Good afternoon. I am Seung-Hoon Chi, IRO of KT. I would like to begin KT's 2022 Q1 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 to the call.

Before we begin, please note that today's presentation includes estimates of financial and operating results, which have been prepared in accordance to K-IFRS standards that have not yet been reviewed by an outside director, an outside auditor.

Therefore, other than confirmed historical data, we cannot guarantee the accuracy and completeness of financial and business information. Please be reminded that these figures are subject to change. With that, I would now like to invite our CFO, Mr.

Young-Jin Kim, for his remarks and presentation on the business performance of KT in the first quarter of 2022..

Good afternoon. I am Young-Jin Kim, CFO of KT. I will first go over the key performance highlights for the first quarter of 2022. In the first quarter of 2022, operating revenue grew 4.1% Y-o-Y and stood at KRW6,277.7 billion. Thanks to the full-fledged business expansion of the DIGICO B2B business as a digital platform company.

The continued robust growth of the Telco business and a stronger growth portfolio, driven by partnerships and co-operation. The 6.4% Y-o-Y revenue growth of the service revenue was especially notable. Operating income jumped 41.1% Y-o-Y to reach KRW626.6 billion, supported by revenue growth driven by DIGICO and efficient cost control.

Even on a standalone basis, revenue increased by 0.7% Y-o-Y to report KRW4,608.4 billion and operating income grew by 17.5% Y-o-Y to reach KRW429.9 billion KT is successfully achieving the DIGICO success formula by leading Korea's digital transformation or DX demand and actively cooperating and partnering with Korea's #1 business operators to secure growth momentum.

For B2B, KT offers customized services to different industries based on Korea's largest mobile and fixed infrastructure, strength in core DX technologies such as AI, big data and cloud, and our diverse corporate product portfolio, which led to a 10.5% Y-o-Y growth for DIGICO B2B and a 7.1% Y-o-Y growth for the Telco B2B business.

In particular, in Q1, we were able to win orders not only in finance and the public sector, but also in the distribution industry, expanding our reference. A total of 0.9 trillion orders were booked, which is a 59% jump Y-o-Y.

The revenue of the cloud and IDC business, the key to digital transformation grew by 14.7% Y-o-Y to continue strong momentum, mainly propelled by the increased sales to large global content providers, KT's preemptive response to new demand and increased demand from the public cloud sector.

On April 1, we established a new entity, KT Cloud to preemptively respond to the Cloud/IDC market and solidify market leadership. KT is making utmost effort to become Korea's top digital infrastructure company. The Telco business is continuing volume and quality growth, mainly driven by premium subscribers.

5G penetration has reached 50% and wireless service revenue grew by 2.4% Y-o-Y. The broadband business revenue also increased by 2.6%, thanks to subscriber growth driven by GiGA Internet. KT has been cementing leadership in IPTV market as well, which drove the sustained robust growth of 9.3% Y-o-Y.

Finance and media content, the main growth pillars of KT Group, have engaged in active cooperation and partnerships with industry top brands to lay the foundation to leap forward to become a top-tier player in Korea.

Since January, KT and Shinhan Financial Group have been working together to develop cooperative endeavors for the future finance business based on the key strengths of the top players. The 2 companies who are #1 players in the disparate sectors, namely finance and telco.

In March, we inked a partnership agreement with CJ ENM, Korea's top content operator on all-around cooperation in the content business. We are planning to mutually cooperate in various areas, including joint content production, content procurement, and programming.

In particular, the valuation of KT StudioGenie was recognized to be above KRW1 trillion in just 1 year since establishment to attract an investment of KRW100 billion. In case of K Bank, all sales indicators, including number of customers, balance of deposits and loans grew, leading to higher profit.

As of Q1, total number of customers increased by 330,000 since end of last year to reach 7.5 million. As of Q1, the outstanding balance of deposits was KRW11.5 trillion and KRW7.8 trillion for loans. I will now run through the 2022 Q1 earnings results. Operating revenue increased by 4.1% Y-o-Y and stood at KRW6,277.7 billion.

Operating income jumped 41.1% Y-o-Y to reach KRW626.6 billion. Net income grew by 39.5% Y-o-Y and reported KRW455.4 billion. EBITDA increased by 12.9% Y-o-Y to report KRW1,518.3 billion. I will go over the operating expense on the next page.

Operating expense increased 1.2% Y-o-Y and recorded KRW5,651.1 billion, mainly due to the increase of labor cost, general expense, and cost of services provided. I will go over the financial position of the company on the next page. Debt ratio as of March 2022 was 124.8%, which is a 6.1 percentage point increase Y-o-Y.

Net debt ratio rose by 5 percentage points and stood at 37.4%. I will now move on to CapEx. Total CapEx expenditures in 2022 Q1 was KRW346 billion. I will now go over performance by each business line. The Telco B2C business revenue rose by 1.2% Y-o-Y to record KRW2,353.5 billion, backed by stable wireless and broadband revenue growth.

The growth of 5G subscribers supported wireless revenue, which increased by 1.9% Y-o-Y to reach KRW1,537.6 billion. As of 2022 Q1, total wireless subscribers amounted 23.06 million, 5G subscribers amounted 6.94 million, which is 50% of our handset subscribers.

Broadband revenue increased by 2.6% Y-o-Y to reach KRW591.1 billion, which was driven by GiGA Internet subscriber increase. Fixed Telephony revenue declined by 6.8% Y-o-Y to KRW224.8 billion due to the reduction of residential and household subscribers. Next is the DIGICO B2C business.

The DIGICO B2C business revenue grew 4.7% Y-o-Y to record KRW549.3 billion, thanks to the growth of media and mobile platform businesses. The 9.3% Y-o-Y growth of IPTV is especially notable. Services such as Prime Kids Land enhanced customer value leading to expansion of subscriber base and platform-based revenue growth. Next is the Telco B2B business.

The Telco B2B business revenue rose by 7.1% Y-o-Y to report KRW519.7 billion as balanced growth was witnessed across corporate data and Telephony. Corporate broadband and data revenue increased by 3.7%, thanks to corporate digital transformation leading to higher traffic and stronger demand.

Corporate Telephony rose by 14.3% Y-o-Y continuing robust growth momentum supported by net growth of corporate Internet telephone and by KT preemptively responding to MVNO market trends. I will move on to the DIGICO B2B business. Cloud/IDC and AI/New Biz drove growth of DIGICO B2B, which grew by 10.5% Y-o-Y to report KRW539.6 billion.

Enterprise DX revenue decreased by 0.8% Y-o-Y due to the decline in revenue of the infrastructure business, which includes global business, despite growth of profits generated by corporate messaging.

Revenue of Cloud/IDC business showed strong growth, 14.7% increase Y-o-Y-backed by winning orders for cloud projects in the public and financial sectors, upselling to existing customers against higher demand for IDC and revenue growth of the IDC DBO business.

The AICC business, which was launched in the second half of last year has started to win orders and show earnest revenue growth. With the additional growth of smart mobility and blockchain businesses, the AI/New Business revenue jumped 40.7% Y-o-Y. I will now go over the earnings performance of main subsidiaries.

Revenue of BC card recorded KRW902.2 billion, which is a 7.5% Y-o-Y increase, thanks to credit card transaction value recovering to pre-COVID levels. Revenue of Skylife jumped 44.2% Y-o-Y to reach KRW240.8 billion backed by acquisition of HCN on top of the expansion of MVNO and Internet resale.

Revenue of Contents subsidiaries jumped 35.5% Y-o-Y to report KRW270.4 billion, supported by the effect of consolidation of KT Seezn, HCN and Millie's Library on top of revenue growth of major subsidiaries related to digital advertisement and T-commerce.

KT Estate posted revenue of KRW150.5 billion, a substantial Y-o-Y jump, driven by one-off real estate revenue on top of the launch of the Sofitel in Songpa and hotel revenue buoyed by post-pandemic travel demand. We went over the 2022 Q1 performance of KT.

2022 marks the third year since declaring transformation into DIGICO and KT is continuously writing a rich DIGICO growth story. In addition to stronger profitability of the Telco business, we will be making utmost effort to deliver visible results in the DIGICO B2B business as it starts to show full-fledged growth.

We would like to ask for continued interest and support from our investors and analysts. Thank you. For more details, please refer to the earnings presentation, which has been previously circulated. We will now be taking your questions. In order to allow as many Q&A opportunities as possible, we would appreciate only 2 questions from each participant.

Thank you..

[Operator Instructions] The first question will be presented by Hoi Jae Kim from Daishin Securities..

My name is Kim Hoi-Jae from Daishin Securities. I have 2 questions. First is related to dividends. I understand that the dividend policy is 50% of ordinary income and profit, and it excludes one-off items.

So the dividend is related to the earnings of the company and like this year when the earnings are very strong, I believe that we can expect higher dividend for the full year. But I also understand that this policy is only valid for this year.

Will the dividend policy continue next year as well and will the dividend be continued to lead to the earnings of the company? Second is related to content. I understand that original title has been launched by StudioGenie this year.

What is the lineup of the content titles this year? What is the time slot for those titles? And also, if possible, can you also provide some guidance on the profitability of the content business?.

Thank you for the question. Your first question was regarding to the dividend policy after next year. I will answer that question first. As you know, for the dividend payout for 2022, it will be 50% of net – adjusted net income on a standalone basis and this policy will be maintained until the end of 2022.

I think it is a little bit early to communicate the shareholder return policy for 2023. Having said that, historically, KT’s dividend payout has been around 50%.

The senior management and the Board of Directors of the company have been continuously working to enhance the corporate value and shareholder return policy and have been continuously supporting shareholder returns.

And for the dividend policy after 2023, the Board of Directors will be discussing this topic and we will be considering the expectations and the opinions of shareholders and investors to come up with a policy that can meet the expectations of the market.

Your second question was regarding StudioGenie, the lineup for this year and the guidance for the performance for this year. For content lineup this year, we are planning to have around more than 10 titles and from next year onwards, we should have more than 20 titles released a year.

We recently released the original title, There is No Goo Pil-Soo, which has been receiving positive reviews and the viewership for the drama is increasing as well. After that, we have Strange Lawyer, Woo Young Woo and also My Secret Partner, that is coming up in the lineup.

These dramas are based on already verified content like Webtoons, so we will be continuously working to enhance the quality of the titles that we release. We already have a confirmed slate [foreign] up to next year, but I don’t think that this is the appropriate event to go over each of those titles that are expected to be released.

For the guidance for the performance, of course, in 2022, with strong lineups, we will be generating higher revenue. As for the operating income, we believe that it will turn to profit this year and we will be continuously working to enhance the value of the company and we are also thinking of listing IPO of the company in the future as well.

Next question, please..

The next question will be presented by Joonsop Kim from KB Securities..

My name is Kim Joonsop from KB Securities. First of all, congratulations on the very strong results in the first quarter. I have 2 questions, one on AI/New Biz and the other on IDC/Cloud. First on AI/New Biz, in the previous call, you mentioned the launch of AICC, and AICC has been receiving attention and making headlines on the press.

So I would like to understand better your growth strategy for this business, your outlook and guidance for the performance, and if there is anything that has changed regarding the AICC since the previous call, it will be also appreciated if you can share that as well. The second question is related to IDC and Cloud.

There are more competitors entering the market and therefore, the supply for this service will increase as well.

What is your strategy to sustain growth in this area?.

Thank you for the questions. I will first answer the question regarding the AICC and AI/New Biz. First of all, if you look at the backdrop of the AICC business, KT has the experience of operating the largest customer centers in Korea and based on this experience, we were able to automate the service by using that data to input our AI capabilities.

So this is the backdrop for this AICC service. To go into a little bit more detail, AICC combines the contact center – call center experience with KT’s AI capabilities.

We are able to offer virtual consultations with customers and analyze the different cases to come up with solutions and provide these solutions in the form of packages that can best suit the needs of the customer.

We can combine the Telephony’s the messaging, the chatting services and integrate all of this into a single platform to enhance customer experience for our customers. Yes. We believe that the contact – CC market size is around KRW9 trillion and our portion of this market, the AICC portion is continuously increasing.

We have largely 3 strategic directions for AICC. First, as an infrastructure business, we have been focusing on finance and insurance in the past, but we are expanding our presence into the public sector and also the distribution industry as well.

We are also planning to launch and operate the subscription business in this sector for small and medium sized enterprises. We will be combining the AI and the Cloud of KT services to create what we called CcaaS and this will help us diversify our business model and secure a larger number of SMEs as our clients.

We have also launched the AI voice secretary and this has been targeting the smaller mom-and-pop stores and small SMEs. We have been continuously improving our UI to enhance customer experience and secure a larger number of customers. The second question was on how we will be able to sustain the growth of IDC and Cloud.

You mentioned about the increase of supply and competitors in this market. In the IDC sector, we believe that the corporate demand for digital transformation is continuously increasing. So the demand and supply situation in this market, the demand is continuously larger than the supply.

First of all, as to the key strength of KT in this market, we are the only cloud operator in Korea to be able to combine network, data center and cloud. And in 2016, after getting the [Gcloud] certification, we have been able to aggressively penetrate the public sector. KT operates 14 IDC centers in Korea, which is the largest in the country.

And we have been working together with top industry players to better serve our clients. For example, we are cooperating with #1 MSP operator, Megazone Cloud and we are able to leverage their customer base and consulting capabilities and combine that with our stable operation of the cloud services.

To respond to the skyrocketing demand for IDCs in Korea, we are planning to add 100-megawatts, so that we can solidify our leadership in this market as the #1 player. To flexibly respond to the market changes in this sector, we are focusing on partnerships and cooperation along with our internal efforts to establish the infrastructure.

Next question, please..

The next question will be presented by Jae-Min Ahn from NH Investment & Securities..

My name is Ahn Jae-Min from NH Investment & Securities. First of all, congratulations and thank you for the very outstanding results in the first quarter. I have a question regarding the marketing expense for the wireless business. We see the marketing expense has stabilized in Q1 and I largely believe that this trend will continue in Q2.

But usually in the past, if the expense was higher in the first half -- sorry, if the expense was lower in the first half, it tends to be higher in the second half. Also, the second half is when the major device makers launch their flagship handsets.

So in relation to that, I would like to understand your outlook for marketing expense for the year for this wireless business..

Thank you for your question. And your question was on the marketing expense for the full year. Yes. The – one of the reasons why the marketing expense showed stabilizing trend in Q1 was because the total volume of new wireless openings has declined and there has been some reduction in the amortization and depreciation related to that as well.

So, as for the outlook for the marketing expense for the full year 2022, in light of the market competition and our efforts to efficiently manage cost, we will be working to maintain or slightly reduce the marketing expense compared to the previous year.

Like you mentioned, there can be some flagship device releases in the second half, also the pandemic is coming to an end that can result in higher volume, and there can be some marketing targeting the new premium customers.

But overall, we plan to make utmost effort to maintain or limit the growth of marketing expense to be similar or slightly less than last year in light of efforts to stabilize the market overall and also our efforts to execute cost in an efficient manner..

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

If there are no more questions, we will conclude the Q&A session. Thank you for your questions and interest in KT. Thank you once again for attending today's earnings call despite your busy schedule. We will conclude the earnings call of KT for the first quarter of 2022..