KT Corporation ($A030200)

Good morning, and good evening. Thank you all for joining this conference call. And now we will begin the conference of the first quarter of fiscal year 2026 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. 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 KT IRO.

God afternoon. I am [ Sung Kim, ] IRO of KT. We will now begin the earnings presentation for the quarter of 2026. Please note that today's presentation includes estimates of financial and operating performance based on K-IFRS that have not 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 such information is subject to change in the future. Now Hye-Byung Min, CFO of KT will present the 2026 Q1 earnings.

Good afternoon. I am Hye-Byung Min, CFO of KT. In Q1, KT reorganized the company's growth strategy and implementation system based on stable transition of the management and business structure and developed a new midterm shareholder return policy to solidify the foundation for corporate value enhancement. KT will evolve to become an AX platform company that leads the AI innovation of Korea. AX Innovation will be a springboard for our next leap forward. First, we will make utmost effort to regain customer trust while also strengthening our core businesses by innovating information security, network and IT infrastructure. Second, we plan to secure solid growth drivers with AX innovation-based success models such as sector-specific AX, hyper-personalized AX and new growth AX. . At the same time, we will continue to seamlessly implement our corporate value plan. In order to ensure continuity, the new midterm shareholder return policy effective from 2026 to 2028 will be equivalent to the previous policy of using 50% of stand-alone adjusted net income as resources for shareholder return. For 2026, the annual dividend per share will be a minimum of KRW 240 and the dividend per share for Q1 will be KRW 600. The record date is May 27, and payment date is June 11. Also, as part of our corporate value up plan for 2026, the share buyback program of KRW 250 billion will be completed by September. Next, the performance and future plan of each business division will be presented by the respective division heads before we dive into the Q1 results.

Good afternoon. I am [ Hanjin Park, ] Head of the Customer Business Group. The B2C business in January experienced temporary decline in both wireless and fixed line subscribers because of the early termination penalty waiver program. However, since February, we are observing a net increase in the number of subscribers. The related sales expense, which increased last year should weigh on this year's results as it is amortized this year. But since February, the related numbers are being managed within our business plan. The most important strategic direction this year is to regain customer trust while also pursuing sustainable growth by offering a hyper-personalized customer experience based on AX. In this regard, since -- very 1, we have been running a customer appreciation program to regain customer trust and strengthen customer protection. And on April 28, we launched the customer friction 365 task force to which we are concentrating company-wide resources. We are working to detect risk preemptively by leveraging AI to analyze on and offline POC, while establishing a system to address damages incurred by customers within 24 hours based on a company-wide cooperation system. We also have the customer outreach form to engage in direct communication with customers. . In order to provide an AX-based hyper-personalized customer experience, we are concentrating on the following: First, we will focus on what we do best, which is AI in B2C. My K, the AI service for B2C customers will be constantly improved to offer hyper-personalized user experience and convenience. For small business owners, we have the Satang Easy AI, which offers specialized AI services for the small business segment. We will continuously develop the platform to support the success of small business owners. . Second, we will prepare the next IPTV platform to enhance the media content user experience. The platform will offer hyper-personalized customer services by using AI speakers and TV windows. Content curated -- content curated to the taste of the user will be recommended while also enhancing overall convenience. Third, AI will be applied to the entire process of customer contact to deliver uninterrupted user service. AI will be introduced to customer consultation sales, on activation and customer service to boost operational efficiency and to ensure that customers use KT in the most convenient manner from beginning to end. By leveraging AI, we will offer products and services lead to customer needs, provide activation service at the customer's earliest convenience and ensure continued usage of KT services through customized care.

Good afternoon. I am [ Kung Yung Kim, ] Head of the Enterprise Business Division. The strategic goal of KT's B2B business in 2026 is to lead the B2B AX market with specialized AI for the public sector and different industries. The 3 main pillars are basics and principles, solid growth and feature readiness. Basics and principles will be our top priority in terms of securing strong fundamentals. We will rigorously fulfill our commitment to customers while ensuring a safe working environment for our employees. By doing so, we will strengthen our preemptive risk management system. Solid growth will be driven by KT's uniquely differentiated telco capabilities and AX competitiveness. To this end, we will preoccupy the rapidly growing AX infrastructure market by winning a diverse array of large-scale projects that are expected for this year and also expand the database business by leveraging group-wide capabilities. Also, we will pioneer new markets step by step by promoting our sector-specific AX reference within each customer category and then expand our presence into neighboring sectors. Moreover, we will continuously advance our service model to reflect values desired by customers to offer telco and AX services as a package. Lastly, we will prepare a further future to secure sustainable growth. You will combine telco, which is KT's key strengths with AX to deliver a standard model for each industry that addresses the key issues of customers. And based on the standard model, we will lay the foundation for mid long-term growth by innovating the overall B2B project implementation system across sales, consulting, execution and operations. .

Good afternoon. I am [ Tanwan, ] Head of the AX Business Division. In Q1, KT mobilized company-wide capabilities and organically connected AX consulting, AI technology, platforms and operational skills to develop an AX platform-centered project implementation system that can rapidly and effectively support the customer AX journey. In addition, we have started the execution-based AX consulting service, which works together with customers on diverse sectors to define on-site AX tissues and jointly verify applicable solutions. Going forward, KT's AX business will go beyond being a mere AX tech provider to become an AX value partner by working together with customers to deliver business innovation. To define in 2026, KT's business will focus on 4 strategic directions. First, we will further cement the business competitiveness of our key strengths, which is Agentic-AICC. We are incorporating business task automation based on Agentic AI to develop the next-generation AICC. AICC will be more than a simple customer service channel. It will evolve to become a customer marketing channel, which we plan to deploy to a wide range of sectors. Second, we will develop a platform that considers industrial characteristics, government regulations, security and even sovereign requirements. The 5-layer AX end-to-end service will be strengthened with this platform. Customers will be able to apply our AX platform to their business rapidly. It will be offered as a customized service that incorporates sector-specific features. We plan to provide an end-to-end AX service, which encompasses the A to Z of AX from adoption to operational optimization. Third, we will strengthen the foundation for the data for AI business, which is necessary to secure and leverage data and is a key factor for successful corporate AX adoption. Based on internally accumulated data operation experience in the process of our own AX innovation, we will advance the foundation for data usage for customers to create a key driver for AX growth. Lastly, we will continue to expand the scope of our AX business with customized product packaging, we will venture into finance, public manufacturing, defense and other sectors to continue growth. Also, by commercializing managed services, which enables continuous support and optimization of the overall AX operation of customers, we will build a solid footing for long-term sustainable business growth. Thank you.

So that was the presentation by the heads of each business division on the first quarter results and the overview of the future strategic direction. Now we will move on to the financial performance of 2026 Q1. Operating revenue decreased by 1.0% Y-o-Y to KRW 6.778 billion. Operating income declined by 29.9% to KRW 482.7 billion, due to last year's base effect coming from property sales of the Hanjin District development project and an increase of sales and labor costs. Net income contracted by 31.5% Y-o-Y to KRW 388.3 billion due to the decline of operating income. EBITA decreased by 13.1% to KRW 1,440 billion over the operating expense on the next page. Depreciation expense should shrink. However, the amortization of increased sales expense that was incurred last year and the increase in labor cost led to a 2.3% increase Y-o-Y to KRW 6,295.7 billion. The statement of financial position is on the next page. As of 2026, Q1, that equity stood at 117.6%, net debt to equity decreased by 3.9 percentage points on Y-o-Y basis to 39.9%. The total CapEx executed by KT and major group subsidiaries in 2026 Q1 was KRW 363.7 billion. On a stand-alone basis, CapEx was KRW 304.2 billion, major subsidiaries executed KRW 59.5 billion. Now I will go over the performance of each business division. Wireless service revenue increased by 0.4% Y-o-Y to KRW 1,683 billion. Since the expiry of early termination fee waiver program in January, the subscriber base turned to net addition. Number of subscribers grew by 2.72 million Y-o-Y to reach 29.16 million subscribers. 5G penetration as of Q1 was 82.7%. Next is fixed line. Broadband revenue rose by 1.8% to KRW 640.2 billion, thanks to an increase in both Giga Internet subscribers and value-added services. The media business grew by 1.3%, which was mainly driven by an increase in both IPTV subscribers and premium plans. Next is B2B services. B2B revenue decreased by 2.2% Y-o-Y due to the completion of a large-scale data center design and build project and ongoing streamlining of low-margin businesses. Moving forward, we will focus on winning B2B AX projects and strengthening the growth portfolio to deliver visible results. Next, I will go over the major subsidiaries. KT Cloud posted KRW 250.1 billion in revenue, which is similar to last year, thanks to winning public sector projects and higher utilization of the Kazan data center despite the base effect coming from last year's completion of a DBO project. KT Estate revenue jumped by 72.9% Y-o-Y to 237.4 billion, driven by robust hotel business and the Tonsan apartment complex property sales. The content subsidiaries grew by 1.9% Y-o-Y despite the divestiture of play, showing balanced growth across Studio Gini, Nasmedia and Miles library. In particular, Studio Genie had a strong year, generating buzz and viewership with its premium original content lineup, including honor and climate. The company is also working to enhance competitiveness by diversifying distribution. Today, I went over the business performance of KT for the first quarter of 2026. In Q1, we set the direction of the company, which is to become an AX platform company. We reviewed our core competitiveness and created a launch pad for growth. Going forward, we will continue to boost corporate value by expanding our AX driven growth portfolio and implementing rigorous profit management. We look forward to your continued interest and support. Thank you.

For further details, please refer to the earnings release materials distributed earlier -- we will now begin the Q&A session to answer your questions. [Operator Instructions].

[Operator Instructions] The first question will be provided by Jae-min Ahn on from NH Investment & Securities.

Good afternoon. Thank you for the opportunity today. And first, I would like to congratulate the new CFO, Hye-Byung Min; and IRO, [ Sonim, ] for their new appointments. And we really look forward to communicating with you as we further discuss KT IR issues I have 2 questions today. One is regarding the appointment of the new CEO. So Mr. Yoon-Young Park was appointed as the new CEO. And so I would like to have a better understanding of his strategic view and whether the company has plans to communicate has plans to the CEO to communicate with the market. My second question is regarding the first quarter stand-alone operating income. I think it did underperform the expectations -- so what will -- what your annual outlook for operating income would be for 2026?

Yes. So thank you for those kind words, and we look forward to working with you as well. I think there were largely 2 questions. First was regarding the appointment of the new CEO, his strategic direction and communication plans with the market. And the second question was regarding the annual operating income outlook. .

Yes. And I will take your first question regarding the strategic direction of the new CEO. So the new CEO has emphasized KT's vision as to become an AX platform company. This means that we will be accelerating AX innovation based on the key strengths of KT. And in that sense, I think it's largely in line with the previous strategic direction of AICC. The 2 pillars of the AX platform company is strong fundamentals and solid growth. So we are working to establish a virtuous cycle between the 2 pillars. So the strong fundamentals will drive solid growth and then the solid growth can be reinvested in strong fundamentals. And by doing so, we believe KT can be a leader in the AX market going forward. To go into more detail on the strong fundamentals. So I think top priority of KT at the moment is to regain customer trust. And to do that, we will be focusing on innovating information security, strengthening the quality of network infrastructure and further advancing IT infrastructure as well. And we believe that such strong fundamentals will be a cornerstone for sustainable growth. And then I will go into more detail on solid growth. So as you all know, AX Innovation has become an essential factor in all industries. And to achieve that solid growth, we will be working on not only the B2C and B2C telco markets but also we'll be expanding the AX success model to new growth areas. And so driven by strong fundamentals and solid growth, KT to become an AX platform company would be the key strategic vision of the new CEO. And then you also asked about communication plans. So our new CEO has consistently emphasized the importance of communicating and delivering our commitments with the shareholders and the market. Currently, we are internally reviewing the right timing and format for such communication. And so once that is confirmed, we will be communicating that with the market. So then I will move on to the second question. You asked about the annual outlook for profitability. So in January because of the reduction of our subscriber base and the completion of large scale data center build projects, our service revenue declined. And in the cost segment. The depreciation expense increased. However, operating costs such as sales and labor costs increased. So Q1 results were relatively lower than previous quarters. . What -- going into Q2, we will be having very strict management of the operating expenses with a special focus on sales cost. And so clearing all those factors for the full year, we plan to achieve similar results as last year. So if you look at the last year results, if we exclude the impact of the data brand incident, adjusted operating income was around KRW 1.5 trillion. So we are working to achieve those levels. And if we also talk about the group subsidiaries, the main growth drivers, which are the real estate, DC cloud and content subsidiaries, I believe we'll continue to generate improved growth and that should also have a positive contribution to the overall group numbers.

The following question will be presented by Seung Woong Lee from Yuanta Securities.

Good afternoon, and thank you for the operator today. I largely have 2 questions. One is regarding the shareholder return policy and KT announced the new midterm shareholder return policy recently, and I believe it largely continues the previous one. About if profitability recovers -- what would be the direction of your shareholder return policy then? Is there a possibility that the retools can be upsized. And there is also the item of the adjustment. So in the adjustment, you included noncash items and nonordinary P&L. So can you elaborate on specifically what those 2 items mean? And the third question is regarding your wireless business. In the first quarter this year, there was the early termination waiver program that led to a reduction of the subscriber base and that had a negative impact on the revenue. So what would be the growth strategy and overall revenue outlook for the full year for the wireless business?

Yes, I think largely, your question has 2 sections. The shareholder return policy will be addressed by myself -- and your question on the wireless business will be addressed by [ Mr. Park Young Jin, ] the Head of the Customer Business division.

Yes. So regarding your question on shareholder return, the mid long term. So 2026 to 2028 shareholder return policy was announced to be 50% of net adjusted income. And so that will continuously be implemented. Yes. And then you talked about the overall direction of the return policy. So of course, we will make effort to continuously improve our profitability, which also means that we are making effort to increase the dividend per share. Yes. And as you would know, according to our value up program, we are buying shares around [ KRW 250 billion ] every year. And so that program will continuously be implemented according to the value up program. And I'd like to highlight that we are also working to indirectly increase the shareholder return. And your next question was regarding the adjustments that we make to come with the net adjusted income number. Are largely 2 elements. One is noncash items, and the second is nonordinary. And so if you first get the noncash items, it's the same as the previous policy. But for example, there is some valuation gains and losses that may be incurred from some investments or foreign funds overseas ones that we hold. So these transactions do not actually ensue cash transactions. And then regarding the nonordinary items. So for example, we may be divesting a sizable asset where there may be some penalties that are sizable that we need to pay. So we are trying to remove the impact of one-offs to ensure that there is stable visibility of dividend payments.

Yes. And I am [ Hanjin Park, ] the Head of the Customer Business Division, and I will address your question regarding the wireless service business. First of all, the decrease of subscriber base we experienced in January, I think, is largely being offset at the moment given that February numbers show net additions. And as you all know, in the second half, there are some new plants that will be launched related to government policy. But the QS is around 400 kilo bps. So we don't believe that this will have significant negative impacts to our revenue. And for the full year outlook, I think I can summarize it into 2 keywords. It is efficiency and agility. We recently launched a 5G choice plan that is linked to the YouTube Premium service. KT is the only telco company in Korea that was able to partner with YouTube and launch this type of plan. So we will continually work to understand customer needs and reflect them in the design of our plans so that we can observe an increase of the ARPU. And at this point, we are not really concentrating on acquiring new customers by spending large amounts of marketing and sales cost. We will be concentrating on efforts in noncontact channels and other types of services like the used phone sales service so that we can reduce the acquisition cost and generate appropriate level of revenue.

The following question will be presented by Joonsop Kim from KB Securities.

I have 2 questions regarding data centers. One is the AI data center. So I believe that the customer needs and requirements for AI data centers will be different from existing B2B customers. So what are the key needs that you have understood from your discussions with customers? And what is the competitive edge KT has in this area? Second is the securing of power, so I believe that power has become the key obstacle in terms of building and securing more data centers. So how is KT working to overcome this challenge? .

Thank you for the question. I think there were largely 2 questions. One was regarding AIDC, what are the customer needs and characteristics and what are KT's key strengths in this area? And second was regarding the security of power for the dental centers. So to address this question, [ Mr. Hung Yun Kim, ] the Head of the Enterprise Business division, we'll be answering your question.

Yes. I am [ Kim, ] Head of the Enterprise Business division, and I'd like to take your questions. So first, regarding the needs of customers in the IDC, I think there are largely 3 needs. One is the environment that the GPU is operating. So when I say environment, it includes, like you've already mentioned today, the securing of power, the heating. And when heating occurs, can it be well managed by the facilities there. So the overall environment will be 1 key need. Second will be the build-out. So you will have multiple racks and all those racks will be holding GPUs, those racks will be connected to each other. We call this the clustering capability and that is also 1 key aspect that the customers look at. . The third is operations. So if there is a failure in 1 of the GPUs, can you detect it and take that up quickly and reconnect all of the racks. So we call that reclustering ability. So largely, there are 3 aspects. One is the environment. Second is the build and third is the operations. And I'll move on to KT's key strengths. So we have very long experience and track record in this area, going back to IDCs. And we are also operating the largest number of data centers as well, so that experience is key strength. Yes. And so in terms of the accumulation of the experience, the skills and capabilities, I think KT would be by far top notch. And we are also continuously enhancing the clustering abilities that I mentioned earlier as well. In terms of the environment in the past for the DCs, air cooling was sufficient. But because the new data centers use very high voltage, it needs to be -- it usually uses liquid cooling. Yes. And I would like to highlight that KT is the first company in Korea to commercialize this liquid cooling data center. So we mentioned the Kazan data center, which has been recently established, and the Kazan data center uses this type of cooling system. And currently, we are in the testing period. I will move on to your question regarding securing power. Yes. In relative terms, I believe the power is more -- there's more ample power in the areas outside of Seoul rather than Seoul. So in the Seoul and largely Seoul metropolitan area, we will be focusing on the expansion of low voltage, so the existing type data centers. And outside of Seoul where the power can be more abundant, we will be laying out the AIDC infrastructure. In terms of execution strategy, we are planning to buy and lease land that already has secured the necessary power. So to summarize, we have a 2-track strategy, so we have different strategy for Seoul and metropolitan Seoul and the areas outside of Seoul and as for the execution strategy, we will be securing land that has already confirmed the procurement of power.

The following question will be presented by [ Charlie Bay ] from HSBC.

Congratulations on new management board. I have only 1 follow-up question on AIDC. I know more about your new AIDC build up plan and may know if you have any full year revenue target for the KT cloud business?

Yes. Thank you for those questions. I think your first question is related to the capacity plans that we have for AIDC. So unfortunately, we are not able to share the exact numbers that we have for AIDC, but we have the goal to achieve around 500 megawatts within 5 years. Yes. And regarding your question on KT Cloud, so let me try to answer it this way. I think we will be able to continue double-digit growth this year for the revenue. And the 500-megawatt number that I just shared with you, I want to clarify that it's for our total data center capacity.

There are no questions in the queue right now.

There are no further questions. We will now conclude the Q&A session. We appreciate your active participation and interest. Thank you for joining us today despite your busy schedules. This concludes the earnings call for the first quarter, 2026. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]