[Foreign Language] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of our 2023 Second Quarter Earnings Results by KT. We would like to have welcoming remarks from Mr. Seung-Hoon Chi, KT IRO; and Young-Jin Kim, the CFO, will present earnings results and entertain your questions.

This conference will start with the presentation followed by a Q&A session. [Operator Instructions] Now, I would like to turn the conference over to Mr. Seung-Hoon Chi, KT, IRO..

[Foreign Language] [Interpreted] Good afternoon. I am Chi Seung-Hoon, KT's IRO. Let's begin KT's second quarter 2023 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 in on the call.

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

As we cannot ensure accuracy and completeness of financial and business data, aside from the historical performance, please be reminded that these figures may be subject to change. With that, I will now invite our CFO, Kim Young Jin for his remarks and presentation on the second quarter earnings results..

[Foreign Language] [Interpreted] Good afternoon. I am Kim Young Jin, KT's CFO. I will begin with key earnings highlights for the second quarter of 2023.

Supported by KT's solid fundamentals in B2C and B2B and robust growth from group's core portfolio, including finance, real estate, media content and DX businesses, second quarter consolidated and stand-alone operating profit both recorded a double-digit growth.

Despite rise in business expenses on higher inflation, earnings outperformed market expectations on the back of cost efficiency gained from improvement in business implementation, such as strengthening of distribution and improving outsourcing structure, which bolstered profitability.

Second quarter stand-alone service revenue, hence, was KRW4,018.6 billion and operating profit recorded KRW407.5 billion. Each posted a growth of 2.1% and 34.2% year-over-year, respectively. And since 2010 for the first time in 13 years, quarterly service revenue reached KRW4 trillion level.

Consolidated revenue recorded KRW6,547.5 billion, while operating profit was KRW576.1 billion, up 3.7% and 25.5% year-over-year, respectively. And KT's BoD made the decision to appoint Kim Young-shub as the new CEO of the company on August 4.

The incoming CEO will be officially appointed after the approval of shareholders during the second Extraordinary General Meeting of Shareholders to be held on August 30. By removing governance-related uncertainties and based on solid fundamentals, KT will continue to strive towards corporate value enhancement in the second half of the year.

I will now move on to earnings for second quarter of '23. Operating revenue was KRW6,547.5 billion, up 3.7% on-year. Operating profit came in at KRW576.1 billion, up 25.5% year-over-year on the back of stronger profitability, which is an outcome of better cost efficiencies following improvement on structure for business implementation.

Net profit was up 19% year-on-year, recording KRW432.5 billion, while EBITDA increased 8.5% on-year, reaching KRW1,505.3 billion. To the next page, let's take a look at operating expense. On the back of business expansion-related spending and rise in inflation, operating expense was up 2.0% year-over-year to KRW5,971.4 billion.

Then, financial statement. Debt-to-equity ratio as of June-end '23 reported 115.4%, down 6.1 percentage points Q-on-Q. Net debt-to-equity ratio was also down 2 percentage points Q-over-Q to 44.6%. CapEx. Cumulative CapEx for KT Group as of Q2 was KRW1,383.8 billion. While on a KT stand-alone basis, Q2 cumulative CapEx recorded KRW998.5 billion.

Group subsidiary CapEx, which includes core growth businesses of finance, media and content, cloud and IDC, real estate, recorded KRW385.3 billion, in line with our annual CapEx plan. Business breakdown.

Telco B2C business posted a growth of 0.8% on-year, reporting KRW2,390.2 billion on the back of expanded customer base, centering on premium services. Supported by growth in 5G subscribers and higher domestic roaming demand seen from inbound visitors, wireless revenue was up 0.8% on-year to KRW1,562 billion.

We now have 9.280 million 5G subscribers, accounting for 68% of total base of subscribers. Broadband Internet revenues saw a 2.7% on-year growth, reaching KRW612.4 billion, driven mostly by GiGA Internet subscriber growth. Fixed-line revenue was down 4.2% year-on-year to KRW215.8 billion. Next is on DIGICO B2C business.

An evenly spread out growth coming from media and mobile platform, DIGICO B2C business was up 3.8% year-over-year, reporting KRW575.6 billion. IPTV business reported 1.2% year-over-year growth, underpinned by growth in high ARPU subscriber base. Next is on Telco B2B.

Telco B2B business was up 7.6% year-on-year, reporting KRW546.9 billion on the back of growth of both B2B Internet and data and enterprise voice call businesses. B2B Internet and data business was up 5.2% on-year on the back of higher demand for lease lines for CCTVs and increase in orders booked from small to mid CPs.

Enterprise Telephony business posted 12.3% year-over-year growth on sustained growth of MVNO's typical product, which is the deferred payment scheme. Next is on DIGICO B2B business. DIGICO B2B was up 0.6% on-year, reaching KRW505.9 billion.

There was some impact from business rationalization, but it's mostly been driven by revenue stream from projects that we've already booked, such as the projects of National Defense broadband integrated network, as well as an uptrend from five hotels, including Myeongdong's Le Méridien and Moxy hotel, which was newly opened in November the -- year 2022.

Next is on subsidiary highlights. On higher credit card acquiring volume and sustained new business growth, including issuance of BC branded cards and lending business, BC Card revenue was up 5.9% on-year to KRW1,049.2 billion. Skylife revenue was up 2.8% on-year to KRW261.3 billion on growth from MVNO and Internet resale businesses.

KT Studio Genie and SkyTV released seven original dramas and five original entertainment programs during the first half of the year and is leading at the forefront of media and content market. Original content helped enhance our competitiveness in the channel and distribution through global OTTs and channels support popularity streak of these titles.

But due to economic slump in the ad market, commerce market showed contraction and so the revenue from the content subsidiary was down 5.8% on-year, coming in at KRW268.9 billion. kt cloud in just one year since its launch, has proven its value as Korea's top DX company.

And based on KRW4 trillion valuation that it received, we successfully closed raising KRW600 billion of investment. Thanks to solid growth of our IDC business and as AI cloud business took off in full scale, revenue was up 18.5% year-over-year, recording KRW153.8 billion. This has been a brief update on KT's financial performance of Q2 of '23.

Despite macro headwinds of inflationary pressures and recession, KT's B2C and B2B businesses have all shown robust growth, supported by its fundamentals, and we yet again witnessed growth potential of group's portfolio of businesses.

In the second half, under the leadership of newly appointed CEO, who is equipped with business caliber and ICT expertise, we will continue our endeavor to enhance KT's corporate value. Once again, I extend my deep gratitude to our investors and analysts, and we ask for your continued interest and support. Thank you..

[Foreign Language] [Interpreted] Now for more information, please refer to the previously circulated presentation material. We will now move into Q&A session. Due to the time constraint, I would like to ask that you limit your questions to two per person..

[Foreign Language] [Operator Instructions] The first question will be presented by Hoi Jae Kim from Daishin Securities. Please go ahead with your question..

[Foreign Language] [Interpreted] Thank you. I am Kim Hoi-Jae from Daishin Securities. I have two questions. I want to ask regarding your earnings results. First has to do with your top-line revenue, and second question relates to your cost. First, if we look at your second quarter earnings performance, it really outperformed market expectations.

Is there any key drivers, maybe two or three key elements that you wish to highlight with regards to the background to this earnings result? And also, if you could provide some color as to what the second half outlook is from the perspective of the company, that would be helpful. Second question is on cost.

High level of inflationary pressure seems to work as a burden on many companies, but it seems KT was able to really control its cost quite well. I would like to understand as to what were the efforts that you put in to control such -- to do cost control? And so that would be helpful if you could shed light on that aspect..

[Foreign Language] [Interpreted] Thank you, Mr. Kim, for asking two questions. You asked about the key performance regarding the revenue -- top-line revenue, what were the key drivers and what our outlook is for the second half of the year as well as cost. So, why don't I combine all of that and provide you with an answer.

On the revenue side, I think we could highlight three key elements. So, the first element has to do with B2C business. We were able to drive quite steady performance because we focused on improving the quality aspect, especially quality sales activities with regards to our mobile Internet and TV business.

The second element has to do with our B2B business. The projects that we have already won in the past, we are starting to see monetization. We see revenue stream coming through. And in the first half of the year, we also saw growth in the number of orders that we were able to book.

So, the new order expansion also was a key driver behind our B2B business growth. Third key driver behind the performance was from our subsidiaries. Our core portfolio of businesses, which includes finance, real estate, media and content, cloud and IDC, these areas were -- have been able to bring about growth.

So, in the same light, we were endeavor to continue to bring on growth from our B2C and B2B businesses, as well as from the businesses that's part of our core group portfolio of businesses. So based upon these endeavors, we want to be able to bring about additional growth from the KT Group perspective.

Now, as you've pointed out, I believe inflationary pressure does work as a cost burden for most of the companies. KT is not an exception to that. The increases in the inflation did impact our electricity costs as well as different commissions paid items.

However, within KT, we've been continuously placing momentum behind making our processes more efficient by making use of AI and other digital transformation technology and also bringing about improvement in the way we do business, the business implementation process status.

So thanks to all of these efforts, to a certain extent, these activities helped us offset some of the cost increases, the pressures that we were exposed to.

To provide you with a bit of more detail what we did was by expanding customer self-activation, we were able to optimize the entire activation-related dispatch workflow, and we applied AI across all of the call center related workflows. As a result, we were able to improve efficiency, as well as per person productivity.

Also, at the same time, in consideration of the market changes and the changes in the customers' purchase patterns and the usage patterns when it comes to the services that we offer, we have been able to further upgrade or make more sophisticated our overall structure in terms of distribution, which is helping us further improve efficiency.

So, regarding a profit outlook or the earnings outlook for the second half of the year, we believe that there will still persist to be inflationary pressures as well as increases in the cost basis. However, we will continue to endeavor to further improve our top-line revenue and profitability.

And our plan, hence, is to bring about a year-over-year OP growth..

[Foreign Language] [Interpreted] We'll take the next question, please..

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

[Foreign Language] [Interpreted] Thank you for taking my question. I would also like to ask two questions. You announced last Friday that you -- the company has selected the final candidate for the new incoming CEO.

Can you shed some light as to the background of appointing the new CEO? Also, does the company have a plan to have a communication session with the investors so that he -- the new incoming CEO can explain and elaborate on the business plan that he is currently envisioning? And if so, when will that timing be? Second question has to do with your dividend plan.

Your first half net profit is quite good, attractive.

I would like to understand under the new executives of the company, would you be able to continue on with the dividend plan that the KT was able to stick to over the years?.

[Foreign Language] [Interpreted] Thank you, Mr. Lee, for your question. Yes, allow me to first tackle your first question regarding the CEO candidate, the background under which he was appointed, the business plan that he would be envisioning and also any plans that we have to hold a session with him and the investors.

So, as you would already appreciate, KT's Director Candidate Recommendation Committee has selected a total of three potential candidates and went through a very in-depth interview and have decided and selected the one final candidate to be the CEO of the company.

And hence, the BoD on the August 4 have decided on Young-shub Kim, the former LG CNS President to be the new incoming CEO of KT. We will go through an EGM at the end of August to gain approval from our shareholders.

Just to elaborate a little more, maybe the BoD has determined that he would be the best fit and the right person to make KT into a global digital platform-based company in light of his extensive corporate business management experiences and his expertise in ICT and digital transformation and his focus on fundamental-centric growth and innovation.

Also to note, the incoming CEO, Young-shub Kim is a finance expert. He served as the CFO of LG Plus and LG CNS, and he was a CEO that served as the CEO of LG CNS for the longest term and he is a person that is well equipped with ICT and business management expertise.

And also the incoming CEO, when he was serving as the CEO of LG CNS, he was also the Director of Business unit. I think BoD, through the very in-depth interviews, was able to identify that he was capable as a person equipped with ICT expertise, as a person who would be able to lead the digital innovation ecosystem.

And he had an experience of building out an infrastructure that is on par with what is expected of a digital ICT powerhouse. And he had really shared his vision and plan with regards to service offerings.

He also had shared his vision that through scaling up of ICT infrastructure investment as well as the telecom business, he provided his views as to how he's going to drive very solid growth, which is underpinned by trust, both internally and externally.

Because of his strong commitment in bringing improvements into the corporate culture and the way a company is managed, supported by his DX capabilities and his growth strategies that is strongly pivoted on the very fundamentals, BoD considered him to be a very right fit, the right person to be driving innovation and growth.

And basically, this is the background under which the BoD has selected him, as he would be a person who would be able to really contribute to further enhancing corporate value and bring about sustainable growth.

So, we are going to try to set up an opportunity for the market to meet our incoming CEO, so that he could share his vision and strategy in regards to running this company. In terms of the timing, we will come back to you and communicate to you once we have that detail.

So regarding the dividend plan, once we formally appoint our CEO and once the BoD is formed based on the views and feedback that we get from our shareholders, we will come up with the dividend plan, and we'll communicate that with to you.

KT's BoD has a track record of basing its decision on shareholder return policies upon the feedback that it received from its shareholders, that was the principle that we have kept to and the new incoming BoD, I believe, will do the same..

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

[Foreign Language] The next question will be presented by Aram Kim from Shinhan Securities. Please go ahead with your question..

[Foreign Language] [Interpreted] Thank you for taking my question. I also would like to ask you two questions. First, for this quarter, I see that your subsidiary contribution has been quite significant.

Can you elaborate a little more on the background to this? Was it the case that during first quarter, the revenue profile wasn't as good, and then in Q2, you've seen an improvement? Is that what would explain this high level of contribution? Or what do you think is the just a business as usual or normal level of profit contribution coming in from your group of subsidiaries? Second question is a question on your AI business.

What is the direction that the company is envisioning for this business? And do you have specific services where you are actually generating revenue from such AI services? If so, can you tell us as to what they are?.

one is for large customers, in which case, we will provide system infrastructure; for midsized customers, it will be cloud-based AICC, and we call that [indiscernible] Cloud; and also for smaller businesses we will be providing AI integrated secretary or -- AI assistant, excuse me, service.

So, for AICC revenue, our objective is to achieve more than KRW100 billion by the end of the year. And eventually, by year 2025, we're envisioning to obtain about KRW300 billion so that -- by becoming a community platform business provider for B2B and B2C as well.

Second revenue model that we are currently thinking about is to open up the API so that our customers can make use of the hyperscale AI platform, the Mi:dm platform, and pay for the usage of that platform. So that is the second revenue model that we're thinking of.

Last but not least is to bring about AI capabilities that KT has to KT and KT subsidiary products and services, so that we further strengthen the competitiveness of our B2C product..

[Foreign Language] [Interpreted] Are there any questions?.

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

[Foreign Language] [Interpreted] With no further questions, we would now like to close our Q&A session. Thank you very much for all the questions that you asked as well as the interest that you've shown us. Once again, thank you for joining us despite your very busy schedules. This brings us to the end of KT's second quarter 2023 earnings presentation.

Thank you..