Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2024 first quarter results by LG Uplus. This conference will start with a presentation followed by a digital Q&A session. Our call is being broadcast on our homepage so that you can follow the conference simultaneously. Today's conference call will be presented for one hour, and due to schedule, we would appreciate questions that are limited to two per person. And now we will begin the conference of the fiscal year 2024 first quarter results by LG Uplus.
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Good afternoon. I'm Seong Hyun-mo, Head of IR at LG Uplus. We would like to begin 2024 first quarter earnings presentation of LG Uplus. Please refer to our Q1 earnings presentation and note that revenue breakdown of each business and details of operating expense are on the basis that excludes LG HelloVision for the benefit of ease of comparison. As a disclaimer, all of the projections we are making today are subject to change upon macroeconomic backdrop. We will also be providing consecutive interpretation for the benefit of our overseas investors. We will begin with Q1 performance highlights followed by Q&A, and with that said, I will now turn it over to our CFO, Yeo Myung-hee, who will run through Q1 2024 earnings and business results.
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Good afternoon. I'm Yeo Myung-hee, the CFO. Thank you all, including analysts and investors, for joining LG Uplus's first quarter 2024 earnings release call.
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In 2024, we shared our plan to create a solid foundation for future growth through customer experience innovation and digitalization of telecommunications. To this end, in Q1, we focused our efforts behind AI, which is set to play a pivotal role behind CX and DX transformation.
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To strengthen B2B business in the domains of AICC and large language models, we invested into a startup specializing in language AI models, 42Maru, while strengthening partnerships with global big techs to pioneer the AI market and to lay the basis for customer experience innovation.
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Most recently, we launched a chat agent platform that will support active communication with customers, leveraging our in-house developed AI technology, ixi. We launched first suite of products, which include four chat agent services: U+ Consultation, System Failure Consultation, Yudok AI Product Recommendation, and U+ Biz Market Solutions Guide. And in the second half, we will also roll out chat agents for our Nerget plan and for SOHO customers.
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Starting with the Chat Agent, we plan on building a platform that integrates AI agent technologies for mobile, AICC, IPTV, and business support, creating new and differentiated customer experiences while scaling up our growth strategy powered by AI.
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I will now walk through Q1 2024 financial results. Consolidated Q1 service revenue was up 2.5% year-over-year to KRW 2,893.3 billion, with separate basis service revenue at KRW 2,682.1 billion, which is up 2.7% year-over-year. As such, we were able to outperform our initial guidance, which we shared at the beginning of the year.
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Consolidated first quarter operating profit was down 15.1% year-over-year, but up 13% QoQ to KRW 220.9 billion. On a standalone basis, there was 14% year-over-year decline and increase of 16.8% QoQ, with OP at KRW 221.2 billion. Consolidated EBITDA for the quarter was up 0.9% year-over-year, reaching KRW 887.3 billion, sustaining an uptrend in operating cash flow.
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Consolidated Q1 net profit was down 15.9% year-over-year and up 24% quarter-over-quarter, reporting KRW 130.4 billion, while CAPEX was KRW 384.9 billion, down 25.9% year-over-year.
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Looking at consolidated financial position as at end of Q1, total asset was KRW 20,389.8 billion, total liability was at KRW 11,678.4 billion, shareholder equity was KRW 8,711.4 billion. Debt to equity ratio was up 4.5 percentage points year to date, and net debt ratio fell by 0.8 percentage points.
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To summarize the business and financial highlights, we will move on to each business segment and their outlook.
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First is mobile business, and I am Lee Jae-won, Head of MX Digital Innovations. Mobile service revenue for the first quarter was up 1.9% year-on-year, reporting KRW 1,507.1 billion.
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Total mobile subscription count was up 27.8% year-over-year, reaching 26,268,000. Of the total handsets, 5G subscription count was 7.19 million, accounting for 65.7% of total handset subscribers. MVNO subscription count was up 61.8% year-on-year, recording 7,034,000, continuing on with its uptrend.
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First quarter marketing spend increased 2.3% year-over-year, reporting KRW 546.7 billion, driven by rise in handset sales.
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In Q1 of 2024, our mobile business delivered meaningful results in both our platform and content business, underpinned by differentiated offerings driven by customer data.
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We expanded our data coupon offerings to help solve the problem of low birth rate and the burden of childcare, and we are also offering discounts and Disney+ through our subscription platform, Yudok, to mitigate the pressures of streamflation, which means rising costs of OTT subscriptions.
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Yudok, which is a subscription platform, has surpassed 2 million monthly active user counts, driven by distinct customer value offerings through products that better cater to the needs of the Millennials and Gen Zs. Yudok adopts a DIY-based operational model where customers can choose only the services that they want to subscribe to without limiting their choices. Going forward, we plan on expanding into and building a customer-centric C2C ecosystem and eventually scale up towards an open subscription platform.
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Also, we are producing original content under STUDIO X+U, which is our specialized brand for content. 'Branding in Seongsu' began airing in February, and its servicing through the global OTT has been confirmed, with rising global interest on our original content offerings. Also, a midform drama called 'Tarot' was the only Korean production to be invited to the Cannes Series competition, and we plan to utilize STUDIO X+U's original content to target the global market and will place full-fledged effort behind it.
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We are also building a data flywheel that utilizes data to provide better services to customers and use the data collected in the course of providing these services to improve those same services. Through the expansion of digital channels utilizing data gained from 11 million MNO mobile subscribers and the platform business, we will create a channel structure equipped with cost efficiencies.
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In the remaining period of 2024, mobile business will see revenue and profit growth by seeking both qualitative growth through the expansion of 5G high-value subscribers, as well as quantitative growth on the back of the increase in MVNO and IoT subscriptions, and create customer experience innovation through advanced data utilization and the application of AI services.
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Next is smart home business. I'm Park Chan-seung, Head of Homeniverse.
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Next is on key first quarter highlights for the smart home business. Q1 smart home revenue was up 2.9% year-on-year and QoQ, reporting KRW 611.7 billion.
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In the first quarter, IPTV revenue grew 0.1% year-on-year to KRW 334.1 billion, and internet revenue grew 6.5% year-on-year to KRW 277.5 billion, driven by growth in subscribers.
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IPTV subscribers grew by 2.1% year-over-year, reaching 5,479,000, and internet subscribers grew by 4.4% year-over-year, reaching 5,210,000.
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In February, LG Uplus launched U+tv Moa, which is a content discovery community that brings together IPTV customers' content journey. U+tv Moa is a TV companion service that makes U+tv more convenient to use on the mobile platform, allowing customers to explore information about all U+tv content, including movies, dramas, and entertainment, and watch those contents that they want right away and share ratings, reviews, and interact with viewers after watching the program.
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Since February, U+tv has also been offering more than 270 original movies and dramas from Amazon Prime Video in VOD format for the first time in Korea, enhancing customers' content viewing experience. U+tv and U+ Mobile TV viewers can now watch a variety of popular content without having to subscribe to Amazon Prime Video.
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Podong Charter is a charter flight service for traveling to Jeju Island with one's own pet dog, and it was sold out through the pet community platform Podong. LG Uplus plans to create a new trend of traveling with pets by offering differentiated customer value to pet owners starting with this service.
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In the smart home business, we will continue our efforts to innovate customers' media viewing experience and expand our platform business. For the internet business, we will continue to expand our Giga subscriber count so that we may improve profitability.
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Next up is enterprise infrastructure, and I am Park Seong-yul, Head of Enterprise Business.
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Allow me to share some of the highlights of the first quarter for our enterprise infrastructure business.
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In the first quarter, the B2B infrastructure business grew by 9.9% year-over-year, reaching KRW 405 billion, driven by even growth across all of its businesses.
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IDC business continued to grow strongly, with revenue at KRW 85.5 billion, up 11.7% year on year due to rise in traffic and adjustments to contract terms, while the solutions business grew at a strong 19.8% year over year, driven by growth in AICC, SOHO DX, and new connected car business.
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Enterprise lines continued to grow steadily at 3.8% year-on-year, reporting KRW 197.4 billion, driven by expansion of global OTTs and CPs dedicated line usage, including by Microsoft, and higher internet sales.
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B2B infrastructure business achieved meaningful results in the first quarter in the domains of AICC on-prem deployment, SOHO DX solution, and connected car business.
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AICC business achieved number one on-prem market share by strengthening its product competitiveness and is aiming to become a customer-centered DX provider that leads at the forefront of CX innovation for customers by offering and integrating BPO. In the second quarter, we plan to internalize AI engine to strengthen product and price competitiveness and win major bids by providing consulting in advance.
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SOHO DX solution has launched seven services who are AI Telephone, AI Booking, AI Waiting, AI Order, and POS and kiosk, of which AI Telephone with accumulated 3,110 lines is currently rapidly expanding its subscriber base. In the future, we will test key assumptions derived from SOHO data, conducting various tests at customer contact points to strengthen productivity and increase customer satisfaction. In addition, we are at this point operating what is called a Restaurant R&D Institute at Yongsan branch, where people can try and test different AX solutions. We're also providing customer demo box to strengthen the appeal to customers and also to gain best practices.
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In infotainment for connected car business, we equipped Genesis with our in-vehicle video streaming service, U+ Mobile TV, and are providing our sports community platform Sporki to Toyota Korea's infotainment system, which is Toyota Connect, which is based on infotainment system on U+ Drive.
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Looking ahead, we plan to continue steady growth in our B2B infrastructure business while accelerating profitability improvements from new business lines and from IDC growth.
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This concludes the earnings highlight by each business unit. I'd like to now turn it over to CFO once again to briefly present on the outlook for the second quarter.
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AI is becoming an integral part of the digital business environment, and we believe that it is important to identify and understand customer value and quickly implement it as a service rather than making huge and extensive investment in AI-sourced technology. Under this direction, LG Uplus aims to become a growth-leading AX company that can increase tangible customer value. We will accelerate customer experience innovation and grow together with our customers.
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We decided to purchase the Paju IDC site to proactively respond to the demand for IDCs as we are seeing expanding adoption of generative AI by enterprises and the acceleration of cloud transformation. Once operational, LG Uplus will be the only company in Korea to have three hyperscale commercial IDCs, and we plan to grow the Paju IDC into the country's leading AI data center optimized for the operation and management of ultra-high-performance GPUs.
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In addition, the establishment of an electric vehicle charging joint venture between us and Kakao Mobility has finally gained approval from KFTC, and the current electric vehicle charging business will be transferred to the new joint venture. The JV will build charging stations at large apartment complexes and office buildings and will aim to become one of the top three EV charging providers within three years. We will lead the future electric vehicle charging market by providing customer-oriented charging services to solve the inconveniences currently felt by EV owners.
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In the second quarter, LG Uplus will continue to utilize AX to accelerate customer value innovation and strengthen future growth businesses such as IDC and electric vehicle charging to achieve the management guidance which we set out at the beginning of the year, and we will spend no effort in enhancing the shareholder value. Thank you.
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That ends the presentation. We will now take your questions.
[Foreign language] . 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. [Foreign language] . The first question will be presented by Kim Hong-sik from Hana Securities. Please go ahead with your question.
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I would like to submit and post two questions. First one is, I see that your overall top-line revenue was quite positive, but looking just at your mobile business, it fell short, I think, compared to expectations. What is your take on how things will play out as you go into Q2 and the second half of the year, and what can you say is LG Uplus's key positive when you think about your top-line revenue and compare that to your peers? Second question relates to your shareholder return and shareholder value. The Korean government is actually quite strongly pushing for a value-up program. If you look at LG Uplus's share prices, its PBR is 0.5x and PER only 7x. It's considered one of the main undervalued shares. What are your plans to enhance the value of your company or your shares?
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Responding to your first question, yes, compared to our beginning of the year guidance, which was a 2% service revenue growth, we did outperform that in Q1 with 2.7% growth. Looking at the mobile business, we think that this trend will continue as we go into the second quarter as well. If you look at the mobile business specifically, overall operational backdrop was quite challenging because we have been experiencing net reduction in the handset market, and the 5G penetration speed has also slowed. But we really focused on the qualitative aspect by acquiring high-value subscribers, and at the same time, we struck a very good balance on the quantitative growth side by focusing on the MBNO subscribers.
So in Q1, our MNO, if you look at our MNO handset trend, it had turned back to net addition trajectory, building up more expectation for better performance as we go forward. And so I think this is an aspect that we were able to do quite better compared to our peers in the industry. If you look at our smart home business, it is true that the IPTV top-line growth has slowed compared to the past, but we've been able to make up that gap with a sustained growth from our internet revenue. We see that a single household is growing, and also the OTT market is expanding, which is driving up the demand for Giga internet. And hence, we see improvement in both the quality and the quantity of our internet subscribers.
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For the B2B infrastructure business, IDC business is posting quite steep growth. If you look at the growth rate, the reason why it may seem like we are slightly behind compared to our peers is that once all of the Pyeongchon IDC Center No. 2 fills up with our customers, we will be able to catch up with that growth rate. Also, we will be expanding the new businesses, including the AICC and smart mobility as well. Following the first quarter, mostly supported by our IDC business, we believe that there's going to be a very clear growth trend that we will be able to derive from AICC connected car as well as the EV charging business.
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Regarding your second question on the value-up program, the Korean government has held multiple number of open seminars, which we've participated in, and we are very closely monitoring the development of the government policy. The government has recently announced a guideline which actually hinges on a lot of financial information and projections of the company, and we believe that, hence, it does require us to really deeply consider and study those different aspects.
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So having said that, we believe there will be many positives that will have an impact on our company as we participate in the corporate value-up program. I understand that the government has quite a bit of incentives that they are currently thinking of, for instance, providing tax benefits, providing recognition awards, or giving preferential evaluation. We are looking forward to various types of government incentives and support. So once the final guideline is officially announced in the month of May, we will consider and study those different elements, and we'll come back to you, to the market, communicating as to what are some of the specific measures that we will take to enhance shareholder value from a mid to longer term.
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Next question, please.
[Foreign language] . The following question will be presented by Aram Kim from Shinhan Securities. Please go ahead with your question.
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Thank you for taking my question. I am Kim Aram from Shinhan Securities. I'd like to just ask for an update on your new business, particularly on monetization and what your goals are, specifically for your EV charging business and AI initiatives. What's your strategy to monetize these initiatives? What's your goal? What's your earnings target, etc.?
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Hello, I'm the CSO. I am Kim Jihoon. I will respond to your question on our joint venture initiative for EV charging. In March, we've been selected as an EV charging service provider designated or commissioned by the Ministry of Environment as a subsidy project. As of March, we have installed and are operating 8,600 charging machines or charging equipment in 1,700 charging sites. There are two activities that I can highlight. The first one is that with collaborating with the construction companies in specific areas where there is limited space, we have developed a ceiling-mount type of K-charging equipment. We've completed the development and also received certification, and we're in the process of deploying that into the market. Also, as part of next-generation services, we are in the process of designing and developing a new service scenario that uses Plug- and- Charge.
Plug and Charge basically means that if you plug your vehicle to be charged, it will automatically go through the payment process.
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Also, as of April the 29th, the KFTC has completed the merger review between this joint venture initiative between our company and Kakao Mobility. There are other processes that are ongoing at this point to set up the JV entity. We will continuously win permits and licenses that will enable us to engage in this electric business. Once the business transfer process is complete between the JV and LG Uplus, we would carry out all the remaining preparations to make sure that we are able to operate the EV charging business on our own.
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Hello, I am Song Jung-hyun. I'm in charge of AI products and services at LG Uplus. Responding to your question about our AI business, as we mentioned at the very beginning, LG Uplus has committed itself to becoming a growth-leading AX company. Under the ixi, which is our AI brand, our AI strategy is to deploy and apply this ixi agent across all of the businesses that we are in.
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Now, if you look at AI technology that we are employing, it is based off of a hyperscale AI model called EXAONE, which was developed by LG AI Research. On top of that, we bring the third-party AI models such as OpenAI, Microsoft, and Google's Gemini. We've been able to develop a multi-language, large language model, which is ixi-GEN, and we have a commercial-grade model in place. By using these models, we are able to develop an AI development environment and a governance structure that is fast and reliable.
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In terms of business application, we've applied ixi to our CS center for the first time, handling the grievances and inquiries of our customers 24/7. Our CS agents get help from these AI tools, and they could really focus on the important aspects of counseling the customers. In Q1, we integrated the ixi to our existing suite of chatbots, releasing Chat Agent, after which we've seen a significant increase in customers' self-handling of issues.
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Secondly, in the area of B2B and also vis-à-vis our B2B customers, our goal is to become a partner of choice that provides innovation and success and supports the success of customers' businesses through providing a more efficient and optimized way for our customers to employ in their business operations in line with the change and the transformation of the technology. As such, we are focusing our AI capabilities into the subscription-based B2B AICC business as well as on-prem B2B AICC business.
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In IPTV, we are developing and going towards what is so-called a media agent that innovates the viewing experience of our user base based upon a voice interface. So in the first half of the year, we opened the use of Search 2.0 services, which is a context-aware service. Going forward, based upon ixi-GEN, we are going to evolve this capability into a system whereby people would just naturally converse with this model just as if you're talking to your friend.
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We at LG Uplus will continue to develop our own differentiated services that are well embedded on the basis of AI, playing on with our creative and our deep understanding of what AI can do so that all of those elements are well embedded across the services that LG Uplus offers.
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If there are no questions that's in the queue, we would now like to close the earnings call for LG Uplus for the Q1 of 2024. If you have any further questions, please do not hesitate to contact us at the IR team. Once again, thank you very much for joining us.