As filed with the Securities and Exchange Commission on June 29, 2020

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F/A

(Amendment No. 1)

 

 

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

For the transition period from                      to                     

Commission file number 001-37821

 

 

LINE Kabushiki Kaisha

(Exact name of Registrant as specified in its charter)

 

 

 

LINE Corporation   Japan
(Translation of Registrant’s name into English)   (Jurisdiction of incorporation or organization)

JR Shinjuku Miraina Tower, 23rd Floor

4-1-6 Shinjuku

Shinjuku-ku, Tokyo, 160-0022, Japan

(Address of principal executive offices)

Satoshi Yano

Telephone: +81-3-4316-2050; E-mail: ir@linecorp.com; Facsimile: +81-3-4316-2131

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

American Depositary Shares, each representing   LN   New York Stock Exchange, Inc.
one share of common stock    
Common Stock*     New York Stock Exchange, Inc.*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

As of December 31, 2019, there were 241,133,142 shares of common stock outstanding

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer               Accelerated filer               Non-accelerated filer               Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

U.S. GAAP              International Financial Reporting Standards as issued by the International Accounting Standards Board              Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17      Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

*

Not for trading, but only in connection with the registration of the American Depositary Shares.

 

 

 


EXPLANATORY NOTE

This Amendment No. 1 to Form 20-F (the “Form 20-F/A”) amends LINE Corporation’s Annual Report on Form 20-F for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission on March 27, 2020 (the “Annual Report”).

We are filing this Form 20-F/A to include the financial statements and related notes of Snow Corporation as part of the Annual Report in compliance with Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended (“Rule 3-09”). Rule 3-09 requires that separate financial statements for unconsolidated subsidiaries and investees accounted for by the equity method be included in a registrant’s Form 20-F when such entities are individually significant. We have determined that our equity method investment in Snow Corporation, which is not consolidated in our financial statements included in the Annual Report, was significant under Rule 3-09 for the years ended December 31, 2017 and December 31, 2018. This Form 20-F/A is, therefore, filed to supplement the Annual Report with the financial statements and related notes of Snow Corporation as of December 31, 2018 and December 31, 2019, and for the years ended December 31, 2017, December 31, 2018 and December 31, 2019 (collectively, the “Snow Corporation Financial Statements”), which are included in this Form 20-F/A as Exhibit 15.1. In accordance with Rule 3-09, only the Snow Corporation Financial Statements for the year ended December 31, 2017 and as of and for the year ended December 31, 2018 are required to be audited. The Snow Corporation Financial Statements as of and for the year ended December 31, 2019 are unaudited.

In addition, this Form 20-F/A amends the risk factor entitled “Investors holding less than a full ‘unit’ of shares will have limited rights as shareholders” under “Item 3.D. Risk Factors—Risks Related to Shares of our Common Stock and Our ADSs” in the Annual Report to delete the statement that holders of American Depositary Shares, each representing one share of our common stock (“ADSs”), are only permitted to surrender ADSs and withdraw underlying shares of our common stock constituting whole units of our common stock. The ADSs are not subject to such a restriction.

This Form 20-F/A does not reflect events occurring after the filing of the Annual Report and only updates the Annual Report as specifically set forth in this Form 20-F/A. No other updates, amendments or changes have been made to the Annual Report. The filing of this Form 20-F/A should not be understood to mean that any statements contained in the Annual Report, as amended by this Form 20-F/A, are true or complete as of any date subsequent to the original filing date of the Annual Report. Accordingly, this Form 20-F/A should be read in conjunction with the Annual Report.

 

1


PART I

 

Item 3.D.

Risk Factors

The following risk factor in Item 3.D. of LINE Corporation’s Annual Report on Form 20-F for the year ended December 31, 2019 is hereby amended and restated in its entirety as follows:

Investors holding less than a full “unit” of shares will have limited rights as shareholders.

Our articles of incorporation provide that 100 shares of our common stock constitute one “unit.” The Companies Act imposes significant restrictions and limitations on holders of shares of our common stock that do not constitute a whole unit. In general, holders of shares of our common stock constituting less than one unit do not have the right to vote with respect to those shares. For further discussion of the unit share system and its effect on the rights of our shareholders, see “Item 10.B. Memorandum and Articles of Association.”

 

2


PART III

 

Item 17.

Financial Statements

Not applicable

 

Item 18.

Financial Statements

Item 18 of the Annual Report is amended and supplemented by including the Snow Corporation Financial Statements as Exhibit 15.1 hereto.

 

3


Item 19.

Exhibits

Item 19 of the Annual Report is amended by the addition of the following exhibits:

 

12.1

         

Certification by the Principal Executive Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002

12.2

         

Certification by the Principal Financial Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002

13.1

         

Certification by the Principal Executive Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002

13.2

         

Certification by the Principal Financial Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002

15.1

         

Consolidated Financial Statements of Snow Corporation as of December  31, 2018 (audited) and December 31, 2019 (unaudited) and for the years ended December 31, 2017 (audited), December 31, 2018 (audited) and December 31, 2019 (unaudited).

 

4


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

LINE Corporation

(Registrant)

/s/ In Joon Hwang

Name: In Joon Hwang

Title: Chief Financial Officer

Date: June 29, 2020

EX-12.1

Exhibit 12.1

Certification by the Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Takeshi Idezawa, Chief Executive Officer of LINE Corporation (the “Company”), certify that:

 

1.

I have reviewed this annual report on Form 20-F, as amended by Amendment No. 1 thereto, of the Company;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4.

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  (a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the board of corporate auditors (or persons performing the equivalent functions):

 

  (a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: June 29, 2020

 

By:

 

/s/ Takeshi Idezawa

 

Name: Takeshi Idezawa

 

Title: Chief Executive Officer

 

EX-12.2

Exhibit 12.2

Certification by the Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, In Joon Hwang, Chief Financial Officer of LINE Corporation (the “Company”), certify that:

 

1.

I have reviewed this annual report on Form 20-F, as amended by Amendment No. 1 thereto, of the Company;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4.

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  (a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the board of corporate auditors (or persons performing the equivalent functions):

 

  (a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: June 29, 2020

 

By:

 

/s/ In Joon Hwang

 

Name: In Joon Hwang

 

Title: Chief Financial Officer

 

EX-13.1

Exhibit 13.1

Certification by the Principal Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Takeshi Idezawa, Chief Executive Officer of LINE Corporation (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

   

the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2019, as amended by Amendment No. 1 thereto (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

   

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

Date: June 29, 2020

 

By:

 

/s/ Takeshi Idezawa

 

Name: Takeshi Idezawa

 

Title: Chief Executive Officer

EX-13.2

Exhibit 13.2

Certification by the Principal Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, In Joon Hwang, Chief Financial Officer of LINE Corporation (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

   

the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2019, as amended by Amendment No. 1 thereto (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

   

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

Date: June 29, 2020

 

By:

 

/s/ In Joon Hwang

 

Name: In Joon Hwang

 

Title: Chief Financial Officer

EX-15.1

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, which comprise the consolidated statement of financial position as of December 31, 2018 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 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.

Other Matter

The accompanying consolidated statement of financial position of SNOW Corporation and its subsidiaries as of December 31, 2019, and the related consolidated statements of profit or loss, comprehensive loss, changes in equity and cash flows for the year then ended were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

June 27, 2019

 

1


Snow Corporation

Consolidated Statements of Financial Position

 

         

(In thousands of Korean won)

 

 
     Notes    December 31,
2018
    December 31,
2019
(Unaudited)
 

Assets

       

Current assets

       

Cash and cash equivalents

   6, 20      104,258,127       65,190,852  

Trade and other receivables

   7, 13, 18, 20      4,864,462       6,750,039  

Other financial assets, current

   13, 20      800,000       2,937,829  

Other current assets

   10      3,437,537       7,843,829  
     

 

 

   

 

 

 

Total current assets

        113,360,126       82,722,549  
     

 

 

   

 

 

 

Non-current assets

       

Property and equipment

   5, 8      4,669,914       4,713,505  

Right-of-use assets

   5, 15      —         11,595,549  

Goodwill

   5, 9      2,525,462       2,525,462  

Other intangible assets

   5, 9      717,651       1,104,437  

Investments in associates and joint ventures

   25      3,972,610       7,766,898  

Other non-current financial assets

   13, 21      15,913,064       17,776,440  

Other non-current assets

   10      4,935,023       361,615  
     

 

 

   

 

 

 

Total non-current assets

        32,733,724       45,843,906  
     

 

 

   

 

 

 

Total assets

        146,093,850       128,566,455  
     

 

 

   

 

 

 

Liabilities

       

Current liabilities

       

Trade and other payables

   13, 20      9,089,468       10,616,471  

Other financial liabilities, current

   13, 20      4,459,624       5,635,160  

Lease liabilities, current

   15, 17, 20      —         7,238,164  

Income tax payables

   12      —         2,908,945  

Advances received

   18      596,818       1,783,863  

Other current liabilities

   10      5,154,875       13,401,636  
     

 

 

   

 

 

 

Total current liabilities

        19,300,785       41,584,239  
     

 

 

   

 

 

 

Non-current liabilities

       

Other financial liabilities, non-current

   13, 20, 21      74,009,538       84,534,524  

Lease liabilities, non-current

   15, 17, 20      —         13,595,325  

Deferred tax liabilities

   12      1,273,600       153,467  

Provisions, non-current

   11      675,444       804,640  

Defined benefits liabilities

   14      10,978,932       19,512,964  

Other non-current liabilities

   10      —         8,799  
     

 

 

   

 

 

 

Total non-current liabilities

        86,937,514       118,609,719  
     

 

 

   

 

 

 

Total liabilities

        106,238,299       160,193,958  
     

 

 

   

 

 

 

Shareholders’ equity

       

Share capital

   16      5,012,065       5,847,485  

Share premium

   16      236,741,078       306,583,103  

Accumulated deficit

        (199,434,330     (337,899,014

Accumulated other comprehensive loss

        (793,042     (2,876,946
     

 

 

   

 

 

 

Equity attributable to the shareholders of the Company

        41,525,771       (28,345,372
     

 

 

   

 

 

 

Non-controlling interests

   24      (1,670,220     (3,282,131
     

 

 

   

 

 

 

Total shareholders’ equity

        39,855,551       (31,627,503
     

 

 

   

 

 

 

Total liabilities and shareholders’ equity

        146,093,850       128,566,455  
     

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

2


Snow Corporation

Consolidated Statements of Profit or Loss

 

         (In thousands of Korean won)  
    Notes    2017     2018     2019
(Unaudited)
 

Revenues

  5, 18      2,734,378       13,166,879       23,543,159  

Operating expenses:

        

Payment processing and licensing expenses

       (705,899     (2,959,209     (4,491,741

Employee compensation expenses

  14      (21,567,930     (37,723,838     (67,099,897

Marketing expenses

       (41,242,506     (49,601,580     (54,063,364

Infrastructure and communication expenses

       (221,622     (912,879     (2,215,299

Outsourcing and other service expenses

       (9,507,888     (14,784,211     (20,243,669

Depreciation and amortization expenses

  8, 9, 15      (487,403     (1,035,930     (6,458,733

Other operating expenses

  19      (3,832,886     (10,369,897     (5,113,199
    

 

 

   

 

 

   

 

 

 

Total operating expenses

       (77,566,134     (117,387,544     (159,685,902
    

 

 

   

 

 

   

 

 

 

Loss from operating activities

       (74,831,756     (104,220,665     (136,142,743

Finance income

  19      586,181       8,429,867       2,635,832  

Finance costs

  19      (819,201     (6,885,505     (10,250,593

Share of loss of associates and joint ventures

  25      (158,587     (3,703,485     (1,642,370

Loss on foreign currency transactions, net

       (123,242     (30,340     (864,929

Other non-operating income

  19      198,418       1,151,994       14,144,223  

Other non-operating expenses

       (1,012     (89,448     (1,042,969
    

 

 

   

 

 

   

 

 

 

Loss before tax

       (75,149,199     (105,347,582     (133,163,549

Income tax expenses

  12      (725,724     (1,281,001     (1,883,683
    

 

 

   

 

 

   

 

 

 

Loss for the year

       (75,874,923     (106,628,583     (135,047,232
    

 

 

   

 

 

   

 

 

 

Attributable to:

        

The shareholders of the Company

       (75,874,923     (105,661,916     (133,537,209

Non-controlling interests

  24      —         (966,667     (1,510,023

See Notes to Consolidated Financial Statements

 

3


Snow Corporation

Consolidated Statements of Comprehensive Loss

 

           (In thousands of Korean won)  
    Notes      2017     2018     2019
(Unaudited)
 

Loss for the year

       (75,874,923     (106,628,583     (135,047,232

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     (4,908,769

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     (2,187,792

Proportionate share of other comprehensive income of associates and joint ventures

    12        —         —         (18,706
    

 

 

   

 

 

   

 

 

 

Total other comprehensive income/(loss) for the year, net of tax

       1,348,722       (3,719,694     (7,115,267
    

 

 

   

 

 

   

 

 

 

Total comprehensive loss for the year, net of tax

       (74,526,201     (110,348,277     (142,162,499
    

 

 

   

 

 

   

 

 

 

Attributable to:

        

The shareholders of the Company

       (74,526,201     (109,357,263     (140,548,588

Non-controlling interests

    24        —         (991,014     (1,613,911

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  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total comprehensive (loss)/income for the year

        —          —          (75,874,923     (159,937     1,508,659       (74,526,201     —          (74,526,201
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at December 31, 2017

        3,790,555        103,395,538        (90,789,338     (85,195     —         16,311,560       —          16,311,560  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss for the year

        —          —          (105,661,916     (712,271     (2,983,076     (109,357,263     (991,014     (110,348,277
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  

Changes in interest in a subsidiary

        —          4,574,781        —                 4,424       —         4,579,205       (679,206     3,899,999  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transaction with equity holders

        1,221,510        133,345,540        —         4,424       —         134,571,474       (679,206     133,892,268  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Notes to Consolidated Financial Statements

 

6


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
                   
(Unaudited)    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, 2019

        5,012,065        236,741,078        (199,434,330     (793,042     —         41,525,771       (1,670,220     39,855,551  

Comprehensive loss

                     

Loss for the year

        —          —          (133,537,209     —         —         (133,537,209     (1,510,023     (135,047,232

Other comprehensive loss

        —          —          —         (2,083,904     (4,927,475     (7,011,379     (103,888     (7,115,267
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss for the year

        —          —          (133,537,209     (2,083,904     (4,927,475     (140,548,588     (1,613,911     (142,162,499
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to accumulated deficit

        —          —          (4,927,475     —         4,927,475       —         —         —    

Transactions with equity holders

                     

Issuance of common share

     16        835,420        69,164,421        —         —         —         69,999,841       —         69,999,841  

Establishment of a subsidiary

        —          —          —         —         —         —         2,000       2,000  

Recognition of share based payments

     16, 27        —          677,604        —         —         —         677,604       —         677,604  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transaction with equity holders

        835,420        69,842,025        —         —         —         70,677,445       2,000       70,679,445  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

        5,847,485        306,583,103        (337,899,014     (2,876,946     —         (28,345,372     (3,282,131     (31,627,503
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Notes to Consolidated Financial Statements

 

7


Snow Corporation

Consolidated Statements of Cash Flows

 

     (In thousands of Korean won)  
     Notes      2017     2018     2019
(Unaudited)
 

Cash flows from operating activities

         

Loss before tax

        (75,149,199     (105,347,582     (133,163,549

Adjustments for:

         

Depreciation and amortization expenses

     8, 9, 15        487,403       1,035,930       6,458,733  

Finance income

        (586,181     (8,429,867     (2,635,832

Finance costs

        819,201       6,885,505       10,250,593  

Share based payment expenses

        —         3,900,000       677,604  

Share of loss of associates and joint ventures

     25        158,587       3,703,485       1,642,370  

Gain on disposal of financial assets at fair value through profit or loss

        —         (282,371     (13,922,482

(Gain)/loss on disposal of property and equipment and intangible assets, net

        (1,319     150,941       (8,403

Gain on reversal of assets retirement obligations

        —         (264,434     —    

Changes in:

         

Trade and other receivables

     7, 18        (458,182     (4,230,681     (1,717,450

Trade and other payables

        3,196,246       2,603,690       1,658,224  

Advances received

     18        —         609,525       944,685  

Provisions

     11        508,392       (580,000     1,013,652  

Defined benefit liability

     14        1,479,741       1,449,781       3,625,263  

Other current assets

        (1,402,699     (1,187,061     (4,499,244

Other non-current assets

        (7,621     (4,940,838     4,581,002  

Other current liabilities

        240,985       1,158,734       8,495,216  

Other financial liabilities, non-current

        —         1,499,669       (8,960

Other non-current liabilities

        —         —         8,950  

Others

        10,844       (1,901     (766,048
     

 

 

   

 

 

   

 

 

 

Cash used in operating activities

        (70,703,802     (102,267,475     (117,365,676
     

 

 

   

 

 

   

 

 

 

Interest received

        389,170       351,026       899,914  

Interest paid

        (13,664     (4,687     (938,787

Income taxes paid

        (43,586     (3,164     (41,669
     

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

        (70,371,882     (101,924,300     (117,446,218
     

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

         

Proceeds from maturities of time deposits

        20,000,000       —         —    

Purchase of debt instruments

        (1,629,958     (1,883,545     (1,661,715

Proceeds from sales of debt instruments

     21        —         440,271       20,536,543  

Acquisition of property and equipment and intangible assets

     8, 9, 17        (1,197,554     (4,151,729     (3,085,937

Proceeds from disposal of property and equipment and intangible assets

     8, 9, 17        15,901       87,630       69,918  

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 ventures

     25        (2,339,067     (3,851,451     (5,440,999

Proceeds from business acquisition

     17, 23        5,900,000       —         —    

Execution of loans

        (600,007     (1,000,000     (2,400,000

Repayments of loans

        705,460       405,700       1,800,000  

Payment of office security deposits

        (395,364     (3,121,644     (523,043

Refund of office security deposits

        210,000       434,584       113,959  

Proceeds from collection of lease receivables

        —         —         2,186,661  
     

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) investing activities

  

 

 

 

     16,569,266       (14,777,250     11,595,387  
     

 

 

   

 

 

   

 

 

 

 

8


Snow Corporation

Consolidated Statements of Cash Flows (continued)

 

     (In thousands of Korean won)  
     Notes    2017     2018     2019
(Unaudited)
 

Cash flows from financing activities

  

 

      

Changes in short-term borrowings

   13, 20      167,460       4,486,052       1,034,605  

Repayment of principal portion of lease liabilities

   15, 17      —         —         (5,971,215

Payments for common shares issuance costs

   16      (9,729     (7,557     —    

Proceeds from capital increase

   16      50,001,751       129,999,826       69,999,841  

Issuance of redeemable convertible preferred shares by a subsidiary

   21      —         65,674,465       —    

Proceeds from the payment received from non-controlling interests

        —         —         2,000  
     

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

  

 

     50,159,482       200,152,786       65,065,231  
     

 

 

   

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

  

 

     (3,643,134     83,451,236       (40,785,600

Cash and cash equivalents at the beginning of the year

  

 

     24,176,192       20,386,988       104,258,127  

Effect of exchange rate changes on cash and cash equivalents

        (146,070     419,903       1,718,325  
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

   6      20,386,988       104,258,127       65,190,852  
     

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

9


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, 2019, LINE and its subsidiaries (collectively “the LINE Group”) and NAVER respectively have 29.2% and 70.8% of the ownership of the Company. NAVER also has ownership in LINE with 72.6% as of December 31, 2019. 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 have 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 a 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 resulting in an increase of the LINE Group’s ownership interest in the Company to 48.6%, followed by an additional capital injection into the Company by NAVER Corporation in August 2017. As a result, LINE Group’s ownership decreased from 48.6% to 45.0%. In March and October 2018, the Company issued new shares to NAVER Corporation through a third-party allotment, which resulted in a decrease in LINE Group’s ownership from 45.0% to 34.0%. In August 2019, the Company again issued new shares to NAVER Corporation through a third-party allotment for 69,999,842 thousand won of additional capital into the Company as consideration. As a result, LINE Group’s ownership interest in the Company decreased from 34.0% to 29.2%. LINE Group’s ownership interest of the Company is 45.0%, 34.0% and 29.2% as of December 31, 2017, 2018 and 2019, respectively. In addition, due to further capital injection by NAVER Corporation during April 2020, LINE Group’s ownership interest of the Company decreased to 24.5% from 29.2% as of the filing date of the consolidated financial statements.

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 Rule 3-09 of SEC Regulation S-X for inclusion in the amendment of the Form 20-F of LINE. Accordingly, the Group’s financial information should include the consolidated statements of financial position as of December 31, 2018 and 2019, 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, 2018 and 2019 pursuant to Rule 3-09 of SEC Regulation S-X. The Group’s consolidated financial statements as of December 31, 2017 and 2018 and for the years then ended had been audited; however, the financial statements as of December 31, 2019 and for the year then ended were exempt from audit procedures conducted by certified public accountants or an audit firm.

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 25, 2020.

 

10


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

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 and non-controlling interest, even if this results in the non-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 the non-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 3 Business 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 12 Income Taxes; and

 

   

Employee benefit arrangements which are recognized and measured in accordance with IAS 19 Employee Benefits

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.

 

11


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(3)

Business Combinations (continued)

 

  (a)

Business Combinations (continued)

 

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 any non-controlling interest in the acquiree; plus

 

 

if the business combination is achieved in stages, the fair value of the pre-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 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.

 

12


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(4)

Associates and Joint Arrangements (continued)

 

  (a)

Associates (continued)

 

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.

 

  (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

 

13


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(5)

Foreign Currencies (continued)

 

  (b)

Foreign operations (continued)

 

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 to non-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.

 

  (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,

 

14


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(7)

Financial Assets (continued)

 

  (b)

Measurement of financial assets (continued)

 

  i.

Initial measurement (continued)

 

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 subsequently re-measured at fair value. Any

 

15


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 of set-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

 

16


Snow Corporation

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 within construction-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 fiscal year-end and adjusted, as appropriate, if expectations differ from previous estimates. The change is accounted for as a change in an accounting estimate.

 

17


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 fiscal year-end. If expectations differ from previous estimates, the changes will be accounted for as a change in an accounting estimate.

 

(12)

Leases

Group as a lessee

The Group leases certain office space. A lease contract is normally entered into for a fixed term of 1 to 5 years, but it may include extension options.

Leases are recognized as right-of-use assets and the corresponding liabilities when the lease assets become available for use by the Group. Each lease payment is apportioned between repayments of the lease liability and finance costs. The finance costs are accounted for as expenses over the lease term and calculated based on constant periodic rate of interest on the remaining balance of the lease liability. The right-of-use assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

The assets and liabilities arising from leases are measured at the present value of the lease payment at the commencement date. The lease liability includes the net present value of the following lease payments:

 

 

fixed payments less any lease incentives

 

 

variable lease payments that depend on an index or a rate

 

 

amounts expected to be payable under a residual value guarantee

 

 

the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

 

 

payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

Lease payments are determined using the discount rate as the interest rate implicit in the lease, if that rate can be readily determined, or the Group’s incremental borrowing rate.

The right-of-use assets measured at cost comprise:

 

 

the amount of the initial measurement of the lease liability

 

 

any lease payments made at or before the commencement date, less any lease incentives received

 

18


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(12)

Leases (continued)

Group as a lessee (continued)

 

 

any initial direct cost, and

 

 

cost of restoring the underlying asset to the original condition

As a practical expedient, the Group elects, by class of underlying asset, not to separate non-lease components from lease components, and instead accounts for each lease component and any associated non-lease components as a single lease component.

The lease payments associated with short-term lease and leases of low-value assets are recognized as expenses on a straight-line basis. A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less. A lease of low-value asset, for example, comprises low value assets such as office furniture and fixtures.

Most of the Group’s property leases include extension options.

An extension option is included in the lease term only if the Group is reasonably certain to exercise that option.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. When a lease contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration, it is considered as a lease transaction.

The amount and term of the lease liabilities are reassessed when lease contracts are modified.

When the lease liabilities are remeasured, the Group recognizes the amount of the remeasurement of the lease liability as an adjustment of the right-of-use asset.

Group as a lessor

Leases in which the Group transfers substantially all the risks and rewards of ownership of an asset are classified as finance leases.

At the commencement date, the Group recognizes assets held under a finance lease in its statement of financial position and presents them as a lease receivable at an amount equal to the net investment in the lease and finance income is recognized over the lease term.

Significant accounting policies prior to the adoption of IFRS16 as of January 1, 2019 were as follows:

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.

 

19


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(12)

Leases (continued)

 

  (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.

 

(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 of Non-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.

 

20


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(15)

Employee Compensation (continued)

 

  (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.

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.

 

21


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(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.

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.

 

22


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(18)

Revenue (continued)

 

  (a)

Advertisement Services (continued)

 

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.

Virtual coins, which are the prepaid payment instruments may be purchased with credit cards or cash. Most of the end-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 lease receivables, demand deposits and gain on valuation of financial assets.

 

23


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(19)

Finance Income and Finance Costs (continued)

 

Finance costs mainly comprise interest expense on lease liabilities, 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.

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, and non-taxable or non-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

 

24


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(20)

Income Taxes (continued)

 

  (b)

Deferred tax (continued)

 

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.

 

(22)

Share Based Payments

The Group has granted shares to its executives/officers and employees as well as external consultants. The fair values of the share based payments are measured at the grant dates. Compensation expenses related to shares for the executives/officers and employees are recognized over the vesting period. Compensation expenses related to shares for the external consultants 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 IFRS 15 Revenue from Contracts with Customers.

 

(24)

Standards Issued but not yet Effective

The standards, amendments and interpretations that are newly issued but not yet effective as of December 31, 2019 are not expected to have a material impact on the Group.

 

(25)

New and Amended Standards and Interpretations

The material impacts of the adoption of new and revised IFRSs as issued by the IASB that are mandatorily effective for annual periods beginning on or after January 1, 2019 on the Group’s annual consolidated financial statements as of December 31, 2018 and 2019, and for the years ended December 31, 2017, 2018 and 2019 are as follows.

 

25


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(25)

New and Amended Standards and Interpretations (continued)

 

The standard that is effective for annual period beginning on or after January 1, 2019:

IFRS16 Leases

The Group has adopted IFRS 16 Leases from the fiscal year beginning January 1, 2019. The Group has applied the modified retrospective method permitted by IFRS 16 and recognized the cumulative amount of the impact as of January 1, 2019 upon adoption of the standard. As a result, the Group has not restated the amounts in the comparative reporting period prior to the adoption of IFRS 16.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of lease contracts for lessees and lessors. Under IFRS 16, lessees no longer make a distinction between finance and operating leases as required under IAS 17, and apply a single accounting model. At the commencement date of a lease, lessees 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., the right-of-use assets). Subsequently, lessees are required to recognize separately the interest expense on the lease liability and the depreciation expense on the right-of-use assets. The right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life of the assets or the lease term. Lessor accounting under IFRS 16 remains substantially unchanged from IAS 17.

Upon the adoption of IFRS 16, the Group recognized lease liabilities for its leases previously classified as operating lease under IAS 17. The lease liabilities were measured at the present value of the remaining lease payments, discounted at the incremental borrowing rate as of January 1, 2019. The weighted average incremental borrowing rate used for the lease liabilities as of January 1, 2019 was 3.45%.

The Group applied the following practical expedients permitted by IFRS 16 when applying IFRS 16:

 

 

Relied on its assessment of whether leases are onerous applying IAS 37 immediately before the date of initial application as an alternative to an impairment review.

 

 

Accounted for operating leases with less than 12 months of lease term remaining as of January 1, 2019 for as short-term leases.

 

 

Used hindsight when determining the lease term of contract including extension options and/or termination options.

The Group elected not to apply IFRS 16 to the agreements that were not identified as containing a lease component applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.

(In thousands of Korean won)

 
     (Unaudited)  

Commitments for operating lease as of December 31, 2018 as disclosed in the Group’s consolidated financial statements

     11,271,766  

Discounts using the Group’s incremental borrowing rate

     (1,888,639

Recognition exemption adopted for short-term leases and leases of low-value assets

     (2,117,183

Adjustments due to cancelable operating leases and other

     15,582,742  
  

 

 

 

Lease liabilities recognized at January 1, 2019

     22,848,686  
  

 

 

 

As a result of above, the Group recognized 11,636,706 thousand won, 11,211,980 thousand won and 22,848,686 thousand won for the right-of-use assets, lease receivables and lease liabilities, respectively, in

 

26


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

3.

Significant Accounting Policies (continued)

 

(25)

New and Amended Standards and Interpretations (continued)

IFRS16 Leases (continued)

 

the Consolidated Statement of Financial Position and no cumulative adjustment recorded to the accumulated deficit was recognized as of January 1, 2019.

Due to the adoption of IFRS 16, the other operating expenses which included operating lease expenses increased by 7,153,569 thousand won for the fiscal year ended December 31, 2019. The depreciation and amortization expenses which included the depreciation expenses of right-of-use assets, and finance costs which included interest expenses for lease liabilities increased by 4,126,965 thousand won and 808,785 thousand won, respectively, for the fiscal year ended December 31, 2019. In addition, net cash used in operating activities decreased by 5,971,215 thousand won compared to that under IAS 17, due to cash payments for the principal portion of the lease liabilities being classified as cash flows from 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.

 

27


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

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.

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 lease 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 lease properties to the state as specified in the rental agreements upon termination of the 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.

 

(e)

Estimation of incremental borrowing rate for leases on adoption of IFRS 16 Leases from January 1, 2019.

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available, such as for subsidiaries that do not enter into financing transactions or when they need to be adjusted to reflect the terms and conditions of the lease, for instance when leases are not in the subsidiary’s functional currency. The Group estimates the IBR using observable inputs such as market interest rates when available and is required to make certain entity-specific estimates, such as a subsidiary’s stand-alone credit rating.

 

28


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

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.

 

(2)

Revenues from Major Services

The Group’s revenues from continuing operations from its major services for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Advertising(1)

     2,508,087        9,180,961        15,309,503  

Sales of virtual items(2)

     —          2,715,341        6,591,940  

Other

     226,291        1,270,577        1,641,716  
  

 

 

    

 

 

    

 

 

 

Total

     2,734,378        13,166,879        23,543,159  
  

 

 

    

 

 

    

 

 

 

 

  (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 when end-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, 2018 and 2019. Revenues attributable to advertising have been classified based on the geographical locations where the services were provided.

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Korea

     1,201,313        8,257,726        7,136,245  

China

     —          1,661,952        9,866,515  

Finland(1)

     —          —          2,646,046  

Japan

     1,229,903        2,571,159        1,679,104  

Other

     303,162        676,042        2,215,249  
  

 

 

    

 

 

    

 

 

 

Total

     2,734,378        13,166,879        23,543,159  
  

 

 

    

 

 

    

 

 

 

 

  (1) 

For the year ended December 2019, the revenues in Finland increased significantly due to expansion of business.

 

29


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

5.

Segment Information (continued)

 

(3)

Geographic Information (continued)

 

Non-current operating assets

Non-current operating assets mainly consist of right-of-use assets, property and equipment and intangible assets.

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019
(Unaudited)
 

Korea

     7,045,285        17,516,312  

China

     867,742        2,422,641  
  

 

 

    

 

 

 

Total

     7,913,027        19,938,953  
  

 

 

    

 

 

 

 

(4)

Major Customers

Single customers accounted for 10 percent or more of the Group’s total revenues for the years ended December 31, 2017, 2018 and 2019 are as follows:

For the year ended December 31, 2017

 

     (In thousands of Korean won)  
     Revenues      Ratio  

NAVER Corporation

     339,000        12

For the year ended December 31, 2018

No single customer accounted for 10 percent or more of the Group’s total revenues for the year ended December 31, 2018.

For the year ended December 31, 2019 (Unaudited)

There was one customer that accounted for more than 10 percent of the Group’s total revenue for the year ended December 31, 2019. The revenue generated from this customer amounted to 3,427,750 thousand won in connection with advertising services.

 

6.

Cash and Cash Equivalents

The breakdown of cash and cash equivalents as of December 31, 2018 and 2019 are as follows:

 

                                     
     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Demand deposits

     104,258,127        65,190,852  

 

30


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

7.

Trade and Other Receivables

Trade and other receivables as of December 31, 2018 and 2019 are as follows:

 

                                     
     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Trade and other receivables, current

           4,867,370            6,762,360  

Allowance for doubtful accounts, general(1)

     (2,908      (12,321
  

 

 

    

 

 

 

Total trade and other receivables

     4,864,462        6,750,039  
  

 

 

    

 

 

 

 

  (1) 

Allowance of doubtful accounts relating to trade receivables amounts to 2,908 thousand won as of December 31, 2018 and allowance of doubtful accounts relating to trade and other receivables amounts to 12,321 thousand won as of December 31, 2019.

For movement in the allowance of doubtful accounts for trade and other receivables, refer to Note 20 Financial Risk Management.

 

8.

Property and Equipment

 

(1)

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 amount

      

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  
  

 

 

   

 

 

   

 

 

 

 

31


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, 2019 are as follows (Unaudited):

 

     (In thousands of Korean won)  
     Furniture
and fixtures
    Others     Total  

Acquisition cost

      

Balance at January 1, 2019

     5,029,769       675,446       5,705,215  

Acquisitions

     1,644,302       —         1,644,302  

Disposals

     (163,770     (1,120     (164,890

Exchange differences

     1,213       —         1,213  
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     6,511,514       674,326       7,185,840  
  

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

      

Balance at January 1, 2019

     (997,243     (38,058     (1,035,301

Disposals

     100,491       19       100,510  

Depreciation

     (1,400,445     (138,049     (1,538,494

Exchange differences

     950       —         950  
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     (2,296,247     (176,088     (2,472,335
  

 

 

   

 

 

   

 

 

 

Carrying amount

      

Balance at January 1, 2019

     4,032,526       637,388       4,669,914  
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     4,215,267       498,238       4,713,505  
  

 

 

   

 

 

   

 

 

 

 

32


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, 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

Disposals

     —          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 amount

           

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.

 

33


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, 2019 are as follows (Unaudited):

 

     (In thousands of Korean won)  
     Goodwill      Software     Industrial
rights(1)
    Others(2)     Total  

Acquisition cost

           

Balance at January 1, 2019

     2,525,462        994,600       28,892       18,690       3,567,644  

Acquisitions

     —          121,230       7,077       1,043,786       1,172,093  

Disposals

     —          (210,960     —         —         (210,960

Exchange differences

     —          8,239       —         —         8,239  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     2,525,462        913,109       35,969       1,062,476       4,537,016  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization and impairment

           

Balance at January 1, 2019

     —          (318,941     (3,098     (2,492     (324,531

Disposals

     —          210,960       —         —         210,960  

Amortization

     —          (458,144     (6,623     (328,507     (793,274

Exchange differences

     —          (272     —         —         (272
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     —          (566,397     (9,721     (330,999     (907,117
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount

           

Balance at January 1, 2019

     2,525,462        675,659       25,794       16,198       3,243,113  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

     2,525,462        346,712       26,248       731,477       3,629,899  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Industrial rights include intellectual properties such as patents and trademarks.

(2) 

Others mainly related to the Company’s licensing agreements.

 

10.

Other Current Assets, Other Non-Current Assets, Other Current liabilities and Other Non-Current Liabilities

Other current assets, other non-current assets, other current liabilities, and other non-current liabilities as of December 31, 2018 and 2019 are as follow:

 

(1)

Other current assets as of December 31, 2018 and 2019 are as follow:

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Inventories

     289,495        457,801  

Prepaid expenses

     1,996,080        5,704,325  

Value added taxes receivable

     1,035,326        753,804  

Other

     116,636        927,899  
  

 

 

    

 

 

 

Total

     3,437,537          7,843,829  
  

 

 

    

 

 

 

 

34


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

10.

Other Current Assets, Other Non-Current Assets, Other Current liabilities and Other Non-Current Liabilities (continued)

 

(2)

Other non-current assets as of December 31, 2018 and 2019 are as follow:

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Long-term prepaid expenses

     4,935,023             361,615  

 

(3)

Other current liabilities as of December 31, 2018 and 2019 are as follow:

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Accrued expenses

     4,253,283        10,338,030  

Withholdings

     800,789        3,063,606  

Other

     100,803        —    
  

 

 

    

 

 

 

Total

     5,154,875        13,401,636  
  

 

 

    

 

 

 

 

(4)

Other non-current liabilities as of December 31, 2018 and 2019 are as follow:

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Long-term unearned revenue

               —                   8,799  

 

11.

Provisions

Changes in provisions for the years ended December 31, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     Restoration
obligations for
lease properties(1)
     Other(2)      Total  

Balance at January 1, 2018

     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  
  

 

 

    

 

 

    

 

 

 

Arising during the year (Unaudited)

     129,196        —          129,196  
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019 (Unaudited)

     804,640        —          804,640  
  

 

 

    

 

 

    

 

 

 

 

35


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

11.

Provisions (continued)

 

(1) 

The Group records provisions for restoration obligations related to its lease properties as the Group is required to restore these properties upon termination of the 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.

 

12.

Income Taxes

 

(1)

Current and deferred taxes related to each component of other comprehensive income for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

   

(In thousands of Korean won)

 

 
    2017     2018     2019
(Unaudited)
 
    Pretax     Tax     Post tax     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     (4,908,769         —         (4,908,769

Foreign currency translation adjustments

    (159,937     —         (159,937     (736,618     —         (736,618     (2,187,792     —         (2,187,792

Proportionate share of other comprehensive income of associates and joint ventures

    —         —         —         —         —         —         (18,706     —         (18,706
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,348,722       —         1,348,722       (3,719,694     —         (3,719,694     (7,115,267     —         (7,115,267
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

No current and deferred taxes related to items directly charged or credited to equity for the years ended December 31, 2017, 2018 and 2019.

 

36


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

12.

Income Taxes (continued)

 

(2)

Deferred Tax Assets and Deferred Tax Liabilities

The movements in deferred tax assets and deferred tax liabilities for the years ended December 31, 2018 and 2019 are as follows:

 

     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 through profit or loss

     —         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 ventures

     —         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 through profit or loss

     (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
  

 

 

   

 

 

   

 

 

 

 

37


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, 2019
    Amounts
recorded under
profit or loss
(Unaudited)
    Ending
balance as of
December 31, 2019
(Unaudited)
 

Deferred tax assets:

      

Tax losses

     41,622,590       29,696,402       71,318,992  

Depreciation

     36,653       14,298       50,951  

Advances received

     127,096       (41,498     85,598  

Financial assets at fair value

     264,315       (264,315     —    

Financial liabilities at fair value through profit or loss

     1,402,523       430,463       1,832,986  

Other receivables

     122,378       1,269       123,647  

Provision

     148,351       251,415       399,766  

Lease liabilities

     —         4,092,665       4,092,665  

Accrued expenses

     692,581       992,081       1,684,662  

Investment in associates and joint venture

     142,625       1,086,988       1,229,613  

Post-employment benefits

     2,373,737       1,835,809       4,209,546  
  

 

 

   

 

 

   

 

 

 

Sub total

     46,932,849       38,095,577       85,028,426  
  

 

 

   

 

 

   

 

 

 

Deferred tax liabilities:

      

Financial assets at fair value

     (1,693,795     1,201,724       (492,071

Accrued income

     (2,176     (10,234     (12,410

Lease receivables

     —         (1,985,570     (1,985,570

Right-of-use assets

     —         (2,069,572     (2,069,572

Other property and equipment

     (139,983     30,370       (109,613
  

 

 

   

 

 

   

 

 

 

Sub total

     (1,835,954     (2,833,282     (4,669,236
  

 

 

   

 

 

   

 

 

 

Assessment of the recoverability of deferred tax assets

     (46,370,495     (34,142,162     (80,512,657
  

 

 

   

 

 

   

 

 

 

Total

     (1,273,600     1,120,133       (153,467
  

 

 

   

 

 

   

 

 

 

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)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Deductible temporary differences

     21,304,305        41,024,374  

Unused tax losses

     183,230,029        312,941,886  
  

 

 

    

 

 

 

Total

     204,534,334        353,966,260  
  

 

 

    

 

 

 

 

38


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)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

2026

     13,962,736        13,962,735  

2027

     71,733,462        71,494,702  

2028

     97,533,831        97,533,831  

2029

     —          129,950,618  
  

 

 

    

 

 

 

Total

     183,230,029        312,941,886  
  

 

 

    

 

 

 

The Group did not recognize deferred tax assets for the temporary differences amounting to 84,660,150 thousand won (2018: 58,434,708 thousand won) from the investments in subsidiaries, associates and joint ventures because of the uncertainty of future taxable income in the foreseeable future as of December 31, 2019.

The Group did not recognize deferred tax liabilities for the temporary differences amounting to 4,147,493 thousand won (2018: 4,395,332 thousand won) from the investments in subsidiaries and associates as of December 31, 2019. The Group has determined that the undistributed profits of its subsidiaries or associates will not be distributed in the foreseeable future.

 

(3)

The components of income tax expenses for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Current income tax:

        

Current income tax expenses

     —          7,401        3,003,816  

Deferred tax:

        

Changes related to origination and reversal of temporary
differences(1)(2)(3)

     725,724        1,273,600        (1,120,133
  

 

 

    

 

 

    

 

 

 

Income tax expenses

     725,724        1,281,001        1,883,683  
  

 

 

    

 

 

    

 

 

 

 

  (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.

  (3) 

Deferred tax liabilities are derecognized primary due to sales of financial assets at fair value through profit or loss during the year ended December 31, 2019.

 

39


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 loss before tax differ from the actual tax expenses in the Consolidated Statements of Profit or Loss for the years ended December 31, 2017, 2018 and 2019 for the following reasons:

 

     (In thousands of Korean won)  
     2017     2018     2019
(Unaudited)
 

Accounting loss before tax

     (75,149,199     (105,347,582     (133,163,549

Income tax benefits at a statutory rate of 14.00% (2017: 21.98%, 2018: 21.84%)

     (16,516,491     (23,006,433     (18,639,624

Permanent non-deductible expenses

     567,823       8,537       847  

Non-taxable income

     —         (714,921     (1,076,279

Assessment of the recoverability of deferred tax assets

     15,669,222       25,688,417       21,569,474  

Business combination

     725,724       —         —    

Others

     279,446       (694,599     29,265  
  

 

 

   

 

 

   

 

 

 

Income tax expenses at an effective tax rate at 1.41% (2017: 0.97%, 2018: 1.21%)

     725,724       1,281,001       1,883,683  
  

 

 

   

 

 

   

 

 

 

 

40


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 9 Financial Instrument, as of December 31, 2018 and 2019 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)  
     December 31, 2018      December 31, 2019
(Unaudited)
 
     Book value      Fair value      Book value      Fair value  

Financial assets:

           

Trade and other receivables

           

Financial assets at amortized cost

     4,864,462           6,750,039     

Other financial assets, current

           

Financial assets at amortized cost

           

Short-term loans

     800,000           386,348     

Current portion of lease receivables

     —          —          2,551,481        —    
  

 

 

       

 

 

    

Sub-total

     8,000,000           2,937,829     
  

 

 

       

 

 

    

Other financial assets, non-current

           

Financial assets at amortized cost

           

Leasehold deposits

     3,271,693        3,023,180        3,675,202        3,520,218  

Long-term lease receivables

     —          —          6,473,838        6,771,344  

Financial assets at fair value through profit or loss(1)

     12,641,371        12,641,371        7,627,400        7,627,400  
  

 

 

       

 

 

    

Sub-total

     15,913,064           17,776,440     
  

 

 

       

 

 

    

Total

     21,577,526           27,464,308     
  

 

 

       

 

 

    

Financial liabilities:

           

Trade and other payables

           

Financial liabilities at amortized cost

     9,089,468           10,616,471     

Other financial liabilities, current

           

Financial liabilities at amortized cost

           

Short-term borrowings(2)

     4,459,624           5,635,160     

Other financial liabilities, non-current

           

Financial liabilities at amortized cost

           

Office security deposits received under sublease agreement

     1,507,226        1,382,969        1,498,266        1,420,224  

Financial liabilities at fair value through profit or loss(3)

     72,502,312        72,502,312        83,036,258        83,036,258  
  

 

 

       

 

 

    

Sub-total

     74,009,538           84,534,524     
  

 

 

       

 

 

    

Total

     87,558,630           100,786,155     
  

 

 

       

 

 

    

 

41


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

13.

Financial Assets and Financial Liabilities (continued)

 

(1) 

As of December 31, 2018 and 2019, these financial assets are composed by compound financial instrument and equity securities. 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. A valuation loss, net of 67,792 thousand won was recognized for financial assets at fair value through profit or loss for the year ended December 31, 2019.

(2) 

The weighted average interest rate of the remaining outstanding short-term borrowings as of December 31, 2018 and 2019 was 3.09% and 3.09%, respectively.

(3) 

SNOW China Limited (“SNOW China”), a subsidiary of the Group, entered into a contract with third 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 and 7,547,328 thousand won were recognized for these financial liabilities at fair value through profit or loss for the year ended December 31, 2018 and 2019 respectively.

 

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 December 31, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Present value of defined benefit obligations

     10,978,932        19,512,964  

Plan assets

     —          —    
  

 

 

    

 

 

 

Defined benefits liabilities

     10,978,932        19,512,964  
  

 

 

    

 

 

 

 

42


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

14.

Employment Benefits (continued)

 

(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, 2018 and 2019 are comprised of the following:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Current service costs

     1,523,616        2,062,212        3,577,104  

Interest costs

     165,931        216,064        342,088  
  

 

 

    

 

 

    

 

 

 

Total

     1,689,547        2,278,276        3,919,192  
  

 

 

    

 

 

    

 

 

 

 

(3)

Movements in the present value of the defined benefit obligations for the years ended December 31, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2018      2019
(Unaudited)
 

Defined benefit obligations at the beginning of year

     6,546,075        10,978,932  

Current service costs

     2,062,212        3,577,104  

Interest costs

     216,064        342,088  

Remeasurement losses:

     

Actuarial losses arising from changes in demographic assumptions

     —          2,197,557  

Actuarial losses arising from changes in financial assumptions

     2,051,172        1,126,535  

Experience adjustments

     931,903        1,584,677  

Payments from the plan

     (844,304      (642,060

Net transfer

     15,810        306,117  

Others

     —          42,014  
  

 

 

    

 

 

 

Defined benefit obligations at the end of year

     10,978,932        19,512,964  
  

 

 

    

 

 

 

 

(4)

There were no movements in the plan assets for the years ended December 31, 2018 and 2019.

 

(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.

 

     December 31,
2017
   December 31,
2018
   December 31,
2019

(Unaudited)

Discount rate

   3.4%    2.7%~3.2%    2.5%~3.1%

Weighted average of salary increase

   7.0%    9.1%    9.8%

 

43


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

14.

Employment Benefits (continued)

 

(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, 2018 and 2019:

 

    

(In thousands of Korean won)

 

 
     Impact on the defined benefit
obligations
 

Assumptions and sensitivity level

   December 31,
2018
     December 31,
2019

(Unaudited)
 

Discount rate

     

100 basis point increase

     (1,029,964      (2,367,355

100 basis point decrease

     1,212,029        2,864,050  

Salary increase rate

     

100 basis point increase

     1,129,503        2,649,360  

100 basis point decrease

     (986,438      (2,256,211

 

(7)

The average duration of the defined benefit plan obligations as of December 31, 2018 and 2019 were 10.2 and 13.4 years, respectively.

 

15.

Leases

Leases-Group as Lessee

The Group has entered into commercial lease agreements for certain office space.

For the year ended December 31, 2018

Information for the year ended December 31, 2018 is disclosed based on IAS 17 Leases.

Future minimum rentals payable under non-cancelable operating leases are as follows:

 

    

(In thousands of Korean won)

 

 
     December 31, 2018  

Within one year

     2,864,303  

After one year but not more than five years

     8,407,463  
  

 

 

 

Total

     11,271,766  
  

 

 

 

 

44


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

15.

Leases (continued)

 

For the year ended December 31, 2019

Information for the year ended December 31, 2019 is disclosed based on IFRS 16 Leases.

 

(1)

The following are the amounts recognized in the statements of financial position:

 

    

(In thousands of Korean won)

 

 
     December 31, 2019
(Unaudited)
 

Right-of-use assets

  

Office space

     11,595,549  

Lease liabilities

     20,833,489  

Lease receivables

             9,025,319  

 

(2)

The following are the carrying amounts of right-of-use assets recognized and the movements during the year:

 

    

(In thousands of Korean won)

 

 
     2019
(Unaudited)
 

As of January 1, 2019 (adjusted)

     11,636,706  

Additions

     4,015,709  

Disposals

     (28,999

Depreciation expense

  

Office space

     (4,126,965

Others

     127,759  

Foreign currency translation adjustments

     (28,661
  

 

 

 

As of December 31, 2019

     11,595,549  
  

 

 

 

 

(3)

The following are the carrying amounts of lease liabilities and the movements during the year:

 

    

(In thousands of Korean won)

 

 
     2019
(Unaudited)
 

As of January 1, 2019 (adjusted)

     22,848,686  

Additions

     4,015,709  

Interest expense

     808,785  

Payments

     (6,780,000

Disposals

     (30,556

Foreign currency translation adjustments

     (29,135
  

 

 

 

As of December 31, 2019

     20,833,489  
  

 

 

 

 

45


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

15.

Leases (continued)

 

(4)

The expenses for short-term leases, low-value assets and variable lease payments recognized in the Consolidated Statements of Profit or Loss for the year ended December 31, 2019 are 250,532 thousand won, 22,443 thousand won and 7,651 thousand won, respectively.

Refer to Note 17 Supplemental Cash Flow Information for the total amount of cash outflows related to the leases.

Refer to Note 20 Financial Risk Management for the analysis of maturity of the lease liabilities.

Refer to Note 3 Significant Accounting Policies for the impacts of the adoption of new accounting standard on the leases.

Leases-Group as Lessor

Finance lease

The Group has subleased a leased building. The Group classifies the sublease as a finance lease due to the fact that substantially all risks and benefits of ownership of the subleased item transfers to the lessee. The lease term is approximately 5 years. The lease includes a clause to enable upward revision of the rental charge on an annual basis. The interest income from leases recognized by the Group for the year ended December 31, 2019 was 349,134 thousand won.

Future minimum lease receivables under the sublease and the present values as of December 31, 2019 were as follows:

 

     (In thousands of Korean won)  
     December 31, 2019
(Unaudited)
 

Within one year

     2,599,190  

After one year but not more than five years

     7,010,887  
  

 

 

 

Total minimum lease receivables

     9,610,077  
  

 

 

 

Unearned finance income

     (584,758
  

 

 

 

Total net lease receivables

     9,025,319  
  

 

 

 

Operating lease

Rental income for operating lease under subleases recognized by the Group during the year ended December 31, 2019 was 119,164 thousand won.

 

46


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, 2018 and 2019 are as follows:

 

(1)

Authorized shares and shares issued

The movements of shares issued for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

    Number of
authorized shares
    Shares issued
(Share capital with par value)
    Share capital
(In thousands of
Korean won)
 
    Number of 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  
 

 

 

   

 

 

   

 

 

 

Issuance of common shares(4) (Unaudited)

    —         167,084       835,420  
 

 

 

   

 

 

   

 

 

 

December 31, 2019 (Unaudited)

    50,000,000       1,169,497       5,847,485  
 

 

 

   

 

 

   

 

 

 

 

(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.

(4) 

The Company issued 167,084 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 835,420 thousand won.

 

47


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, 2018 and 2019 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  

Issuance of common shares(8) (Unaudited)

     —          69,164,421        69,164,421  

Share based payments(9) (Unaudited)

     —          677,604        677,604  
  

 

 

    

 

 

    

 

 

 

December 31, 2019 (Unaudited)

     1,051,949        305,531,154        306,583,103  
  

 

 

    

 

 

    

 

 

 

 

  (1) 

The Company acquired camera application business from LINE Plus Corporation as of May 1, 2017.

  (2) 

Others mainly consist of additional paid-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 32 Financial 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.

  (8) 

The Company issued 167,084 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 69,164,421 thousand won.

  (9) 

Pursuant to the resolution of the majority of the voting rights at the annual general meeting of shareholders, the Group granted share options for stock to satisfied executives/officers and employees. As a result of granting the stock options, the Company’s share premium increased by 677,604 thousand won. See Note 27 Share Based Payments for further details.

 

48


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

16.

Issued Capital and Reserves (continued)

 

(2)

Share premium and accumulated deficit (continued)

Share premium (continued)

 

Under the Commercial Act of the Republic of Korea, at least 50% of the proceeds of the issuance of share capital shall be reported as share capital. The remaining proceeds shall be reported as share premium.

Retained earnings

The Commercial Act of the Republic of Korea requires that an amount equal to at least 10% of dividends from surplus, as defined under the Commercial Act of Republic of Korea, shall be appropriated as legal earnings reserve (part of retained earnings) until the aggregate amount of legal earnings reserve is equal to 50% of share capital. The Company has not declared or paid cash dividends to date, and therefore no legal earnings reserves have been recorded as of December 31, 2019.

 

17.

Supplemental Cash Flow Information

Material non-cash transactions

 

     (In thousands of Korean won)  
     2017     2018     2019
(Unaudited)
 

Other payables from acquisition of intangible assets

     3,250       (884     (36,558

Other payables from acquisition of property and equipment

     52,889       (20,887     (266,675

Advance payment from acquisition of property and equipment

     —         (33,690     33,690  

Other receivables from disposal of property and equipment

     (4,032     640       (1,309

Liabilities arising from the merger of the camera application business

     3,800,725       —         —    

Acquisition of right-of-use assets

     —         —         4,015,709  

 

49


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

17.

Supplemental Cash Flow Information (continued)

 

Movements on liabilities from financing activities

 

    (In thousands of Korean won)  
    Borrowings
and preferred
shares
    Lease
liabilities
(Unaudited)
    Total  

Net liabilities as of January 1, 2017

    —         —         —    

Cash flows

    167,460       —         167,460  

Items such as foreign currency translation adjustments

    (3,810     —         (3,810
 

 

 

   

 

 

   

 

 

 

Net liabilities as of December 31, 2017

    163,650       —         163,650  
 

 

 

   

 

 

   

 

 

 

Cash flows

    4,486,052       —         4,486,052  

Proceeds from issuance of redeemable convertible preferred shares

    65,674,465       —         65,674,465  

Loss on valuation of financial liabilities at fair value through profit or loss

    5,610,094       —         5,610,094  

Items such as foreign currency translation adjustments

    1,027,675       —         1,027,675  
 

 

 

   

 

 

   

 

 

 

Net liabilities as of December 31, 2018

    76,961,936       —         76,961,936  
 

 

 

   

 

 

   

 

 

 

Adjustment on adoption of new accounting standards (Unaudited)

    —         22,848,686       22,848,686  

Net liabilities as of January 1, 2019 (Adjusted) (Unaudited)

    76,961,936       22,848,686       99,810,622  
 

 

 

   

 

 

   

 

 

 

Cash flows(1) (Unaudited)

    1,034,605       (6,780,000     (5,745,395

Loss on valuation of financial liabilities at fair value through profit or loss (Unaudited)

    7,547,328       —         7,547,328  

New lease contracts (Unaudited)

    —         4,015,709       4,015,709  

Lease disposals (Unaudited)

    —         (30,556     (30,556

Interest expenses (Unaudited)

    —         808,785       808,785  

Items such as foreign currency translation adjustments (Unaudited)

    3,127,549       (29,135     3,098,414  
 

 

 

   

 

 

   

 

 

 

Net liabilities as of December 31, 2019 (Unaudited)

    88,671,418       20,833,489       109,504,907  
 

 

 

   

 

 

   

 

 

 

 

(1) 

Cash flows of lease liabilities include payments of principal portion and interest expenses paid relevant to the lease liability during the year ended December 31, 2019.

 

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 years ended December 31, 2018 and 2019:

 

     (In thousands of Korean won)  
     2018      2019
(Unaudited)
 

Revenue from contracts with customers

     

Revenue(1)

       13,166,879          23,543,159  

 

(1) 

Refer to Note 5 Segment Information for further details of revenue.

 

50


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

18.

Revenue from Contracts with Customers (continued)

 

Trade and other receivables, contract assets and contract liabilities

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 

Trade and other receivables

         4,864,462            6,750,039  

Contract liabilities—Unused balance of virtual coins(1)(2)

     596,818        1,783,863  

 

(1) 

Represents as advances received in the statement of financial position.

(2) 

Contract liabilities mainly consist of the unused balance of virtual coins, partially including contractual obligations primarily related to operational support provided by a subsidiary to its customers. Such balance was immaterial as of December 31, 2019.

There were no significant balance of contract assets and contract liabilities as of December 31, 2018 and 2019.

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 and 2019.

 

19.

Other Income and Expenses, Finance Income and Costs

 

(1)

Other operating expenses for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Rent

     854,867        2,107,669        335,989  

Travel

     266,087        529,268        750,193  

Supplies

     202,163        342,022        577,880  

Taxes and dues

     89,275        271,939        611,985  

Professional fees(1)

     932,030        5,112,437        1,373,292  

Training

     355,236        464,543        504,226  

Utility expenses

     314,530        843,032        166,805  

Others

     818,698        698,987        792,829  
  

 

 

    

 

 

    

 

 

 

Total

       3,832,886        10,369,897          5,113,199  
  

 

 

    

 

 

    

 

 

 

 

  (1) 

Professional fees included expenses for the years ended December 31,2018 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.

 

51


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

19.

Other Income and Expenses, Finance Income and Costs (continued)

 

(2)

Other non-operating income for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Gain on reversal of asset retirement obligations

     —          264,434        —    

Gain on disposal of financial assets at fair value through profit or loss

     —          282,371        13,922,482  

Others

     198,418        605,189        221,741  
  

 

 

    

 

 

    

 

 

 

Total

          198,418          1,151,994        14,144,223  
  

 

 

    

 

 

    

 

 

 

 

(3)

Finance income for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Interest income(1)

     371,352        356,674        936,015  

Gain on valuation of financial assets at fair value through profit or loss

     214,829        8,073,193        1,699,817  
  

 

 

    

 

 

    

 

 

 

Total

          586,181          8,429,867          2,635,832  
  

 

 

    

 

 

    

 

 

 

 

(1) 

Included the interest income from lease receivables in the amount of 349,134 thousand won due to the adoption of IFRS16 for the year ended December 31, 2019. Refer to Note 3 Significant Accounting Policies and Note 15 Leases for further details.

 

(4)

Finance costs for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     2017      2018      2019
(Unaudited)
 

Interest expenses(1)

     13,662        85,038        934,830  

Loss on valuation of financial assets at fair value through profit or loss

     805,539        1,167,428        1,767,609  

Loss on valuation of financial liabilities at fair value through profit or loss

     —          5,610,094        7,547,328  

Others

     —          22,945        826  
  

 

 

    

 

 

    

 

 

 

Total

          819,201          6,885,505        10,250,593  
  

 

 

    

 

 

    

 

 

 

 

(1) 

Included the interest expenses for lease liability in the amount of 808,785 thousand won due to the adoption IFRS16 for the year ended December 31, 2019. For further detail, refer to Note 3 Significant Accounting Policies and Note 15 Leases.

 

52


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

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 and non-derivative financial instruments, and investment of excess liquidity.

 

(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 December 31, 2018 and 2019 are as follows:

 

     (In thousands of Korean won)  
     December 31,
2018
     December 31,
2019

(Unaudited)
 
     Book value      Book value  

Demand deposits

     104,258,127        65,190,852  

Trade and other receivables(1)

     4,864,462        6,750,039  

Short-term loan

     800,000        386,348  

Leasehold deposits

     3,271,693        3,675,202  

Lease receivables

     —          9,025,319  
  

 

 

    

 

 

 

Total

     113,194,282        85,027,760  
  

 

 

    

 

 

 

 

53


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

20.

Financial Risk Management (continued)

 

(2)

Credit Risk (continued)

 

  (a)

Maximum amounts of possible financial loss to the Group due to credit risk as of December 31, 2018 and 2019 are as follows (continued):

 

  (1)

For receivables, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group regularly performs credit assessments on customers and counterparties considering their financial position and historical data in order to manage the credit risk. The Group recorded provisions for estimated credit risk in respect of the loan receivables and trade and other receivables as of December 31, 2019. The methodology used for estimating the expected credit loss differs depending on whether there have been significant increase in credit risk since initial recognition per financial assets or per assets group. The Group measures the expected credit losses for the financial assets measured at amortized cost without any significant increase in credit risk at the amount equal to twelve-month expected credit losses. For the financial assets measured at amortized cost with a significant increase in credit risk, the Group measures the expected credit losses at the amount equal to the lifetime expected credit losses. The Group uses the probability that a default occurs according to prevailing market conditions. For the trade receivables and lease receivables, the Group applied the simplified approach permitted by IFRS 9 that estimates the lifetime expected credit losses since the initial recognition. The expected credit loss of trade receivables and lease receivables are measured using the probability that a default may occur calculated based on the Group’s historical experiences on cash collection from trade receivables taking into account forward looking information such as future economic conditions. When there has been a significant increase in credit risk, the Group measures the expected credit risk considering all reasonable and supportable information including that which is forward looking.

 

  (b)

Impaired or past-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, 2019 (Unaudited):

 

     (In thousands of Korean won)  
     <180 days      >180 days  

Expected credit loss rate

     0%        75.32%  

Total book value (Trade receivable)

     4,574,170        12,981  

Total book value (Other receivable)

     3,558,511        3,377  
  

 

 

    

 

 

 

Expected credit loss

     —              12,321  
  

 

 

    

 

 

 

 

54


Snow Corporation

Notes to Consolidated Financial Statements (continued)

 

20

Financial Risk Management (continued)

 

(2)

Credit Risk (continued)

 

  (b)

Impaired or past-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, 2018

     539,685  

Provision for the year

     2,908  

Reversal

     —    

Utilized

     (539,685
  

 

 

 

Balance at December 31, 2018

     2,908  

Provision for the year (Unaudited)

     12,321  

Reversal (Unaudited)

     (2,908
  

 

 

 

Balance at December 31, 2019 (Unaudited)

     12,321  
  

 

 

 

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 of December 31, 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. As of December 31, 2019, the Company recognize loss allowance for short-term loan in the amount of 1,013,652 thousand won. Lease receivables and all other financial assets carried at amortized cost other than short-term loan are considered to have low credit risk and therefore no provision for losses has been recognized as of December 31, 2019.

 

(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.

 

55


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 December 31, 2018 and 2019 are as follows. The amounts below include estimated interest from financial liabilities scheduled to be paid.

 

     (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  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     (In thousands of Korean won)  
     December 31, 2019
(Unaudited)
 
     Book value      Contractual
cash outflows
     Less than one
year
     One to five
years
 

Trade and other payables

     10,616,471        10,616,471        10,616,471        —    

Other financial liabilities, current

     5,635,160        5,635,160        5,635,160        —    

Other financial liabilities, non-current

     84,534,524        84,534,524        —          84,534,524  

Lease liabilities

   &