KT - Q1 2024

Transcript

Speaker 6

Good morning and good evening. Thank you all for joining this conference call. Now we will begin the conference of the fiscal year 2024 first quarter earnings results by KT. We would like to have welcoming remarks from KT IRO, and then CFO will present earnings results and entertain your questions. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star 1, that is star and 1 on your phone during the Q&A. Now we would like to turn the conference over to KT IRO.

Young-Kyun Yun (IRO)

[Foreign language]. KT 2024 [Foreign language] 1 [Foreign language].

Speaker 6

Good morning. I'm KT's IRO, Young-Kyun Yun. We will commence KT's first quarter 2024 earnings presentation. This earnings release call is being webcast live on our website, and you can make use of the presentation slides as you listen in on the call.

Young-Kyun Yun (IRO)

[Foreign language] K-IFRS [Foreign language]. [Foreign language].

Speaker 6

Please be reminded that today's presentation includes financial estimates and operating results under the K-IFRS standards, which are yet to be reviewed by an outside auditor. We hence cannot ensure accuracy nor completeness of financial and business data aside from historical actuals. We ask that you note that these figures may be subject to changes.

Young-Kyun Yun (IRO)

[Foreign language] CFO [Foreign language] 2024 [Foreign language].

Speaker 6

With that, I invite our CFO, Min Jang, for his welcoming message and presentation on Q1 2024 earnings.

Min Jang (CFO)

[Foreign language]. KT [Foreign language] KT [Foreign language] 2 [Foreign language] MWC [Foreign language] AICT [Foreign language].

Speaker 6

Good morning. I'm Min Jang, KT's CFO. At the MWC Mobile World Congress 2024 held last February, KT announced its vision to make the leap and transform into an AICT company.

Min Jang (CFO)

[Foreign language] CT [Foreign language] AI [Foreign language] IT [Foreign language], AI [Foreign language].

Speaker 6

By combining AI and IT with our CT capabilities, we will seek to reinforce our core competitiveness and explore new business opportunities powered by AI.

Min Jang (CFO)

AX [Foreign language].

Speaker 6

We will be steadfast at finding sustainable growth engines for the future by way of innovation and rationalization of our business structure that is based on AX, short for AI-driven DX.

Min Jang (CFO)

[Foreign language] 2024 [Foreign language] 1 [Foreign language] KT [Foreign language].

Speaker 6

With that said, let's go into the details of KT's Q1 highlights.

Min Jang (CFO)

[Foreign language], KT [Foreign language] B2C, B2B [Foreign language] IDC, [Foreign language] 6 [Foreign language] 6,546 [Foreign language] 4 [Foreign language] 6,948 [Foreign language].

Speaker 6

Supported by well-balanced growth from B2C and B2B businesses, on top of growth momentum from the group's core business portfolio, which includes IDC and cloud, KT's consolidated revenue reported KRW 6,654.6 billion, and separate basis revenue was at KRW 4,694.8 billion, both reporting growth versus last year.

Min Jang (CFO)

[Foreign language].

Speaker 6

Separate basis operating profit was up 1.5% year-on-year, coming in at KRW 393.8 billion, driven by revenue growth and efficient marketing activities.

Min Jang (CFO)

[Foreign language] BC Card, KT Cloud, KT Estate [Foreign language] 4.2% [Foreign language].

Speaker 6

Consolidated operating profit increased 4.2% year-on-year to KRW 506.5 billion, on the back of profit growth from major subsidiaries including BC Card, KT Cloud, KT Estate, among others.

Min Jang (CFO)

[Foreign language] KT [Foreign language] 4 [Foreign language] 30 [Foreign language] 500 [Foreign language] 1 [Foreign language].

Speaker 6

On April 30th, KT announced cash dividend of KRW 500 per share for the first quarter, making quarterly dividend payment for the first time since the beginning of the company.

Min Jang (CFO)

[Foreign language] KT [Foreign language] 5[Foreign language] 9[Foreign language] 4.41% [Foreign language] 2% [Foreign language].

Speaker 6

Following that, KT's board of directors made the decision on May 9th to cancel 2% out of the 4.41% of treasury shares owned by the company.

Min Jang (CFO)

KT [Foreign language].

Speaker 6

KT will continue to do what it can to enhance corporate value by strengthening shareholder return underpinned by profit growth.

Min Jang (CFO)

[Foreign language].

Speaker 6

Now moving on to the earnings of the first quarter of 2024.

Min Jang (CFO)

[Foreign language].3% [Foreign language] 6 [Foreign language] 6,546 [Foreign language] KRW [Foreign language].

Speaker 6

Operating revenue increased 3.3% year-over-year to KRW 6,654.6 billion.

Min Jang (CFO)

[Foreign language] 4.2% [Foreign language] 5,065 [Foreign language].

Speaker 6

Despite there being rise in business expenses due to inflation, there was solid revenue growth, which drove operating profit up 4.2% year-on-year to KRW 506.5 billion.

Min Jang (CFO)

[Foreign language] 26.9% [Foreign language] 3,930 [Foreign language] 4.6% [Foreign language] 1 [Foreign language] 4,802억 [Foreign language].

Speaker 6

On top of operating profit growth, unimproved non-operating income, such as from higher dividend income, net income increased 26.9% YOY, reporting KRW 393 billion. EBITDA posted 4.6% year-over-year growth, reaching KRW 1,480.2 billion.

Min Jang (CFO)

[Foreign language]

Speaker 6

Next is on operating expense.

Min Jang (CFO)

[Foreign language] 3.2% [Foreign language] KRW 6 [Foreign language] 1,481 [Foreign language]

Speaker 6

On increases in business expense and cost of goods sold, operating expense increased 3.2% year-on-year to KRW 6,148.1 billion.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next is financial position.

Min Jang (CFO)

2024[Foreign language] 3[Foreign language] 129.8%[Foreign language], [Foreign language] 8.1% [Foreign language] 38.5%[Foreign language].

Speaker 6

Debt to equity ratio, as at March end 2024, was 129.8%. Net debt to equity ratio came down 8.1 percentage points year-on-year to 38.5%.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next is on CapEx.

Min Jang (CFO)

KT[Foreign language] 2024[Foreign language] 1[Foreign language] 5,070[Foreign language]. KT [Foreign language] 3,181[Foreign language] 1,889[Foreign language].

Speaker 6

Total CapEx spend for KT and its main subsidiaries in Q1 amounted to a total of KRW 507 billion. KT separate basis CapEx was KRW 318.1 billion, while CapEx from group subsidiaries from key growth areas including finance, media, IDC, and cloud recorded KRW 188.9 billion.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next is on performance from each of the lines of business.

Min Jang (CFO)

[Foreign language] 1.7% [Foreign language].

Speaker 6

Wireless revenue was up 1.7% year-on-year to KRW 1,736.5 billion.

Min Jang (CFO)

5G [Foreign language] 74%[Foreign language] 995[Foreign language].

Speaker 6

5G subscriber now accounts for more than 74% of total handset subscribers, surpassing 9.95 million subscribers. Meanwhile, higher roaming revenue and MVNO business expansion drove wireless revenue growth.

Min Jang (CFO)

[Foreign language] 1 [Foreign language] 5G [Foreign language] 10[Foreign language] 8[Foreign language] 5G [Foreign language].

Speaker 6

In January, we rolled out 10 rate plans under 5G mid-tier scheme and 8 different types of direct rate plan called YOGO, giving more choice for 5G tariffs to our customers.

Min Jang (CFO)

[Foreign language] KT[Foreign language].

Speaker 6

KT will continue to innovate its rate scheme and distribution to elevate customer services to a next level.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next is fixed line business.

Min Jang (CFO)

[Foreign language] 2.1% [Foreign language] KRW 620.8 billion [Foreign language].

Speaker 6

Broadband internet revenue grew 2.1% year-on-year to KRW 620.8 billion, on the back of net addition from Giga Internet subscribers and differentiated VAS value-added services such as the new Wi-Fi models.

Min Jang (CFO)

[Foreign language] IPTV [Foreign language].

Speaker 6

Media business posted 2.3% year-over-year growth thanks to momentum behind the premium rate plans and IPTV subscriber base expansion.

Min Jang (CFO)

KT[Foreign language] 4[Foreign language] 29[Foreign language] AI [Foreign language] AX[Foreign language].

Speaker 6

As announced during the Media Day event held on the 29th, KT will lead AX at the growth group level, underpinned by specialized AI technologies for media such as the Magic Platform.

Min Jang (CFO)

[Foreign language] KRW 183 [Foreign language] 5.7% [Foreign language].

Speaker 6

Home telephony revenue came down 5.7% year-on-year to KRW 183 billion.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next is on B2B services.

Min Jang (CFO)

[Foreign language].

Speaker 6

Driven by robust growth from enterprise broadband internet and data business and higher demand for AX services, B2B service revenue was up 5% year-over-year.

Min Jang (CFO)

[Foreign language] AICC [Foreign language] 4.9% [Foreign language].

Speaker 6

Revenue from five major growth drivers posted 4.9% year-over-year growth, supported by adoption of AICC service by the financial vertical and activated IoT project wins for remote command and control environment and security solutions.

Min Jang (CFO)

[Foreign language] AX [Foreign language] AX [Foreign language] AX [Foreign language].

Speaker 6

To strategically cater to businesses' growing AX demand following technology transformation, which was ignited by generative AI, we plan on providing distinctive AX services for each of the industry sectors, as well as AX communication services that combine AI solutions with the incumbent telco service.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next, results from our major subsidiaries.

Min Jang (CFO)

BC Card [Foreign language] 1.8% [Foreign language] 9,356억 KRW[Foreign language].

Speaker 6

BC Card revenue was down by 1.8% year-over-year to KRW 935.6 billion, a narrowing acquiring volume impacted by economic slump.

Min Jang (CFO)

[Foreign language], MVNO [Foreign language], KRW 254.4 [Foreign language].

Speaker 6

Despite the decline in KTV service subscribers, Sky Life revenue was buoyed by growth from internet resale and MVNO business, with revenue being flat year-on-year at KRW 254.4 billion.

Min Jang (CFO)

[Foreign language].

Speaker 6

For the content subsidiaries, KT Studio Genie posted a decline of 2.8% year-over-year due to declines in Nasmedia revenue following industry downturn and on downsized production and airing of content.

Min Jang (CFO)

KT [Foreign language] IDC [Foreign language] DBO [Foreign language] 17.8% [Foreign language].

Speaker 6

For KT Cloud, on higher IDC revenue, mostly coming from global customers and DBO project wins, its revenue recorded an increase of 17.8% year-over-year.

Min Jang (CFO)

KT [Foreign language] AI [Foreign language] IDC [Foreign language].

Speaker 6

To align with growing demand for AI infrastructure, KT Cloud expanded its IDC business as well as the service model to cater to the full-fledged move towards native cloud, as we plan to sustain the growth trajectory.

Min Jang (CFO)

KT Estate [Foreign language] 20.3% [Foreign language]. 2022[Foreign language] 11[Foreign language] Le Méridien Moxy Hotel [Foreign language].

Speaker 6

On balanced growth between sale and rental business, KT Estate's revenue increased 20.3% year-over-year. The operation of Le Méridien Moxy Hotel, which opened back in November of 2022, is now fully stabilized, and occupancy rate has also increased year-on-year, sustaining a secular uptrend.

Min Jang (CFO)

[Foreign language] KT 2024[Foreign language] 1[Foreign language].

Speaker 6

This has been an update on the earnings of KT for Q1 of 2024.

Min Jang (CFO)

[Foreign language] KT [Foreign language].

Speaker 6

KT, with its focus on the fundamentals, solidified business competitiveness, achieving a balanced growth both on a consolidated and standalone basis. We will endeavor to drive quality growth through fundamental business innovation to enhance profitability mid to longer term, and will work to enhance KT's corporate value.

Min Jang (CFO)

[Foreign language].

Speaker 6

We ask for your continued interest and support from the investors and market analysts.

Min Jang (CFO)

[Foreign language]다.

Speaker 6

Thank you.

Min Jang (CFO)

[Foreign language].

Speaker 6

For more information, please refer to the earnings presentation that we circulated previously, and we will now entertain your questions. To allow as many questions as possible, we would like to ask that you please limit your questions to two per person.

Operator (participant)

[Foreign language]. Now, Q&A session will begin. Please press star one, star, and one if you have any questions. Please press star two, star, and two if you want to cancel questions. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each person. [Foreign language]. The first question will be presented by Soojin Kim from Mirae Asset Securities. Please go ahead with your question.

Kim Soojin (Analyst)

[Foreign language], KT [Foreign language].

Speaker 6

Good morning. I would like to ask you two questions. First is that this quarter we've seen a double-digit growth from KT Cloud. We'd like to understand as to what are the key drivers behind the sustained growth of your KT Cloud business. This year it is expected that because of the economic slump that we are currently facing, companies' IT expenditure is going to be quite conservative, is what we are thinking at this point. What is your annual outlook for your KT Cloud business? Now, second question is, back in February, you announced that you would be hiring about 1,000 IT employees. What impact will that have on your annual labor cost?

Min Jang (CFO)

[Foreign language] KT [Foreign language] DBO [Foreign language] IDC [Foreign language].

Speaker 6

Yes, responding to your first question on KT Cloud, if you look at our first quarter numbers, we've seen an IDC business grow underpinned by our co-location and DBO businesses.

Min Jang (CFO)

[Foreign language].

Speaker 6

Now, the global clients or customers, including AWS, Microsoft, and Google, have started to use our co-location services, and I can tell you that that had worked as a quite strong driver behind our performance.

Min Jang (CFO)

2024[Foreign language] 26% [Foreign language] 51% [Foreign language].

Speaker 6

In 2024, our objective is yet again to further grow our revenue and operating profit, and our plan for revenue growth is at about 26% and for profit, 51% growth.

Min Jang (CFO)

[Foreign language] IT [Foreign language] 1,000[Foreign language] KRW 200[Foreign language]-KRW 300[Foreign language].

Speaker 6

Second question, the impact of hiring 1,000 IT personnel on the labor cost line item, it will be to the tune of KRW 20 billion-KRW 30 billion.

Min Jang (CFO)

[Foreign language] 1,000[Foreign language].

Speaker 6

As you are aware, going forward for about 5-6 years to come, we will have about 1,000 people on a per-year basis retire from the company. So all in all, we do not expect that there will be any significant labor cost impact.

Min Jang (CFO)

[Foreign language].

Speaker 6

Yes, we will have about that amount of people leaving the company due to their retirement.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next question, please.

Operator (participant)

[Foreign language]. The following question will be presented by Jisoo Jeong from Meritz Securities. Please go ahead with your question.

Jisoo Jeong (Analyst)

[Foreign language]KT[Foreign language] AI [Foreign language] KRW 500 [Foreign language]KRW 2,000 [Foreign language].

Speaker 6

Hello, I am Jisoo Jeong from Meritz Securities. Thank you very much for taking my question. I have two questions. The first one is, what is KT's overall approach to your AI strategy going forward? And you've made the decision to pay out quarterly dividend of KRW 500 per share. Does that mean that we can expect on a per-annum basis about KRW 2,000 per share? And also, if you could provide if you could also provide some color with regards to any additional shareholder return plans that you have in place.

Min Jang (CFO)

[Foreign language] AI [Foreign language] AICT [Foreign language].

Speaker 6

Yes, I will first respond to your question about the details of our AI strategy. If I share with you our mid-term strategy first, we actually have three different areas that we are focusing on to become eventually an AICT company.

Min Jang (CFO)

[Foreign language] CT [Foreign language] AI[Foreign language].

Speaker 6

Now, the first pillar is bringing AI together with our IT capabilities and strengthening our core competitiveness.

Min Jang (CFO)

[Foreign language] AI[Foreign language].

Speaker 6

A good example that I could cite is by incorporating AI capabilities in our CS centers. What we can do is we can reduce the time spent on counseling our customers and automate certain processes.

Min Jang (CFO)

[Foreign language].

Speaker 6

Second pillar will be exploring and identifying new business opportunities by applying AI capabilities into our existing IT business and data cloud business.

Min Jang (CFO)

[Foreign language] CRM [Foreign language] ERP, SCM [Foreign language].

Speaker 6

Now, on this area, we are planning on developing services and models that are specialized for certain verticals like the financial vertical, the public sector, and also the other sectors and verticals within different industries. We will also be developing a business process-specific or dedicated solutions and models, for instance, for the use of CRMs, ERPs, and SCMs.

Min Jang (CFO)

[Foreign language] AI [Foreign language].

Speaker 6

Last but not least is applying AI capabilities on media and platform business, which will help us innovate the platform powered by AI.

Min Jang (CFO)

[Foreign language] UX[Foreign language] UI[Foreign language].

Speaker 6

One of the examples is that at this point we are studying and developing different UX and UIs that will be more convenient for our user base by studying and looking into various different viewing patterns, especially of our user base for the media services.

Min Jang (CFO)

[Foreign language] KRW 500 [Foreign language].

Speaker 6

Second on dividend, we have paid out KRW 500 per share as a quarterly dividend payout. Yes, there would need to be a resolution and decision made at the BOD level, but we will make sure that we do not fall short of the expectations of the market in conducting the quarterly dividend.

Min Jang (CFO)

[Foreign language].

Speaker 6

Regarding additional shareholder returns, as we've done today, as you know, we have canceled the treasury shares that we were holding. Going forward, we'll continue to resort to various different ways to make sure that we expand on the shareholder return.

Min Jang (CFO)

[Foreign language].

Speaker 6

Next question, please.

Operator (participant)

[Foreign language]. The following question will be presented by Joonsop Kim from KB Securities. Please go ahead with your question.

Joonsop Kim (Analyst)

[Foreign language].

Speaker 6

Thank you for taking my question. I'm from KB Securities. I just have one question. I see that your growth that you're seeing from the B2B services business is quite salient compared to the past. Are there any special, I guess, trends or aspects that we need to be mindful of in terms of the types of projects you're winning or the size?

Min Jang (CFO)

[Foreign language].

Speaker 6

Yes, I will respond to that question about the earnings that we're getting from our B2B services and our direction forward. In our B2B services, we've seen a solid growth from our internet, broadband business, and data.

Min Jang (CFO)

[Foreign language] AICT[Foreign language] IT [Foreign language] AI[Foreign language].

Speaker 6

I did mention this when I answered the question about AICT, but we are also bringing in AI capabilities into the realm of IT in driving up the performance of our B2B services.

Min Jang (CFO)

[Foreign language].

Speaker 6

Now, having said that, the approach that we are taking for the B2B services market is that compared to the past, we are focused more on driving good profit and really focusing on projects that we can win that will provide us with a more fundamental boost and will give us more visibility in terms of the returns and the performance that we gain.

Min Jang (CFO)

[Foreign language].

Speaker 6

I said previously that there was a year-over-year growth of 5.6%, and we will continue to endeavor to make sure that we derive tangible results.

Min Jang (CFO)

[Foreign language] Q&A[Foreign language] 2024[Foreign language] 1[Foreign language].

Speaker 6

I see that there are no other questions waiting in the queue. This brings us to the end of the first quarter 2024 earnings call of KT. Once again, thank you very much for joining us despite your busy schedules, and thank you very much for your continued interest and support.