KT Corporation

Good morning and good evening. Thank you all for joining this conference call and now we'll begin the conference of the fourth quarter of fiscal year 2024 earnings results by KT. We would like to have welcoming remarks from KT IRO and then CFO will present earnings results and take your questions. 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.

Yes, hello. I'm KT IRO's Yun Young-kyun. We will begin the annual performance announcement of KT in 2024. This conference call is provided by webcasting on the party's website, and you can listen to the explanation along with the performance announcement slides. The content of the announcement today will be based on the KIFRS standard Thank you. Thank you.

Good afternoon. I'm KT's IRO, Yunyong Yun. We will begin KT's 2024 four-year earnings presentation. This earnings release call is being webcast live on the company's website, so you can listen in on the call and follow the presentation slides as we go along. Let me remind you that today's presentation includes financial estimates and operating results under the KIFRS standards that are yet to be reviewed by an outside auditor. We therefore cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So please note that these figures may be subject to change in the future. With that, I invite the company's CFO, Jang Min, to run through our annual results of FY2024.

Hello, I'm Jang Min, CEO of KT. Afternoon, I'm CFO of KT, Jang Min Kim.

In 2024, under the goal of AICT transformation, KT pushed forward with innovating its workforce and business structure. And through our partnership with Microsoft and by cultivating our IT professionals, we strived to build up a driving force behind the future growth.

First of all, KT pushed forward with innovating its workforce and business structure.

On the back of balanced growth between B2C and B2B and good performances from data center, cloud, and other core businesses, consolidated revenue reported 26 trillion 431.2 billion won which is a historical record since the company went public in 1998.

Also, in order to completely change the AICT company, we established a strategic partnership with Microsoft, and we focused on structural profitability improvement efforts, such as individual structure innovation, low-income business integration, etc.

Also, we entered into strategic partnership with Microsoft to effect a complete transformation as AICT company, focusing on structural profitability improvements, such as innovating the workforce structure and rationalizing underperforming businesses.

영업이익은 지난 4분기 시행한 인력구조 혁신의 영향으로 전년 대비 50.9% 감소한 8,000 Following workforce innovation in Q4, operating profit fell 50.9% year-on-year, coming in at 809.5 billion won,

But if one-off impact is removed, OP stands at 1,811.8 billion won, increasing 9.8% year-on-year, showing stronger fundamentals.

Also, in terms of corporate value, last November, we put in place mid- to longer-term corporate value enhancement goals presenting a progressive action plan.

We will speed up structural innovation to transition to AICT company in 2025, and by actively implementing the plan on corporate value enhancement, we intend to yield results from core growth businesses, including AICT, cloud, and elevate shareholder return. And so we've set consolidated revenue target for the year at above 28 trillion won.

First of all, through partnership with Microsoft, Also, under the strategic partnership with Microsoft, we will commence with the launch of products that are distinct to KT in the first half of the year, such as AI models specialized for Korea and secure public cloud, etc., to place full force behind sales and order wins to build a basis for B2B AX business growth.

Fixed and wireless business and the media business will continue its growth by delivering differentiated customer experience underpinned by AX technology. While through technology innovation and scale-up of IT, we plan to optimize system for business operations and management.

KT is trying to increase the growth and profitability of AICT companies. As an AICT company, KT is endeavoring on making improvements in growth and profitability and translate them into enhancing shareholder value.

Through the revision of Articles of Incorporation in 2024, We adopted quarterly dividend as part of our shareholder-friendly management policy, with 150 billion won of cumulative dividend paid out up to Q3.

The quarterly dividend of Q3 is 500 won per share, and the standard day of the dividend is Feb. 28. Due to the structural effort to improve profitability, the yearly dividend of Q3 is 2,000 won from 1,960 won in 2023 to 2,000 won in 2024.

DPS for Q4-24 is 501 per share, and dividend record date is February 28th. On the back of effort on structural profit improvements, we increased annual DPS from 1,961 back in 2023 to 2,001 in FY24.

Q4 dividend will be paid out after the approval from March general meeting of shareholders.

Under the Corporate Value Enhancement Plan as part of the 1 trillion won share buyback and cancellation plan we have for until 2028, we plan on 250 billion won buyback and cancellation this year. KT will continue to drive fundamental innovation as an AICT company to ensure sustainable growth and corporate value enhancement.

From now on, I will talk about the annual performance of 2024. I will now move on to 2024 annual earnings. Operating revenue was up 0.2% year-on-year to 26,431.2 billion won,

while operating profit declined 50.9% year-on-year, coming in at $809.5 billion, on the back of one-off labor costs following structural enhancement of the workforce.

Next slide.

Following the decrease in operating profit, net profit fell 54.5% year-on-year to 450.1 billion won. And EBITDA was down 14.2% year-on-year to 4,687.2 billion won. Next is on operating expense.

The operating expense has increased by 3.6% compared to the previous year due to the impact of the increase in labor cost, labor cost, and labor cost.

On the back of workforce revamping, which led to an increase in one-off labor cost and on higher depreciation, operating expense was up 3.6% year-on-year, reporting 25,621.7 billion won. Next is on the financial position of the company.

In December of 2024, the company's financial position was 132.3%,

The net debt-to-equity ratio as end of December 24 was 132.3%, and net debt-to-equity ratio dipped 1.9% year-over-year, reporting 37.7%. Next is on CapEx.

The KT Group's total investment expenditure for 2024 is 1,234 billion won. The KT Group's annual cumulative investment expenditure is 2,299 billion won, and the KT Group's investment expenditure is 8,235 billion won, which is composed of major growth areas such as finance, media, and real estate. From now on, I will explain the performance of the business.

KT Group's total CapEx spend in 2024 was 3,123.4 billion yuan. KT, on separate basis, its cumulative annual CapEx was 2,299.9 billion, and CapEx from key growth businesses of finance, media, DX, real estate reported 823.5 billion yuan. Next is on the performance of each of our business segments.

Wireless revenue was up 1.3% year-on-year, reporting 6,959.9 billion won.

With the launch of many different RAID plans offering greater choice to customers, 5G subscriber count exceeded 10.4 million subscribers, accounting for 77.8% of total handset subscriber base. We are also seeing solid growth continuing from roaming and MVNO business. Next is on the fixed line business.

Internet revenue increased by 1.1% compared to last year, which is 2.4869 trillion won.

On the back of growth in GIGA Internet subscribers, Internet revenue was up 1.1% year-on-year, reporting 2,486.9 billion won.

Media businesses are expanding their IPTV subscribers base, Media business sold 1.2% year-on-year growth on IPTV subscriber expansion, mainly around high ARPU plans and higher quality set-top boxes.

The new media division set up end of 2024 is going to be a pivot for all of our group's media business related competencies, and we plan to push forward with media business innovation driven by AX.

Home fixed line telephony revenue was down 7.3% year-on-year to 699.4 billion won. Next, on B2B services.

Despite rationalization of unprofitable businesses driven by solid growth of enterprise internet and data business and growing demand for AX services,

B2B revenue posted 2.9% year-over-year growth.

It's worth noting that AI IT business revenue increasing 11.9% year-on-year following AICC expansion and Thailand's LLM project.

In 2025, we will continue to streamline businesses yielding low performance while driving volume and quality growth through having a core focus on strategic customers,

and product launches based on the partnership with Microsoft.

Next, moving on to the results of our major subsidiaries.

On the back of decline in acquiring volume, B.C. card revenue was down 5.4% year-on-year to 3,805,008,000,000. An operating profit, however, posted sizable year-over-year increase driven by private label cards, financial business expansion, as well as profitability enhancement efforts.

B.C. skyline pursuant.

Despite growth from internet resale and MVNO business growth, due to pay TV subscriber declines, KT Skylife revenue was down 1.5% year-on-year, coming in at 1 trillion 22.9 billion won.

Contents subsidiary saw its revenue fall by 13.6% year-on-year.

But despite the industry depression, Crash, Your Honor, To My Harry were box office successes attesting to future potential for growth. supported by growing data center usage by global customers and on increase in traffic for cloud-based CDN,

KT Cloud posted 15.5% year-over-year growth.

KT Estate posted 1.7% year-over-year increase, reporting $604.9 billion on the back of rental revenue growth from office and hotel.

This was an update on KT's 2024 annual performance.

KT will continue to drive structural transformation as an AICT company And through successful implementation of corporate value enhancement, we'll make sure we take the leap towards driving KT's corporate value a notch higher. We hence look forward to your ongoing support and interest from all of our investors and analysts. Thank you.

For more details, please refer to the presentation deck which we previously circulated.

We would now like to begin the Q&A. To give as many chances as possible, I would like to ask, did you ask no more than two questions per person? We'll take the first question.

The first question will be provided by Shin Eun-jung from DB Financial and Investment. Please go ahead with your question.

Thank you for the question. Thank you for taking my question. I have a couple of questions.

First one relates to your 2025 outlook. If you could guide us on what your forecast is in terms of revenue, profit, and shareholder return, that would be helpful. And I would also like to understand as to when we will be able to see either revenue and profit come through from your real estate development located in the north of the river site.

Yes, thank you for the question. The second question is about the development of the Gangbuk Ministry. I will start with the recognition period. As the sales of apartment sales are recognized according to the development of the Gangbuk Ministry, the entry period of 30,000 won starts with the entry period of our first quarter.

Responding to your second question first, with regard to the real estate development related profit, you're asking the timing under which we would be recognizing that profit. With respect to the apartment that's been built on site, we will start to book the revenues from that business. People will start to move into that apartment starting March, and we will be recognizing and booking the profit across Q1 and Q2.

In the first question, you said that you are targeting more than 28 trillion won in net profit.

And also regarding the guidance for revenue operating profit and shareholder return, I've mentioned in my presentation the revenue guidance is on a consolidated basis above $28 trillion.

Yes, and regarding this goal, it would be difficult for us to tell you the specific figures, but the benefits of 2024, the impact of the structural improvement, and the AICT sales,

In terms of the profit guidance, you would understand that we won't be able to share with you any specific figure per se, but if you look at the size of the profit for 2024 and the effect that we will get from structural improvements that we've undertaken, and also based on the expansion of the revenue that comes from AICT business and initiatives,

I think you can make an appropriate estimation.

As part of managing our bottom line, we are planning to make sure that all the workforce-related improvements that we've made over the past year will really materialize into profit for us this year. And also, we're going through a rationalization process for unprofitable or underperforming business, so we continuously endeavor to bring improvements on the structural profitability of the company.

So, responding to the question of shareholder return, once we are able to materialize the impact from profit improvement, that will give us some room in terms of resources that we need in order to provide a shareholder return.

In terms of the method of that shareholder return, the mix between actual cash payout versus share buyback and cancellation, the specifics will be decided based on, well, from the upcoming BOD meeting, but we will make sure that we maintain the minimum level of return that the market is expecting and will make a decision in line with that expectation.

Next question, please.

Next question, please. The following question will be presented by Kim Jun-seop from KB Securities. Please go ahead with your question.

Yes, thank you for the question. I'm Kim Jun-seop from KB Securities. I'd like to ask about the AX business and MS partnership. First of all, let me ask you about the AX business. As you know, according to the media, in the case of KT these days, it seems that it is being exposed a lot in relation to the AX business that provides customer service innovation solutions. In fact, there are a lot of competitors in the context of dealing with customer service AI. I'm curious about KT's AX business strategy, what the roadmap is like, and what the outlook for sales is like. The second is related to MSJU partnership. Thank you for taking my question.

I'm Kim Jun Seo from KB Securities. My questions relate to your AX business and the partnership that you have with Microsoft. First on AEX business, I understand from press articles that KT will focus on providing business process innovation solutions to your customers and clients. And I understand that this is a domain where there are many number of competitors. So I would like to understand the unique point that KT has in terms of its AEX business strategy, your roadmap, and what your top line revenue projection is from this business. Second question relates to your cooperation and partnership with Microsoft. You talked about a more Korea-specialized AI model, and you also talked about SPC, Secure Public Cloud. For this year, where would your focus be, and what is the milestone like, and also what do you project to be the financial impact from these initiatives?

Thank you for the question. The AX strategy to transform into an AICT company is based on the B2B IT business, the B2C communication business, and the media business of KT. The basic strategy is to create an AI-based transformation.

Thank you for that question. When we say AICT transformation, basically the overarching approach to AX strategy for KT is first off focusing on B2B customers, and that is through our IT business. And also there is B2C domain, which is the core fundamental of KT's business. So that is the CT, the communication technology business. And the third prong is our media business. So our strategy is to enable transformation that is driven by an AI capability.

Mr. Lee, I think you asked a question about AX, mainly about the B2B field. All B2B IT businesses that we have been working on so far will not be connected to AI based on AI,

So I take it that you must have read some press articles that dealt with the AX, the B2B business side of our endeavors. And basically all of the B2B IT businesses that KT is providing, these are areas that cannot develop or where we cannot generate performance. without the element of AI piece in it. So it is all AI-powered or AI-enabled.

So we are trying to provide new services to corporate customers based on the AX strategy, and we have a goal to grow AI and IT sales to more than 2 digits this year, which was 1.1 trillion won in 2014.

So as such, based on such AX strategy, we will be providing new service offerings to our B2B customers. So AI and ITPs combined in 2024, their financial impact was 1 trillion. And in 2025, basically, we will be our objective is to have a double digit growth.

Yes, and I will explain the cooperation with Microsoft. Moving on to the other question on Microsoft.

So I will divide this answer into three pieces, one on service, second on the customer, and third on our internal organization capacity.

First, on the service offering side, basically our plan is to launch a Korea specialized secure public cloud within the Q1 of this year.

so that we can provide that to our B2B customers and very quickly carry on with proof of concept so that we could actually secure reference point and have the basis for us to be established in the market early on.

The second service is a Korean AI service based on GPT-4, a Korean AI model that has learned Korean data.

And second service is basically this is an AI model that is trained on data that is specific to Korea. It will be a model that is based on GPT-4.

So our objective is to release this model within the second quarter of this year and right now the model is undergoing

training on Korean history, politics, and the legal aspect as well.

Second, I would like to talk about the target customers. Microsoft and Korea have selected 30 strategic customers to target these customers first and provide them with services. We are working hard on that.

Now, second, in terms of the customer breakdown, what we are doing, and we have actually selected about three strategic key customers together with Microsoft, and we are currently in the proposal stage. Basically, these 30 or so strategic customers will be the first batch of clients that we will focus on in delivering the services that we are developing.

Yes, lastly, in terms of organization capacity, we are working hard A third aspect is our internal organizational capabilities.

In order to address the needs of our customers from a more professional perspective, been able to really strengthen the consulting capabilities of our existing consulting organization. And we've also set up AX specialized organization, and we've been cultivating and beefing up talent within that group so that we can better meet the requirements of our customers in regards to AX.

We'll move on to the next question. The next question is from Kim Hwae-jae from Daesin Securities. The following question will be presented by Kim Hwae-jae from Daesin Securities. Please go ahead with your question. Hello, I'm Seo Ju-won from Daesin Securities. I have two questions for you. First, CapEx has decreased compared to 2023. Please explain the future prospects of CapEx. And when will the 5G additional frequency or 6G-related telecommunications KPEX be able to enter the market cycle again? And I would like to ask you to explain whether the AI business is in need of a lot of money. Secondly, in the stock market value supply plan released in November 2014, you presented various things such as BXC asset transfer, ROE improvement, and stock market share. Please explain in detail what kind of process will be carried out from 2025. thank you i'm soju one um covering telecommunication services citation securities i would like to first ask about your capex i would like to know

The current CapEx level has been coming down. We'd like to know the future forecast for CapEx, and when will be the timing for us to see another increase in CapEx due to additional investment in 5G or maybe a 6G network? And also, you've mentioned that you're currently training your AI models. Does that entail significant amount of investment? Second question is that you've announced your shareholder return or value enhancement related plan back in November of 2024. and you've listed many objectives in improving and enhancing shareholder return, increasing ROE. I would like to understand as to what are the specific plans that will drive that or make that possible. And also, another question is on your share buyback. You've disclosed that you will be buying back and making cancellation of $250 billion of Treasury shares. Up until 2028, your objective is to do share buyback and cancellation in the amount of $1 trillion. So does that mean that from 2025 up to 2028, you will be making $250 billion every single year? I just want to check whether that understanding is correct.

Yes, thank you for the question. First, I would like to talk about CapEx and its price-to-value outlook. CapEx is the main group of companies in KT.

Now, first responding to the question on CapEx and depreciation, CapEx, as for KT and all of its subsidiaries, basically our plan is to maintain it at 2024 levels.

Yes.

So on a standalone basis, although investment into B2C is going to go down, because of AICT business growth and further scaling up of IT, we think that the level is going to be flat year-over-year basis.

Next is a question about 5G, 6G, CapEx cycle change. 5G investment is going to be The investment in 6G is unlikely to take place within the next 2-3 years because the technology standard for 2028 and 2029 will be created and the investment will be made after that, so I think it's a bit far-fetched.

Now, regarding the next question on capex for 5G and 6G cycle, for 5G investment, depreciation period has ended. And for 6G investment, I think there is not big of a probability for an investment into 6G in two to three years' time. I say that because the technical standard is going to be standardized in 2028 or 2029, and then investment will follow. So this is quite far out into the future.

We can also consider the issue of 5G's additional frequency activity. Currently, there is no need for 5G's additional frequency activity. You also talked about a possibility of an additional spectrum allocation for 5G network.

At this point, in terms of the necessity of having that additional spectrum, that's not very, I guess, substantive. And also the government at this point does not have a clear government policy on spectrum allocation. So we do not consider that as one of risk factors for CapEx investment.

Next, I would like to explain the value-of-life plan. First of all, we are planning to proceed with four action plans that we announced in November last year.

And moving on to your question about the implementation of the value-up plan that we disclosed in November, at that time we also shared specific four action plans, and over the course of this year, we will faithfully carry on with those action plans.

In addition, rather than planning a new value-up this year, And also, just to elaborate,

These are nothing new, but in order to make sure that we implement the value-up plan as was communicated, we are mindful of two aspects. One is how we can drive an improvement in bottom line, the profit, so that we may facilitate and take an appropriate form of shareholder return. And the specifics we will, of course, decide as we go through the Q1 dividend approval through the BOD.

And lastly, We announced 2.5 billion in the first half of this year, and we are thinking about how to maintain the value of our company while communicating with the market in a 40-minute gap.

And yes, we did make the disclosure that we will be cancelling 250 billion of treasury shares, but because our foreign ownership limit has been fully reached at above 40% level, we will make appropriate market communications and we will come up with ways to maintain the corporate value because there are some technicalities that we need to be mindful of. So in light of all of that, we will make the appropriate decision.

Yes, 2,500 billion. Is it possible that the harvest will be even for four years? We need to make a decision, but it is quite possible for now. Whether it will be realized or not depends on our growth and this size. Of course, it is possible to change to upside.

And that $250 billion one that we've disclosed and you asked whether out of that $1 trillion over the course of four years, will there be the same amount that will be canceled or bought back every single year? Of course, it's pending BOD approval, but I can say at this point that there is quite a bit of possibility that that may be the case. But of course, it will depend on the growth and the size of the profit that we are able to generate But I believe that we do have an upside.

Next question, please.

The following question will be presented by Kim Hong-sik from Hana Securities. Hello. I have two questions for you.

First of all, we are looking for a lot of cost reduction through the organization change last year. This year, in connection with the headquarters, it would be nice if you could tell us about the cost of labor or the cost of people, so we can expect the effects of the security. I would appreciate it if you could tell us what kind of impact it will have on the cost of connecting with the headquarters. Second, we are now self-employed. In the past, we had a half of the profit in the head office, and the recent issue seems to be that we can give a certain amount of interest to the shareholder. I have two questions I would like to ask.

On the back of reorganization that the company undertook, there was an impact on cost savings. I would like to understand, you could basically give me a labor cost figure or also the overall expense or cost impact since you were able to reduce the headcount, both on headquarter basis as well as consolidated basis. I would like to get some color as to what the impact on the cost savings were. And the second question is that usually if you look at past practices, At the HQ level, the parent company level, the KT has paid back or did shareholder return taking about half of the profit that was generated. And recently, people are saying that the dividend inflow that you get from the subsidiaries will also be used as resources for shareholder return. So I would like to understand as to what the logic behind this thinking is. If you could clarify that, that would be quite helpful. because the dividend flow with regards to the subsidiaries may fluctuate and does fluctuate. So if you could provide a bit more color, that will help us making our forecast easier.

Yes, thank you for the question. First, I would like to explain the effect of the structure innovation cost reduction. Yes. Yes, the overall... I think it will be difficult for me to tell you the exact amount of money. I will first explain the 4,400 people who participated and then tell you the evidence.

Yes, in regards to the cost impact, the cost-saving impact from the organization-related revamping, it's difficult to give you a specific figure per se, but there were 4,400 people who left, the retirees, so that would be the basis upon which we could build our estimation.

Yes, out of 4,400 people, 2,700 people

So out of that 4,400 headcount that was the headcount reduction, 2,700 people completely left, so it was a complete retirement, and 1,700 people transferred to the subsidiary that we set up.

So that 1,700 people that moved to the subsidiary, they will be receiving 70% of their previous wage level, and the difference had been settled all at once.

So I believe that these elements could help you make that calculation in terms of the labor cost savings as well as the expense that is attached to these headcounts that move to the subsidiary. The second question, we lost your connection in the middle, so I don't know if my understanding of your question is completely correct, but I take it to be the adjusted net profit on a separate basis and the logic behind dividends.

So the dividend income that we get from our subsidiaries, it will come under our net profit.

And yes, it does qualify as resources that could be used for dividend payout to our shareholders.

In terms of short-term adjustment, the adjustment items are actually not cash, but non-cash investment stocks. It's about evaluating profits or losses. In a way, it's about considering this part. In a way, it's about considering this part. In a way, it's about considering this part.

And in terms of the adjusted net profit, the elements that actually is going to be adjusted are, for instance, the non-cash invested securities, valuation gain or valuation loss. So basically, these elements work to offset or smooth out volatilities and fluctuations in profit.

So this year, it will be 2024, right? If I have to tell you the amount of adjustment in 2024, it will be about 1,200 won plus.

So based on our calculation, if you look at the size of the adjustment that was reflected for 2024 numbers, it was plus $120 billion. I hope this answered your question, did it?

Yes, I roughly understood. Thank you.

Thank you. Is there anyone waiting for a question?

currently there are no participants with questions please press star one star and one to give your question ah

With no more questions in the queue, we would like to now close the Q&A session.

Thank you, everyone, for your questions and your interest, and thank you once again for joining us despite your busy schedules. This brings us to the end of FY 2024 earnings release.

Thank you.