KT Corp (KT) 2002 Q3 法說會逐字稿

Good morning, and thank you all for standing by. At this time I would like to inform all participants that your lines are placed on a listen-only mode until the question-and-answer session of today's conference. I would also like to inform all participants that todays call is being recorded. If you have objections you may disconnect at this time. Now I will turn the call over to Miss H.S. Chao. Thank you sir, you may begin.

This is KT's third quarter earnings conference call. Good morning, ladies and gentlemen. Thank you for joining third quarter conference call. Today Mr. Dong Ho Shin, Managing Director of KT Finance team will give a brief summary on the earnings results. A Q&A session will follow. There will be Korean translators. Mr. Shin, please, go ahead.

Good morning and good afternoon ladies and gentlemen. My name is Dong Ho Shin, Managing Director of KT Finance team. After public privitization May KT initiate [INAUDIBLE] management moves. Such as [INAUDIBLE] foreign ownership by counting previous [INAUDIBLE] as nontaxable foreign ownership. And subsequent to 1% over share cancellations and 1.1% CB retirement using operational free cash flow. [INAUDIBLE] on our free cashflow policy, we are going consider more shareholder[INAUDIBLE] in coming years. I would like to briefly discuss the third quarter operation [INAUDIBLE]. Third quarter revenue grew this quarter to 2.9% year-over-over. While our pricing profit was down, 11% year-over-year to $240 billion. [INAUDIBLE] less profit to $306 billion. [INAUDIBLE] 27% decrease in collection revenue don't to [INAUDIBLE] implemented in May year 2002.

Third quarter revenue grew 2% year-over-year to 2.93% [INAUDIBLE] continues gross. [INAUDIBLE] compared to the same period last year. At the same time, we continue to see signs of [INAUDIBLE] in the fixed line revenue which grew 2% year-over-year as the revenue in [INAUDIBLE] and domestic [INAUDIBLE] increased. In terms of pricing profit, the third quarter was down 11% to $424 billion due to labor and marketing cost increase. However, one of our major expense [INAUDIBLE], depreciation cost decreased to 14% to $665 billion compared to the same period last year. Capital spending is continuously emphasized.

Net profits increased 90% year-over-year to $360 billion supported by [INAUDIBLE]. The [INAUDIBLE] rate grew 50%. And a substantial drop in cost was position over assets. In closing [INAUDIBLE] global market conditions [INAUDIBLE] on improving profitability. This concludes my brief comments on third quarter customers, thank you. I now open the floor for questions.

Thank you. If anyone would like to ask a question please press 1-star-1 on the touch tone phone. All questions will be taken in the order that they are received and you will be announced by your name when we're ready for your question. If you would like to ask a question press 1-star-1. One moment. Our first question -- at this time I'm showing no questions. As a reminder if you'd like to ask a question press 1-star-1. The first question comes from Benjamin Moyer. You may go ahead with your question and please state your company name.

This is Benjamin Moyer from Merrill Lynch Investment Managers. I want to say I'm having a little trouble viewing your handout over your website due to some font errors. Possibly you could correct that sometime in the near future. As far as my question, I noticed that your interconnect, you're land to mobile interconnect revenues declined significantly on a year-to-year basis in the third quarter. I know that you had a reduction in that rate in May and that was made retroactive back to the beginning of the year. Can you give us a little more detail so that I can understand why this revenue number has declined so much?

First of all, it will effect [INAUDIBLE] material to you. The government reduced the land to mobile rates by 17.7% from the May 1, this year. That's the main reason of decline and also the [INAUDIBLE] fee of net mobile is slightly decreased compared to last year. That's the main reason of decline in the land to mobile.

I think you were also making some minutes, you were offering some free minutes.

That's right.

And I just wondering if you could separate out the effect of those free minutes? In other words, had you not offered those free minutes, you know, in exchange for the delay in the tariff cut, what would your land-to-mobile interconnect revenues have been. I want to see what the adjusted run rate is like. Is that something that you can do? Or is that very difficult.

Due to the reason of providing ten minutes free call, [INAUDIBLE] we recognized about $50 billion revenue reductions in 3Q only. So if we expect to $50 billion, [INAUDIBLE] our land-mobile revenue recorded in 3Q, then the decline ratio will be about 20%. So that comes to the conclusion that due to the rate reduction, we still about 23% decrease in revenue, and we estimate that about 3% decrease comes from [INAUDIBLE] decrease.

I see. So you would add back about $50 billion won to your third quarter land to mobile interconnect revenues.

That's right. For the full year about starting from the May 1st, so maybe $1 billion won to $130 billion won revenue reduction from the providing ten minutes free call. But good news is this providing ten minutes free call is just for this year. For next year, we will not provide ten minutes free calls.

Right. Now that had a negative effect of $50 billion won on revenues, would that have had similar impact on your profits? Would your profits have also been?

Let me explain this way. We estimated that due to the land to mobile rate cut by 70.7% but we also have the rate reduction in land to mobile interconnect. Because of land to mobile rate cuts, we expected about $530 billion on revenue reduction but we can shave $370 billion won in land mobile interconnection expenses so then the impacts would be around $470 billion won decreased in operating profit in this year. That's the main reason why we adjusted our full year forecast from revenue of $12.6 trillion won to $11.7 trillion won and also net the operating income of $2 trillion won to $1.8 trillion won.

Okay. And I had another question in your fixed-line revenues. It's difficult for me to ask these questions because I don't have a copy of the handout, it seems like in your fixed-line telephone revenues, there's a residual item called "others" which I think is a combination of value-added services, I don't know, maybe the local directory, something like that. But there seems to be a very large increase in those revenues in the third quarter. You commented that your total fixed-line revenues were up slightly year-over-year but it seems like a lot of that was coming from this particular item I'm talking about and I don't know what it is.

That's why.

It's not local, it's not direct, it's not domestic long distance, it's not international long distance, it's something else.

To explain [INAUDIBLE] between 3Q over last year 3Q. In the other revenue item, the 114 phone directory service revenue increased by the $43 billion won. Main reason is when [INAUDIBLE] implemented land to mobile rate cuts, they allow us to increase the rates for 114 phone directory services. From 71 for each call to 101 for each call. I'm sorry, 81 to 101. So our revenue in phone directory service increased and also we are providing value added services by like 700 information service which is similar to 1-800 or 1-900 services in the U.S.A. calling cards and et cetera. So there value added services increased line revenue. Also increased from $23 billion won to $34 billion won so we can see from the kind of revenue increase in other service in fixed-line. And also we believe that this trend will continue.

And then I don't know if this question will be asked later, can you give me your comments on your outlook for the fourth quarter?

Since you did not receive our comments, I will recall our expectations for the full year. Revenue expectation is ranging between $11.6 trillion won to $11.3 trillion won and operating process is more than $1.8 trillion won. And EBITDA margin $4.5 trillion won, and net income will be around same level of [INAUDIBLE] net profit of third quarter. We publish our quarterly earnings for three years and we clearly can see a quarterly trend in Q4. Q4 is expense concentrated period and also we plan to enhancing our marketing activities for land service and [INAUDIBLE] services which we launch [INAUDIBLE]. Also in Q4, nonoperating expense items also concentrated. So simply saying we tried to improve our profitability better than Q4 of last year. But Q4 would be a good benchmark to start.

Okay. Thank you.

Thank you. The next question comes from Brad Riduvalacki. You may go ahead with your question and please state your company name.

Brad Riduvalacki with Oak Tree Capital. Just two questions. Your CAPEX number for the quarter seemed fairly low and I want to see if you're still on track for your target of $2.5 trillion by the end of the year. And the second thing is I wonder if you could just tell us what the impact of your new local calling plan, the all you can eat of local and long distance, what the impact of that has been in the third quarter and how you see it evolving in the fourth quarter?

We estimated CAPEX for nine months until September is about $1.5 trillion won. Even though we decide to increase CAPEX to help revitalize IT industry in Korea, still we believe that total CAPEX for this year will be 2.5 or less. And we just launched the optional flat rate plan recently, so impact from -- in terms of revenue impact by this flat-rate plan is [INAUDIBLE] so far, however, for the Q4 only, we estimate about $40 billion won revenue increase. [INAUDIBLE] optional flat-rate plan.

And this $40 billion, will that drop directly to the bottom line? Will that be $40 billion incremental earnings as well?

Well, we hope that this will go to operating the margin level and then if we subtract tax, our bottom line will be increased.

All right. And what, again, just remind me what the budget is for next year from this service? What kind of revenues you're looking for?

Well, currently we have about $7 million [INAUDIBLE]. And if we assume that if they pay 1000 won a month, this is very conservative estimate, then the revenue impact will be about 150 to $160 billion won increase.

Great. Thank you very much.

Thank you.

Again as a reminder to all participants, if you would like to ask a-question press 1-star-1 on the touch tone phone. One moment. At this time I'm showing no further questions. We do have one follow-up from Benjamin Moyer. You may go ahead with your question.

This is a follow-up question to the flat-rate fixed-line plan we were talking about. You mentioned that you have 7 million users on this plan and that if you receive an additional 1000 won per month from each of those users, the revenue impact for next year would be, I think you said, 140 or $150 billion won. I don't understand that. You must be assuming that there will be an increase in the number of users beyond current level of 7 million.

I'm sorry. I have to rephrase my answers. We assume that 2001 users.

Okay. Okay. That's more clear. And do you think that the number of users on that plan will remain at 7 million or is it likely to increase?

Well, it is likely to be increased.

Okay. Thank you.

Thank you. Again, if you would like to ask a question, please press 1-star-1 on the touchtone phone. At this time I'm showing no further questions. There are no further questions this time. I'll turn the call back over to you. There are still no further questions at this time. As a reminder, if you would like to ask a question press 1-star-1 on your touchtone phone.

Okay. We have conference call yesterday. And if you -- if somebody needs conference call yesterday, he ore she can dial in 888-566-0359 with the pass code 733590. We would like to thank you [INAUDIBLE] and we would like to close our conference call for third quarter and hope to see you in next conference call with better results. Thanks you for your participation.

Thank you. That concludes today's conference call. All lines may disconnect at this time.