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Good morning and good evening. Thank you all for joining this conference call. Now we will begin the conference of the 2021 first quarter earnings results by KT. We would like to have welcoming remarks from Mr. Seung Hoon Chi, KT IRO. Mr. Young Jin Kim, CFO will present earnings result 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 Mr. Seung Hoon Chi, KT IRO.
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Good afternoon. I'm Seung Hoon Chi, KT's IRO. We are webcasting this earnings release call and you can also follow the slides as you listen in on the call. Let us now begin KT's Q1 2021 earnings presentation.
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Before we begin, please note that today's presentation includes financial estimates and operating results based on K-IFRS standards and are yet to be reviewed by an outside auditor. As we cannot ensure accuracy and completeness of financial and business data, except for historical performances, please be reminded that these figures are subject to changes.
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Now, I will invite our CFO, Young Jin Kim, for his greetings and presentation on Q1 2021 earnings.
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Good afternoon. I'm Young Jin Kim, KT's CFO. I will begin with Q1 2021 key business highlights. KT's consolidated revenue was KRW 6,029.4 billion, service revenue was KRW 5,230.4 billion and operating profit came in at KRW 444.2 billion.
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Driven by balanced growth across B2B, Financial, Media and Content and other Platform businesses and incumbent core businesses of 5G and internet, revenue was up 3.4% on -year and operating profit was up 15.4% year-over-year.
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Separate basis revenue was up 3.3% on-year to KRW 4,574.5 billion, while operating profit was up 21.4% on-year, reporting KRW 366 billion.
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KT in Q1 has aggressively expanded its platform businesses, reorganized business portfolio around growth businesses, and once again was able to confirm the feasibility of success as a DIGICO.
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KT's main core business, which is AI / DX, was up 7.5% on -year driven by the growth of platform businesses, including AI and Cloud. Also, untact or contact-free environment has geared up data traffic, which led to top line growth of B2B, including Enterprise Messaging.
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In the midst of companies growing demand for digital transformation, KT has been launching DX services mostly around areas that KT can excel in, and that which has potential for growth. For instance, AI Contact Centers provide services that adopt DX on top of existing telecom services for insurance and financial, which are the sectors that traditionally operate call centers. We are expanding to other service areas, i.e. public and retail. In development currently is a Voice -call DX for small merchants, which uses voice bot for booking and information delivery.
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For C-ITS, which is a next generation intelligent digital-based transport system, we started off with a successful reference in Jeju Island and won projects from Ulsan and Gwangju City, and we will continue to expand on the service area.
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To prepare for the upcoming era where robots become available for mass market use, we are undertaking platform development for robotics distribution and service offerings. We first launched Serving Robots, Hotel Robot, and Barista Robot, and plan to expand the lineup to include Care Robot, Quarantine Robot, and Information Robots as well.
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Growth trend from telecom business was also sustained. On growing 5G subscriber base, despite declines in the roaming revenue, both wireless ARPU and service revenue were up year-over-year. We also reported market share number one in quarterly net additions, with Broadband Internet subscribers increasing more than 100,000. We actively revamped group's businesses and engaged in investment for transformation into a DIGICO.
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Studio Genie, which is an entity specializing in content, was established back in January, and KT's equity in Storywiz and Skylife TV was invested into Studio Genie, which laid the foundation for maximizing synergies across media and content businesses within the group. By acquiring Altimedia , which supplies key solutions of the media platform, we were able to secure core technical capabilities of the media platform.
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There were much progress in the financial sector as well. K Bank, whose deposit as of end of 2020 was KRW 5 trillion with customer base of 1,720,000, by expanding its partnerships and offering differentiated benefits, was able to grow total deposit to KRW 12.1 trillion, with 5,370,000 customers as of April end of 2021. We plan to further speed up the upward trend through additional capital increase before the end of the year.
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To further bolster KT Group's competitiveness in data and broaden business cooperation in finance and telecom, we decided to make strategic equity investments into Banksalad, which is an asset management service application. As you know, we also sold -off KT Powertel as we believed there is limited potential for synergies with the group.
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Moving on to Q1 2021 earnings. Total revenue was up 3.4% year-on-year to report KRW 6,029.4 billion on growth business expansions coming under full force.
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Operating profit driven by top-line growth went up 15.4% on-year to KRW 444.2 billion.
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Net profit was up 43.7% on-year to KRW 326.5 billion while EBITDA was up 3.7% on-year to KRW 1,345.3 billion. Next is on operating expense.
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Operating expense was up 2.5% year-on-year to KRW 5,585.2 billion on higher business related expenses and sales expenses. Next on the financial position.
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Debt to equity ratio as of end of Q1 2021 was 118.7%, down 1.4 percentage points year-over-year, and net debt ratio was down 5.1 percentage points year-on-year to 32.4%. Next is on CapEx.
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CapEx spend for Q1 was KRW 289.4 billion. Next, let's take a look at performances of each of the business lines.
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Wireless revenue was up 2% year-on-year to KRW 1,770.7 billion. Wireless service revenue was up 2.2% year-on-year to KRW 1,667.6 billion on the back of steady 5G subscriber growth.
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As of end of Q1 2021, total wireless subscribers were 22,430,000, while there were 4.4 million 5G subscribers, which accounts for 31% of handset subscriber base.
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Next is on the Fixed-Line and IPTV business. Fixed-Line telephony revenue was down 0.3% on-year to KRW 377.3 billion. On growth in enterprise subscribers, fixed rate based product sales were quite positive, slowing the speed of top-line erosion. Despite declines in interconnect revenue on continuous rise in high quality subscribers, Broadband Internet revenue was up 0.1% on-year to KRW 503.2 billion.
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On the back of subscriber growth and sustained revenue growth based on the media platform, IPTV revenue was up 6.8% year-on-year to KRW 446.2 billion. Next is B2B business.
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B2B revenue was up 2.3% year-on-year to KRW 684.2 billion. Demand around contact-free or online led to increases in data traffic, driving up B2B revenue 0.7%, while B2B IT and solutions revenue was up 1.5% year-on-year on the back of Digital New Deal projects from the government.
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For the AI / DX business on greater demand from customers on digital transformation, which includes Cloud, IDC, AICC and blockchain, revenue was up 7.5% year-on-year as the uptrend in revenue continued. Next is on subsidiary performance.
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Despite subdued consumption on the back of the COVID-19 pandemic, BC Card revenue was up 5% on-year to KRW 839.5 billion, driven by increase in domestic acquiring volume. On lower real -estate sales and sluggish Hotel business impacted by COVID-19, as well as transfer of building management business to a group affiliate, KT Estate Revenue was down 41.3% on-year to KRW 62.6 billion.
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KT SkyLife revenue was down 0.6% on -year to KRW 166.9 billion due to the decline in OTS service subscribers. One of the key pillars of KT's DIGICO transition is revenue from our content subsidiaries such as KTH, M&House, Genie Music and Nasmedia, which was up 12.2% on -year, reporting KRW 199.6 billion on the back of higher platform revenue from these key business subsidiaries.
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Despite business constraints posed by the COVID-19 pandemic, we are seeing better performances from the financial affiliates as well as growth from affiliates in the content business.
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That ends KT's Q1 2021 earnings highlights. This year, KT's key focus is transitioning into a DIGICO and underpinning of growth. Our guidance for 2021 was standalone service revenue growth of above 4% year-on-year and consolidated revenue of more than KRW 25 trillion. With Q1 as the beginning, we expect our growth as a digital platform company will further accelerate as we go forward.
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We will continue to bring stable revenue from our telecom business while generating tangible results from growth businesses of B2B and platform. We plan to bolster synergies across group affiliates and actively pursue revamping of our business structure. We look forward to your investors and analyst support and encouragement, and thank you.
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For more detailed information, please refer to the document that we have previously circulated. We will now begin the Q&A. In order to provide more opportunity for many people to ask questions, please restrict your questions to two per person.
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Now, Q&A session will begin. Please press star one, star and one, if you have any questions. Please press star two, star and two, 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 Kim Junseo from KB Securities, and the next question will be provided by Choi Minha from Samsung Securities. Mr. Kim Junseo, please go ahead with your question.
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Hello, I'm Kim Junseo from KB Securities. First of all, congratulations to you for such a great performance. Would like to first understand what management assessment is behind such a good performance this quarter. That's the first question. Second is, it seems like your PSTN top line erosion speed has slowed. Once again, what's the reason behind that?
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Thank you, Mr. Kim Junseo, for your question. I will respond to both of those questions.
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First question relates to what KT's management view is regarding the causes behind the good performance.
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Well, I've mentioned during the presentation that I had just made. Basically, the good performance is attributable to good results from KT's core businesses, as well as from AI / DX, and growth in top line from our affiliates and subsidiaries, which drove an year-over-year improvement in operating profit.
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Now, first of all, we call this business, our traditional telecom business, the MIT business, which includes Mobile, Internet, and TV. We've seen both on the wireless and internet increases in 5G subscribers, as well as overall improvement in the acquisition of premium subscribers, which drove top line growth. In terms of internet, we've seen growth in subscriber base for GiGA WiFi as well. Also we've seen monthly IPTV related fees. Actually, the usage fees of IPTV had also gone up, and also home shopping transmission commission had also had a positive impact, while the revenues from advertising and platform business have also contributed to the good performance.
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On top of that, if you look at one of our DX digital transformation platform related businesses, which is a messaging business, we've been able to achieve double -digit growth. We launched a [Non-English content] service back in October. Although the absolute size is not that significant at this point in time, we are seeing quite steep growth in terms of subscriber numbers as well as top line revenue. For IDC, with the opening of the Yongsan IDC center, we've been starting to get some inflow of good performance being booked and represented in the first quarter numbers. For the Cloud business, by acquiring new customers, we were able to sustain high growth rate of more than double -digits.
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In terms of our group affiliate contribution, we are seeing both financial, media, and commerce advertising, the so-called digital-based platform businesses. We will make sure we continue to sustain growth from these areas of growth. From a per annum perspective, in terms of our annual forecast, we will continuously pursue growth from both our core telecom business as well as our digital platform-based businesses, so that we can continue on with a top line growth and also improve on the cost efficiencies so that we may realize year-on-year operating profit improvement.
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Second question relates to the reason why we are seeing slowing down of PSTN erosion. I can cite three key factors.
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The first reason is that we were able to drive up the subscriber base for enterprise internet-based telephony. Basically, with the spread of the untact or contact-free environment, we've seen revenues from the enterprise intelligence network-based businesses actually rise. Also the decline in the home telephony, the speed at which it is declining has slowed. By introducing a flat rate tariff product, we were able to further slow down or stabilize that decline in home telephony.
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Next question, please.
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The next question will be presented by Choi Minha from Samsung Securities, and the following question will be presented by Jang Minjun from Kiwoom Securities. Mr. Choi Minha, please go ahead with your question.
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Thank you. I'm from Samsung Securities. I'm Choi Minha. I would like to ask you two questions. We have seen quite steady and stable growth from your wireless business, including the number of subscribers and the earnings and revenue. The earnings from your media and content subsidiaries have been quite positive. Overall, there seems to be subsidiaries that have been negatively impacted by COVID-19 pandemic. Could you provide some color as to what your projection is going forward for these affiliates? Also, if you could give us a hint as to when, on a total aggregate basis, you expect a turnaround in operating profit of your group affiliates.
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Thank you. Ms. Choi Minha. You asked question regarding group affiliates.
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You asked about our forecast of group affiliate earnings going forward. I believe key subsidiaries are BC Card, KT Estate, and KT SkyLife. In terms of BC Card, last year on the back of the COVID-19 pandemic, the overall domestic acquiring volume as well as UnionPay-based acquiring volume with the fall in the Chinese inbound tourists have fallen.
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In terms of the domestic acquiring volume for Q1 on a year-over-year basis, there was an upward impact of around KRW 40 billion with the recovery of consumption, and that had a positive impact. On the UnionPay fee-based credit cards, still, we haven't been able to recover the inbound tourist demand or consumption, so that still has some negative impact. All in all, we will make sure that we exert our utmost effort so that in terms of the profit, we can at least achieve the level of the previous year.
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For KT Estate last year, there was some one-off sale related revenues from selling apartments and office sales in Busan and Daegu area. With that factor now eliminated, we expect for this year that there will be some decline.
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For the hotel business, on a year-to-date basis, we are seeing some signs of recovery, still there is lingering impact from the pandemic. We are currently taking a quite conservative projection on that business. However, there is a slight increase from the rental related revenue. All in all, if you look at KT Estate, once again, because that one-off sales related revenue impact is now ended, we expect on an overall basis there would be a slight dip in terms of the top line.
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For KT SkyLife, they actually have their earnings release call scheduled for 5:00 P.M. today. In terms of the subscribers for satellite service, we are seeing an increase there while the OTS subscriber is declining. The company will make sure that we effectively come up with bundled products, including TPS with mobile and internet. Once the HCN acquisition process is completed, we can also leverage off of what HCN can offer. Also, aside from these subsidiaries, we also have media and advertisement-related affiliates. In terms of digital commerce, we have KTH and KT M&House. Basically, we have seen increases in volume when it comes to T-commerce and Enterprise Messaging and other B2B types of services. We are seeing a growth trend of revenue from that business area. Also we have an advertising arm, Nasmedia.
We've seen greater demand and sales of advertisements relating to games, commerce, and other verticals. We expect that the performances of these entities will start to recover going forward. In terms of on an aggregate basis, when we expect a turnaround in operating profit from our group affiliates. What to share with you, our annual projection is, if you look at financial and content media and advertisement, in line with the growth that we are seeing from digital platform-based businesses on an year-over-year basis, our objective is to make sure that we bring about a growth at the operating profit line. Next question, please.
The next question will be presented by Jang Minjun from Kiwoom Securities, and the following question will be presented by Stanley Yang from JP Morgan. Mr. Jang Minjun, please go ahead with your question.
Thank you for the opportunity to ask a question. I am Jang Minjun from Kiwoom Securities. Two questions. First, in terms of your wireless business, beginning of the year, you communicated about 4% year-over-year growth as your guidance. Now that we have passed the first quarter, the growth rate is around 2%. What guidance would you be able to give us for the entire year since we now have the track record of Q1? Second question, just want to confirm your plans or your position regarding upping or increasing your payout ratio. There seems to be certain issues or talk around your dividend related, I guess, practices. Could you just share with us what your position is regarding dividend payout?
Thank you, Mr. Jang Minjun, for your question. First, you asked us about any possible adjustments or updates regarding the guidance of 4% growth of our service revenue.
Regarding any updates on the 4% growth guidance for our wireless service revenue, that guidance still holds valid. As we see 5G taking up and increasing its penetration, we see number of subscribers taking high ARPU are also growing. Also by providing value-added services like V Coloring and identifying other sources of revenue, we expect that we will be able to, and our plan is to achieve this 4% revenue growth target. Second question, whether that 50% payout ratio is still valid. You asked for our confirmation. Back in May of 2020, we communicated KT's mid to long-term plan, we communicated that on a separate or standalone basis, based on adjusted net profits, we will be paying out 50%. That is a commitment and promise that we've made to our investors and shareholders, we plan to keep to it.
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The next question will be presented by Stanley Yang from JP Morgan. The following question will be presented by Haesu Lee from Robeco. Mr. Stanley Yang, please go ahead with your question.
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Thank you. I would like to ask you some questions. First, you've communicated in terms of your growth projections that by 2022 on a standalone operating profit basis, you're targeting KRW 1 trillion. Now that your Q1 performance has been quite stellar, do you think that you will be able to achieve this target ahead of that 2022 schedule? If that is the case, would you be willing to increase that target for 2022? I ask this question because if you look at 2016, when you achieved KRW 1 trillion of operating profit, your Q1 performance or earnings was actually lower than what you have reported this quarter. I would like to understand whether you think that you'll be able to achieve this target earlier than you had previously planned for. Second, do you have plans to cancel your treasury shares?
If not, where would you use the treasury shares? For what purpose?
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Thank you, Mr. Stanley Yang, for your question. You mentioned if we are able to achieve that operating profit target of KRW 1 trillion on a standalone basis earlier than 2022, will we have planned to further increase our target? Basically for this year, our plan is to bring about higher operating profit on a year-over-year basis. After we look at that track record, it will be after that point in time that we will make a decision as to whether we will update our target for 2022.
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Regarding the second question of whether we are reviewing a possibility of a share cancellation at this point, nothing of that specificity is under review. Where would we use that treasury share for? Those will be used to further strengthen competitiveness of the company and also to generate synergies by entering into strategic alliances or partnerships or looking at possibility of M&As. At this point in time, we do not have any specific plans that is confirmed yet.
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Next question, please.
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The next question will be presented by Haesu Lee from Robeco. Mr. Haesu Lee, please go ahead with your question.
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Shed some light on what the progress is for your share buyback of KRW 300 billion. Until when will that process last?
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Thank you, Ms. Haesu Lee, for your question. You asked about the progress of our share buyback process. On November 5th, our BOD resolved for a share buyback. It's a trust arrangement through which we undertook buying back of KRW 300 billion of treasury shares, and that whole process has been completed as of March the 17th. Basically, we have acquired 12,150,000 shares, which account for 4.7% of total outstanding.
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Thank you. This ends the earnings release for KT Q1 2021. Thank you to all of you for your questions and your interest in the company. Thank you for joining our call despite your very busy schedules. This ends the first quarter 2021 earnings presentation. Thank you.