Earnings Call Transcript - KT Q4 2025

Operator, Operator

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

Jaegil Choi, IRO

Good afternoon. This is Jaegil Choi, KT's IRO. Let's begin FY 2025 Earnings Presentation of KT Corp. Please be reminded that today's presentation includes K-IFRS-based financial estimates and operating results, which have yet to be 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. Let me now invite our CFO, Jang Min, to walk through the earnings for FY 2025.

Min Jang, CFO

Good afternoon. This is Jang Min, KT's CFO. Before presenting the earnings for FY '25, I would like to take this opportunity to extend my sincere apologies to shareholders and customers for the inconvenience and concerns caused arising out of last year's data breach incident. This incident is serving as an impetus for KT in solidifying the company's fundamental resilience in network and cybersecurity as we are committed to regaining trust from the customers. Now moving on to 2025 annual performance. Under balanced growth from B2C and B2B, KT's revenue and operating profit both saw significant growth versus last year on strong performance from core businesses, including data center, cloud and the Gwangjin-gu real estate project. Considering the base effect in 2024 of workforce transformation and even if we were to exclude profit from this year's Gwangjin-gu project, both the consolidated and stand-alone operating profit recorded more than a double-digit growth year-over-year, which is a testament to enhanced fundamental earnings capacity. Also, collaborating with global big tech companies, we launched a series of new products, and we will tap into the AX market in earnest moving forward. Following the September rollout of SOTA K, which is an AI model developed in partnership with Microsoft, we also introduced secure public cloud, which is a security enhanced cloud service back in November. We are also starting to gain more visibility in business outcomes from the Palantir partnership, particularly in respect to the financial sector of customers as we explore new business opportunities in offering consulting and solutions application. Also last November, we opened Gasan AI data center, making it the first such center in Korea commercializing the liquid cooling technology. As a large scale AI infrastructure hub located in the metropolitan area capable of running AI computation and data processing, we expect the center will play an important role in making KT Cloud cement its leadership in the market. 2025 year-end dividend is set at KRW 600 per share with a record date of February, the 25th. There was a temporary financial impact in the wake of the breach incident, but under a strong commitment towards shareholder value enhancement, annual DPS was increased 20% from KRW 2000 back in 2024, rising to KRW 2,400 in 2025. Following 2025 under the corporate value enhancement plan, we are planning on KRW 250 billion of share buyback and cancellation this year. Efforts are continuing towards enhancing the corporate value at the group level as well. In December, KT Alpha announced its plan on interim dividend and cash payout, which is the first since the establishment of the company. And in January this year, Millie's Library announced its corporate value plan as well. The BoD of KT started the process to appoint CEO as of November, the 4th and confirmed candidate Park Yoon-young as the next CEO on December, the 16th. He is known for his expertise in B2B in future technologies and is expected to take office as the CEO subject to AGM approval. KT, once again, is committed to strengthening the company's fundamentals and will do its utmost to rebuild customer trust. Regaining trust is our foremost priority under which we are taking necessary steps such as free replacement of USIMs, cancellation fee waivers and implementing customer appreciation package. These measures will increase costs in the short run, but such decisions were made because we believe customers' trust is what matters most in determining corporate value and defining the company's existence in the longer term. Going beyond the simple short-term response, we are making structural improvements across the entire security framework. An information security and innovation task force has been set up directly under the CEO as we are revamping the security governance, including further empowering the authority of the CISO and integrating and reorganizing distributed legacy security organization and their roles. We are also planning on around KRW 1 trillion investment into security for 5 years to expand Zero-Trust security scale up, AI-powered integrated monitoring system and beef up access control and encryption, so as to bolster the information security system in phases. Through such investment, KT will internalize security capabilities as its sustainable competitiveness. The corporate value enhancement plan will be implemented as planned, including the KRW 250 billion of share buyback and cancellation as previously mentioned. Now moving on to FY '25 financial performance. Operating revenue increased 6.9% on a year, reporting KRW 28,244.2 billion, Operating profit increased 205% year-over-year, reaching KRW 2,469.1 billion and continuing growth from core businesses, including telecom, real estate, cloud, data center and also driven by profitability improvement efforts and one-off gains from real estate projects. On higher operating profit, net income was up 340.4% year-over-year to KRW 1,836.8 billion. EBITDA was up 35.5% year-over-year to KRW 6,349.3 billion. Next, the operating expense. Operating expense was flat year-on-year, recording KRW 25,775.1 billion, due to lower labor cost and depreciation and efficient general spending despite the rise in selling expense following the growth in subscribers. Next is on the financial position, the balance sheet. The debt-to-equity ratio as of end of 2025 recorded 120.7% while the net debt-to-equity ratio fell 0.4 percentage points year-over-year, reaching 37.4%. Next is CapEx. Total CapEx spent by KT and its major subsidiaries in 2025 was KRW 2,939.7 billion. KT separate basis was KRW 2,143.9 billion, while major subsidiaries spent KRW 795.8 billion in CapEx. Moving on to the breakdown of business performance. Wireless revenue was up 2.8% year-on-year to KRW 7,155.4 billion. Revenue growth was driven by subscriber expansion around 5G and 5G penetration as of end of '25 recorded 81.8%. Next, fixed line. Broadband revenue posted 1.9% year-over-year growth, reporting KRW 2,533.5 billion on the back of GiGA subscriber growth and value-added service expansion. Media business revenue grew 1.7% year-on-year, driven by higher IPTV subscriber net addition and growth in OOH revenue. Home Telephony revenue was down 5.8% year-over-year to KRW 658.9 billion. Next, on B2B services. B2B service revenue was up 1.3% year-over-year on the back of balanced growth from telecom and AI and IT business despite the impact from streamlining of low-margin businesses. And against the backdrop of stable growth from such network-based businesses, such as enterprise messaging and enterprise Internet, AI IT has seen a growth of 3.1% year-on-year on the back of AICC design and build business, et cetera. Moving on to major subsidiaries. Now despite the divestment of PlayD, our content subsidiaries' revenue stayed flat year-over-year, following top line growth from StudioGenie, Nasmedia and Millie's Library. KT Cloud revenue saw rise in data center usage by global customers and with AI cloud demand expanding, revenue increased 27.4% year-on-year, reporting KRW 997.5 billion. KT Estate revenue was up 15.9% year-on-year to KRW 719.3 billion on the impact of strong hotel business and new property development projects. This brings me to the end of the FY 2025 full year performance briefing for KT. Once again, we would like to sincerely apologize for the data breach incident and the concerns it would have caused. KT will take this opportunity as a turning point in redefining itself as a company worthy of trust. On the back of growth from its core telecom business, visible results from the AX business with the underpinning of the group's core portfolio, KT will yet again fortify its fundamentals in 2026. We will also implement the plan on corporate value enhancement so as to drive a step-wise increase in corporate value. We ask for continued interest from investors and analysts. For more details, please refer to the earnings presentation that we shared.

Operator, Operator

We will now take your questions. The first question will be provided by Wonseok Hwang from Shinhan Securities.

Wonseok Hwang, Analyst

I have 2 questions that I would like to ask. The first one, I would like to understand what the financial impact is of your customer compensation package regarding the data breach incident? And my second question is with the incoming new CEO, I would like to understand whether he will be keeping to the previous shareholder return stance that the company has shown?

Min Jang, CFO

I would like to first respond to the first question that you pose regarding the customer appreciation package that the company has implemented and its impact on the financials. We originally said that the benefit that the customers would actually feel will amount to about KRW 450 billion. But not all of that expense is going to be booked as cost under our accounts because it would actually depend on to what extent the customer actually uses up those benefits. So in terms of the cost that was actually incurred in 2025 and what is most certain to be accrued in 2026 has already been booked in our 2025 numbers. And with regards to additional incurrence of cost come 2026, in consultation with our external auditor, we will come up with an appropriate accounting treatment. But what I can tell you with certainty is that our performance or earnings in 2026 are going to be better compared to 2025. That is the plan that we are currently working under, and we will do our utmost to actually achieve that. Moving on to your second question. I understand that the question relates to the future approach or direction regarding our shareholder return policy and the sustainability of the company's past growth strategy going forward. Now first or first mentioned in my opening presentation, we've actually increased the DPS by 20% from the 2024 KRW 2000 per share to KRW 2,400 in 2025. In terms of the shareholder plan to be applied from 2026, it will be something that the new incoming CEO and the BoD would have to finalize on. As you would appreciate, the company's shareholder return policy has been progressive. It's been expanding year-over-year. And as I've also mentioned, our objective for this year is going to be a higher level of profit versus what we've seen last year. So the dividend plan or the shareholder return plan to be devised by the new CEO and the BoD, we expect will be in line with those stances. In terms of whether the growth strategy that we currently have will continue to be implemented going forward, I'm sure you could appreciate that the AX driven innovation is something that is essential across all of the industry sectors. So in light of that aspect, the new CEO has practical experience in the B2B domain and he values the commitment and the promise that the company has made to the market as well as to the shareholder. Hence, we do not expect that there will be any significant change to our strategic approach. Now having said that, with him taking office in light of certain strategies or certain tactical approaches, those will reflect the philosophy of the new CEO.

Operator, Operator

The following question will be presented by Minha Choi from Samsung Securities.

Unknown Analyst, Analyst

I am an analyst from Samsung Securities. I would also like to ask you 2 questions. First is on the outlook for your wireless business going forward. Since the data breach incident, I understand that there was a 14-day cancellation fee waiver period starting from the end of last year up until the beginning of this year, and I understand that there was some churn of your subscribers. I would like to know under that backdrop for this year, what is your outlook for your wireless business growth? My second question is, compared to your peers in the industry, your B2B growth seems to be much slower. I would like to understand the reason why and what your outlook for your B2B business going forward is?

Min Jang, CFO

Regarding the 14 days of cancellation fee waiver, during that time, about 230,000 subscribers left the company. However, due to the net addition we achieved earlier, we had a net addition of subscribers on a full year basis. This net addition is what will drive revenues for our wireless business in 2026. That said, it's challenging to forecast significant double-digit growth for the wireless business at this moment. Therefore, we will prioritize making our operations more efficient by rationalizing selling expenses, distribution, and improving our offerings, which will be key measures to protect our bottom line. In response to the second part of the question about our B2B growth rate being lower than industry peers and our outlook for 2026, it's important to also consider our enterprise Internet, lease line business, data center, and AI business. We operate a separate subsidiary under KT Cloud, and this should be taken into account as well. When combining the KT Cloud revenue, our year-over-year revenue growth is 6%. Given the overall size of the B2B market and our market share, 6% growth is not insignificant. Additionally, on a separate basis, KT Cloud's growth rate was 27.4% year-over-year, demonstrating a strong upward trend that we anticipate will continue this year.

Operator, Operator

With no questions in the line, we would now like to close the Q&A session. Once again, thank you very much for your questions and for your interest in the company, and thank you all for joining us despite your very busy schedules. This brings us to the end of KT's Full Year 2025 Earnings Conference Call. Thank you.