KT Corporation (KT) Q3 2025 Earnings Report, Transcript and Summary

[Interpreted] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the third quarter of fiscal year 2025 earnings results by KT. We would like to have welcoming remarks from KT IRO, and then CFO will present earnings results and entertain your questions. [Operator Instructions] Now we would like to turn the conference over to KT IRO.

[Interpreted] Good afternoon. This is Choi Jaegil, KT's IRO. We will begin the third quarter 2025 earnings presentation. Please be reminded that today's presentation includes K-IFRS-based financial estimates and operating results, which have not yet been reviewed by an outside auditor. We, therefore, cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So please note that these figures may be subject to change in the future. With that said, let me now invite our CFO, Jang Min, to discuss KT's Q3 2025 earnings.

[Interpreted] Good afternoon. This is Jang Min, KT's CFO. Before going into the earnings for Q3 2025, I would like to extend my sincere apologies to our customers and investors for the unauthorized micro payments and infringement incident perpetrated through the illegal base station connection. KT is currently implementing a comprehensive plan to compensate customers affected by such unauthorized micro payments and personal information breach. Starting November 5, KT is replacing used SIM free of charge for all of its customers. Going forward, KT will do its utmost to put in place technical and system-based guardrails to protect customers, and to ensure that such incidents are prevented through preemptive and far-reaching security measures. On November 4, we officially began the process for CEO nomination. KT's Director Candidate Nomination Committee, comprising of all of the independent auditors, will select a pool of candidates from various different channels to recommend one candidate to the Board of Directors before the end of the year. BOD will then make the final confirmation and the new CEO will be appointed at the General Meeting of Shareholders. Now I will move on to KT's third quarter earnings for 2025. Based on our telco business and continuing growth of group's core portfolio, as well as real estate profit gained from Gwangjin District development, KT sustained growth in revenue and operating profit this quarter. We are also collaborating with global big tech companies to launch specific services, and have secured a solid footing for AX business execution by opening KT Innovation Hub, placing momentum behind the transformation towards an AICT company. We released consecutively our proprietary model, Mi:dm2.0, SOTA K, which is a model developed in collaboration with Microsoft, as well as Llama K, based on Meta's open source technology, introducing AI LLM lineup catering to Korean requirements. Under the AI multimodal strategy, we will expand AI-driven usage base across various verticals including media press, education, public and financial domains. In October, we opened KT Innovation Hub under strategic partnership with Microsoft, where we can hold exhibitions on AX and AI experience and provide industry-specific consulting services. AI experts of both companies, together with our clients, will be working together in the hub to explore new AX business opportunities. Third quarter dividend is KRW 600 per share as we maintained 20% higher dividend payout year-over-year as was the case in Q1 and Q2. Corporate value enhancement plan also is ongoing as planned. We had concrete results in securing capacity required for structural transformation into becoming an ICT company, with SOTA K launch being one of such endeavors. We continue to work on streamlining assets and driving profitability enhancements through rationalizing low-margin businesses and liquidation of noncore assets. As part of the value enhancement plan, we also completed KRW 250 billion share buyback on 13th of August. Next on financial performance for Q3 of '25. Operating revenue was up 7.1% year-over-year, reporting KRW 7.1267 trillion and sustained growth from core businesses, including telecom, real estate, cloud and data center and profitability improvement efforts as well as onetime real estate sales gains. Operating profit was up 16% Y-o-Y, reporting KRW 538.2 billion. Net income was up 16.2% Y-o-Y, recording KRW 445.3 billion, driven by increase in operating profit. EBITDA increased 5.2% Y-o-Y, reaching KRW 1.5039 trillion. Next page, I will walk through the operating expense items. Operating expense increased 6.4% year-on-year to KRW 6.5886 trillion, an increase in cost of goods sold, cost of services and selling expense. Next is the financial position of the company. Debt-to-equity ratio at end of September 2025 was 123.3%, while our net debt ratio went up 4.2 percentage points year-over-year, reaching 34.5%. Next, on CapEx. Total CapEx up to the third quarter of '25 of KT and its main subsidiaries accounted for KRW 1.9637 trillion. KT's separate basis CapEx was KRW 1.3295 trillion, while major subsidiaries spent KRW 634.2 billion. Next, performance breakdown by business. Wireless revenue was up 4% year-on-year, reaching KRW 1.8096 trillion. Subscriber base expansion around 5G drove the top line growth, with 5G penetration as of third quarter end reaching 80.7%. Next is fixed-line business. Broadband internet revenue increased 2.3% year-on-year to KRW 636.7 billion on the back of GiGA Internet subscriber growth and value-added services. Backed by higher IPTV subscriber net addition and sale of premium plans, media business posted growth of 3.1% year-over-year. Home telephony revenue fell 6.6% year-over-year to KRW 160.9 billion. Next is B2B business. B2B service revenue reported 0.7% year-over-year growth on the back of enterprise messaging, corporate broadband and network-based business growth, despite streamlining of low-margin businesses. For the AI and IT business, revenue came down 5.7% year-over-year due to structural enhancement work done on certain businesses in line with our selective focus strategy, notwithstanding AICC project wins from large customers and ongoing monetization. Next is performance of major subsidiaries. Revenue from content subsidiaries dipped 1.8% year-over-year due to less number of original title production. KT cloud revenue was up 20.3% year-on-year, following higher data center usage by global clients and AI cloud demand growth. KT Estate revenue was up 23.9% year-on-year to KRW 186.9 billion, backed by good performance from hotel business and new development projects. This ends report on KT's third quarter earnings results. Once again, I would like to extend my sincere apology for causing concern over unauthorized micro payments and the infringement incident. KT will cooperate with the government's investigation process and exert our utmost effort in ensuring network security and stronger customer protection. Also, we will bring true AI CT transformation. And by successfully implementing corporate value enhancement plan, we'll endeavor to drive stepwise upgrade in KT's corporate value. Once again, thank you to our investors and analysts for your continued interest and support.

[Interpreted] For more information, please refer to the document and materials that we had previously circulated. We will now begin the Q&A session. To give as much opportunity as possible, I would like to ask that you limit your questions to 2 per person.

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

[Interpreted] I'm Kim Hoi Jae from Daishin Securities. You were able to record good financial performance up until the third quarter. I know that for the fourth quarter, usually there is a seasonality expense-related impact, so it will be hard to make that projection. But still I would like to get some color as to what your projection is going forward for the fourth quarter. And you've decided to pay out dividend per share of KRW 600 up until Q3. Just wondering whether there is further upside to the dividend payment for -- when the fourth quarter comes? And also until -- so in 2025, you had decided to do a share buyback and cancellation in the amount amounting to KRW 1 trillion. Just wondering whether in 2026, you will be able to grow that size of share buyback and cancellations?

[Interpreted] Thank you for that question. Responding to the question on Q4 outlook. As you have correctly mentioned, in the fourth quarter, there are usually seasonality issue. And also, we have to consider all the measures to compensate for customers. And also, there are certain uncertainties that currently exists relating to the fines or the penalties that we will be subject to. So at this point, we are making a quite conservative stance when it comes to making a forecast going forward, but we are putting our utmost efforts to minimize any impact or any damage to our customers and also to our financials. Now, however, because we were able to report a quite solid performance up until Q3, if we were to make projections on the full year 2025 financials, thanks to our efforts in growing our top line growth, at the same time, improving the profitability and considering that there was also a one-off gain from the NCP business, the real estate, and also due to the fact that we are able to drive our core business-centric group affiliate growth, we believe that both on a consolidated and separate basis, we could achieve a year-over-year growth. On the second question, basically, when it comes to the dividends, yes, there will be a onetime impact coming from this hacking incident, and there will be certain uncertainties in terms of its impact on the financials. However, we will be considering the annual based financial performance as well as the expectations that the shareholders have, based upon which I am most certain that our BoD will make a reasonable decision. So lastly, regarding our announcement of the plan to do the share buyback and the cancellation amounting to a total size of KRW 1 trillion, so for this year, we had already conducted the buyback and cancellation amounting to KRW 250 billion. And your question was whether for next year, can you expect about the same amount or more bigger as we go forward. I can tell you that our value up plan will continue to be implemented. And in consideration of the confidence that the market is giving us, we will make sure that either this could happen on the same size basis as it was for this year, for next year or there could be certain adjustments. We will very flexibly and nimbly respond to changes in the overall operational backdrop and deciding on the specific size. Next question, please.

[Interpreted] The following question will be presented by Chan-Young Lee from Eugene Investment & Securities.

[Interpreted] I am Lee Chan-Young from Eugene Investment & Securities. My question relates to the recent hacking incident. I would like to understand as to what the financial impact will be in line with your compensation to the customers and your subscribers, and also for the measures that you are putting in place to make sure that you prevent a recurrence of such incident going forward. And I would like to know the extent of this expense that is currently captured in Q3 numbers. And also going forward, what will be the timing or the scope of that expense?

[Interpreted] Thank you for that question. As I've mentioned before, we have put in place a measure and a compensation plan to compensate for any harm that has been inflicted due to the unauthorized micropayment incident as well as the data breach issue. Now -- and also on November 5, we had made the announcement that we will be replacing the used SIM cards of all of the KT customers. And if and when we go through this investigation process by the government as well as the police, if additional harm is identified, then the -- eventually, the final amount of the compensation will be determined. Now in terms of the timing as well as the size of this expense, we cannot make a perfect prediction based on where we are today. However, we believe that in terms of the used SIM chip replacement, the relevant costs will be recognized under Q4 figures. There is also free data that we are planning to provide and KRW 150,000 discount on the handset tariff as well as certain other expenses. Now these expenses, when they are actually incurred, that would be the timing upon which it will be booked in our financials. Now we've also already made an announcement to the market that for the coming 5 years, that we have put in place an information security-related investment in the amount that exceeds KRW 1 trillion. We've actually communicated that plant was into the market. And looking back at our track record, we've been investing about KRW 120 billion to KRW 130 billion on a per annum basis for this security purposes. So we believe that this KRW 1 trillion, which we'll be investing in the upcoming 5 years, is not going to be overly burdensome for the company. Next question, please.

[Interpreted] The following question will be presented by Eun Jung Shin from DB Securities.

[Interpreted] I just have one question. Your CEO appointment process has just begun. Can you just walk us through the process under which your new CEO will be appointed? And when there is a new CEO that comes into office, will there be any changes to the current value of program that the company has?

[Interpreted] Thank you for that question. Let me walk you through our CEO appointment process. We've actually officially kick started the discussion process on appointment of the new CEO as of the November 4. And under the BoD rules, there is going to be a director candidate recommendation committee that's going to be comprised of all of our independent directors, who are 8 of them in total, and they will go through the relevant processes. So first off, we begin with the candidacy pool of the CEO, who's going to be recommended by a third party and outside entity. And also, we will go through an open call process as well and also receive recommendation from the current shareholders as well as include a candidate from the -- internally from inside the company. So the Director of Candidates Recommendation Committee will then go through the screening and vetting process based upon the documentation, and we'll also engage in interviews. And by the end of the year, the committee is going to select one CEO candidate to be tabled at the BoD. So this one candidate that is recommended by the recommendation committee is going to be tabled at the BoD, BOD making the final confirmation on that candidate, and this candidate will go through the General Meeting of Shareholders deliberation process in 2026 to be finally appointed as the CEO of the company. Lastly, your question on the consistency of the sustainability of the current value up plan that's in place. Now the company went through the BoD resolution last November and had made appropriate market disclosure. And we also went through the disclosure on the implementation progress in May as well. And so I do not think that there is a correlation between the CEO change and the changes to the value up plan. Basically, because of a new CEO, there is not -- the value up plan itself is going to be made invalid for instance, because the BoD understands the direction for the company that is deflated in the value up plan and actually, the value up plan is a commitment and promise that we make to the market. And therefore, I believe the action plans that are included in the plan itself is going to be sustained.

[Interpreted] There are no questions in the queue right now.

[Interpreted] With no questions in the queue. We would now like to close the Q&A session. Thank you, everyone, for your interest and for your questions. And once again, thank you very much for joining us despite your very busy schedules. This ends KT's third quarter 2025 earnings call. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]