[Foreign language] Good afternoon. Let's begin KT's Third Quarter 2022 Earnings Presentation. This earnings release call is currently being webcasted live on our website, and you can follow the slides as you listen in on the call.

Before we begin, please note that today's presentation includes financial estimates and operating results under the K-IFRS standard that have not yet been reviewed by an outside auditor.

As we cannot ensure accuracy and completeness of financial and business data, aside from historical performances, please be reminded that these figures may change going forward. With that, I will hand it over to our CFO, Kim Young-Jin, to present on Q3 2022 earnings..

[Foreign language].

Hello. I'm Kim Young-Jin, KT's CFO. I will begin with the performance highlights for Q3 2022. During the third quarter, we continued on with our digital platform transition and made preemptive responses to uncertain external environment. And as a result, we are seeing stronger growth and profitability from DIGICO and B2B.

On a cumulative basis for the third quarter, consolidated service revenue was KRW 16,980.8 billion, which is up 6.3% on year and operating profit reported KRW 1,538.7 trillion, up 18.1% on year.

Cumulative basis, standalone service revenue for Q3 was KRW 11,843.9 billion, and standalone operating profit reported KRW 1,057 billion, recording a growth of 2.0% and 8.3% year-over-year, respectively.

Under the DIGICO strategy of expanding the playing field, we are seeing explosive growth from core businesses, which include B2B, DX, media and content, finance and cloud and IDC.

In B2B business supported by KT's nationwide coverage, fixed wireless infrastructure and customized DX services for customers in different segments, we are leading the market by driving business DX digital transformation demand. The order volume is usually a leading indicator for top line revenue growth.

And on Q3 cumulative basis, orders were up by 21% year-over-year, reaching KRW 2.97 trillion. AICC, which is a flagship service for B2B and DX, we are seeing expanding demand from the financial sector.

And since embarking on a full-fledged business in 2021, we've been sustaining an uptrend in growth, driving Q3 2022 cumulative revenue up by more than 100% year-over-year.

KT Cloud continues to post growth leading the public cloud market, gaining market share, #1 position in terms of number of services and winning businesses who migrate over to public cloud.

Leading the innovation and development of the pay TV market, KT's IPTV reinvented itself under a new brand name, Genie TV back in October, positioning itself as one of the growth pillars of the DIGICO business.

We also plan to adopt AI-powered curation service and make the leap as a media portal cutting across VOD and OTT and the media content platform. Following the success of Attorney Woo, the original dramas; Recruit, Good job, Love Is for Suckers and I Am Solo, which is an entertainment program, continue to create buzz and had a popular run.

For K Bank, Q3 deposit was KRW 13.5 trillion; loans KRW 9.8 trillion and 8.01 million customers, with all of the operational indicators displaying an uptrend, widening the profit.

Also to broaden the DIGICO domain and strengthen our capacity, we are pushing for alliances and cooperation with leading businesses from respective segments of our core business.

To bolster growth and competitiveness of the OTT business, KT and CJ ENM decided to merge their respective OTT businesses, and we received relevant approval from KFTC in October, and we'll see the merger take place as of December, the 1st.

KT Submarine, which is a specialized construction contractor for submarine cables, onboarded LS Cable & System, who is one of Korea's biggest cable manufacturer as a strategic shareholder in order to prepare for another leap forward.

Following the strategic partnership with Shinhan Financial, CJ and Megazone, in September, we also partnered up with Hyundai Motor Group to be at the very forefront of future mobility. There was also a share swap to guarantee long-term implementation and business cooperation.

We plan to identify opportunities to cooperate and create business synergies across connected cars, UAM and 6G-based autonomous driving and many more. Now, I will run through financial highlights for Q3 '22. Operating revenue was up 4.2% on year to KRW 6,477.2 billion, while operating profit was up 18.4% on year, reporting KRW 452.9 billion.

Net profit was down 3.4% on year to KRW 326.2 billion. EBITDA was up 6.4% on year, reporting KRW 1,359.7 billion. On the next page, I will talk about the operating expense. On the back of inflation and rise in prices and spending for DIGICO and B2B business expansion, operating expense was up 3.2% year-over-year, reporting KRW 6,024.3 billion.

Next is financial position. Debt-to-equity ratio as of September end '22 reported 127%, down 4.1 percentage points Q-on-Q. Net debt ratio was down 2.3 percentage points on quarter, reporting 40.6%. Next is CapEx. KT Group's Q3 cumulative CapEx was in total KRW 2,386.3 billion. KT separate basis CapEx spend was KRW 1,864 billion.

Major subsidiaries CapEx comprising financial, media and content, cloud and IDC and real estate amounted to KRW 522.3 billion. Next is on the breakdown of performance by each business line.

Driven by subscriber growth from premium services of wireless and Internet, telco B2C business was -- business revenue was up 0.6% year-over-year, reporting KRW 2,356.7 billion. On the back of 5G subscriber growth, wireless revenue was up 1% year-over-year, reporting KRW 1,547 billion.

5G subs came in at 7,950,000, expanding to 57% of the total subscriber base. And through combined management of our MVNO and the MNO market business, we were able to sustain the total wireless subscriber net addition trend. Broadband Internet revenue was up 2.6% year-over-year to KRW 600.3 billion, driven by subscriber growth around GiGA Internet.

Fixed line revenue was down 7.8% year-over-year to KRW 209.4 billion. Next is DIGICO B2C business. DIGICO B2C business saw sustained growth of media and mobile platform users, with its revenue growing 3.6% on year, reporting KRW 558.5 billion.

IPTV business was up 5.8% year-on-year on the back of high ARPU, subscriber expansion and growth from platform-based revenue. Next is on Telco B2B business. Telco B2B business saw even growth from enterprise Internet data and voice call, with its revenue up 9.5% year-over-year, reporting KRW 546.4 billion.

On the back of DX transition, we've seen continuous growth in data traffic usage by businesses. And on growing demand for premium services, enterprise Internet and data revenue posted 10.9% year-over-year growth.

Enterprise voice call posted 6.8% year-on-year growth on preemptive response to the MVNO market expansion and net addition trend from enterprise voice call. Next is DIGICO B2B. DIGICO B2B business is growing in step with expanded DX demand from businesses, which is a structural change to which we are responding proactively.

As such, revenue, which includes KT Cloud, was up 9.9%, reporting KRW 592.4 billion, with its steep uptrend continuing. Enterprise DX posted 8.3% year-over-year growth, as we drove differentiation of incumbent telco services like the enterprise messaging underpinned by DX.

Well, thanks to AICC and smart mobility business growth, AI and new biz revenue reported 14.1% rise year-over-year. Next is on the performances from our major subsidiaries.

Driven by rise in credit card acquiring volume and new business additions such as issuing a BC branded credit card, BC card revenue was up 10.8% on year, reporting KRW 984.2 billion.

Skylife revenue was up 50.3% year-over-year to KRW 268.1 billion on the back of growth from MVNO and Internet resale businesses and growth from content business from SkyTV. Content subsidiary revenue was up 24.7% on year, reporting KRW 301.2 billion, driven by rise in e-commerce revenue, digital ads and ramping up of KT's StudioGenie's business.

So far, this was an update on KT's Q3 '22 earnings.

Despite rate hikes, inflation and uncertain macro backdrop, which created a challenging business environment, KT was still able to achieve both revenue and profit improvements underpinned by robust growth of KT's DIGICO's core portfolio of businesses, including B2B, DX, media and content, finance and cloud and IDC.

We will continue to elevate our corporate value by placing momentum behind the growth of business portfolio around DIGICO, B2B and by improving profitability underpinned by cost structure innovation. Once again, my gratitude to investors and analysts for joining us today, and I look forward to greater interest and support going forward. Thank you.

For more details, please refer to the document that we have previously circulated. We will now begin the Q&A session..

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

[Foreign language] I would like to ask two questions. We've seen earnings growth up until Q3. Can you provide some color as to what your outlook is for Q4 and for the whole year in terms of profit? And also in connection with that, it would be helpful if you could also share your dividend outlook as well. Second question.

Your wireless ARPU has been sustaining an uptrend of around 4%.

What is your outlook for next year?.

[Foreign language] Thank you Mr. Kim Hoi Jae for your question. Your question was, we were able to post positive growth up until Q3.

You asked for more color with regards to what the Q4 outlook is and for the whole year as well and also to talk about the dividend? As I said in my presentation early on, if you look at KT's Q3 performances from our B2B business, driven by the demand for digital transformation for enterprises, we were able to see growth in terms of the order volume as well as the top line revenue.

So on a Q3 cumulative basis, we've seen order volume grow by 21%, amounting to KRW 2.97 trillion. And this has laid a quite solid basis for our future revenue growth. We also continued to show quite robust top line in the telco business. We've seen premium subscribers grow for our 5G services and GiGA Internet.

Now, we've also seen very salient growth from our media content, finance, IDC and cloud, our core businesses under DIGICO. Now in the remaining quarter, in Q4, we will continue to endeavor to make sure that we sustain this top line trend.

And even beyond that point in time, we will continue to make sure we continue on with this revenue trend, and we do expect that more or less, they will be possible. Now, however, we have in front of us quite uncertain market backdrop and volatilities exist.

So, we plan to be very efficient in terms of our cost spending, and we'll focus on profitability and margin as we enter into the Q4 and next year. On a Q3 cumulative basis, we were able to prove that we actually brought an improvement in profitability.

And in the remainder time as well, we will endeavor to make sure we continue on with that revenue trend and also be very efficient in terms of our cost and spending so that on a per year basis, we could actually achieve an improvement in profit year-over-year. You've asked about our dividend.

Until the end of this year, our dividend will be determined as 50% of the adjusted net profit as per our plan. Now, KT has been able to improve and enhance its profitability, and we have a track record of expanding our per share dividend.

Supported by our revenue growth and our cost efficiency efforts under this very uncertain times, if we are able to elevate the year-over-year profit level, we believe that -- and we will, of course, endeavor to make sure that we can actually grow the size of the dividend payout. Your second question related to wireless ARPU.

But why don't I talk about both the wireless service revenue and ARPU. Now in terms of the wireless service revenue on a per year basis, we are looking at about 2% growth for service revenue. For ARPU, as we are seeing rise in the 5G mix, we think that growth rate will be on par with what we've seen in 2021.

Now, we will be able to communicate to you the specifics of our next year guidance in the upcoming conference call in February. Just to give you a direction, basically, we would like to maintain the wireless service revenue and ARPU growth to and at about a level of what we've seen this year in 2022.

In terms of the 5G subscribers, 5G mix is going to increase against the total base. And as we provide more choice and offer more value-added services, we will see a higher level of VAS revenue, which will, we believe, drive further rise in ARPU..

[Foreign language] The following question will be presented by Joonsop Kim from KB Securities..

[Foreign language] I'm Kim Joonsop from KB Securities. I just have one question for you, which relates to the private 5G network project.

I would like to understand what KT's view is with regards to this private 5G network and what your strategies are, as we see many players enter into the 5G -- the private 5G domain? I would like to understand what your take is on the overall trajectory of this domain..

[Foreign language] Thank you, Mr. Kim, for your question. You asked about what our strategies are and what our outlook is with regards to the private 5G network. Now this year marks the first year under the government initiative to actually take the private 5G network project as countries -- important -- country is a very important project.

And we were able to see that there is a business opportunity here. Now the government has selected 11 different government projects. And of this, KT Consortium has won orders and projects in 4 main areas, which include public health care, aerospace, private manufacturing and 28-gigahertz education.

And we are in the process of building out the 5G private network. Now, KT has a business opportunity and that is, it can be a company that actually builds out the private 5G network and also as an operator.

And also, we can come up with various business opportunities together with other KT Group companies, the subsidiaries, by winning the 5G private network license. So at the KT Group level, we can be very flexible in engaging with the 5G private network.

Now a typical project structure for a private 5G network is that the client will usually build out the assets, the 5G base station, as well as the 5G core that is a typical design.

But in order to alleviate the cost burden of our clients, 5G base stations will be built out by the client themselves, but 5G core will be handled or will be handled by KT based on our internal cloud platform. And we are currently thinking of providing as a service to our customer clients..

[Foreign language] The following question will be presented by Neale Anderson from HSBC..

I would like to ask about the competitive dynamics in both the content and the enterprise solutions market, please? The reason I’m asking is, I think all 3 large telcos are focused on this area.

And I’m wondering if you’re seeing any cost inflation, particularly in terms of labor costs or specifically in the content market, the cost of content itself. That’s my first question.

Second question relates to network slicing and the ability to charge different groups of users, different amounts depending on the technology parameters they’re receiving.

When do you think you’ll be able to launch services using network slicing?.

[Foreign language] Thank you very much for the question. I will first respond to your question about network slicing. Now if you think about the basic foundation that will support the future of 5G B2B services, we are expecting and hoping that network slicing will be an opportunity for us to really reevaluate the value that 5G network offers.

Now, as 5G network slicing has been recognized by the government authorities as a specialized services, we now have an institutional basis whereby we could actually provide customized services in the B2B domain specific for a customer.

And because that will enable us to diversify the pricing, the price that we charge to our customers depending on the customized and the bespoke product, we think from mid- to long term -- in the mid- to long-term horizon that will positively impact 5G profitability.

So KT, before the end of the year, we are planning to release a multi-slicing services, basically, that slices up the network depending on the destination IP, thereby providing a specialized feature on a standalone SA basis. So we are, at this point, working on developing and releasing an enterprise-only SA services.

And then you also asked about what our outlook is in terms of the possible cost inflation, especially in areas of content and B2B business.

KT is currently expanding its portfolio around content and B2B, DX, but we have a very clear and distinct differentiation compared to our peers and that we engage in our business that is supported and underpinned by the platform, the physical network, as well as our sales capabilities.

It is our view that we see such digital transformation and content. The industry itself is reporting a structural growth as we see rise in the demand from businesses for digital DX services, as well as increasing demand for content. And recently against the overall inflationary backdrop, yes, there is a pressure that is working to push up the costs.

But we are not focusing on competing in a small slice of a market. We are focusing on expanding the market pie itself driven by the overall growth and market demand. So, we believe that there is a quite significant potential from the top line side.

So even if there is a slight uptick in the costs, we plan to respond to that with growing our top line revenue, which will eventually can translate into improvement in profit as well. And also just to elaborate a little more, many businesses these days are facing upward pressure on their cost structure.

And these companies in order to offset that rise in costs are looking to adopt digital transformation. So, we believe that, that will continuously drive DX-related demand. And KT, if we could really leverage this ICT capability that we actually have, we believe that we would be able to additionally generate demand..

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

With no further questions, we would like to now close the Q&A session. Once again, thank you very much for joining us this afternoon. This brings us to the end of KT's Q3 2022 earnings presentation. Thank you..