LG Uplus Corp. (A032640) Earnings Call Transcript & Summary

[Interpreted] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2022 Fourth Quarter Earnings Results by LG Uplus. This conference will start with a presentation followed by a divisional Q&A session. Our call is being webcasted on our home page so that you can follow the conference simultaneously. Today's conference call will be presented for 1 hour and due to schedule, we would appreciate if questions are limited to 2 per person. And now we will begin the conference of the fiscal year 2022 fourth quarter earnings results by LG Uplus.

[Interpreted] Good afternoon. I am Sung Hyun Mo, Head of IR at LG Uplus. Let us begin the fourth quarter 2022 earnings presentation. Please refer to our Q4 earnings presentation and note that the revenue breakdown of each business as well as details of operating expense are on the basis that excludes LG HelloVision for the benefit of ease of comparison. As a disclaimer, all of the projections we are providing today may change subject to macroeconomic and market backdrop. We will also be providing consecutive interpretation for the benefit of our overseas investors. We will start with the fourth quarter performance highlights followed by a Q&A. Without further ado, I will turn it over to our CFO, Hyuk-Ju Lee, who will run through the fourth quarter 2022 earnings and business results.

[Interpreted] Good afternoon. I'm Hyuk-Ju Lee, the CFO. Thank you to our analysts and investors for joining 2022 fourth quarter earnings release call of LG Uplus. Last year LGU Plus drove continuous revenue and profit growth from its core telco business while making commitment to a new beginning as a digital innovator and a platform company. The company worked to bring digitalization of telecom services in order to secure a touch point with digital customers and continue to expand the scope of business and services underpinned by data. That has been the announcement behind the transformation as a digital innovator. And as such, we wanted to lay the foundation for innovating customer experience based on 4 main platforms represented by 3 new businesses of Telecom Life, Play, Nurture & Care as well as Web 3.0. As part of the Telco Life Platform that enriches users' daily lives, last July we rolled out U-Dock services transitioning to an open platform that can be used by everyone. Following which, we are seeing a fast uptake in subscriber numbers. We also plan to launch routine based services in the first half of the year in order to offer customers ways to spend meaningful time in the spare time that they have by providing them a way to record their daily routine. For the Play Platform, we gave a new facelift to U+ TV and rolled it out as OTT TV. By integrating real-time broadcast, VOD and OTT services; we allowed users to search diverse array of content all at once. We also launched Studio X+U, which is our specialized content brand under which we will engage across the content flow from planning, making, production, distribution, up to supply chain partnerships. And leveraging competent members of our production team who we started to recruit since last year, we plan to develop competitive content and the business portfolio. Last December we aired for the first -- we aired our first entertainment content through the company's U+ Mobile TV and before the end of Q1, we are scheduled to air through multiple channels taking various additional content, including entertainment and documentary. Our data commerce business, which we offer through the web shopping platform [ U+Cook ] saw its '22 GMV as well as number of visits grow by a large margin. GMV was up 260% versus '21 while MAU and cumulative number of visiting users posted a growth of around 60%. In 2023, we will drive faster growth of data commerce business under the goal of offering lowest priced products at high quality that customers want by leveraging AI powered recommendation algorithm. Let's now move on to financial performances for the fourth quarter and 2022 full year. Q4 consolidated service revenue was up 4.2% on year and 3.7% on quarter reporting KRW 2,945.8 billion. Annual service revenue was up 3.1% year-over-year reporting KRW 11,410.6 billion while stand-alone annual service revenue was KRW 10,496.2 billion growing 3.2% year-over-year. Consolidated Q4 operating profit was KRW 286.6 billion with annual operating profit posting 10.4% year-on-year growth coming in at KRW 1,081.3 billion. Stand-alone operating profit also reached above KRW 1 trillion reporting KRW 1,049.8 billion. Consolidated Q4 EBITDA was up 16% year-over-year to KRW 908.1 billion while annual EBITDA was up 3.3% year-on-year reporting KRW 3,532.4 billion sustaining the trend of operational cash flow improvement. Fourth quarter's consolidated net profit was KRW 159.4 billion while annual net profit came in at KRW 662.6 billion. DPS, dividend per share for 2022 including the interim dividend is KRW 650, an increase of KRW 100 and a payout ratio of 42%. In 2022 annual CapEx was KRW 2,420.4 billion, up 3.2% year-on-year. Looking at the end of 2022 consolidated financial position. Total asset was KRW 19,774.8 billion, total liability KRW 11,325.1 billion, shareholder capital of KRW 8.449,7 billion, debt-to-equity ratio showed improvement of 9.5 percentage points versus end of last year's term while net debt ratio improved by 4.5 percentage points.

[Interpreted] This ends the report on business and financial performance. Next we will invite presentation on the results and outlook of each of the respective businesses.

[Interpreted] First is on mobile. I am Jong-Wook Park, Head of MX Innovation. Fourth quarter's mobile service revenue was up 3.3% year-on-year reporting KRW 1,477.9 billion and on an FY '22 annual basis, it was up 2.4% on year reporting KRW 5,830.9 billion. Mobile growth in year '22 was driven by quality growth of MNO subscribers and volume growth of MVNO subscribers. Total subscriber count was 19.896 million, up 10.6% year-over-year. Out of which, 5G subscriber count was 6.110 million, up 32.1% year-over-year accounting for 53.5% of total handset subscribers. MVNO subscriber count was 3.873 million, which is up 36.7% Y-o-Y sustaining a steep growth trend. Marketing spend in '22 continued its steady trend falling 0.4% year-over-year to KRW 2,276.6 billion. We introduced Sporki, which is a comprehensive sports community-based platform by building on our previous services around golf and professional baseball and broadened the scope to include 8 different sports including soccer, basketball, volleyball, billiards, bowling, fishing, et cetera. Sporki, which rolled out last October, was received with frenzy by sports fans and in just 3 months since the launch cumulative subs base surpassed 5 million. As we plan to quickly identify needs of fans of many different sports and introduce new features and services wherever needed, we will be setting it up as Korea's flagship sports platform. Also we released One-chip, a USIM, that can be used to activate pricing plans of every MVNO providers that uses LG Uplus' network. Amassed more than 100,000 cumulative activations in just 1 year since its launch. As such, we were able to strengthen user convenience as well as grow hand-in-hand together with the SMEs. In 2023, LG Uplus' Mobile business will continue to offer services of greater satisfaction, accelerate digitalization and expand membership partnership to drive customer experience, innovation and successfully grow our platform business; all in an effort to capture the customers to visit us more and stay with us longer.

[Interpreted] Next is on the Smart Home business and I'm Geon-yeong Lee, Head of Home Media's business. Q4 Smart Home revenue was up 4.7% on year to KRW 592.9 billion with annual revenue up 6.4% on year reporting KRW 2,344.5 billion. Q4 IPTV revenue was driven by growth in basic fee revenue growing 3.1% on year to KRW 332.1 billion. Annual revenue for '22 was up 5.6% on year to KRW 1,326.3 billion. Q4 broadband Internet revenue was up 6.7% year-over-year backed by Giga subscriber growth reporting 260.8 billion with annual revenue at KRW 1,018.2 billion, which is up 7.4% year-over-year. IPTV subs were up 0.1% year-on-year to 5.353 million and Internet subscriber count is at 4.936 million, up 3.7% Y-o-Y. To allow for easy viewing experience of array of different content, we tore down the boundary that existed between IPTV and OTT by combining IPTV with live broadcast, OTT and VOD under OTT TV. Also through exclusive agreement with Google, we launched Chromecast specifically for LG U+ TV. This device allows the users of conventional TV that doesn't support OTT application to use Google's Chromecast to enjoy not just OTT channels but also Uplus' IPTV live broadcast as well as VOD. As such, rather than engaging in over competition with OTTs whose market influence is growing, we're offering fun and diverse OTT content across our IPTV platform for helping users minimize cord cutting. Meanwhile we rolled out Pet Toy last October, which is a home IoT device for companion animals. Pet Toy plays with and trains pets when the caregiver isn't home so that they are not left alone and lonely and people can leave them behind without being worried. This year Smart Home business will continue to endeavor to provide stable Internet services in home, offer ease of viewing through OTT integration and deliver original content and work in partnerships so as to better satisfy our customers. We will develop exceptional devices for the home IoT business to enhance value for money and develop variety of different services for households with pets to further drive our pet business.

[Interpreted] Next is on the B2B infrastructure business and I'm [ Kim Jang Hyuk ], Head of New Enterprise business. Key highlights for B2B infrastructure for Q4 are as follows. Backed by evenly spread growth of existing and the new businesses, B2B Infrastructure was up 11.5% on year and 18.4% on quarter reaching KRW 443.6 billion with annual revenue of 6.1% reporting KRW 1,583.7 billion. Q4 solutions revenue driven by the growth of our new businesses was up 16.8% year-over-year to KRW 169.1 billion while full year revenue was up 7.3% year-on-year to KRW 524.3 billion supporting the growth of enterprise infrastructure business. Q4 IDC business was KRW 77.8 billion, up 15.2% year-over-year and revenue for the full year was KRW 280.7 billion, up 8.6% year-over-year sustaining an elevated uptrend. Enterprise line also posted a stable earnings growth with Q4 growing 6.1% on year and full year revenue posting 4.4% growth. In Q4 we continued to bring in more orders and increased references for B2B new businesses. For instance, we've been very much focused on growing the ecosystem for connected cars with which we've now started to solidify our competitiveness. Also LG Uplus made equity investment in the tune of KRW 7.2 billion into Obigo, a smart car software platform company that provides infotainment platform to global OEMs and domestic smart car providers. The 2 companies plan to further upgrade infotainment services and carry out both in-vehicle telecom and content businesses. Also partnership with Hyundai Motor Company was broadened and starting this year across all of Genesis, Hyundai and Kia car models; we will start providing wireless communication circuits and through this, we look forward to LG Uplus becoming a forerunner in the connected car market. LG Uplus will continue to analyze customers' business environment and their needs so as to continue to improve our service offerings and sustain steady growth trend from the existing enterprise line business. And with the completion of our second Pyeongchon data center, we'll drive continuous growth for IDC businesses while at the same time developing SOHO, SME and mobility platform to drive the growth of new businesses.

[Interpreted] This ends the performance of each business segment. We now invite back our CFO for 2023 business goals and outlook.

[Interpreted] In the course of year '22, we provided distinct customer experience; thinking long and hard about ways to drive quality growth of subscribers, made our new growth plans concrete, hired experts from outside to strengthen our organizational capacity; all in an effort to lay the basis as a digital innovator. In this vein we will accelerate digitalization of our core, which is the telecom business to push ahead as digital innovator to bring groundbreaking online CS customer experience improvement across subscription, activation and CS. Also based on data, we plan to level up viewing experience and leverage capabilities to develop competitive products and content in order for us to fully embark on future growth businesses. To make our growth strategy successful, exceptional customer experience is what is important. Based on many years of customer-centric mindset, we will drive B2C platform business to success and make B2B business platform for SOHO, SME and mobility in solidifying the foundation for future growth. Under this directional approach, I wish to present stand-alone service revenue growth target of 4% in 2023. Underpinned by steady profit from the incumbent telco business and high new business revenue growth, we plan to set up a balanced business structure and solidify the fundamentals as a digital innovator company. We will also further enhance shareholder return and corporate value in year 2023 and live up to our ESG responsibilities. Thank you.

[Interpreted] This now concludes the earnings report. We are now open for Q&A.

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

[Interpreted] I would like to ask you 2 questions. First is if you look at your FY '22 annual operating profit, it went above the KRW 1 trillion level and we see that the performance for the first quarter also showed a very good increase. Can you provide us as to the reason why this was the case? What were the drivers? And if you could just also review the overall FY '22 performance, including the Q4 NOPs, that will be helpful. And also can you share with us your 2023 guidance? Second question relates to your dividend policy. Your stance is that excluding the one-offs, the nonrecurrings, you pay out -- you will be paid out more than 40% on a stand-alone basis against the net profit. What is your dividend policy going forward for year 2023 and also can you provide some direction with regards to DPS going forward?