KT Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 9, 2024

There are 2 speakers on the call.

Operator

Good morning and good evening. Thank you all for joining this conference call. Now we will begin the conference of the fiscal year 2024 Q1 earnings results by KT. We would like to have welcoming remarks from KT IRO and the CFO will present earnings results and entertain your questions. This conference will start with your presentation followed by a Q and A session.

Operator

Now we would like to turn the conference over to KT

Speaker 1

Good morning. I'm KT's IRO, Young Eun yun. We will commence KT's Q1 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. Please be reminded that today's presentation includes financial estimates and operating results under the KIFRS standards, which are yet to be reviewed by an outside auditor.

Speaker 1

We hence cannot ensure accuracy nor completeness of financial and business data aside from historical actuals. So we ask that you note that these figures may be subject to changes. With that, I invite our CFO, Min Chang, for his welcoming message and presentation on Q1 'twenty four earnings. Good morning. I'm Min Zhang, KT's CFO.

Speaker 1

At the Mobile World Congress 2024 held last February, KT announced its vision to make the leap and transform into an AICT company. 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. We will be steadfast at finding sustainable growth engine for the future by way of innovation and rationalization of our business structure that is based on ax, short for AI Driven DX. With that said, let's go into the details of KT's Q1 highlights. Supported by well balanced growth from B2C and B2B businesses on top of growth momentum from the group's core business portfolio, which include IDC and Cloud, KT's consolidated revenue reported KRW6654.6 billion and separate basis revenue was at KRW4694.8 billion, both reporting growth versus last year.

Speaker 1

Separate basis operating profit was up 1 point 5% year on year, coming in at KRW393.8 billion, driven by revenue growth and efficient marketing activities. Consolidated operating profit increased 4.2% year on year to KRW506.5 billion on the back of profit growth from major subsidiaries including BC Card, KT Cloud, KT Estate among others. On April 30 KT announced cash dividend of KRW5.01 per share for the quarter, making quarterly dividend payment for the first time since the beginning of the company. Following that, KT's Board of Directors made the decision on May 9 to cancel 2% out of the 4.41 percent of treasury shares owned by the company. KT will continue to do what it can to enhance corporate value by strengthening shareholder return underpinned by profit growth.

Speaker 1

Now moving on to the earnings of the Q1 of 20 4. Operating revenue increased 3.3% year over year to KRW 6654.6 billion. Despite there being rise in business expenses due to inflation, there was solid revenue growth, which drove operating profit up 4 point 2% year on year to KRW506.5 billion. On top of operating profit growth and improved non operating income such as from higher dividend income, net income increased 26.9 percent YOY, reporting KRW393,000,000,000. EBITDA posted 4.6 percent year over year growth, reaching KRW1480.2 billion.

Speaker 1

Next is on operating expense. On increases in business expense and cost of goods sold, operating expense increased 3.2% year on year to KRW6148.1 billion. Next is financial position. Debt to equity ratio as at March 24 was 129.8%. Net debt to equity ratio came down 8.1 percentage points year on year to 38.5%.

Speaker 1

Next is on CapEx. Total CapEx spend for KT and its main subsidiaries in Q1 amounted to a total of KRW507,000,000,000 KT separate basis CapEx was KRW 318,100,000,000, while CapEx from group subsidiaries from key growth areas, including finance, media, IDC and Cloud recorded KRW188.9 billion. Next is on performance from each of the lines of business. Wireless revenue was up 1.7 percent year on year to KRW 1,736,500,000,000. 5 gs subscriber now accounts for more than 74% of total handset subscribers, surpassing 9,950,000 subscribers.

Speaker 1

Meanwhile, higher roaming revenue and MVNO business expansion drove wireless revenue growth. In January, we rolled out 10 rate plans under 5 gs mid tier scheme and 8 different types of direct rate plan called Yogo, giving more choice for 5 gs tariff to our customers. KT will continue to innovate its rate scheme and distribution to elevate customer services to a next level. Next is fixed line business. Broadband Internet revenue grew 2.1% year on year to KRW620.8 billion on the back of net addition from giga Internet subscribers and differentiated VAS value added services such as the new Wi Fi models.

Speaker 1

Media Business posted 2.3% year over year growth, thanks to momentum behind the premium rate plans and IPTV subscriber base expansion. As announced during the Media Day event held on 29th, KT will lead AX at the group level underpinned by specialized AI technologies for media such as the Magic platform. Home telephony revenue came down 5.7 percent year on year to KRW183 1,000,000,000. Next is on B2B services. 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.

Speaker 1

Revenue from 5 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. We 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. Next, results from our major subsidiaries. PC Card revenue was down by 1.8% year over year to KRW 935.6 billion, a narrowing acquiring volume impacted by economic slump. Despite the decline in pay TV service subscribers, Sky Life revenue was buoyed by growth from Internet resale and MVNO business with revenue being flat year on year at KRW254.4 billion.

Speaker 1

For the content subsidiaries, KT Genie Studio posted a decline of 2.8% year over year due to declines in NOS media revenue following industry downturn and on downsized production and airing of content. 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. 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. On balanced growth between sale and rental business, KT Estates revenue increased 20.3% year over year. The operation of Le Meridien Moxie 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.

Speaker 1

So this has been an update on the earnings of KT for Q1 of 2024. 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 we'll work to enhance KT's corporate value. We ask for your continued interest and support from the investors and market analysts. Thank you.

Speaker 1

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 2 per person.

Operator

In order to allow as many Q and A chances as possible within the restricted time, we would appreciate only 2 questions per each person. The first question will be presented by Soojin Kim from Miraisa Securi. Please go ahead with your question.

Speaker 1

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. Would like to understand as to what are the key drivers behind the sustained growth of your KT Cloud business. And this year, it is expected that because of the economic slump that we are currently facing, companies' IT expenditure are going is going to be quite conservative is what we are thinking at this point.

Speaker 1

So what is your annual outlook for your KT Cloud business? Now second question is, back in February, you announced that you will be hiring about 1,000 IT employees. What impact will that have on your annual labor cost? 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 colocation and DMO businesses.

Speaker 1

Now the global clients or customers including AWS, Microsoft and Google have started to use our colocation services. And I can tell you that, that had worked as a quite strong driver behind our performance. 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. 2nd question, the impact of hiring 1,000 IT personnel and on the labor cost line item, it will be in the tune of KRW 20,000,000,000 to KRW 30,000,000,000. As you are aware, going forward for about 5 to 6 years to come, we will have about 1,000 people on a per year basis retire from the company.

Speaker 1

So all in all, we do not expect that there will be any Yes, we will have about that amount of people leaving the company due to the their retirement.

Operator

The following question will be presented by Jisoo Jung from Merit Securi. Please go ahead with your question.

Speaker 1

Hello. I am Chong Ji Su from Merit 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?

Speaker 1

And you've made the decision to pay out quarterly dividend of KRW501 per share. Does that mean that we can expect on a per annum basis about KRW2,000 per share? And also, if you could provide if you can also provide some color with regards to any additional shareholder return plans that you have in place. Yes. I will first respond to your question about the details of our AI strategy.

Speaker 1

If I share with you our mid term strategy first, we actually have 3 different areas that we are focusing on to become eventually an AICT company. Now the first pillar is bringing AI together with our IT capabilities and strengthening our core competitiveness. A good example that I could cite is by incorporating AI capabilities in our CES centers, what we can do is we can reduce the time spent on counseling our customers and automate certain processes. 2nd pillar will be and identifying new business opportunities by applying AI capabilities into our existing IT business and data cloud business. 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.

Speaker 1

We will also be developing a business process specific or dedicated solutions and models, for instance, like for the use of CRMs, ERPs and SCMs. Last but not least is applying AI capabilities on media and platform business, which will help us innovate the platform powered by AI. One of the example 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. 2nd on dividend, we have paid out KRW 5 0 per share as a quarterly dividend payout. And 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.

Speaker 1

Regarding additional shareholder returns, as we've done today, as you know, we've canceled some of 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. Next

Operator

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

Speaker 1

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 projects you're winning or the size?

Speaker 1

So 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. 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 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. I said previously that there was an year over year growth of 5.6% and we will continue to endeavor to make sure that we derive tangible results. I see that there are no other questions waiting in the queue.

Speaker 1

So this brings us to the end of the Q1 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.

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