovation and continue to invest to enhance our core capabilities. We have been, and will continue to be, responsible stewards of capital. We stand by our firm commitment to enhancing long-term sustainable value for all stakeholders, and strengthening our position as both the world's most respected semiconductor, OLED panel, smartphone, and consumer electronics manufacturer, and the world's most trusted technology company. We thank you for your continued interest in our business.
Thank you, Dr. Kwon. We will open the call to questions.
Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. The first question was presented by Mr. Peter Lee from NH Investment & Securities. Please go ahead, sir.
Thank you very much for the presentation. During the presentation, you mentioned that the required level of net cash balance is about 65 trillion KRW-70 trillion KRW. Can you give us the detailed grounds of how you reach that number?
예. 아시다시피 우리 회사가 투자가 많이 들어가는 회사인 줄은 잘 아실 거예요. 그래서 기본적으로 우리 CapEx가 올해도 27조 정도 되는데, CapEx하고 또 R&D 투자도 해야 되고, 또 저희들같이 규모가 큰 회사가 기본적으로 안정적인 운전 자금을 유지를 해야 되고, 또 M&A도 저희들 성장을 위해서 필수적인 겁니다.
As you know, Samsung Electronics is a company that requires a large level of investment. This year we've executed about 27 trillion KRW, or expected to execute about 27 trillion KRW of CapEx this year. There's also a large level of R&D investments that continue to go in. Also, as a very large scale company, we do require a certain level of working capital for a stable operation of the company. M&A is essential to guaranteeing continued growth of the company in the future.
이렇게 자금의 수요는 분명한데, 앞쪽에서 설명을 드렸지만 사실 우리가 주주 환원을 하든지, 투자를 하는 돈은 대부분 국내에서 이루어집니다. 근데 실제 저희들이 상당 규모의 현금을 갖고 있다고 하더라도 국내 보유 현금 규모는 저희들 총 현금 규모의 한 40% 정도밖에 안 됩니다. 그래서 결국 자금 수요를 충당하기 위해서는 돈을 차입을 하든지 이렇게 해야 되는데, 아시다시피 국내 차입 규모가 굉장히 시장이 제한적이라는 건 잘 알고 계실 겁니다. 따라서 저희들이 보유 현금을 안정적으로 갖고 있지 않으면 앞에 얘기했던 이런 수요를 충당하기가 굉장히 어려울 거라고 생각이 듭니다.
Given that need for such funds for investments as well as operation, another factor that needs to be considered is that most of the funds that are necessary for shareholder return as well as investments are executed in Korea. However, the amount of cash balance that we hold in Korea only accounts for about 40% of our total net cash balance. In order to fund such funding needs, we need to raise borrowings in Korea. As you know, the size of the funding market or the borrowing market in Korea is limited. Therefore, we need to maintain this level of net cash balance in order to have a smooth operation as well as to meet all of the fund demand in the future.
네, 다음 질문 받겠습니다.
다음으로 질문을 주실 분은 JPMorgan의 JJ Park입니다.
The next question is presented by Mr. JJ Park from JPMorgan. Please go ahead, sir.
예, 질문 기회 감사드립니다. 최근에 9조 원이 넘는 규모의 M&A 발표하셨는데요. 이게 2027년에 cash outflow가 되는 걸로 알고 있는데 이게 free cash flow가 줄어들면 배당이나 주주 환원 정책까지 감소하는 게 아닌지 궁금하고요. 기존에 말씀하신 게 현금 보유 목적 중 하나가 향후 M&A를 대비하기 위한 걸로 알고 있는데, 그러면 이런 대규모 M&A는 보유하고 있는 현금에서 지출되는 건지, 아니면 향후 free cash flow에서 지출되는 건지 궁금합니다. 감사합니다.
My question is about the M&A that was recently announced. The size of that M&A is estimated to be about KRW 9 trillion, and that cash outflow is to occur in 2017. I'm wondering whether this would cause decrease in the free cash flow expected next year, and would that actually have an impact of decreasing dividend as well as, or shareholder return, other shareholder return programs? The company has consistently maintained that one of the main objectives or the reasons for maintaining a net cash balance of that level was to fund future M&A deals. If so, would the M&A deal be funded from, or shouldn't it be funded from the existing net cash balance? Would it be funded from future free cash flow that will be generated next year?
9조 3천억을 기존 현금에서 지출하는 게 어떻겠느냐고 얘기하셨는데, 그것도 하나의 방법이라고 저는 생각합니다. 기본적으로 저희들이 시설 투자를 하든지, M&A 투자를 하는 거는 결국은 안정적으로 회사가 지속 성장하기 위한 거고, 또 배당을 하거나 자사주 매입을 하는 거는 주주 가치를 제고하기 위한 거 아니겠습니까? 좀 더 나눠서 얘기하면 시설 투자는 어떤 점에서는 직접적이고 단기적인 측면에서 수익성을 높이고 개선시키는 거고, M&A를 한다는 거는 장기적인 성장 동력과 수익성을 확보하자는 것이라고 생각됩니다.
You suggested perhaps using the existing cash balance to fund the KRW 9.3 trillion of the Harman acquisition. I think that is one of methods worth considering. When we look at the overall investments, there is the CapEx investments and the investments that we make as a part of M&A. Both are necessary to guarantee stable and sustained growth of the company in the future. On the other hand, dividends as well as share buybacks are there for the purposes of enhancing shareholder value. To compare CapEx investments versus M&A investments, CapEx investments would relatively bring growth or profitability more in the short term versus M&A investments, which are for more long-term growth and profitability.
결국 궁극적으로는 모든 게 주주 가치 제고에 기여할 수 있다고 저는 생각을 합니다. M&A에 투자된 자금은 결국은 회사 성장을 위한 우리가 갖고 있는 현금, 자산의 배분이라고 저는 생각을 하고요. 결국은 현금을 갖고 있든 M&A를 하든 시설투자를 하든 이 부분은 결국 저희들이 앞에서 쭉 설명을 했지만 저희들이 15, 16, 17년 했고 그다음에 18, 19, 20년, 3년마다 하는 장기 주주환원 정책상에서 저희들이 결정을 할 문제라고 저는 생각을 합니다. 그래서 예를 들어서 9조 3천억에 대해서 그 부분이 현금을 70%를 감소시키는 문제라고 그러면 내년 말에 가서 그게 적정 현금 수준을 초과하는 부분에 대해서는 주주환원에 활용을 하겠습니다.
Eventually, ultimately, whether it's CapEx investments, M&A investments or dividends or share buyback, they are all methods to enhance shareholder value, and the objective is to enhance shareholder value. M&A investments are also another form of capital allocation to enable the growth of the company. How much to carry as cash versus M&A versus other methods of shareholder return? That will, I think, should be better addressed as a part of our long-term three-year shareholder return policy. We have the program for 2015, 2016, and 2017, and then there will be the 2018, 2019, and the three-year program, and that will be the long-term three-year program within which we will determine the optimum level of how to allocate our capital.
If the KRW 9.3 trillion that's necessary for the acquisition will have an impact on the free cash flow, I think that we will be able to address by looking at our net cash balance at the end of next year, 2017, and address that as a part of our three-year long-term program, according to which we will be using whatever cash that exceeds the required cash balance for shareholder return.
예, 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 한국투자증권의 유종우 님입니다.
The next question will be presented by Mr. Yoo Jong-woo from Korea Investment & Securities. Please go ahead, sir.
예, 한국투자증권 유종우입니다. 오늘 설명 감사드리고요. 저는 지주회사 전환 관련돼서 좀 여쭤보겠습니다. 검토하는 데 최소한 6개월 정도 시간이 걸린다고 말씀을 하셨는데, 저희 시장에서 예상하는 기간보다는 조금 시간이 더 많이 걸리는 것 같습니다. 이렇게 시간이 많이 걸리는 배경에 대해서 좀 자세하게 설명해 주시면 감사하겠습니다.
Conversion to the holding company structure. You've mentioned during the presentation that you expect that at least six months would be necessary for examining and reviewing that plan or possibility, which appears to be longer than what the market had expected it would take. Can you give us a bit more detail of why it's taking so long to review that option?
저도 전문가가 아니라서 정확하게 어느 정도 걸리는지는 정확히 모르겠습니다. 근데 최근에 여러 사람들 자문을 받아봤는데 사실 지주회사로 가면 지주회사하고 사업회사를 분할을 해야 되는데, 그럼 결국은 저희들이 갖고 있는, 삼성전자가 갖고 있는 현금을 비롯한 모든 자산을 배분을 해야 안 되겠습니까? 그다음에 또 우리나라 법에 따라서 지주회사로 전환되면 저희들이 갖고 있는 관계사 보유 주식에 대해서 새로 사는 것도 있고, 또 처분하는 것도 있고, 또 지주회사 재무구조도 검토를 해봐야 되고. 또 지주회사를 만들 때 세금하고 관련되는 부분도 굉장히 복잡하더라고요. 그래서 이런 부분을 지금 얘기를 종합적으로 검토를 해야 된다고 생각을 합니다. 그냥 단순히 정부적인 판단으로 지주회사를 해야 된다, 안 해야 된다는 차원을 넘어서 이거는 굉장히 실무적인 일이기 때문에 시간이 굉장히 많이 걸릴 거라고 생각이 듭니다. 근데 저희들이 예상은 6개월 이상 안 걸리겠냐고 생각은 하지만 빨리 이 검토가 끝나면 빨리 검토되는 대로 주주 여러분들한테 답변을 드리겠습니다.
Well, I'm not an expert in that area either, so I don't know exactly how much it would take. We have been, as we mentioned, been receiving consulting and advice from many of the people who are experts in the relevant fields. It seems this conversion to, for example, a holdco or opco structure itself pertains or actually involves various complicated matters. For example, if the company is split into a holdco and an opco, the cash, for example, would also have to be divided between the 2 levels. Also, under Korean law, if the company decides to go to a holding company structure, that would also mean there will have to be some share stock transactions, buying and selling, related with the shares that the company currently holds in its affiliated companies.
Also, we would need to design and draw out the financial structure of the holding company, and also this conversion to the holding company involves various complicated issues related with taxes. So according to the advice that we have been currently receiving, we have realized that a very comprehensive examination and study would be necessary before making any decision. That because this is a matter not to be decided based on principle, whether we will convert or not, but actually there has to be, in advance, a very detailed review and examination of all of the matters at a very practical working level before reaching a decision. That's why we're expecting this review process would take at least six months. Of course, when actually the review, it may be that the review may be concluded faster than we expect.
If so, we will make sure to inform our shareholders of the results of such review as soon as possible. Yeah. The next questions will be presented by Mr. Dohun Lee from CIMB. Please go ahead, sir. I have a follow-up question to the corporate governance structure, the conversion to the holding company structure. If the company decides to convert to a holding company structure, is it also considering a future merger of the holding company with Samsung C&T, as was suggested by Elliott? The current scope of our study and review regarding the possibility of converting to a holding company structure, or our current scope of review is limited to converting Samsung Electronics to a holding company structure and the impact that may have.
We're doing this review from a neutral perspective and, currently, we are not considering the impact of, for example, merging Samsung C&T with a holding company. Yeah. The next questions will be presented by Mr. Nicolas Gaudois from UBS. Please go ahead, sir.
Yes. Good morning. Thanks for taking my question. Effectively, a follow-up on your discussion on M&A and cash returns. Just to be clear, if we take next year, if we assume the HARMAN deal closes, if the net cash balance would exceed your target of KRW 70 trillion by the end of 2017, after the completion of this acquisition, does this actually mean that you would revise the percentage of free cash flows of 2017 to be distributed in 2018? I revise it up. Thank you.
To clarify, what our CFO mentioned previously, is that at the end of 2017, we will look at the net cash balance of the company, and whatever exceeds the level of between KRW 65 trillion-KRW 70 trillion will be used as special shareholder return program, whether it be in the form of dividend or share buyback. That does not mean that the percentage of free cash flow that will be used for shareholder return from 2018 and after will be raised.
아까 말씀드린 대로 2018년 이후에 지주 전환에 대한 세부적인 내용은 우선 지주 회사 전환 여부 검토가 완료된 후에 다시 세부적으로 결정해서 시장에 공유하도록 하겠습니다.
Regarding the details of the shareholder return program that will be effective from 2018 and onward, we will share that once again with the market when the details are decided, but that will be decided after the company reaches a decision regarding the conversion to a holding company structure.
Great. Thank you.
다음으로 질문해 주실 분은 Daiwa Capital Markets의 SK Kim입니다.
The next questions will be presented by Mr. SK Kim from Daiwa Capital Markets. Please go ahead, sir.
네, 안녕하세요. 지주 전환 관련해서 최고 경영진께서 상세하게 발표랑 설명해 주셔서 감사합니다. 저는 기업 지배구조 관련해서 질문이 한 가지 있는데요. 지금 이사회의 IT 전문성이 상대적으로 부족하다는 지적이 있는데요. 이 부분에 대한 회사 입장은 어떻게 되시는지 설명 부탁드리겠습니다.
Thank you very much for the top management explaining in detail the shareholder return program. Personally, I have a question regarding with the corporate governance structure, specifically the BOD. There are some views that the current Samsung Electronics board of directors relatively lack expertise in the IT field. What does the company feel regarding this view?
현재 삼성전자 이사회는 IT 분야에서 풍부한 경험을 보유했다고 생각합니다. 사내 이사분들은 입사해서 지난 수십 년간 반도체, 디스플레이, IM, 생활가전 등 다양한 사업 분야에서 사업 운영 및 R&D 경험을 축적하셨습니다. 이러한 경험을 바탕으로 회사가 다양한 기술 분야를 선도하는 데 크게 기여하셨고, 앞으로도 회사의 미래를 이끌어 가기 위한 충분한 역량을 갖췄다고 판단합니다.
Well, I believe that our board of directors actually represents a very rich IT experience and expertise, especially our standing directors who have, during the past several decades, been working in the company in various fields, including semiconductors, mobile display, and consumer electronics. They have also had R&D experience in these areas as well, and they have been able to significantly contribute in making the company a technology leader in various fields. I believe that they will also be able to make such contributions in the future.
또한 이사회에는 국제 전기전자협회 산하 통신학회 회장을 역임하시는 등 IT 분야에서 풍부한 경험을 보유하신 사외이사도 있으십니다. AT&T Bell Labs에서 연구원으로 계셨고, 또 한국에서 통신학회 회장, 방송통신위원회 위원도 거쳐셨으며, 이제는 서울대학교 전기공학부 교수로 계셔서 많은 존경을 받고 계십니다. 향후 이사회의 다양성 및 글로벌 사업 경험을 지속적으로 축적하도록 저희들이 노력하겠습니다.
We have independent directors who have experience in the field. We have, for example, an independent director who served as a chair of the Korean Electric Industry or Electric Society also, who was a member at the AT&T Bell Labs, who was also a standing member of the Korea Communications Commission, and is a professor of electronic engineering at Seoul National University, and very respected in the area. We will continue to, of course, enhance the expertise represented in our board of directors.
네, 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 Macquarie Securities의 Daniel Kim입니다.
The next question will be presented by Mr. Daniel Kim from Macquarie Securities. Please go ahead, sir.
감사합니다. Macquarie Securities의 김동환입니다. 분기 배당에 대해서 여쭙고 싶은데요. 제가 잘 들었는지 모르겠는데, 2017년에 하는 분기 배당이 매 quarter별로 비슷한 금액으로 되는 건지, 아니면 여전히 연말에 많은 부분이 배당이 되는 건지. 안 그러면, 분기 배당을 정하는 데 있어서 어떤 formula나 rationale이 있는지 설명을 해주시면 감사하겠습니다.
I ask the question regarding your plans of paying out quarterly dividends next year. If the dividends are paid out on a quarterly basis, would a similar amount be paid out each quarter? Will we still get a larger amount at the end of the year? I guess another way of answering the question would be to tell us if you have a specific formula or plan regarding how to calculate the quarterly dividends.
기본적으로 분기 배당 형태나 금액은 이사회에서 결정을 하겠지만 현재 저희들 생각은 원래 우리 배당 규모가 4조니까 내년에는 그 4조를 기준으로 해서 매 분기별 1조씩 배당을 하고요. 똑같은 금액을 하고, 3분기 끝나고 난 뒤에
내년 말, 18년 초에 최종적으로 17년 성과를 계산을 해서 추가액에 대해서는 4분기 배당에서 조정을 하겠습니다.
Of course, the form as well as the amount of dividends are decisions to be made by our board of directors. Our current thoughts regarding the quarterly dividends is to first base it on this year's 2016's dividend size, which will be around KRW 4 trillion. We will divide that into quarters, 25% each for each quarter. The same amount being paid out for the first quarter dividend, second quarter and third quarter dividend. At the end of third quarter payout or at the end of next year, we will have a better idea of the 2017 performance and any additional amount to be adjusted will be added to the dividend payout for the fourth quarter, which will be paid out in the early 2018.
네, 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 대신증권의 김경민 님입니다.
The next questions will be presented by Ms. Claire Kyung Min Kim from Daishin Securities. Please go ahead, ma'am.
질문 기회 주셔서 감사드립니다. 이번에 거버넌스 위원회가 신설된다고 말씀해 주셨는데요. 장기 투자자 관점에서 현금 배당 못지않게 중요한 의사결정이라고 생각됩니다. 주요 역할과 구성원에 대해서 자세한 설명 부탁드리겠습니다.
You've also mentioned that under the board of directors, a governance committee will be set up newly. From a long-term investor's perspective, this is an important decision. Corporate governance is an important factor to consider in addition to, for example, any cash dividend payout. Can you give us some details of the role of this committee as well as who will be members of this governance committee?
거버넌스 위원회라는 위원회는 지금 현재 글로벌 기업들이 대부분 다 채택하고 있는 그런 위원회로 알고 있고요. 어쨌든 전체적인 scope은 주주 가치에 중대한 영향을 미치는 경영 사항에 대한 모든 부분에 있어서 사전에 심의하고 검토해서 그 의견을 이사회에 제출하는 그런 역할을 가지게 되겠습니다. 그래서 이런 위원회의 결성을 통해서 특히 외부적인 주주들과의 소통도 활성화하고, 또 기존에 저희 이사회 내에 있었던 CSR 위원회 역할까지도 담당을 해서 기업의 전체적으로 사회적인 책임이라든지, 또 주주와의 관계라든지, 상생 경영이라든지, 이런 모든 부분에 대한 감독과 조언 역할을 겸할 것으로 기대하고 있습니다. CSR 위원회가 그랬듯이 거버넌스 위원회도 전체 사외이사 전원이 참여해서 활동하는 그런 구조로 지금 구상을 하고 있습니다. 구체적인 내용은 다음 3월 정기 주총 시점에 다시 공유드릴 계획입니다.
The governance committee is actually a subcommittee that many global companies have already adopted. Basically, the mandate of the governance committee is that it will review in advance any important business matters that will have impact on shareholder value and to submit its opinion on these matters to the main board of directors. The governance committee will also facilitate communication with outside stakeholders, including shareholders. Also, the existing role of the corporate social responsibility, the CSR committee, will be taken on by this newly established governance committee. The governance committee will be able to play a supervising role in affairs related with corporate social responsibility, relationship with our shareholders, and also other matters. As was the corporate social responsibility committee, the CSR committee, the governance committee will also be consisting of all independent board members.
The details of this committee, I think we'll be able to give you an update after the general shareholders meeting in March.
네, 감사합니다. 다음 질문.
다음으로 질문해 주실 분은 골드만삭스의 마커스 신입니다.
The next questions will be presented by Mr. Marcus Shin from Goldman Sachs. Please go ahead, sir.
네, 구체적인 설명 감사드립니다. 많은 투자자분들한테 많은 도움 될 것 같은데요. 저는 해외 증시 상장 가능성에 대해서 여쭤보고 싶습니다. 구체적으로 미국 증시에 상장하실 계획이 있으신지, 그리고 시기가 어느 정도 될지에 대해서 설명 부탁드리겠습니다. 감사합니다.
I have a question regarding the possibility of listing in an overseas security exchange, specifically the U.S. securities exchange. Are you considering this? When would that be in terms of timing? When do you think such a listing would be possible?
저희가 미국 증시 상장에 대해서는 지난 수년 동안 지속적으로 검토해 온 내용인데요. 일부에서 얘기하듯이 미국 증시에 상장할 경우 삼성 브랜드에 대한 마케팅 효과가 있을 수도 있다는 긍정적 부분도 있을 수 있다고 생각은 합니다. 하지만 어쨌든 미국 증시 상장이 중요한 혜택으로는 기업의 가치 제고로 봐야 될 텐데 현재 국내 증시가 아직도 MSCI 선진 지수에 포함되지 않은 상황에서 미국 증시 상장이 얼마만큼의 새로운 재원을 갖고 들어올 수 있을까? 또 이런 부분들이 정말 장기적인 revaluation이 일어날 수 있을까라는 부분에 대한 불확실성이 아직도 너무 크다고 생각합니다. 어쨌든 지금 미국 증시 상장이 지주 회사 전환 이후에 사업 회사에 대한 부분으로 생각할 수도 있기 때문에, 이 부분은 지주 회사 전환 여부가 결정된 후에 조금 더 세부적으로 검토해서 결정하도록 하겠습니다.
The company has been considering listing in the U.S. stock exchange for the past several years. Some say that such a listing would have positive effects, including enhancements or improvements in the marketing effects, such as enhanced brand power of Samsung. I think ultimately the objective of listing in the U.S. stock exchange would be to achieve enhanced enterprise value. Given the fact that Korea is still not included in the MSCI developed market index, there are still question marks regarding how much of additional demand such a listing could attract to the company, as well as various uncertainties that such a listing may bring. Whether, for example, the expected revaluation could actually occur through such a listing.
Also, because the listing at a foreign stock exchange could be considered for the operating company under the assumption that the company decides to convert to a holding company and operating company structure. I think any decision whether to list on an overseas stock exchange will have to be reached after the company decides whether to convert to a holding company or not.
네, 이제 마지막 두 개 질문 받고 끝내겠습니다.
We'll take two more questions before we end the conference call.
다음으로 질문해 주실 분은 BNP Paribas의 Peter Yoo입니다.
The next questions will be presented by Mr. Peter Yoo from BNP Paribas. Please go ahead, sir.
안녕하세요. 먼저 삼성전자 경영진 여러분께 이런 주주 가치 향상을 위해 노력해 주셔서 감사하다는 말씀을 드리고 싶습니다. 굉장히 좋은 이벤트인 것 같고요. 약간 구체적인 질문을 몇 가지 드리고 싶은데요. 이 free cashflow의 50%를 주주 환원한다고 하실 때, 이 free cashflow 계산하실 때 이런 외부 M&A 금액을 다 계산한 차감한 금액을 말씀하시는 건지는 궁금하고요. 예컨대, Harman 같은 경우도 올해 30억 불의 자금이 나가고 내년에 50억 불의 자금이 나가는 걸로 알고 있습니다. 그래서 그 자금을 free cashflow에서 차감하고 나머지 부분을 주주 환원하는 건지 그게 좀 궁금하고요. 그다음에 환원한 부분의 얼마만큼을 배당분, 나머지를 자사주 매입 소각으로 split 하실 계획이신지, 그런 포뮬러 같은 게 있으신지 궁금합니다.
I have a question regarding the plans of using 50% of the free cash flow as shareholder return. One question is whether that free cash flow, 50% of which will be used for shareholder return, would be after taking out any funds necessary for additional M&A. The Harman deal is expected to require about $3 billion USD this year and about $5 billion additional USD next year for the deal funding. Would that be taken out from the free cash flow before the 50% is calculated? That's the first question. Second, the 50% of the free cash flow will be used for shareholder return, I'm assuming either dividends or share buyback. Does the company have a formula, for example, of how much of that 50% will be used for dividend payout versus share buyback?
글쎄요. 질문하신 내용에 대해서는 아까 미리 Q&A 세션에서도 이상훈 사장께서 말씀을 드린 것 같은데, 어쨌든 다시 한번 간단히 말씀드리면 저희가 작년에 발표했던 그 주주 환원 기준에서 얘기했던 free cash flow는 일반적으로 이해하고 있는 회계 기준에서 규정하고 있는 영업 현금 흐름에서 시설 투자와 M&A 등 투자 현금 흐름을 차감한 금액입니다. 그래서 그 부분에 대해서는 명확하게 저희 회사 마음대로 결정하는 게 아니고 회계 기준에서 정하고 있는 내용을 따른다고 이해하시면 될 겁니다.
Regarding the first part of the question, I think our CFO also had explained in the previous Q&A that the free cash flow that is used as a part of the shareholder return program that we announced last year is the accounting standard free cash flow, which is the operating cash flow minus any CapEx as well as M&A required cash. That is the accounting standard. The accounting free cash flow is what is used for the shareholder return program that we announced last year.
그리고 질문하신 내용 중에 한 가지 수정 사항이 있는 부분이 아까 $3 billion을 올해 하고 나머지를 내년에 한다고 말씀을 하셨는데 그거는 틀린 말씀이고요. Harman 인수건에 대한 settlement는 전체가 내년에 발생합니다.
I think I need to correct one of the points that you made during the question. You've suggested that $3 billion USD will be required this year and $5 billion will go out next year. Actually, all of the settlements related with the Harman deal will be executed next year.
배당 관련해서는 아까도 저희 스피치에서 말씀을 드렸지만 2016년에 저희가 4조로 30% 상향을 하고, 그리고 17년부터는 또 다른, 배당이라는 거는 기본적으로 원칙상 가능하면 줄이지 않고 늘려나가는 그런 게 배당에 대한 시장에서 인식하는 정책이기 때문에 현재로서는 다른 formula가 있지는 않고요. 그런 concept을 통해서 우리가 장기적으로 추구하는 그런 시가 배당률이라고 그럴까요? 그러한 생각을 가지고 운영을 할 계획입니다.
Regarding the dividend, this year 2016, we are planning a KRW 4 trillion dividend payout, which is about 30% increase from what the dividends that were paid out last year. I think the market also expects that one of the principles that govern dividend practices is that if possible, not to decrease the dividend, to at least sustain or to increase dividends. The company will respect that market principle. That is the view that we have towards our long term dividend policies. We will also be considering dividend yield as we decide our dividends.
네, 그럼 마지막 질문 하나 더 받겠습니다.
마지막으로 질문해 주실 분은 삼성증권의 황민성 님입니다.
The last questions will be presented by Mr. Hwang Min Sung from Samsung Securities. Please go ahead, sir.
네, 질문 기회 감사드립니다. 앞서 나온 질문 중, HMM이 내년에 전부 인식된다라고 하면 올해 3분기까지 누적 free cash flow가 거의 23조인데요. 그러면 올해 전체 free cash flow는 CapEx가 4분기에 많이 집행됐다 하더라도 최소한 20조 이상을 보고 있는 것이 맞는지 좀 확인 부탁드리고요. 두 번째는 배당을 늘리고 하는 거는 물론 주주환원에 긍정적이고 오늘 좋은 프로그램을 많이 말씀을 해주셨는데, 올해 최대의 CapEx를 하고 또 11조 특별 자사주를 했는데도 현금은 증가를 하고 있습니다. 결국 장기적으로 ROE는 하락할 수 있다라는 우려를 떨칠 수가 없는데요. 이 장기적인 ROE 타겟은 얼마로 가지고 계시고, 이거를 맞추기 위한 정책은 어떤 생각을 가지고 계신지 부탁드립니다.
I have two questions. The first question is that you mentioned that all of the cash out regarding the Harman deal will be recognized next year in 2017. When we looked at the company's accumulated cash flow at the end of third quarter this year, it stands at KRW 23 trillion of cash flow up till third quarter end. Even if a large portion of the CapEx this year will be spent in the fourth quarter, can the company confirm that the company would have at least a free cash flow of KRW 20 trillion at the end of 2016? Would that be a right estimation? Second question is, yes, increasing dividend is a positive factor to shareholder return, we do appreciate that the company introduced various positive shareholder return programs today.
However, even though the company spent a record level of CapEx this year, even though the company went through KRW 11 trillion of special shareholder return program, that share buyback program, still the company has ended up having more cash at the end of the year than the year before, which makes me concerned about long-term prospects of the company's ROE. Wouldn't this mean that the ROE in the long term will continue to decline? In that context, my question is, does the company have a long-term ROE target? If so, what are the specific plans that the company has in mind in order to achieve these long-term ROE targets?
올해 cash flow를 아직 연도가 안 끝나서 정확하게 모르겠는데 20조 넘을 거라고 예상을 해주셔서 저도 그렇게 됐으면 좋겠습니다. 지금은 아직까지는 저희들 투자가 4분기에 많이 몰려 있고 그래서 정확하게 지금 판단은 하기에는 좀 어렵습니다.
Well, we have not ended the calendar 2016 yet, so we cannot have an accurate estimation of our free cash flow at the end of the year. I hope you are correct in your predictions that we do successfully end the year at more than KRW 2 trillion of free cash flow. As you mentioned, we do have a lot of our CapEx investments being executed in the fourth quarter. So at this point, we do not know exactly the free cash flow that we will have generated this year.
두 번째, 장기적인 ROE 타겟이 있느냐라고 질문을 하셨는데, 그 얘기하고 바로 동전의 양면이지만 저희들이 아까 설명한 적정 현금 규모라고 하는 거하고는 같은 얘기 아니겠습니까? 저희들이 이제 65조 내지 70조를 지금 적정 현금 규모라고 얘기했는데, 이 부분도 사실은 저희들이 15, 16, 17년 얘기를 하면서 적정 현금 규모라고 얘기하는 거고, 18, 19, 20년 다시 장기 주주 환원 정책을 할 때는 그 규모가 회사의 규모나 투자 성향에 따라서 달라질 수 있지 않겠습니까? 그래서 제 생각에는 지금 저희들이 얘기하고 있는 65조, 70조의 현금 규모를 저희들이 설명한 대로 생각을 해주신다 그러면 저희들 그 적정 현금 규모를 초과하는 부분은 내년 말, 그다음에 앞으로도 언제든지 주주 환원에 활용을 하고 반드시 그렇게 할 겁니다.
Regarding the second part of the question of our long-term ROE target, I think the long-term ROE target is the other side of the same coin towards the required level of cash that we've been mentioning as KRW 65 trillion-KRW 70 trillion. That KRW 65 trillion-KRW 70 trillion of required cash was calculated as a part of our three-year long-term shareholder return program that covers 2015, 2016, and 2017. Now, the next set of three-year plans that will cover 2018, 2019, and 2020 may have a different level of required cash, depending on the size of the company at that point, as well as the investments that the company wants to make.
If you understand the KRW 65 trillion-KRW 70 trillion of required cash from that context, I think what we can say is that definitely if there are any cash that exceeds what we believe is the required level of cash, net cash balance, that will be paid out for shareholder returns, either at the end of next year or any time in the future.
네, 감사합니다. 이것으로 오늘 컨퍼런스 콜을 마치고 참석해 주신 여러분들께 감사드립니다.
That completes today's conference call. Thank you very much for joining us.