[Foreign Language - Korean] Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the 2016 Second Quarter Preliminary Earnings Results by KT. We would like to have welcoming remarks from Mr. Youngwoo Kim, KT IRO, and then Mr. Kwang-Suk Shin, 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 Mr. Youngwoo Kim, KT IRO.

[Foreign Language - Korean] Good afternoon. I am Youngwoo Kim, KT’s IRO. We would begin Q2 2016 earnings conference call. Our call is being webcasted via the company’s website, and please refer to the presentation slide as we present the business results. Also please note that since the first quarter of 2011, KT has been presenting consolidated numbers under the IFRS accounting standards. Now, our CFO Kwang-Suk Shin will deliver his remarks on Q2 2016 earnings results.

[Foreign Language - Korean] Good afternoon. I am Kwang-Suk Shin, KT’s CFO. In the second quarter, the GiGA infrastructure and optimized services for the changing telecom environment, we were able to grow subscribers and revenue from our core business. And after adjusting business portfolio of group companies, subsidiary contribution to profit has improved significantly enabling KT to record quarterly operating profit at around KRW400 billion level for the first time in four years since the Q1 of 2012. First in the wireless business, we expanded on consumer’s choice by launching KT-only handsets at reasonable price. And our second device model such as LINE Kids Phone, LTE Egg Plus, smartwatch, successfully entered the wearable market helping to continue subscriber net addition trends. In our fixed line business supported by broadest GiGA coverage in Korea, GiGA internet subscriber growth continued. IPTV is also seeing sustained growth as it leads create media market to creating an advanced UHD ecosystem. GiGA internet subscribers at end of Q2 were 1.73 million, accounting for more than 20% of our total internet subscribers. IPTV also recorded subscriber net addition of 140,000 in Q2. In light of current expansion in GiGA internet subscriber base and user preferences, we believe two million subscriber target by the year-end will be achieved without any difficulties. Equipped with LTE-M network, world’s first commercialized internet of small things, KT will facilitate device and service development to expand the market for its future business and introduce specialized products that satisfy customer needs such as private LTE. This year KT is poised to solidify its competitiveness in converged open-platforms so as to proliferate its future business ahead of others and to build a firm foundation for growth. Now, let me move onto Q2 2016 financial results. Second quarter operating revenue was up 4.5% year-on-year to…

[Foreign Language - Korean] Now Q&A session will begin. [Operator Instructions]. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be provided by Hue-Jae Kim from Daishin Securities. And the next question will be presented by Jong-In Yang from Korea Investment Securities. Mr. Hue-Jae Kim, please go ahead sir.

[Foreign Language - Korean] I would like to pose two questions. My first question has to do with dividend. Last year you paid out KRW500 per share and I understand that that KRW500 is based on 30% of your stand-alone net profit excluding the one-off gains. I would like to understand as to how you came to KRW800 per share. What is the basis of that number? And also going forward, would you be continuously communicating your DPS [ph] numbers or would you be sharing with us your payout ratio going forward? Second question, with the failed attempt by SK Telecom to acquire CJ Hellovision, I would like to understand how you paint the outlook for the second half of the year in the pay-TV market. I would like to understand KT’s strategy and also your strategy in the UHD segment?

[Foreign Language - Korean] Responding to your first question about the dividend as to what the basis for the number that we have arrived at, now for the dividend for 2016, it is based on a stand-alone net profit excluding the one-off gains as well as the cash flow based on which we looked at the balance across different aspects, first being the improvement of financial structure. Second being investments for gaining in future growth engine, and also considering the shareholder return aspect as well. So we have considered all of those three aspects and have tried to struck a balance. And so this KRW800 per share we believe is a level that would not undermine a company’s financial structure and at the same time does not undermine its future growth potential. Responding to your question about both our future dividend policy from year 2017 [ph] onwards, we will continuously consider our business performance as well as capital management plan in determining the size of the dividend payout. We would place our four most priority in improving the profitability and cash flow of the company based on which we are managing our business and we believe that accordingly and quite naturally we expect the shareholder return size could expand going forward. Now responding to your second question about the failed attempt at acquiring CJ Hellovision, I have to first say that we’re quite cautious in making a projection or outlook for the pay-TV market going forward. But considering the fact that the M&A attempt has failed, one can expect that there could be more competition to expand one’s subscriber base in light of the fact that different players would want to strengthen their competitiveness across different platforms. However having said that, in light of the fact that the regulatory authority is very much focused on making the marketing environment transparent in regards to the bundling products of the fixed line segment, we believe that there is low possibility that there would be a heightened or reckless competition in this segment. From KT’s perspective, we have a very strong foundation of GiGA network based on which a competitive content and services are being provided and by making use of our broadband and IPTV competitive edge, we believe that regardless of the competitive backdrop, we would be able to continuously grow in terms of both volume and quality. You also asked about our plans regarding the UHD business. We are currently expanding and focusing on launching different set-top boxes. And by partnering up with different manufacturers, we are very much focused on enhancing increasing the coverage for the service as well as devices. And recently we have also introduced HDR level definition of a VOD service continuously strengthening our competitiveness, so that we can have a more solid ground when it comes to the UHD services.

[Foreign Language - Korean] The next question will be presented by Jong-In Yang from Korea Investment Securities. The following question will be presented by Sam Min from Morgan Stanley. Mr. Jong-In Yang, please go ahead sir.

[Foreign Language - Korean] I believe that the trend of ARPU increase in the second quarter is quite encouraging, and despite the fact that there is more adoption of the tariff discount plan, I would like to understand how you were able to increase your ARPU and what is your outlook for the second half of the year? Second question is, if you were to compare the test discount plan as well as subscribers who are taking out unlimited data plans, first, what is the number of subscribers for each of those segments and also of the new subscribers that you are acquiring, what’s the percentage, the breakdown between people selecting the discounts - monthly discount plan as opposed to the unlimited data plan? And going forward for the second half of the year, I would like to understand the extent of the impact that could be dealt through your monthly discount plan on your P&L. What’s the impact of the monthly discount plan on your P&L?

[Foreign Language - Korean] Responding to your first question about the second quarter ARPU, as said before, the ARPU is KRW36,527 and the main driver behind this ARPU was that we first got rid of the seasonality factor on a Q-on-Q basis which were seen in previous quarter and also we see higher percentage of subscribers taking up more high end tariff plan. And the third aspect is that we’ve seen a greater level of revenue and sales from value-added services, such as data charge-ups or data top-ups. Now we are continuously going to explore differentiated services based on the data aspect and we will continue to enhance the quality level of the subscribers so that we may be able to achieve a 2% per annum target. However we see that subscribers that are adopting the 20% discount plan, the inflow of such subscribers are higher than expected and also we are at a period where we see significant changes in terms of the internet of small things as well as the second device which will open up a new type of a subscriber market. So we are very closely monitoring and looking at the ARPU trends. After the implementation of the handset subsidy as the percentage of subscribers taking out unlimited plans have actually fallen to the early 10% level. But with the increased needs by the subscribers and the benefits that we are providing to the subscribers through products like VIP pack, we have now seen recovery to about 30% to 40% of this - 30% to 40% level before the implementation of the handset subsidy act. We will continuously introduce differentiated services underpinned by data so that we can expand on the subscribers who take out and who adopt the high-end tariff plan. Responding to your second…

[Foreign Language - Korean] The next question will be presented by Sam Min from Morgan Stanley. And the following question will be presented by Jee-hyun Moon from Mirae Asset Daewoo. Mr. Sam Min, please go ahead sir.

Yes. Hi, thank you for this opportunity to ask questions. Well, I wanted to congratulate you on a sound deep this quarter and I was wondering if you can give us sort of an outlook for profitability in the second half, particularly since your second quarter deep consensus quite considerably and heading into, I guess, second half particularly in the fourth quarter, there are some seasonal impact as well. And considering the sort of increase in operating leverage, profitability will most likely continue to go up. And my second question is on your PSTN or telephony revenue. Do you think by second half of this year, we’ll see a meaningful slowdown in the telephony revenues - deceleration of the telephony revenues, so that we can see even more increases in profitability? That would be my second question. Thank you.

[Foreign Language - Korean] Now on your question about the second half outlook, because there are many drivers that will impact on the performance, I would first have to preface by saying that I’m a bit cautious to paint a definitive picture. Having said that, we have been able to bring about a growth in service revenue and also structurally make our cost more efficient and also improve on our financial position. Through such efforts, we have been very steadily been able to grow our profit under a quarterly basis and we are exerting our at most efforts to sustain this trend. If we are able to achieve the business targets that we have set for ourselves and if we continuously make our cost structure more efficient, I believe that also in the second half of the year as we did in the first half, we will be able to achieve quite steady performance. And also we are working very hard to eliminate the seasonality as well as one-off factors that usually happen in the fourth quarter. So for this year compared to the previous years I believe that the variability between across - between the performances of the 4Q and the previous quarters would be more mitigated. Responding to your second question, if you look at our PSTN numbers in the first half on a cumulative basis if you look at our revenue from an year-over-year basis, there was about KRW129.6 billion decline recording PSTN revenue at KRW1,65.3 billion. So if you were to compare that to our annual target, reduction target of around KRW200 billion, we are well within the target. Once again in terms of the structural revenue decline and the relevant speed with respect to that, I’m very cautious to give you a definitive number on that.

[Foreign Language - Korean] The next question will be presented by Jee-hyun Moon from Mirae Asset Daewoo. And the following question will be presented by Stanley Yang from JPMorgan. Ms. Jee-hyun Moon, please go ahead ma’am.

[Foreign Language - Korean] I have two questions. First has to do with spectrum. With the new spectrum that you have acquired, I would like to understand what your investment plans are and development costs, because in the first half your CapEx was relatively quite small, so do we have to expect a significant spending to come in the third quarter? Second question has to do with the overall regulatory environment. The news that we’re getting from the government authorities, different commissions and national assembly is very different. So the market is currently quite confused with respect to the regulatory direction going forward. I would like to understand what KT’s management’s understanding is when it comes to the regulation for the telco industry as well as for pay-TV market?

[Foreign Language - Korean] Responding to your first question on the new spectrum, the actual investment size has not yet been completely determined. Having said that, because we have won the spectrum, which is a narrowband which has relatively low level of obligation for network build out, we expect that we will be able to efficiently control the CapEx, and also for the existing spectrums, through efficient investments and also improvement in the CapEx investment process, we are going to work hard to make sure that the CapEx is stabilized downwards. Responding to your question about the government’s regulatory environment, the regulatory authority’s position basically is that rather than arbitrarily cutting the price, they would focus more on facilitating and activating service competition so that the general public’s telecommunication related expense burden could be lessened and that philosophy or principle current is still very valid. And most recently, MSIP has announced a telecom market competition related plan. And in that plan also they focused more on improving basically the framework for - a framework focused on the wholesale regulation rather than cutting the tariff in the market based on which they seek to expand voluntary price competition amongst different players so that at the end of the day it will enhance the benefit and the welfare that goes back to the consumers. KT will also implement its business in line with its government policy by developing variety of services and content, so that we will enhance the benefit that goes back to the consumers.

[Foreign Language - Korean] The next question will be presented by Stanley Yang from JPMorgan. And the following question will be provided by Dan Kong from Deutsche Bank. My. Stanley Yang, please go ahead sir.

[Foreign Language - Korean] My question is on dividend. KT’s management, thanks to their efforts in cost control and turning around of business have been doing very good performance. In the second quarter KT is now up to around 70% have caught up with SK Telecom’s net profit level, like it is up about 70%. But in terms of the dividend that you’re paying out, for SK Telecom, they are distributing about KRW700 billion while KT, based on the number you’ve given us, will be distributing around KRW200 billion. So that’s about one-third of SK Telecom’s dividend. So when can we expect for KT to actually catch up to SKT’s level at least by about 50%. I know that back in 2010 and 2012 your payout ratios were about 42% to 69% as against that basis. This year the dividend is slightly up but from a mid-to-long-term perspective, when would you be able to catch up to above 50% of what SK Telecom is paying out? When would you become quite comfortable to SKT?

[Foreign Language - Korean] You asked about our dividend going forward. This year we expect that on an year-over-year basis that our profitability will improve but we have to also understand that the company’s ability to generate profit has not yet fully normalized. So from a mid-to-long-term perspective it is of at most priority for us to actually solidify the foundation for us to be able to create and improve on profitability. So we’ve made a very prudent decision in light of these facts. So once our cash generating capabilities become much more stable and we make our financial position much more sounder, then very naturally we expect that will lead to higher payout ratio. Having said that, the company does not have a dividend payout ratio target. Going forward, based on improvement and profitability, we will do our best to expand our shareholder return.

[Foreign Language - Korean] The next question will be presented by Dan Kong from Deutsche Bank. Mr. Dan Kong, please go ahead sir.

[Foreign Language - Korean] You’ve mentioned that the company is focused on structural cost-cutting efforts. Can you specify and be a little more detailed in what efforts you’re actually putting in because I think some people in the market are quite doubtful as to the sustainability of such cost-cutting efforts. I say this because if you look back to five to six years ago and read the conference call notes that one has taken at that time, the management has said the same things about structural cost-cutting, but in the wake of that there still were increases in cost. So I would like to understand how the current cost-cutting efforts are different from what you’ve engaged in the past? Second question has to do with your PSTN. It’s very hard [ph] for you to paint a clear picture on the trend of the slowdown. Can you at least provide us with some color as to what the end game would look like? I mean what level of ARPU or what level of subscriber are you projecting, because after the decline in ARPU I believe that what you could still experience decline in number of subscribers. What is the eventual, I guess, figures for PSTN business?

[Foreign Language - Korean] Responding to your first question, KT currently actually has a separate team that is specifically dedicated to finding opportunities and structurally cutting costs. So we’re focused on improving structural efficiency and not just on eliminating one-off cost items, so that we can bring about a sustainable outcome in this aspect. So basically there has been an extensive analysis on the cost structures since the 2015 and we were able to achieve good improvements on the cost savings side. And for this year as well, this effort will continue. So to talk about some of the detailed efforts for 2016, we will focus on improving the business flow, the business work process and making the processes more efficient and saving cost with respect to a very rigid expenditure or rigid cost items. Through such efforts, we would discover improvement opportunity. And on top of that, we will not just tackle each of the cost issues, but we will take an overall TCO [ph] perspective so that through CapEx advance investment we could also achieve savings on the OpEx, operating expenditure side as well. It will be difficult for me to share with you a specific savings target or plan but we believe that through such cost improvement efforts, it will start to play into the performance of 2016 as well as to results for the future. Responding to your second question, from 2016 onwards we expect the revenue decline to be in the range of 11% to 12%. But in the absolute terms, the absolute figures is declining, so it is going to pressure the top line and bottom line less as we go forward. And also considering the 40% of these fixed lines and now for businesses, the B2B lines, we think that the percentages decline will slow going forward. It’s hard to project on the exact subscriber number or the ARPU level with the fixed-to-mobile replacement, the ARPU and subscriber revenue will fall. However through providing bundling products and also fixed rates tariff plan, we will limit that decline.

[Foreign Language - Korean] Just have a little question on cost savings. Compared to five to six years ago, how is your current effort different?

[Foreign Language - Korean] The biggest difference is that, in the past when we embarked on cost savings, we did not have any separate organization or division who was dedicated to that mission. In the past, a simple target was given to different divisions and teams and had them achieve those target numbers. But what’s different now is that we have taken a fundamentally different approach. We now have a separate dedicated organization, who show responsibility as you look at the structural opportunities, meaning how can we change the way we work, how should we change the work process so that we can bring about a sustainable cost savings framework. So that’s what the biggest - that’s where the biggest difference lies. In the past it was just a mere target number but these days now it is more of more essential as to how we work and it’s much more substantial.

[Foreign Language - Korean] If there are no further questions, we would close the Q&A session. Thank you very much for joining us despite your very busy schedule. This brings us to the end of the Q2 2016 earnings conference call. Thank you.