KT Corporation

Hello, I would like to thank everyone who attended today and start the KT 2023 4th Anniversary Performance Announcement Conference Call. The order will be KT Ji Seung-hoon IRO's speech and Kim Young-jin CFO's performance announcement and Q&A time. If you have any questions, please press the star and number button of the phone. Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the 2023 Fourth Quarter Earnings Results by KT. We would like to have welcoming remarks from Mr. Seunghun Ji, KT IRO, And then Mr. Youngjin Kim, 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 Mr. Seunghun Ji, KT IRO.

Hello. Our KT IRO CFO has been changed, Good morning, everyone. I would just like to clarify that there has been some organizational changes in KT

The IRO of KT is now Mr. Youngkyun Yoon, and the CFO of KT is now Mr. Min Jang. We will now begin the earnings presentation for the full year 2023. This earnings call is being webcast live on the company website. Slides are also available for you to follow while listening to the call.

The content of today's presentation includes the estimated financial performance and sales performance based on the KIFRS standard before the external review. Please note that today's presentation includes estimates of financial and operating performance based on KIFRS that have not been reviewed by an outside auditor.

As such, other than confirmed historical data, we cannot guarantee the accuracy and completeness of financial and business-related information and may change in the future.

Now, Min Jang, CFO of KT, will present the 2023 annual earnings.

Good morning.

I am Min Jang, CFO of KT. Today, I will go over the highlights of the annual performance of KT in 2023.

Based on the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the growth of the B2C-B2B business, the

KT recorded 26 trillion 387 billion won in consolidated revenue and 18 trillion 371.4 billion won in standalone revenue. Both consolidated and standalone revenue generated worldwide growth, thanks to balanced growth of the B2C and B2B businesses and the growth of the group's key portfolio, including finance, media content, DX, and real estate.

On a standalone basis, operating income increased by 1.5% YY to 1,185.4 billion won, which was mainly driven by revenue growth and efforts to boost profitability. such as improving the business implementation system.

Consolidated operating income decreased by 2.4% YY to 1,649.8 billion won due to the base effect as there was a one-time profit that was reflected in 2022.

Excluding the one-off profit recognized the previous year in 2022, consolidated operating income rose by 2.1%,

evidencing continued profit growth anchored in strong business fundamentals.

According to the improved profitability and the mid-term stock exchange policy announced on October 17, the stock exchange rate in 2023 has also expanded compared to the previous year. 50% of the stock market short-term interest rate of a separate standard has been reduced to the stock exchange rate, with a cash deposit of 1,960 won per share and a stock exchange rate of 27.1 billion won per share.

Shareholder return in 2023 increased compared to the previous year based on the mid-term shareholder return policy announced on October 17th and enhanced profitability. 50% of the standalone adjusted net income will be used as resources for shareholder return. In result, cash dividend will be $1,961 per share. We have also confirmed a $27.1 billion buyback program, which will be subsequently canceled.

In 2023, the total amount will be 2,070 won, which is an increase of 5.6% compared to 1,960 won in 2022. The cash payment will be paid after confirmation through the approval of the March regular shareholders' committee.

The total shareholder return per share in 2023 will be 2,071, which is a 5.6% increase from 1,961 in 2022. Cash dividends will be paid after receiving approval from the Annual General Shareholders Meeting in March.

KT will continue to work to enhance shareholder value,

by increasing the size of shareholder return based on profitability improvement.

I will now move on to the business strategy and outlook for 2024.

Amid global uncertainty surrounding the business environment at both home and abroad, we expect to continue efforts to strengthen the growth potential of the telco business.

In the changing business environment, KT is planning to continue positive growth through AI-driven DX capacity enhancement and fundamental business innovation. The B2C telecommunications market is concerned about the decrease in growth potential, but

KT will work to achieve both volume and quality growth by strengthening AI-driven DX capabilities and fundamental business innovation in a rapidly changing business environment. While there are concerns on softening growth potential of the B2C telecom market, We plan to overcome the limitations of a slow market and lay the foundation for sustainable growth by innovating pricing, distribution, products, and ultimately customer value.

B2B is a plan to achieve business structure improvement and IT innovation through low-income, limited-sum businesses and existing business platforms.

We will also make effort to generate both revenue and profit growth in the B2B business by improving the business structure based on core businesses, such as rationalizing low-profit businesses and building platforms for existing businesses, and also by implementing IT innovation.

In addition, AICC, IoT, smart mobility, smart space business, and energy business, we will develop five major growth businesses in the B2B field,

In addition, we will be laying the groundwork to lead forward in the AI-driven DX market by strengthening competitiveness and securing meaningful references in the five key B2B growth areas, which are AICC, IoT, smart mobility, smart space, and energy.

In October last year, we unveiled MEDUM, KT's hyperscale AI, which will drive the competitiveness of our AI transformation.

We plan to derive meaningful results by partnering with multi-LLMs and global operators.

Based on these efforts, the core businesses of KET should continue to propel growth in 2024.

Our goal is to surpass 27 trillion won in consolidated revenue and 16 trillion won in standalone service revenue.

Now I will move on to the 2023 business performance. Operating revenue increased by 2.9% YY to $26,387,000,000.

operating income decreased by 2.4 percent yoy to 1 trillion 649.8 billion won due to the base effect as a one-time gain was recognized in 2022

Net income decreased by 28.8% to $988.7 billion due to impairment losses incurred on goodwill of subsidiaries.

such as KT Epsilon and HCN. EBITDA increased by 2.1% YOY to 5,459.9 billion won.

The next page is on operating expense.

Operating expense increased by 3.2% YOY to $24,737.2 billion won mainly due to higher general expense and cost of goods sold.

I will go over the financial position of the company on the next page.

The debt ratio as of December 2023 stood at 130%. The net debt ratio decreased by 1.5 percentage points YOY to 39.5%.

The next page is on CapEx. Total capex executed by KT Group in 2023 was 3,319,000,000,000 won.

of which 2 trillion 411.6 billion won was spent by KT on standalone basis and 907.4 billion won by the group's key growth subsidiaries in finance, real estate, content, and DX.

Next, I will move on to the business overview.

Wireless revenue rose by 2.3% YOY to $6,869.6 billion won.

YG has surpassed 9,830,000, 73% of all handset subscribers, thanks to the diversification of the service. In addition, the growth of the roaming business and the iPhone business has continued and the net sales growth has continued.

5G penetration surpassed 73%, or 9.83 million subscribers, thanks to diversification of plan offerings and value-adding services. Also, roaming and MVNO revenue continue to show strength, driving the growth of the wireless revenue. Next is the fixed-line business.

Internet revenue has grown by 2.8% compared to last year due to the expansion of giga-internet subscribers.

Broadband revenue rose by 2.8% YY to 2,460,000,000 won, mainly supported by an increase of Giga subscribers. Home telephone revenue declined by 7.6% YY to 754.1 billion won.

The media business grew by 2.3% YOY, supported by an increase of high RPO IPTV subscribers. KTN strengthened the OTT convenience function and AI curation function of the GIGA TV media portal to activate the media ecosystem based on Genie TV,

KT will continue to expand the subscriber base by adding convenient features on the Genie TV media portal OTT and strengthening the AI curation function to invigorate the Genie TV ecosystem. In addition, we will be launching plans and set-top boxes to accommodate the diverse needs of various customer segments. Next, I will move on to the B2B service.

B2B service revenue grew by 2% YY as the five key growth businesses,

namely AICC, IoT, smart mobility, smart space, and energy start to bear fruit, and market demand for telco services remains strong. Corporate broadband and data revenue rose by 4.7% YOY thanks to the growth of corporate customer traffic.

The corporate broadband and data business is working to develop new small, mid-sized CP customers on top of the large CPs to generate additional growth momentum. The key five growth businesses recorded a 2.4% YOY revenue growth, which was driven by the expansion of customer base in AICC and Enterprise IoT. Enterprise IoT Business launched a subscription model ASIN Cloud to strengthen the product lineup to expand customer base.

And the Enterprise IoT Business secured the largest market share in the wireless payment market, evidencing that the key growth businesses are strengthening its growth foundation.

On October 31st last year, KT unveiled MEDIM, the large AI service.

We are offering four models from basic to expert to cater to the diverse needs of customers.

We will first be targeting the private LLM market to offer customized LLM services.

while securing influential references by collaborating with strategic partners such as Upstate and QANDA.

Next, I will go over the subsidiaries of KT.

BC Card posted 4,025,000,000 won in revenue, which is a 3.3% increase from the previous year, supported by an increase in PLCC card issuances and its finance business.

SKYLIFE's revenue is 1,387,000,000 won, which is 1,387,000,000 won, which is 1,387,000,000 won, which is 1,387,000,000 won.

Revenue of Sky Life stood at 1 trillion 38.7 billion won, which is similar to last year, mainly because the growth of the internet resale and MVNO was offset by a decline in advertising revenue of Sky Life TV.

KT Studio Genie drove the growth of the media business.

Content subsidiary posted a revenue of 687 billion won, which is a 5.6% YOY increase. KT Studio Genie released 14 original content, more than last year, solidifying its stance as a production company.

SKY TV and Genie TV have built a stable distribution system through channels and platforms, and are actively expanding their overseas sales.

KT Estate is a company that is actively increasing sales to overseas markets

hotel saop hojo-ro, jeon-nyeon-dae-bi 21.8% jeung-ga-han 5,945,000,000 won-eul ki-rok-haessu-mi-na.

80 estates recorded 594.5 billion won in revenue, which is a 21.8% increase from the previous year, thanks to higher office rent revenue and a robust hotel business.

Teukki hotel saop-eun chuseok hwang-geum-yeonyu gi-gan-hae nae-waeguk-in su-yeo gup-joon-ga Christmas-deung The hotel business enjoyed strong demand during the Chuseok and Christmas holiday season, generating record high quarterly revenue in 2023 Q4.

KT Cloud recorded double-digit YOY growth, supported by monetization of public cloud project orders that were previously won by the company, and the robust growth of the IDC business.

In the cloud sector, while maintaining the top leadership in the public cloud market, the competitiveness in the AI cloud market is also strengthening, and in the IDC business sector, the growth of the market demand and the expansion of new customers

KT is maintaining leadership as the number one player in the public cloud market while paying special attention to strengthening competitiveness of the AI cloud services. In IDC, we are adding capacity to keep up with market demand and working to attract new customers to continue growth.

Today, we went over the four-year performance of 2023 of KT. In 2024, KT will make utmost effort to enhance shareholder value by achieving both quantitative and qualitative growth by strengthening IT capabilities and implementing fundamental business innovations.

We ask for the continued interest and support of our investors and analysts. Thank you.

For more details, please refer to the earnings presentation which has been previously circulated. We will now begin the Q&A session. In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant. Thank you. We will now begin the Q&A session. For more details, please refer to the earnings presentation which has been previously circulated. We will now begin the Q&A session.

In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant. Thank you. For more details, please refer to the earnings presentation which has been previously circulated. We will now begin the Q&A session. In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant. Thank you. For more details, please refer to the earnings presentation which has been previously circulated. We will now begin the Q&A session. In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant. Thank you. For more Now, Q&A session will begin. Please press star 1, star and 1 if you have any questions. Please press star 2, star and 2 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 participant. The first question will be provided by Hwae-jae Kim from Daejin Securities. Please go ahead with your question.

Hello, I'm Hwae-jae Kim from Daejin Securities. This is a question about the stock market. You have decided to sell the stock market for 27.1 billion won, which is a slightly ambiguous amount of 2.7 billion won. I'd like to ask you to explain what kind of logic this is. I'd appreciate it if you could explain to us how much the payment income from our own company comes in. Second, with a 5G return rate of 70%, the rate of non-sales growth is not only for us but also for all of us. Therefore, in a situation where we have no choice but to pay attention to B2B, Good morning.

I am Hyejae Kim from Daeshin Securities, and I have two questions. First one is regarding shareholder return policy. The DPS is 1,961, and you also mentioned share buyback of 27.1 billion won. I would like to know how the company came up with these numbers. And also, I would like to know how much of the resources for shareholder return of KT is being obscene by its subsidiaries. My second question is regarding 5G penetration and the B2B business. As 5G penetration reaches and surpasses 70%, I think a slower growth in the wireless business is expected of all of the telco companies, not just KT. And against this backdrop, the B2B business will become of interest of all of the telco companies. However, the growth in B2B business also seems to be slowing down. So what are your expectations and strategy for the B2B business?

Yes, I will answer the question. First, I would like to answer the question Thank you for the questions, and I will answer the shareholder return policy question first.

KT has mid-term shareholder return policy, which is a cash dividend of $1,961 per share, and the remaining

resources will be used to buy back shares.

While reflecting the non-operating income items such as valuation of financial assets, The adjusted net income on a standalone basis was around 1 trillion won, and the 510 billion won will be used for the return of two shareholders.

So, as a result, the main loan amount is 1,960 billion won, and the total cash loan amount is 4,830 billion won. We can say that the remaining 271 billion won is used for the sale of 4, 4 weeks.

So cash dividend will be 1,961 per share. That's total amount of 483 billion won. And the remaining 27.1 billion won will be used to buy back and cancel shares.

Yes, and the dividend income of the small and medium-sized companies you asked about is 6.47 billion won as of 2023. In addition, we will increase the dividend income

Yes, and in the resources for shareholder return, it's around 110 billion won comes from the subsidiaries. So we received dividends from subsidiaries in 2023 that was around 64.7 billion won, and we also received some dividends From the financial products and equity investments that we have, that's another $52.2 billion won. In total, it's around $110 billion won.

This 27.1 billion won of self-employed income is also a part of the electricity bill. Just like the $3 billion of self-employed income and the $1 billion of income in the previous year, the non-standard self-employed income has not yet been decided.

Yes, 27.1 billion won share buyback and cancellation that we have mentioned is part of the shareholder return policy. Last year, we had a 300 billion won share buyback and 100 billion cancellation of shares that was on top of the regular shareholder return policy. And for this year, we currently do not have plans for the non-ordinary shareholder share buyback and cancellation of our shares. KT will continuously make utmost effort to boost shareholder value, and if we have any special plans that become more concrete in the future, we will be communicating that with the market.

The next question is about B2B.

and regarding the B2B business.

Yes, I think there are two questions mixed up. Regarding growth, you mentioned B2B and the 5G transfer rate, but I will mix them up and talk about them. First of all, regarding the B2B business, KT is based on the largest coverage wireless infrastructure in Korea, and has such a distinctive business network that can go all over the country to the customer's office.

And I think your second question largely touches two points, the slowing growth of B2B and also the 5G penetration rate. So I will try to answer both of them. The B2B business, I think KT has key competitiveness in nationwide infrastructure. And our key strength is the fact that we can offer services all the way up to the specific offices of the customers. And so based on this large nationwide coverage, I think we have competitive edge against our competitors.

And this year, we plan to strengthen and strengthen the core of communications and expand customer value through services such as communication platform and cloud integration. In addition, we plan to internalize the B2B business structure with a service-oriented structure.

We will be also working to maintain and strengthen the merits that we have in the telco business. We will be building platforms for the telco services and also combining our services with cloud to innovate and offer stronger value to our customers. We will also be working to migrate on-premise services to the service type so that we can offer diverse value to the customers.

And I also mentioned five key business areas in my keynote.

It includes AICC, mobility, IoT, and energy. And we will be working to strengthen IT competitiveness and innovate services in these areas to secure future growth engines.

Thank you. The following question will be presented by Junseop Kim from KB Securities. Please go ahead with your question.

Yes, thank you for the question. I'm Kim Jun-seo, KB Securities. I would like to ask you more in detail about the 5G growth business that you explained to me a while ago. And I would like to ask you more about wireless online direct construction. First of all, if I ask you about the 5G growth business, the growth rate is quite impressive with the annual average growth rate of the 5G growth business. In addition to ARCC, Please share the results and the situation with us, focusing on the details of the business, and let us know the strategic direction of the future. I think it will be of great help to understand the respective businesses. And secondly, you have marked our schedule for the online direct payment system. First of all, after the launch of the online direct payment system last year, if you tell us about the market reaction, the distribution strategy of KT, or the changes in the wireless market, it will be of great help to see the actual results of our wireless business. Thank you.

Good morning. My name is Jun Sung Kim from KB Securities and thank you for the opportunity today. I have two questions. First one is regarding to the key growth areas. I looked at the annual CAGR growth rate that you are expecting and it was quite impressive. So including the AICC business, if you can go over the key growth businesses that you have mentioned in the keynote, talk about the current performance. Thank you for your question.

I'd like to explain a little more about the five growth projects that you asked about. First of all, the ARCC project has the goal of promoting leadership in the market as the first move, and we plan to improve profits in the construction business, and we plan to secure references for the ACN Cloud, which was released as a subscription business, for real-time growth.

Thank you for the questions, and I will first go over the five key growth areas. So AICC, we plan to continue our leadership and maintain our position as the first mover. For on-premise, we plan to improve profitability. For subscription model, we have launched ASIN, the cloud service, and so we will be making effort to secure meaningful references in this area.

And regarding IoT, we are the number one player in terms of net growth for two consecutive years in the wireless payment market.

So we will be strengthening our position here. And in the remote control area, we will be working to generate the volume growth so that we can secure more customers and more volume.

And in the energy sector, the market is not very large, but in the demand response sector and in the medium-sized transaction sector, we have a meaningful share and plan to grow even more in this area.

And then in the energy business, it is still quite small market, but the growth is very visible. So in the DER demand response and energy brokerage of businesses, I think we will be working to secure meaningful MS.

Mobility is continuing the leadership of our Connected Car market and exploring the global market.

In the mobility area, we have leadership in the connected car business, so we will be solidifying our position there. And we are also exploring, venturing into overseas markets.

Lastly, in the smart space area, we plan to focus on smart cities, industrial organizations, and space management.

And lastly, in the smart space business, we will be working to develop relationships and businesses with government and local governments regarding their smart city infrastructure layout, industrial complexes, and remote control area.

I'm sorry. The second question is about the online directive issue. Last January, we announced I will go over our online direct plan.

In January, we launched YOGO, which is a plan that does not require a contract. and it at the same time enables the customer to enjoy larger amounts of data with less financial burden.

We are still in the initial stage of launching, so we are still in the process of monitoring the influence of our clients. However, according to the appeal of the customer we just explained, we are expanding the 5G interface to meet the needs of our customers.

So it was just launched last month, and it is a little bit early to discuss about how the market is responding. We are monitoring the market and the customer response very closely. And like I mentioned, one key merit of this plan is to offer the 5G at reasonable price. And we believe that this will help us expand the subscriber base for 5G.

Thank you.

The next question is from Ahn Jae-min of NH Investment. The following question will be presented by Jae-min Ahn from NH Investment and Securities. Please go ahead with your question.

Hello. Thank you for the question. I'm Ahn Jae-min of NH Investment. I have two questions. I think all three telecommunications companies have issued guidance for 24 years. I think so, too. So, I would appreciate it if you could talk about the company's prospects and business strategies, focusing on wireless businesses this year. The second is, in a recent press release, I saw the news that the healthcare business, mobile app, telecom, and other businesses are being reorganized. Regarding this part, Good morning.

I am Jamie Nunn from Managed Securities, and thank you for the opportunity today. I have two questions. First one is regarding the outlook of the wireless business. I think all of the three telco companies have given quite conservative guidance for 2024, and we also have similar view. So it would be great if you can elaborate on the outlook and the strategy that you have for the company in 2024, especially in the wireless business? Second question is regarding some media reports. I read that KT is going to restructure healthcare and mobile and also telecoop as well. So I was wondering how this process is progressing at the moment.

First of all, I would like to briefly answer the second question. There are some rumors in the market about KT telecoop and mobile.

So I will answer your second question first. So I understand there are some talks in the market regarding how we are going to approach telecom and mobile. But at this point, we have not made any specific and concrete decisions yet. And then regarding your first question, in 2023, we saw the 5G subscription increase, and also we saw the ARPU increase as well. So wireless business was quite robust for KT in 2023.

Since the 5G customer base is 73% different, the growth rate may be slightly reduced, but we have a plan to continue the growth of wireless businesses through financing, distribution, and value innovation, as I have said before, by strengthening the choices of customers with various needs and suggesting products in a customized way.

5G penetration has reached 73%, so inevitably the growth can slow down. But we will continue our efforts to offer diverse products to cater to the needs of the customers. And we are also working to offer a customized project to customers as well. We will make utmost effort to implement value implementation in the different pricing schemes, distribution channels, and products as well, so that we can continue to satisfy our customers.

To go into a little bit more detail in terms of pricing and plans,

We are planning to offer a more diverse array of plans to customers by launching mid-, low-end plans and also online direct plans. In distribution, we will be working to expand the contactless distribution channel, and in product, we will be having more meticulous customer segmentation to ensure that we can offer customized products. Based on these efforts, we are hoping to reach 80% in 5G penetration this year. We will continue to develop strategies and products to better satisfy our customers so that we can continue growth in the wireless business. Thank you.

If there are no further questions, we will conclude the Q&A session.

Thank you for your questions and interest in KT. Thank you once again for attending today's earnings call despite your busy schedules. We will conclude the earnings call of KT for the full year 2023. Thank you.