[Foreign Language] [Interpreted] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the 2023 First Quarter Earnings results by KT. We would like to have welcoming remarks from Mr. Seung-Hoon Chi, KT IRO and then Mr.

Young-Jin Kim, CFO will present earnings results and entertain your questions. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we would like to turn the conference over to Mr. Seung-Hoon Chi, KT IRO..

[Foreign Language] [Interpreted] Good afternoon. I am Seung-Hoon Chi, IRO of KT. We will now begin the earnings presentation of KT for 2023 Q1. This earnings call is being webcast live on the company website. Slides are also available for you to follow while listening to the call.

Please note that today's presentation includes estimates of financial and operating performance based on K-IFRS that have not yet been reviewed by an outside auditor.

As such, other than confirmed historical data, we cannot guarantee the accuracy and completeness of financial and business-related information and these figures may change in the future. Now Mr. Young-Jin Kim, CFO of KT will give some welcoming remarks and present the earnings of Q1 2023..

[Foreign Language] [Interpreted] Good afternoon. I am Young-Jin Kim, CFO of KT. I will go over the highlights of KT in 2023 Q1. KT has continued robust growth in the first quarter of 2023 by making efforts to provide stable customer-oriented services. Consolidated revenue in Q1 grew by 2.6% Y-o-Y to reach KRW6,443.7 billion.

Standalone revenue increased by 0.2% Y-o-Y to KRW4, 619 billion despite the spin-off of KT Cloud. Consolidated operating income stood at KRW486.1 billion and standalone operating income recorded KRW388.1 billion.

These numbers were not far from market expectations despite the base effect coming from a one-off profit generated by the sale of real estate, namely the Mapo Solution Center last year and cost increases due to inflation. B2B business is continuing growth backed by corporate demand for digital transformation or DX.

DX platform and smart space businesses are starting to generate revenue in earnest, while the expansion of customer base of corporate Internet and data and the strong growth of the MVNO market led to a well-balanced growth in all areas of Digico and Telco.

In the AI business, we are developing MIDEUM, our hyperscale AI, while further advancing the existing AICC and smart mobility services. In particular, we are pursuing mobility DX services in four segments of smart mobility, which are connectivity, infotainment, CITS and digital logistics.

As for AICC, the business is starting to take off, evidenced by KT winning Shinhan Financial Group's Integrated AICC project. In B2C, premium subscribers drove robust growth. Roaming service revenue is on the rise as global travel picks up post COVID-19. Wireless revenue also grew by 1.9% Y-o-Y as 5G penetration rose to 65%.

Both broadband and IPTV observed Y-o-Y revenue growth by 2.8% each supported by rise in subscribers. Group subsidiaries are growing as well mainly driven by the core portfolio-centric growth strategy. BC Card's revenue rose by 5.6% Y-o-Y, thanks to an increase of domestic credit card transaction value and full-scale expansion of the finance business.

Meanwhile, as of Q1, all operating indicators of KBank are improving. Deposits stood at KRW16.6 trillion. Loans stood at KRW11.9 trillion backed by 8.71 million customers.

In Media and Content, original dramas such as Pale Moon and Bo Ra! Deborah and original variety shows such as World Dice Tour and HMLYCP were produced and aired, continuing to create buzz in both drama and non-drama segments.

Also KT Cloud attracted, excuse me, meanwhile, KT Cloud will maintain leadership in corporate DX based on AI-driven digital innovation and stable service provision as corporate center, the era of hyperscale AI.

We are building the full stack for the AI ecosystem from AI infrastructure to middleware solutions, computational training and applications based on 12 years of experience. Also KT Cloud attracted a KRW600 billion investment from IMM Credit and Solutions based on a valuation of KRW4 trillion.

The investment will be used to strengthen KT Cloud's business capacity and growth foundation. In real estate, hotel demand is recovering after the pandemic, which should continue to drive revenue for hotel leases.

In addition, we have started in earnest efforts to improve corporate governance with the launch of the task force to establish a new governance structure. The new governance establishment task force comprised of corporate governance experts recommended by major domestic and foreign shareholders was launched on April 17.

TF is working to develop improvement measures to build a highly credible corporate governance structure. The TF has already developed improvement measures for the most urgent task, which is the appointment process of outside directors. Currently, we are receiving recommendations for potential candidates for outside directors from shareholders.

We are planning to create a pool of potential candidates based on recommendations from shareholders and also external organizations. We expect to appoint outside directors with expertise and independence in June. As soon as a new Board of Directors is formed, the Board will start the process to appoint a new CEO.

We expect the candidates for the new CEO will be finalized in July. We will make utmost effort to stabilize the management of the company as early as possible. I will now move on to the earnings of 2023 Q1. Operating revenue rose by 2.6% Y-o-Y to KRW6,443.7 billion.

Operating income decreased by 22.4% Y-o-Y to KRW486.1 billion due to the base effect of a one-off profit last year coming from the sale of real estate, namely the Mapo Solution Center and overall economic slowdown. Net income decreased by 32.0% Y-o-Y to KRW309.6 billion. EBITDA decreased by 6.8% Y-o-Y to KRW1,415.5 billion.

Next, I will go over the operating expense on the next page. Operating expense increased by 5.4% Y-o-Y to KRW5,957.6 billion due to inflation and investments in the expansion of Digico and B2B businesses. I will move on to the financial position of the company on the next page.

The debt ratio as of March 2023 stood at 121.5%, which is a one percentage point Q-o-Q decrease. The net debt ratio increased by 5.6 percentage points Q-o-Q to 46.6%. Next, I will go over CapEx. KT Group's first quarter cumulative CapEx was a total of KRW466.2 billion. On a standalone basis, CapEx was KRW313.5 billion.

The CapEx of subsidiaries, including core growth businesses such as finance, media content, cloud IDC and real estate was KRW152.7 billion. CapEx is being executed as annually planned. Now I will go over the earnings on each business.

Telco B2C business revenue grew by 1.2% Y-o-Y to KRW2,381.1 billion mainly supported by expansion of premium service subscribers. Wireless revenue grew by 1.1% Y-o-Y to KRW1,554.8 billion as international travel recovery led to higher roaming service revenue and an increase of 5G subscribers.

65% of total handset subscribers, which is 8.94 million are now 5G subscribers. Also, integrating management of MVNO and MNO markets has led to continuous net growth of total mobile subscribers. High-speed broadband revenue grew by 2.8% Y-o-Y to reach KRW607.9 billion, driven by increase of GiGA Internet subscribers.

Fixed line telephony revenue decreased by 2.8% Y-o-Y to KRW218.4 billion. Next is Digico B2C. Digico B2C business revenue grew by 3.1% Y-o-Y to KRW566.1 billion. Thanks to continued increase of media and mobile platform users. IPTV revenue increased by 2.8% backed by a rise of high ARPU subscribers and platform-based revenue growth.

Next is the telco B2B business. In telco B2B, corporate broadband and data and telephony all showed balanced growth to post revenue of KRW540.8 billion, which is a 4.1% Y-o-Y growth. It should be noted that corporate broadband and data revenue related to KT Cloud has been reclassified to Digico B2B starting from this year.

Corporate broadband and data revenue grew by 3.4%, supported by continuous data traffic increase and stronger demand for premium services as companies undergo DX. Corporate Telephony grew by 5.4% Y-o-Y. Thanks to KT preemptively responding to the expansion of the MVNO market and net addition of corporate internet phones. Next is Digico B2B.

Digico B2B business is robust, growing in line with increasing corporate DX demand. The business is starting to book revenue for projects such as building the integrated AICC of Shinhan Financial Group and the M-BCN. Including KT Cloud, revenue grew by 2.4% to reach KRW552.6 billion.

Real estate business grew by 10% Y-o-Y as the hotel industry recovers after the pandemic. Le-meridian and Moxy hotel in Myeong-dong successfully opened in November 2022. Next is the performance of major subsidiaries.

Revenue of BC Card rose by 5.6% Y-o-Y to KRW953.2 billion, thanks to an increase of credit card transaction value and expansion of new businesses such as the issuance of its own credit cards. Revenue of Skylife rose by 5.8% Y-o-Y to KRW254.8 billion with the growth of MVNO sales and Internet resale.

The revenue of the content subsidiary decreased by 7.6% Y-o-Y to KRW249.9 billion due to the ad and commerce market being impacted by economic slowdown. This concludes the earnings presentation of KT in Q1 2023.

Despite business challenges such as high inflation and a sluggish economy, KT quickly turned to its emergency management system to continue growth in telco and the core growth portfolio based on strong fundamentals.

KT will work to establish an advanced corporate governance structure that is higher in standard than the global standard to normalize business management as quickly as possible and boost corporate value. We ask for the continued interest and support from shareholders and analysts. Thank you..

[Foreign Language] [Interpreted] For more details, please refer to the earnings presentation, which has previously been circulated. We will now begin the Q&A session. In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant. Thank you..

[Foreign Language] [Interpreted] Now Q&A session will begin. [Operator Instructions] The first question will be provided by Jaemin Ahn from NH Investment & Securities. Please go ahead with your question..

[Foreign Language] [Interpreted] Good afternoon. I am Ahn Jaemin from NH Securities and thank you for the opportunity today. The Q1 earnings were slightly lower than market expectations.

And so I'm wondering whether the full year operating income will be able to still grow Y-o-Y? And also regarding to the performance in earnings, what are your plans for the dividends for this year? Thank you..

[Foreign Language] [Interpreted] Thank you, Mr. Ahn for the question. So as I briefly mentioned during the presentation, in Q1, the Telco business and the Digico B2B business continued robust growth. So in consolidated terms, the service revenue grew by around 2.7%.

However, in terms of profitability, there were some base effect issues coming from Q1 of last year. We already mentioned the sale of Mapo Solution Center last year. That was around KRW74.6 billion. And there was some accounting treatment for the receivables of handset sales. That's another KRW50 billion.

So due to these one-offs, the operating income slightly decreased. And you also asked for the annual outlook. So from Q2 onwards, both KT in terms of consolidated and on standalone basis, we'll be working hard to balance the growth and profitability.

And we will be making utmost effort to improve the profitability situation so that we can grow in 2023 for the full year compared to the previous year. So on a standalone basis, if I can go into more detail, we will be focusing in largely three areas. For the first one is the Mobile Internet and TV business.

This has been a solid cash cow for the company and we plan to continue quality growth in this area. Not only we will be focusing on expanding the premium customer base, we will be segmenting our customers to have better targeted services.

We will be developing value-adding services such as the coloring, the dual numbers, catch call and OTT, so that we have more value-added services that we can bundle together to satisfy our customers. And we are hoping that this will continue to generate stable revenue growth for the company. And then second is the Digico B2B business.

We have already won major projects like the M-BCN and these projects are starting to book revenue. And the revenue size from these projects, I think, will grow as time passes. Also in the second half of this year, there are some major public and private projects that will be coming to the market.

And our DX business will be making utmost effort to win these large-scale projects so that it can become a growth driver of the future. KT has AI-based DX services. We are dominant in the IDC and cloud infrastructure area and we also have very strong network-based infrastructure as well. So all of these factors combined.

I believe that KT has been very competitive as evidenced by its track record in major projects. And we will be making continuous effort in this area to ensure that we can become an even more dominant player. Third, we will be also making continuous effort to structurally reduce cost.

There are some external factors that we cannot control, such as economic slowdown and inflation. So we will be strengthening automation and many projects and efforts to boost the efficiency of the company. For example, we will be leveraging our DX capacity to have more intelligent network control services.

We will also be using our AI capabilities as well. We can also use the RPA to help automate repetitive tasks that can boost efficiency. In the AICC area as well, we can leverage our AI capacities and different AI-related services to enhance automation and efficiency. So I would briefly like to go over the group in consolidated terms.

So in Q1, there were slight decrease in profitability because there were some subsidiaries who were impacted by economic slowdown and also there were some businesses that required investment for future growth. From Q2 onwards, we will be making utmost effort to balance the growth of our core portfolio while also generating stronger profitability.

For the content subsidiary, we will continue to produce and distribute original content. But if you also look at the group's media value chain, we will be working to maintain the leadership in that area and also to generate more synergy.

As for these subsidiaries that are impacted by the economy such as advertising and commerce, those companies will work to strengthen to attract new partners, new customers, use AI to make the sales process more efficient and strengthen its partnerships and alliances so that it can balance both growth and profitability.

As for the real estate, the post-pandemic travel has led to the recovery of the hotel industry, which should help our real estate business. And then later in the year, there will be development in our Gangbuk premise. And this should also lead to -- this should also contributes to higher revenue and profit of the real estate business.

Lastly, subsidiaries like BC Card and Skylife may require some investments to secure future growth drivers and to diversify its portfolio in the near future. However, these companies will work to balance profitability and growth, so that it can achieve the economies of scale in the near future.

To summarize, there are some parts of the business that can be impacted by the overall macroeconomic conditions. But both in terms of KT standalone and consolidated, we will be working to balance growth and profitability, so that for the full year, the profitability of the company can be improved compared to the previous year.

As for the dividends, if the earnings improve, there will be a larger base to use for dividend payouts. There is the new Board of Directors that is being formed. And once there is also a new CEO of the company appointed, I think there will be internal discussions to maintain the track record of our shareholder return policy..

[Foreign Language] [Interpreted] Next question, please..

[Foreign Language] [Interpreted] The following question will be presented by Soojin Kim from Mirae Asset Securities. Please go ahead with your question..

[Foreign Language] [Interpreted] Good afternoon. My name is Soojin Kim from Mirae Asset Securities. Today, I read in the news that KT Cloud attracted KRW600 billion investment from IMM based on a KRW4 trillion valuation. So I'm wondering how the company plans to spend the KRW600 billion investment.

And second, I would also like to know more about the growth strategy of KT Cloud..

[Foreign Language] [Interpreted] Ms. Kim, thank you for the question. As you read in the press release, KT Cloud received KRW600 billion in investment from IMM Credit and Solution in just one year of establishment. So before the spin-off of KT Cloud, the book value of the assets in KT Cloud was around KRW800 billion.

As you know, because the company was undervalued, the PBR was only around 0.5 million. So while the book value was KRW800 billion, the valuation was only around KRW400 billion. And so in pre-money terms, the valuation has gone up by around 10 times fold to around KRW4 trillion. You were wondering about how the company will be spending this investment.

So it will be allocated to strengthen and increase the competitive edge it has in the market and also to secure future growth drivers.

As the number one, the dominant market player in the IDC industry, the company will work to diversify its portfolio, strengthen its global business and increase its technological capacity to boost the operational efficiency. We are also planning to quickly increase the capacity of IDCs.

So not only we will be building new data centers, but we are also looking into master lease schemes and acquiring existing data centers as well. So within the next five years, we plan to have a capacity of around 100 megawatts. We are also looking to venture into global markets geographically, mainly in Southeast Asia.

We are also looking to strengthen our AI remote technology, so that we can boost the operational efficiency of IDCs. In the cloud business, we are making effort to preoccupy and become dominant player in the AI cloud market.

So we are developing the full stack of AI capabilities, including designing the chips and also working to establish an ecosystem of the AI services. As for -- we are also quite strong in the public sector at the moment. So based on this competitiveness, we will be venturing into finance and other corporate segments.

So I believe that the investment -- the recent investment will solidify the growth drivers of KT Cloud. We plan to have a revenue of KRW2 trillion by 2026 and maintain our strong leadership as the number one company in the DX market..

[Foreign Language] [Interpreted] Next question, please..

[Foreign Language] [Interpreted] The following question will be presented by Sean Lee from Citigroup. Please go ahead with your question..

[Foreign Language] [Interpreted] Good afternoon. My name Sean Lee from Citi. And thank you for the opportunity today. I have largely two questions. First question is related to the corporate governance improvement.

So during the presentation today, you already updated us on how this is unfolding, but I would like to know more specifically what parts of the corporate governance of the past is being changed, how it is being changed. So if you can give us the comparison of the past and the current or more improved version, that will be very helpful.

And I would also like to know the time line as to how this is going to unfold in the future. Second is regarding the absence of the CEO. So apparently, the first half of this year, the CEO vacancy will continue. So how will this absence impact the fundamentals of the company. Usually, in a company, the CEO is the final decision-maker.

And currently, this final decision-maker is absent at the moment. And I would think that this would naturally cause some disruptions in the business management of the company.

So what efforts are being made to minimize any business disruptions? And how will this unfold in the future?.

[Foreign Language] [Interpreted] Thank you for the question, Mr. Lee. So KT is working to establish a corporate governance structure that is even higher than the global standard. And as a first step, on April 17th, we launched the new governance establishment task force.

So we received recommendations from shareholders that have 1% or higher in equity ownership and seven shareholders made recommendations for a total of nine potential candidates.

So the KT Board of Directors reviewed the potential candidates based on expertise and the diversity of the corporate governance structure and came up with five external or outside directors. Your also question asked us to compare the past and present of the corporate governance structure and how this will unfold in the future.

So the most urgent task was to develop an improved appointment process for outside directors. So in the past, the committee to recommend outside directors candidates was formed by one outside director and all of the inside directors, excuse me, one inside director and all of the outside directors, but now all of the outside directors.

Only the outside directors formed this committee. And in the past, when we were looking at the candidates, potential candidates for the outside directors, we had a pool of potential candidates, and we also worked with a search firm to attract the right candidates. However, after the change, we also received recommendations from shareholders.

So if a shareholder has one or more share of the company and has held that share for six months or longer, they can make recommendations. And as to who makes the major -- who does the major reviews for the candidates. So in the past, it was mostly done by the committee.

But now while the committee makes the final decision, we have the advisory group that is involved earlier in the process. As for the criteria, in the past, it was mostly the qualitative aspects. After the change, the first round, we look at the quantitative aspects. And in the second round, we look at the qualitative aspects.

And in the past, the process or the recommendations were largely non-disclosed, but now we have a channel where the shareholders can make the recommendations. So if this is the case, we can disclose that the shareholders are making this recommendation. Yes. So I just made some comparisons before and after regarding this process.

But as we strengthen the role of the Board of Directors and trying to strengthen the shareholder value, these measures can also change and strengthen in the future. So if there are any further changes, I think we can communicate that to the market.

As for the time line, for the aspects that require amendment of the articles of incorporation, we will hold an extraordinary shareholders' meeting towards the end of June to pass these resolutions in the shareholders' meeting.

So at this first extraordinary shareholders' meeting towards the end of June, new members of the Board of Directors will be appointed and then a new Board of Directors will be formed.

So the new Board of Directors will be then starting the process to appoint a new CEO of the company and we are hoping that we will be able to have candidates by the end of July for the new CEO appointment.

And then your second question was regarding the absence of the CEO and its impact on overall business and how the company is working to mitigate this impact. So KT is working to overcome the current challenge and is, of course, making utmost effort to normalize the business management as early as possible.

Currently, we have formed the Emergency Management Committee that is comprised of the acting CEO of the company and senior management of the company. And major business decisions are being made collectively through this committee.

So some of the topics that the Emergency Management Committee is discussing would be related to, for example, customer service, marketing, network infrastructure, investment and so on. And so these business aspects are being discussed by the committee and major business decisions are being made by this committee.

So other than the corporate governance structure, we do not feel that there is any impact to the fundamentals of the company at the moment. The businesses, the strategies and the decisions are being made as usual through this committee and the business plan that has been originally set is being executed as planned. Yes.

And as an example of the ongoing usual -- business-as-usual business decisions, I understand that there were some questions in the market regarding the attraction of investment by KT Cloud.

But we feel that the fact that KT cloud received such a significant investment is actually showing that KT's overall business strategy and business decisions are being conducted as usual..

[Foreign Language] [Interpreted] If there are no further 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 now conclude the earnings call of KT for the first quarter of 2023. Thank you..