CJ ENM CO., Ltd. (035760.KQ) Earnings Call Transcript & Summary

Good morning, and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the fiscal year 2025 Second Quarter Earnings Results by CJ ENM. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 second quarter earnings results by CJ ENM.

[Interpreted] Good afternoon. This is Woo from CJ ENM IR. I thank the shareholders and analysts for taking time out of your busy schedules to attend today's earnings release session. Now we will begin the earnings release session for CJ ENM Q2 2025. Please note that the financial and management results presented today have yet to undergo an independent auditor's review and could be subject to changes upon such review. Today here with us are heads of different business units and CFO Deuk-su Hwang. From media, we have [Indiscernible] from Music [Indiscernible], from Global [Indiscernible]. From Content business, we have [Indiscernible] and from Global, we have [Indiscernible] from Commerce [Indiscernible], Studio Dragon [Indiscernible] and we have TV CEO [Indiscernible]. First, CFO Deuk-su Hwang will brief us on major results and business strategy.

[Interpreted] Good afternoon. This is CFO, Deuk-su Hwang. Profit in Q2 decreased on a Y-o-Y level, but seen much improvement compared to Q1, confirming improvement. We believe that the foundation for an earnest improvement in the second half of the year has been laid with tangible results in the first half and our strategic pursuit. There were many meaningful results that are aligned with our 2025 core strategy that was announced at the earlier part of the year. First, on strengthening R-made content production competitiveness. Resident Playbook has ranked #1 on TVdrama viewership, TVING and Netflix. Fifth Season's IP delivery has seen an increase by 11 compared to last year and seen a turnaround. Severance has been nominated in 27 categories for VME Award, bringing the total nomination for fifth season to 36.  For acceleration of globalization, focus was on various activities, including album release of JO1 and INI concerts. LAPONE's half year revenue increased by 80% compared to last year, setting a new record. KCON Japan 2025 was also a hit with over 110,000 attendees. Korea, Japan joint planning and production dramas also saw growth with titles such as Marry my Husband: Japan. As for digital transformation fortification, subscriber decrease after the termination of NAVER membership in Q1 is fast recovering in Q2. New subscriber number is increasing through bundling with Wavve and increased alliance with [Petainjo]. Content cooperation synergies such as cross-programming is seeing an increase. TVING's average ADD subscriber ratio is at 46.3%, which is an increase by 21 percentage points compared to last year-end. Through human IP and video content investment enhancement, MNET has seen its global accumulated subscriber number go beyond 30 million and is establishing a profit model, including an advertisement based on it.  According to the 2-track content strategy of celebrities and influencers, commerce continues to grow with 47% growth in the first half in MLC transaction amount. The business is also enhancing its differentiation and competitiveness with new premium brands and strengthening exclusive products. CJ ENM will continue to accelerate the implementation of business divisional core strategies and through that, will improve each business' profitability and focus on strengthening fundamental business competitiveness. I thank the shareholders and analysts for being with us. This is my presentation. Thank you.

[Interpreted] Next is results presentation. CJ ENM's results presentation is based on consolidated K-IFRS numbers and operating profit has not been eliminated of internal transactions.

[Interpreted] Good afternoon. This is Kim Jey-hyun from Finance. The revenue for the second quarter of 2025 was KRW 1.3129 trillion, a 13% increase compared to the same period last year, while operating profit was KRW 28.6 billion, a decrease of 19%. I will go over the changes in operating profit by business segment before the adjustments in the consolidated financial statements. The entertainment sector saw an increase in profit compared to last year due to the positive performance of LAPONE and the turnaround of Fifth Season. Although profits in commerce decreased due to an expansion of strategic investments such as new IP planning for the enhancement of the OnStar brand and online/offline marketing activities, revenue growth continued, thanks to the ongoing successful mobile live commerce.  From Page 5, I will discuss the performance of each business segment and the outlook for the second half of the year. The media platform has continued to experience poor profitability due to a downturn in the broadcasting advertisement market. But from Q2, the viewer ratings for major anchor dramas have improved. And in the second half of the year, the company hopes to improve profit by scheduling high-profile premium content. TVING has seen a recovery in the number of subscribers, thanks to the expansion of platform synergy through bundling since June, and advertising revenue has increased due to the expansion of AVOD subscribers and KBO's popularity.  In the second half of the year, we will enhance popular original content such as Exchange and the Great Escape and sports event-related content such as KBO, while focusing on achieving a turnaround through sustained subscriber growth through bundling and partnership services. We will also work to secure a global foundation centered in Japan and Southeast Asia. As for movies and dramas, Fifth Season has seen a turnaround with expansion of delivery, including Nine Perfect Strangers Season 2 and Strife Season 2 and is aiming for solid delivery, including his and hers for Netflix in the second half of the year. The overseas distribution of domestic content is expanding its global influence through premium K content production and distribution capabilities based on comprehensive partnership with global platforms such as Netflix and Amazon. In the second half of the year, anchor content such as Bon Appetite, Your Majesty and Typhoon Trading Company is scheduled for airing on OTT as well as the release of Director Park Chan Wook's No Other Choice.  Music has grown, breaking quarterly sales record with album sales and concert performances of LAPONE's artists. Plans for the second half include securing local Japanese artists such as HipHop Princess and business expansion while focusing on strengthening the global MCS business model centered around Boys II Planet in the Greater China region. In the sector, strategic marketing investment costs increased due to the strengthening of content and expansion of customer touch points such as offline pop-up. However, MLP transaction amount has grown and sustained growth in revenue was supported by the strong performance of the health supplement and beauty categories with the wellness trend. In the second half, the business will strengthen the growth momentum of e-commerce with influencer collaboration and SNS and expansion of marketing channels, including TV. For more details, please refer to the materials. Thank you.

[Interpreted] Now Studio Dragon will present the results.

[Interpreted] Good afternoon. This is Chung Ho from Studio Dragon Finance. I will brief you on the management performance for Q2 2025. The total number of episodes aired in Q2 was 41, the lowest level ever recorded. The number of TV programmed episodes decreased by 7 Y-o-Y at 27, which led to a decline in programming and licensing revenue. The profitability worsened with remaining amortization costs from the previous quarter's major production. With that, the second quarter revenue stood at KRW 114.5 billion with an operating loss of KRW 2.9 billion.  However, there were positive results in terms of content viewership performance. Our Unwritten Seoul achieved a peak rating of 9.4% on TVN and Marry My Husband Japanese version, a remake of our Megahit IP ranked first for 5 consecutive weeks shortly after its launch on Amazon Prime Video Japan, proving our content competitiveness and growth potential in the global market. In the second half of the year, we aim to recover our lineup and maximize the performance of each project such as Head of the Hills, Bon Appetite, Your Majesty and The Manipulated while strengthening our approach to the global market. Furthermore, we will solidify our mid- to long-term growth foundation by diversifying our business model to go beyond the current drama business, including launch of new actor partnerships and expanding ancillary businesses.

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

[Interpreted] Yes, I have 2 questions. First is on your K Culture [Valley] project. I have noted that there was liquidated delay damage amounting to something around KRW 310 billion. And has any of this amount been previously reflected in your book numbers? If so, I would like to know the amount? And what would be your response to this damage compensation going forward? And my second question is on local production. Well, I do have noted that Marry My Husband, the Japanese version has peaked well in Japanese market. So I would like to see an update on your future local production plans.

[Interpreted] This is Kim from Finance. I will be addressing your first question on the liquidated delayed damage imposed by [Strong]. As we have disclosed in July this year, the claim from [Strong] stood at KRW 34.4 billion. But as to how they came to a conclusion of this number, we have yet to find out their formula or the legal foundation for imposing this damage amount. And we believe that they have claimed this damage amount, but not based only on the basic contract that we had in place, but also for the period that continued after the termination of the contract. And we have received advice from our legal advisers and have built a reserve, which is founded on a very rational calculation, and it has been audited by our independent auditors. And as was disclosed, we have subjected to this number, and we are readying ourselves for damage.

[Interpreted] Now on local production. Yes. This is Studio Dragon, answering to your second question. As you have noted, Marry My Husband, the Japanese version has done quite well after its release. It has been ranked #1 for 5 consecutive weeks on Amazon Japan. And in the second half, we hope to continue this momentum with 2 new titles. Well, PVS, [Hardcourt Dogs] and GTX, that's our subsidiary. They have participated in a title called [Soulmates], and these are the 2 titles that are scheduled in the Japanese market.

[Interpreted] The following question is by [Shin Zhang from DB Securities].