KT Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 2 speakers on the call.

Operator

Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference call of 2023 Second Quarter Earnings Results by KT. We would like to have welcoming remarks from Mr. Seung Eun Ji, KT IRL and then Mr.

Operator

Yong Jin Kim, the CFO, will present earnings results and entertain your questions. This conference will start with the presentation followed by That is the only one on your phone during the Q and A. Now we would like to turn the conference over to Mr. Seung Woon Ji, KT

Speaker 1

Good afternoon. I am Chi Seung Moon, KT's IRO. Let's begin KT's 2nd quarter 2023 Earnings Presentation. For your information, this earnings release call is being webcast live on our website, and you can follow the slides as you listen in on the call. Before we begin, please note that today's presentation includes financial statements and operating results under the K IFRS standards that have not yet been reviewed by an outside auditor.

Speaker 1

As we cannot ensure accuracy and completeness Our financial and business data, aside from the historical performance, please be reminded that these figures may be subject to change. With that, I will now invite our CFO, Kim Young jin, for his remarks and presentation on the 2nd quarter earnings results. Good afternoon. I'm Kim Young Yoon, KT's CFO. I will begin with key earnings highlights for the Q2 of 2023.

Speaker 1

Supported by KT's solid fundamentals in B2C and B2B and robust growth from group's core portfolio, including finance, real estate, Media Content and DX Businesses, 2nd quarter consolidated and stand alone operating profit both recorded a double digit growth. Despite rise in business expenses on higher inflation, earnings outperformed market expectations on the back of cost efficiency gains from improvement in business implementation such as strengthening of distribution and improving outsourcing structure, which bolstered profitability. 2nd quarter standalone service revenue hence was KRW 4,018,600,000,000 and operating profit recorded KRW407.5 billion. Each posted a growth of 2.1% and 34.2 percent year over year, effectively. And since 2010, for the first time in 13 years, quarterly service revenue reached KRW 4,000,000,000,000 level.

Speaker 1

Consolidated revenue recorded KRW 6,547,500,000,000, while operating profit was KRW576.1 billion, up 3.7% and 25.5 percent year over year, respectively. And KT's BOD made the decision to appoint Kim Young seo as the new CEO of the company on August 4. The incoming CEO will be officially appointed after the approval of shareholders during the 2nd extraordinary general meeting of shareholders to be held on August 30. By removing governance related uncertainties and based on solid fundamentals, KT will continue to strive towards corporate value enhancement in the second half of the year. I will now move on to earnings for Q2 of 2023.

Speaker 1

Operating revenue was KRW 547.5 billion, up 3.7 percent on year. Operating profit came in at KRW 576.1 billion, up 25.5% year over year on the back of stronger profitability, which is an outcome of better cost efficiencies following improvement on structure for business implementation. Net profit was up 19% year on year, recording KRW 432.5 billion, while EBITDA increased 8.5 percent on year, reaching KRW 155,300,000,000. To the next page, let's take a look at operating expense. On the back of business expansion related spendings and rise in inflation, operating expense was up 2.0% year over year to KRW 5,971,400,000,000.

Speaker 1

And Financial Statement. Debt to equity ratio as of June end 2023 reported 115.4%, down 6.1 percentage points q on q. Net debt to equity ratio was also down 2 percentage points q over q to 44.6%. Cumulative CapEx for KT Group as of Q2 was KRW 1,383,800,000,000, While on a KT stand alone basis, Q2 cumulative CapEx recorded KRW998.5 billion. Group subsidiary CapEx, which includes core growth businesses of Finance, Media and Content, Cloud and IDC, Real Estate, recorded KRW385.3 billion, in line with our annual CapEx plan.

Speaker 1

Business breakdown. Telco B2C Business posted a growth of 0.8 percent on year, reporting KRW 2,390,200,000,000 on the back of expanded customer base centering on premium services. Supported by growth in 5 gs subscribers and higher Grooming demand seen from inbound visitors, wireless revenue was up 0.8 percent on year to KRW 1562,000,000,000. We now have 9,280,000 5 gs subscribers, accounting for 68% of total base of Scribers. Broadband Internet revenues are 2.7% on year growth, reaching KRW 612.4 billion, driven mostly by giga Internet subscriber growth.

Speaker 1

Fixed line revenue was down 4.2% year on year to KRW 215,800,000,000. Next is on digital B2C Business. An evenly spread out growth coming from media and mobile platform, digital B2C business was up 3.8% year over year, reporting KRW575.6 billion. IPTV Business reported 1.2% year over year growth, underpinned growth and high ARPU subscriber base. Next is on telco Telco B2B Business was up 7.6 percent year on year, reporting KRW546,900,000,000 on the back of growth of both B2B Internet and Data and Enterprise Voice Call Businesses.

Speaker 1

B2B Internet and Data Business was up 5.2% on year on the back of higher demand for lease lines for CCTVs an increase in orders booked from smalltomid CPs. Enterprise Telephony Business posted 12.3% year over year sustained growth of MVNO's typical product, which is the deferred payment scheme. Is on Digico's B2B business. Digico B2B was up 0.6 percent on year, reaching KRW 505.9 billion. There was some impact from business rationalization, but it's mostly been driven by revenue stream from projects that we've already booked, such as the project and National Defense Broadband Integrated Network, as well as an uptrend from 5 hotels, including Myeongdong's Meridian Moxie Hotel, which was newly opened in November 22 year 2022.

Speaker 1

Next is on subsidiary highlights. On higher credit card acquiring volume and sustained new business growth, including issuance of BC Branded Cards and Lending Business, PC Card revenue was up 5.9 percent on year to KRW 1,49,200,000,000. Skylife revenue was up 2.8 percent on year to KRW 261.3 billion on growth from MVNO and Internet resale businesses. KT Studio Genie and Sky TV released 7 original dramas and 5 original entertainment programs during the first half of the year and is leading at the forefront of media and content market. Original content help enhance our competitiveness in the channel and distribution through global OTTs and channels support popularity streak of these titles.

Speaker 1

But due to economic slump in the ad market, commerce market showed contraction And so the revenue from the contents of CDRE was down 5.8% on year, coming in at KRW 268.9 billion. KT Cloud in just 1 year since its launch has proven its value as Korea's top DX company and based on KRW 4,000,000,000,000 valuation that it received, we successfully closed raising KRW 600,000,000,000 of investment. Thanks to solid growth of our IDC business and as AI cloud business took off in full scale, Revenue was up 18.5 percent year over year, recording KRW153.8 billion. This has been a brief update on KT's financial performance of Q2 of 2023. Despite macro headwinds Of inflationary pressures and recession, KT's B2C and B2B businesses have all shown robust growth supported by its fundamentals, and we yet again witnessed growth potential of group's portfolio of businesses.

Speaker 1

In the second half, under the leadership of newly appointed CEO, who is equipped with business caliber and ICT expertise, We will continue our endeavor to enhance KT's corporate value. Once again, I extend my deep gratitude to our investors and analysts, and we ask for your continued interest and support. Thank you. Now for more information, please refer to the previously circulated presentation material. We will now move into Q and A session.

Speaker 1

Due to the time constraint, I would like to ask that you limit your questions to 2 per person.

Operator

Now Q and A session will begin. In order to allow as many Q and A chances as possible within the restricted time, we'd appreciate only 2 questions per participant. The first Question will be presented by Hejae Kim from Taishin Securities. Please go ahead with your question.

Speaker 1

Thank you. I am Kim I have two questions I want to ask regarding your earnings results. First has to do with your top line revenue and second question relates to your cost. First, if we look at your 2nd quarter earnings performance, it really outperformed market expectations. Is there any Key drivers, maybe 2 or 3 key elements that you wish to highlight with regards to the background to this earnings result?

Speaker 1

And also, if you could provide some color as to what the second half outlook is from the perspective of the company, that would be helpful. 2nd question is on cost. High level of inflationary pressure seems to work as a burden on many companies, but it seems KT was able to really control its cost quite well. Would like to understand as to what were the efforts that you put in to control such to do cost controls? And so that will be helpful if you could shed light on that aspect.

Speaker 1

Thank you, Mr. Kim, for asking two questions. If you asked about the key performance regarding the revenue top line revenue, what were the key drivers and what our outlook is for the second half of the year as well as cost. So why don't I combine all of that and provide you with an answer? On the revenue side, I think we could highlight 3 key elements.

Speaker 1

So the first element has to do with B2C business. We were able to drive quite steady performance because we focused on improving the quality aspect, especially quality sales activities with regards to our mobile, Internet and TV business. The second element has to do with our B2B business. The projects that we have already won in the past, we are Starting to see monetization, we see revenue stream coming through. And in the first half of the year, we also saw growth in the number of orders that we were able to book.

Speaker 1

So these new order expansion also was a key driver behind our B2B business growth. 3rd key driver behind the performance was from our subsidiaries, our core portfolio of businesses, which includes finance, real estate, media and content, cloud and IDC, We these areas have been able to bring about growth. So in the same light, we will endeavor to continue to bring on growth from our B2C and B2B businesses as well as from the businesses that's part of our core group portfolio of businesses. So based upon these endeavors, we want to be able to bring about additional growth from the KT Group perspective. Now as you've pointed out, I believe inflationary pressure does work as a Cost burden for most of the companies.

Speaker 1

KT is not an exception to that. The increases in the inflation did impact our Tricity cost as well as different commissions paid items. However, within KT, we've Been continuously placing momentum behind making our processes more efficient by making use of AI and other digital transformation technology and also bringing about improvement in the way we do business, the business implementation process status. So thanks to all of these efforts. To a certain extent, these activities helped us offset some of the cost increases, the pressures that we were exposed to.

Speaker 1

To provide you with a bit of a more detail, what we did was by Banding customer self activation, we were able to optimize the entire activation related dispatch workflow and we applied AI across all of the call center related workflows. As a result, we were able to improve efficiency as well as per person productivity. Also at the same time, in consideration of The market changes and the changes in the customers' purchase patterns and the usage patterns when it comes to the services that we offer, We have been able to further upgrade or make more sophisticated our overall structure in terms of distribution, which is helping us further improve efficiency. So regarding profit outlook or the earnings outlook For the second half of the year, we believe that there will still persist to be inflationary pressures as well as increases in the cost basis. However, we will continue to endeavor to further improve our top line revenue and profitability, and our plan, hence, is to bring about an year over year OP growth.

Speaker 1

We'll take the next question, please.

Operator

The next question will be presented by Sean Lee from Citigroup. Please go ahead with your question.

Speaker 1

Thank you for taking my question. I would also like to ask Two questions. You announced last Friday that you the company has selected the final candidate for the new incoming CEO. Can you shed some light as to the background of appointing this new CEO? Also, Does the company have a plan to have a communication session with the investors so that he, the new incoming CEO, can Blaine and elaborate on the business plan that he is currently envisioning.

Speaker 1

And if so, when will that timing be? Second question has to do with your dividend plan. Your first half net profit is quite good, attractive. I would like to understand under the new executives of the company, would you be able to continue on with the dividend plan that the KT was able to stick to over the years? Thank you, Mr.

Speaker 1

Li, for your questions. Yes, allow me to first tackle your first question regarding the CEO candidates, the background under which he was appointed, the business plan that he would be envisioning and also any plans that we have to hold a session with him and the investors. So as you would already appreciate, KT's Director Candidate Recommendation Committee has selected total of 3 potential candidates and went through a very in-depth interview and have decided and selected the one final candidate to be the CEO of the company. And hence, the BOD and the 4th August have decided on Yong Suk Kim, the former LG CNS President, to be the new incoming CEO of KT. We will go through an EGM at the end of August to gain approval from our shareholders.

Speaker 1

Just to elaborate a little more, maybe the BOD has determines that he would be the best fit and the right person to make KT into a global digital platform based company In Maidel, his extensive corporate business management experiences and his expertise in ICT and digital transformation and is focused on fundamental centric growth and innovation. Also to note, the incoming CEO, Yong Seok Kim is a finance expert. He served as the CFO of LG Plus and LGCNS, and he was a CEO that served as the CEO of LGCNS for the longest term and he is a person that is well equipped with ICT and business management expertise. And also, the incoming CEO, when he was serving as the CEO of LGC and S and he was also the Director of Business Unit, I think BOD, through the Very in-depth interviews was able to identify that he was capable as a person equipped with ICT expertise, as a person who will be able to lead the digital innovation ecosystem. And he had an experience of building out an infrastructure that is on par with what is of a digital ICT powerhouse.

Speaker 1

And he had really shared his vision and plan with regards to service offerings. He also had shared his vision that Through scaling up of ICT Infrastructure Investment as well as the Telecom Business, He provided his views as to how he's going to drive very solid growth, which is underpinned by trust both internally and externally. Because of his strong commitment in bringing improvements into the corporate culture and the way a company is managed, supported by his DX capabilities and his growth strategies that is strongly pivoted on the very fundamentals. BOD considered him to be a very right fit, the right person to be driving innovation and growth. And basically, this is the background under which the BOD had selected him as he would be a person who would be able to really contribute to further enhancing corporate value and bring about sustainable growth.

Speaker 1

So we are going to try to set up an opportunity for the market to meet our incoming CEO, so that he could share his vision and strategy in regards to running this company. In terms of the timing, we will come back to you and communicate to you once we have that detail. So regarding the dividend plan, once we formally appoint our CEO and once the BOD is formed Based on the views and feedback that we get from our shareholders, we will come up with a dividend plan and we'll communicate that with to you. KT's BOD has a track record of Basing its decision on shareholder return policies upon the feedback that it received from its shareholders, That was the principle that we have kept to and the new incoming BOD, I believe, will do the same.

Operator

The next Question will be presented by Adam Kim from Shinhan Securities. Please go ahead with your question.

Speaker 1

Thank you for taking my question. I also would like to ask you two questions. First, for this quarter, I see that your subsidiary contribution has been quite significant. Can you elaborate a little more on the background to this? Was it the case that during Q1, the revenue profile wasn't as good?

Speaker 1

And then in Q2, you've Seeing an improvement, is that what would explain this high level of contribution? Or what do you think is the just a business as usual or normal level of profit contribution coming in from your group of subsidiaries? 2nd question is a question on your What is the direction that the company is envisioning for this business? And do you have specific services where you are actually generating revenue from such AI services? If so, can you tell me tell us as to what they are?

Speaker 1

Well, thank you very much, Ms. Kim Aram, for your questions. I will first respond to your question about our subsidiaries' contribution. So regarding the subsidiary contribution, on top of a very well balanced growth that we are seeing From B2C and B2B business areas on a KT stand alone basis, we have seen additional growth engine and momentum being formed from KT Group's other businesses or subsidiary businesses, including finance content, DX and Real Estate. Out of all the subsidiaries, our 2 subsidiaries, namely BC Card and KT Estate had made the biggest profit contribution.

Speaker 1

So if you first Take a look at our BC Card business. It is our core and key subsidiary out of KT's group our financial business and especially the acquiring business, which is a cash cow, was able to really bring about steady income revenue stream. And through the lending business, we were able to expand on our financial asset. So as such, the company has been putting in efforts to diversify the revenue source. Yes.

Speaker 1

And also through branded BC cards, we are able to drive transaction volume increase coming from B2C customers And also on the B2B segment as well, by extending merchant loans and corporate loans, we are able to further broaden our basis for growth. So our plan is to, through BC Cards, be able to strike a very good balance between the existing business as well as new business forays, so that we can continue to grow the revenue as well as profit contribution. Now moving on to KT Estates. It's in the business of hotels, offices, rental, housings. And out of this business, there was a revenue stream coming in from apartment sales project that was ongoing at the Hwanju City.

Speaker 1

Also this year, with the end of the COVID pandemic, we have seen a rebound and In domestic as well as overseas travels and more leisure activities, which is leading to more spending, we now see our hotel business really uptrend in a steep manner and that has also made profit contribution. Then you asked a question about what will be the normal level of profit contribution from our group subsidiaries. Yes. For last year, it was around JPY 500,000,000,000 in size. For this year, we're projecting quite similar to that of previous year, quite flat or a little more.

Speaker 1

And now responding to your AI question. So recently, we've seen heightened interest in hyperscale artificial intelligence and KT also was no exception in making preparations for laying out an AI ecosystem starting 2020. And we've been making preparations to commercialize our hyperscale AI dubbed KT Cloud. So what we are doing within KT is different divisions, namely AIDX, Convergence Business Unit and Advanced Institute For Conversion Technology and KT Cloud, they're all strengthening their collaboration so that we can actually scale up KT's hyperscale AI that is supported by GPU based AI cloud infrastructure. The hyperscale AI that KT is envisioning is an AI that thinks about the customer, that understands the emotions, remembers and empathizes and Expressys.

Speaker 1

That is the AI that is envisioned by KT. And also, we are seeking to develop a language model that can be customized so that customer specific and personalized services can be provided in the B2B domain. The hyperscale AI business that KT is seeking to achieve has 3 major business models involved. Now the first one is and you also asked about a specific business that is currently generating revenue. The first business model is bringing AI and adopting that into our cloud business.

Speaker 1

And that one of the key representative example is AI Contact Center, Now for AICC, there are 3 different customer segments that we actually target. 1 is for large customers, in which case we will provide system infrastructure. For midsized customers, it will be cloud based AICC, and we call that ASEN Cloud. And also for smaller businesses, we will be providing AI Integrated Secretary or AI Assistant, excuse me, Service. So for AICC revenue, our objective is to achieve more than KRW 100,000,000,000 by the end of the year.

Speaker 1

And eventually, by year 2025, We're envisioning to attain about KRW 300,000,000,000 to so that I becoming a community platform business provider for B2B and B2C as well. 2nd revenue model that we are currently thinking about is to open up the API so that our customers can make use of the hyperscale AI platform, the Vdim platform and pay for the usage of that platform. So that is the second revenue model that we're thinking of. Last but not least is to bring about AI capabilities that KT has to KT and KT subsidiary products and services so that we further strengthen the competitiveness of our B2C products.

Operator

Currently, there are no participants with questions. We will wait for a second until there is another question.

Speaker 1

With no further questions, we would now like to close our Q and A session. Thank you very much for all the questions that you asked as well as the interest that you've shown us. Once again, thank you for joining us despite your very busy schedules. This brings us to the end of KT's Q2 2023 earnings presentation. Thank you.

Powered by Quartr
Earnings Conference Call
KT Q2 2023
00:00 / 00:00