Good morning and good evening. Thank you all for joining this conference call, and now we will begin the conference of the third 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 entertain your questions. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star one, that is star and one on your phone during the Q&A. Now we would like to turn the conference over to KT IRO.
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Good morning. I am Young-kyun Yoon, IRO of KT. We will now begin the earnings presentation for the third quarter of 2024. This earnings call is being webcast live on the company website. Slides are also available for you to follow while listening to this call. 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. Therefore, 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 earnings for the third quarter of 2024.
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Good morning. I am Min Jang, CFO of KT. The business direction that KT has set for the future is transformation into an AICT company. We plan to lay the foundation for sustainable growth by innovating our core businesses with AICT transformation and expanding customized offerings to customers as an AX partner in the B2B segment. To this end, we have been striving to achieve structural innovation in our skills, businesses, and workforce this year.
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On September 28, in order to strengthen our capacity as an AI CT company, we aimed a strategic partnership with Microsoft. The two companies will be engaging in a full range of cooperation in the AI and cloud areas for the next five years, such as jointly developing the Korean AI cloud service. We will also be working together to preoccupy new markets in the AI IT sector by jointly establishing a company specializing in AI and jointly implementing talent fostering programs.
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In addition, we are improving the business portfolio to achieve fundamental and sustainable growth. As these efforts lead to stronger profitability of the B2B business in earnest, the mid-long-term profitability improvement should become more evident.
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More recently, as part of the AICT transformation efforts, we are innovating the HR structure. To strengthen the competitiveness of the data business, we are planning to merge KT Nexar, a subsidiary specializing in big data, while redistributing core capabilities by establishing two new subsidiaries specializing in network services.
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On November 5, KT announced the value-up program, which includes the mid-long-term plan to boost shareholder and corporate value. The mid-long-term target is to reach a consolidated ROE of 9% - 10% by 2028. To this end, we plan to triple the AI and IT business revenue compared to 2023, generate a consolidated operating profit margin of 9%, liquidate non-core assets, and implement a share buyback and cancellation program of KRW 1 trillion in cumulative terms.
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Also, on October 15, we declared a cash dividend of KRW 500 per share for Q3. In Q4, we will continue to implement a stable shareholder return program based on the mid-long-term shareholder return policy.
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Next, I will go over the financial highlights of 2024 Q3. The group's total consolidated revenue slightly decreased on a year-over-year basis to KRW 6.6546 trillion due to weak performance of the content subsidiary, despite the growth of the core businesses such as real estate, IDC, and cloud. On a separate basis, revenue rose by 2.0% to KRW 4.765 trillion, thanks to stable growth of the B2C and B2B businesses.
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Consolidated and separate operating income jumped 44.2% and 75.1% respectively on a year-over-year basis, which was mainly driven by the base effect from wage negotiations of Q3 2023 and profitability enhancement of core businesses.
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Now I will go into more detail. Operating revenue amounted to KRW 6.6546 trillion, which is similar to the previous year. Operating income increased by 44.2% to KRW 464.1 billion, which was mainly driven by the base effect of the 2023 Q3 wage negotiations.
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Net income rose by 32.9% to KRW 383.2 billion, thanks to the growth of operating income. EBITDA increased by 13.4% to KRW 1.4289 trillion. I will go over the operating expense on the next page.
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Operating expense decreased by 2.9% year-over-year to KRW 6.1905 trillion due to the reduction of labor cost, SG&A, and cost of service. I will now move on to the balance sheet on the next page.
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As of September 2024, the debt ratio was 122.8%. The net debt ratio decreased by 8.2 percentage points year-over-year to 30.3%. Next, I will go over CAPEX.
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Cumulative CAPEX by KT and main subsidiaries as of 2024 Q3 amounted to KRW 2.0338 trillion. On a separate basis, cumulative CAPEX expenditure as of Q3 was KRW 1.416 trillion. The cumulative CAPEX of subsidiaries was KRW 617.8 billion. Next, I will go over the performance of each business unit.
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Wireless revenue increased by 1.9% year-over-year to KRW 1.7404 trillion. 5G subscribers take up 76% of total handset subscribers and is continuing to grow. KT is expanding the contactless distribution channels to increase customer convenience and boost profitability.
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We already have Yogo, a direct online brand which encompasses eight types of payment plans. In August, we released Yogo Season two and launched a promotion campaign for online-only flagship devices. We will continuously work to expand our customer base on contactless channels. Now I will move on to the fixed line business.
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Broadband revenue stood at KRW 618.5 billion, which is a 0.4% year-over-year growth, supported by an increase of the portion of GiGA subscribers.
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In the media business, IPTV subscribers maintain a net growth trend. However, PPV and advertising revenue declined, which resulted in a revenue decrease of 1.2% on a year-over-year basis. In Q4, we will be launching the on-device AI set-top box to recover revenue and proactively apply AI technology to the entire process of production and distribution of content.
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Home telephony revenue decreased by 7.6% to KRW 172.2 billion. Next is B2B service.
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The increase of demand for AX and the steady growth of services, including dedicated lines, have contributed to a 2.5% year-over-year growth of B2B service revenue.
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I'd like to note that AICC, one of the main drivers of AX, is generating double-digit growth with the expansion of the subscription model A'Cen Cloud .
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We will continue to pursue quality growth by improving the profitability of low-profit businesses . The next page is on major subsidiaries.
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BC Card posted a revenue of KRW 931.4 billion, which is a 6.5% decrease year-over-year, mainly due to the decline of credit card sales. However, in contrast, operating income jumped thanks to diligent management of the soundness of financial assets.
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Revenue of Sky Life declined by 1.4% to KRW 256.9 billion in 2024 due to reduction of pay TV subscription base.
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The content subsidiary experienced an 18.3% year-over-year decline in revenue due to a shrinking market. Despite the slow market, drama series that were released in Q3, namely Your Honor and Dear Hyeri , were successful, showing strong future growth potential.
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Revenue of KT Cloud grew by 6.8% year-over-year thanks to higher IDC utilization by global customers and stronger retention of public sector customers in cloud services.
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KT Estate experienced a revenue growth of 3.6% in 2024, mainly driven by lease revenue from offices and hotels. The occupancy and average room rate of the five hotels in Seoul that the company operates are continuously on the rise, solidifying the foundation for revenue growth.
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This concludes the earnings presentation for 2024 Q3. KT will strive to jump to the next level in terms of corporate value by structurally transforming into an AICT company and successfully implementing the corporate value-up plan. I ask for the continued support and interest of investors and analysts. Thank you.
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For more details, please refer to the earnings presentation, which has been circulated already. We will now begin the Q&A session. Today, we have Mr. Chan-ho Jung, OpenTech Innovation Lead, joining us to take questions. In order to allow as many Q&A opportunities as possible, we will appreciate only two questions per participant. Thank you.
[Non-English content] . Now, Q&A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. [Non-English content] . The first question will be provided by Hee-jae Kim from Daishin Securities. Please go ahead with your question.
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Thank you for the opportunity today. I am Kim Hee-jae from Daishin Securities, and I have two questions regarding the corporate value-up plan. The first question is regarding your ROE target. You have set 9% - 10% for 2028. The current number is around 6%, so I believe this can be a quite ambitious goal. I would like to have a little bit more color on how KT plans to achieve these targets. Second question is regarding the share buyback and cancellation program. From 2025 to 2028, you mentioned that the buyback and cancellation will be around KRW 1 trillion in cumulative terms. Will this program be implemented equally across the years? That is my first question regarding this. If you look at the current shareholder return policy of KT, it's currently 50% of the adjusted net income, and you pay a minimum DPS, and the resources remaining after the minimum DPS payment is to be used for share buyback. Given that you have launched a 2025-2028 share buyback and cancellation program, I would also like to recommend that you may think about increasing your dividend payments with the resources that you have. I would like to hear some of your thoughts on that. Thank you.
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Yes, thank you for your question. Regarding the ROE target, we try to lay out the details in the presentation, but I think there are largely three ways that we are trying to achieve this target.
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The first strategy that we have is transformation into an AI&ICT company, and I believe that this pillar of the strategy can be the most challenging for KT. We are trying to transform ourselves from a CT company to an AI&ICT company, and to that end, we have been innovating the businesses, the capacities that we have, and also our workforce so that we can successfully adjust our business portfolio.
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The second part is about enhancing the efficiency of our assets. We may dispose or develop some of the real estate that are not considered to be core to the business. Also, we have some assets in equity as well that may be disposed or used to boost the efficiency of our assets.
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The last one is about the use of capital. Until 2028, as mentioned in the presentation, we will be using the excess cash to make investments to enhance ROE, or we can also use those resources in the KRW 1 trillion shareholder return program. These are largely the three ways that we are trying to achieve the ROE target.
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Your second question regarding whether the share buyback and cancellation program up to 2028 will be implemented equally across the years. We don't believe that it will be volatile, but we think it will be gradually increasing across the next couple of years. We plan to implement the buyback and cancellation program in a gradually increasing and stable manner.
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Your last comment was regarding the mix between the share buyback, cancellation, and dividend payment. Until next year, the current shareholder return policy is effective. That's 50% of adjusted net income, a minimum DPS of KRW 19.61 per share. We pay quarterly dividends, so annually, currently it's around KRW 2,000.01. This policy will continue until next year. As to the mix after that, the board of directors will be making the decision on how to move forward. We do believe that the shareholder return policy will become stronger in future years.
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[Non-English content] . The following question will be presented by Jun-seop Kim from KB Securities. Please go ahead with your question.
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Thank you for the opportunity today. I am Kim Jun-seop from KB Securities, and I have two questions regarding the AX subsidiary. You are working with Microsoft to establish an AX specializing subsidiary. I would like to have a better understanding on types of services that this company will be offering. What is the size of the business that you are expecting that will be derived from this company? Maybe you can also talk about the number of employees that will be reassigned to the AX company as well.
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Yes, thank you for the question. My name is Chan-Ho Jung from the Open Tech Innovation Lead. Currently, we are discussing and cooperating with MS to develop and establish the AX company. But currently, we are still in the development phase. So unfortunately, we are not able to talk about the exact details of the services that we are planning to offer. So today, I think I can give you a more overall picture on this cooperation.
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AX is different from MSP. If you assume that there is a customer or a client that has the demand to transform some of its businesses, tasks, and projects to AX, they may have the need to do so, but they may not know where to start. They may need some help in developing the approach or trying to come up with concrete service types that they can use AX to transform their business.
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I think the biggest role will be offering technical consulting. It will be mainly C-level consulting services or pre-consulting service, understanding the business needs of the customer and giving advice on how they can leverage technology to achieve their business goals.
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When I say consulting, you may think of more conceptual consulting, but this is the reason why I mentioned that it will be a technological consulting service, because the customer will be having a clear idea on the final output all the way up to the POV stage. I think this type of additional service is something that we can differentiate ourselves from other competitors in the market.
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This type of service offering requires high level of expertise. This is why we will be fostering talent within KT. We will be recruiting experts from the market, and we will be working together with Microsoft to ensure that we have the technology and the ability to foster talent in this area. You asked about the size. The size has not been confirmed yet, but maybe just a preliminary and ballpark number will be around 100 employees, although even that number can subject to change based on the needs of the market that we can identify at the establishment of the company.
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Lastly, this is a high-performing or high-expertise-based consulting. The level of consulting that we provide to the customers, I believe, will be differentiated in the market. Therefore, while it is too early to talk about revenue, I think the value that we can put on this consulting services will be significantly high. While the company, the subsidiary, will work until the POV stage, the customer will have to find a partner for the main project as well. I think this will be a very significant opportunity for KT. This business can ultimately contribute to higher revenues of KT as well.
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Just to give you a little bit more color, within KT, we have tried these types of services for the ESG parts of the company, and we have been usually working on the AX, POC. The AI innovation that is possible for the customers, I think therefore has been already proven, and I think there is significant potential here. We are already receiving calls from some of our customers, so I believe that this market can grow considerably in the future.
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[Non-English content] . The following question will be presented by Eunjeong Shin from DB Financial and Investment Securities. Please go ahead with your question.
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Yes, thank you for the opportunity today, and I have three questions. First, regarding the value of program. One measure is that you will be tripling revenue of AI and IT by 2028. I would like to have a better understanding on your strategies to achieve the goal. Second, you just went through the AX company that you are developing together with Microsoft. I think earlier you also mentioned revenue outlook around KRW 4.6 trillion. What would be the role of KT in achieving that? Third, there is the reassignment of workforce that is currently being implemented by KT. I would appreciate a status update and how much the budget or impact it will have on the financials. If you can share color on that, that will be helpful too.
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Thank you for the questions. I will be taking the first and third question, and Mr. Chan will be taking the second question. Regarding the tripling revenue of AI IT, the base assumption is that we will be transforming ourselves from a CT and line-based company to a B2B AI DX service company.
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On a separate basis, the AI, IT revenue is currently around 6%, and we plan to increase this number significantly by 2028. The absolute number will be around KRW 3 trillion.
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Regarding the reassignment of workforce, the process of receiving the request has almost come to completion now. There will be 1,700 employees that will be reassigned to the newly established subsidiaries, two of them, and 28 employees have signed up for a retirement program. A total of 4,500 employees will be reduced from the headcount.
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In terms of the impact on financials, the payment for retirement will be booked in this year's accounting, and then the payment for the salaries of the employees that are being reassigned to the new two subsidiaries will be paid as a fee from KT to the subsidiary. This amount should be lower than what we are making as payment at the current stage. For the payment to the employees that are being reassigned to the new subsidiaries, that amount can be saved immediately from next year.
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Yes, and I will be taking the second question. Your question was regarding the revenue outlook. When we mentioned KRW 4.6 trillion, it was based on projections from consulting firm, and there are largely two pillars: AI and cloud.
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It is not an accurate number, but we believe that the breakdown between AI and cloud will be largely 50 to 50. And as the AI technology evolves and the AX market takes off, we think that the growth in this segment can be quite exponential in the next couple of years.
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Regarding the cloud business, this will be driven by partnership with Microsoft, and it will be mainly the sovereign secure public cloud business. This business is largely impacted by government regulations.
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While the finance sector is experiencing more relaxed regulations, and there should be therefore higher demand for external cloud usage, on the public sector, I think it may take longer for this market to open up to other companies.
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Early on, we will be mainly targeting strategic large customers who have demand for sovereign cloud services, and we will be monitoring the regulatory environment to expand into finance and the public sector later on.
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There are no further questions. We will conclude the Q&A session. Thank you for your interest and questions.