The program builds on the previous Shareholder Value Enhancement Program it announced in 2015 that was well received by the market, and reinforces the Company’s commitment to creating shareholder value and returning significant capital to its shareholders.

• The Company will increase annual dividends in 2017 by 20 percent, which will be followed by a 100 percent rise in dividends in 2018. The 2019 and 2020 dividends will be kept at the same level with 2018.

• This will translate into approximately 29 trillion won of total dividend returns in the 2018 to 2020 period which will provide shareholders with a more transparent and predictable return profile.

• Future M&A investments will not be deducted from free cash flow (FCF). This policy change will increase the amount of capital available to return to shareholders and result in greater transparency and predictability. The portion of FCF allocated for shareholder returns will be set at minimum 50 percent over the three year period.

• After dividend payouts, any remaining portion of the 50 percent of FCF available for shareholder returns will be used either for additional cash dividends or share buybacks as deemed appropriate.

Following the introduction of the three-year shareholder return initiative in 2015, Samsung Electronics has made significant enhancements to its shareholder return policy, returning more than 10 trillion won in the form of dividends and 20 trillion won in share buybacks. In April 2017, the Company also cancelled 50 percent of its treasury shares worth approximately 20 trillion won in market value.

The Company’s share price has more than doubled since the beginning of 2016, a validation of our shareholders’ approval of the improvements in our shareholder policy and confidence in the steps the Company is taking. Samsung Electronics remains committed to delivering sustainable shareholder value and will continue to enhance long-term value creation.

Under the roadmap, which builds on the shareholder return program announced in October 2015, Samsung Electronics will further enhance its shareholder returns policy, capital management and the operation of the Board of Directors while also ensuring that the Company can continue to direct the required investment resources to compelling opportunities and to nurturing future growth drivers to the benefit of all of its stakeholders.

“We are committed to enhancing sustainable long-term value for our shareholders and to remaining good stewards of capital,” said Dr. Oh-Hyun Kwon, Vice Chairman and CEO of Samsung Electronics. “Today’s announcement extends the actions we initiated last year and represents the next phase in the evolution of our shareholder policy and governance.”

The details of the roadmap are as follows:

Enhancements to the Shareholder Return Program

Following the introduction of the three-year shareholder return initiative in 2015 that was well received by the market, Samsung Electronics today announced five further enhancements to its shareholder return program.

• For 2016 and 2017, the Company will allocate 50 percent of free cash flow (“FCF”) to shareholder returns, which is at the top of the 30-50 percent range announced in 2015.
• The Company will increase total dividends in 2016 by 30 percent compared with 2015, bringing the annual dividend amount to 4 trillion won. Taking into account the recent share buybacks and cancellations, this will result in a 36 percent rise in 2016 dividends per share, to 28,500 won.
• The remaining portion of 50 percent of FCF after the dividend payouts, plus 0.8 trillion won from 2015, will be used to repurchase shares starting at the end of January 2017. The repurchased shares will be cancelled.
• Samsung Electronics will initiate quarterly dividend payments starting in April 2017.
• The Company will seek to further enhance its capital allocation policy to improve shareholder returns beyond 2017.

These actions represent a significant improvement in the Company’s dividend yield as well as a substantial expansion to its repurchase program.

Capital Management and Cash Position Review

Samsung Electronics has a proven track record of successful long-term capital management, which has enabled the Company to seize compelling opportunities, withstand challenges and pursue strategic goals throughout all economic cycles.

The Company has concluded that achieving these business objectives on a sustained basis will require maintaining a net cash balance of 65 to 70 trillion Korean won, based on its historical and expected capital expenditures, working capital requirements, M&As and other financing needs.

Going forward, the Company plans to review its cash position every three years in light of business and economic developments and return any excess cash beyond the target balance to shareholders. This new policy will enable Samsung Electronics to increase shareholder returns on a continuing basis while maintaining the financial flexibility to execute its long-term business strategy and seize attractive opportunities as they arise.

New Board Members and Governance Committee

In recognition of the ever more global nature of Samsung Electronics business, the Company’s Board of Directors is pursuing plans to invite new independent board members with international corporate experience. With the help of outside advisors, the Board is in the process of identifying a number of highly qualified candidates and plans to nominate at least one new Board member with robust global C-Suite experience for approval at the next annual shareholder meeting in March 2017.

The Board aims to further strengthen corporate governance procedures by creating a new Governance Committee, comprised solely of independent board members. The Committee will address Board decisions and proposals linked to enhancing shareholder value. It will also assume the responsibilities of the current Corporate Social Responsibility Committee.

The Board believes that these changes and ongoing efforts to enhance the diversity and breadth of experience on the Board will further strengthen Samsung Electronics’ governance structures and its commitment to shareholders.

Corporate Structure

Samsung Electronics has taken steps to simplify its business to concentrate on core capabilities in the past several years and the Company continues to review opportunities to optimize long-term value. This includes the possibility of creating a holding company structure and the potential benefits and feasibility of listing the Company’s shares on additional international exchanges.

As determining the optimal structure is a highly complex undertaking involving important strategic, operational, legal, regulatory and financial considerations, the Company has retained external advisors to conduct a thorough review of the optimal corporate structure.
The review does not indicate the management or the Board’s intention one way or another. The process is expected to require at least 6 months and Samsung Electronics will make a decision only after the review is complete.

The Board approved 4.2 trillion won for the first phase of buyback program. It will start on October 30 and last for approximately three months.

As of the day before the Board’s decision, preferred shares traded at approximately 22% discount to the common shares. Therefore, we will increase the percentage of preferred shares to be repurchased to 35% of the total shares to be purchased.  Based on these facts, we will purchase 2,230,000 shares of common stock and 1,240,000 shares of preferred stock during this first phase.

Samsung believes that the current share price and the market value of Samsung Electronics are severely undervalued both in terms of the ability to generate earnings and also in terms of the underlying asset or equity value of the company. Considering this severely undervalued nature of the share price, we feel that a share buyback at these levels is the correct decision.

The second part of our shareholder return initiative is the three years shareholder return policy.

Following a detailed review, Samsung has decided to implement a rolling 3-year shareholder return policy that will have the following components:

• The company will return 30~50% of annual free cash flow to shareholders for the next three years
• The annual shareholder return will consist of dividend and share buyback
• The next three years’ annual shareholder return will focus primarily on dividends with the remaining allocated capital to be utilized for share buybacks
• Any shares that are repurchased will also be cancelled

Samsung will announce 2015 year-end dividend in January, 2016 when the Board makes a decision.  The company hopes that the size and the direction of the shareholder return to be announced will be able to meet the expectations of our shareholders.

Meanwhile, Samsung is currently reviewing the introduction and implementation of quarterly dividend policy in 2016 and has asked for feedback from its shareholders on this matter.

While Samsung has invested more than US$20 billion in capital expenditures and US$12 billion in R&D during the past several years, the company has considered how to use the cash to create long-term value for the company as well as for its shareholders.

Moving forward, Samsung will continue to implement a consistent shareholder return policy to spur business growth and maximize its share value.