Good morning, and good evening. Thank you all for joining this conference call. And now, we will begin the conference of the Third Quarter of Fiscal Year 2024 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.

Good morning. I am Young-Kyun Yoon, IRO of KT. We will now begin the earnings presentation for the third quarter of 2024. This earnings call is being webcast live on the Company website. Slides are also available for you to follow while listening to this call. 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. Therefore, other than confirmed historical data, we cannot guarantee the accuracy and completeness of financial and business-related information and may change in the future. Now Min Jang, CFO of KT will present the earnings for the third quarter of 2024.

Good morning. I am Min Jang, CFO of KT. The business direction that KT has set for the future is transformation into an AICT company. We plan to lay the foundation for sustainable growth by innovating our core businesses with AICT transformation and expanding customized offerings to customers as an AX partner in the B2B segment. To this end, we have been striving to achieve structural innovation in our skills, businesses and workforce this year. On September 28, in order to strengthen our capacity as an AICT company, we aimed a strategic partnership with Microsoft. The two companies will be engaging in a full range of cooperation in the AI and cloud areas for the next five years, such as jointly developing the Korean AI cloud service. We will also be working together to preoccupy new markets in the AI IT sector by jointly establishing a company specializing in AX and jointly implementing talent fostering programs. In addition, we are improving the business portfolio to achieve fundamental and sustainable growth. As these efforts lead to stronger profitability of the B2B business in earnest, the mid- long-term profitability improvement should become more evident. More recently, as part of the AICT transformation efforts, we are innovating the HR structure. To strengthen the competitiveness of the data business, we are planning to merge KT NXR, a subsidiary specializing in big data while redistributing core capabilities by establishing two new subsidiaries specializing in network services. On November 5, KT announced the value of program, which includes the mid-term plan to boost shareholder and corporate value. The mid-term target is to reach a consolidated ROE of 9% to 10% by 2028. To this end, we plan to triple the AI and IT business revenue compared to 2023, generate a consolidated operating profit margin of 9%,…

For more details, please refer to the earnings presentation, which has been circulated already. We will now begin the Q&A session. Today, we have [indiscernible] Mr. [Tan Ho Tong], OpenTech Innovation Lead joining us to take questions. In order to allow as many Q&A opportunities as possible, we will appreciate only two questions per participant. Thank you.

Now, Q&S session will begin. [Operator Instructions] The first question will be provided by Hoi Jae Kim from Daishin Securities.

I am Kim Hoi Jae from Daishin Securities. And I have two questions regarding the corporate value plan. The first question is regarding your ROE target. You have said 9% to 10% for 2028. The current number is around 6%. So, I believe this can be a quite ambitious goal. So, I would like to have a little bit more color on how KT plans to achieve these targets. Second question is regarding the share buyback and cancellation program. From 2025 to 2028, you mentioned that the buyback and cancellation will be around KRW1 trillion in cumulative terms. Will this program be implemented equally across the years? That is my first question regarding this. And if you look at the current shareholder return policy of KT, it's currently 50% of the adjusted net income and you pay a minimum DPS and the resources remaining after the minimum DPS payment is to be used for share buyback. And given that you have launched a 2025, 2028 share buyback and cancellation program, I would also like to recommend that you may think about increasing your dividend payments with the resources that you have. So, I would like to hear some of your thoughts on that.

Yes. Thank you for your question. And regarding the ROE target, so we try to lay out the details in the presentation, but I think there are largely three ways that we are trying to achieve this target. The first strategy that we have is transformation into an AICT company. And I believe that this pillar of the strategy can be the most challenging for KT. So, we are trying to transform ourselves from a CT company to an AICT company. And to that end, we have been innovating the businesses, the capacities that we have and also our workforce so that we can successfully adjust our business portfolio. The second part is about enhancing the efficiency of our assets. So, we may dispose or develop some of the real estate that are not considered to be core to the business. Also, we have some assets in equity as well that may be disposed or used to boost the efficiency of our assets. The last one is about the use of capital. So, until 2028, as mentioned in the presentation, we will be using the excess cash to make investments to enhance ROE or we can also use those resources in the KRW1 trillion shareholder return program. So these are largely the three ways that we are trying to achieve the ROE target. And then your second question regarding whether the share buyback and cancellation program up to 2028 will be implemented equally across the years. So we don't believe that it will be volatile, but we think it will be gradually increasing across the next couple of years. So we plan to implement the buyback and cancellation program in a gradually increasing and stable manner. And then your last comment was regarding the mix between the share buyback cancellation and dividend payment. So, until next year, the current shareholder return policy is effective. So that's 50% of adjusted net income, a minimum DPS of KRW1,961 per share. We pay quarterly dividend. So annually, currently, it's around KRW2,000. So, this policy will continue until next year. And then as to the mix after that, the Board of Directors will be making the decision and how to move forward. But we do believe that the shareholder return policy will become stronger in future years.

The following question will be presented by Joon-Sop Kim from KB Securities.

I am Kim Joon-Sop from KB Securities. And I have two questions regarding the AX subsidiary. So, you are working with Microsoft to establish an AX specializing subsidiary. I would like to have better understanding on types of services that this company will be offering. And also, what is the size of the business that you are expecting that will be derived from this company? And maybe you can also talk about the number of employees that will be reassigned to the AX company as well.

Yes. Thank you for the question. My name is [Tan Ho Tong] from the OpenTech Innovation Lead. And currently, we are discussing and cooperating with MS to develop and establish the AX company. But currently, we are still in the development phase. So unfortunately, we are not able to talk about the exact details of the services that we are planning to offer. So today, I think I can give you a more overall picture on this cooperation. And so AX is different from MSP. So if you assume that there is a customer or a client that has the demand to transform some of its businesses, tasks and projects to AX, they may have the need to do so, but they may not know where to start. So they may need some help in developing the approach or trying to come up with concrete service types that they can use AX to transform their business. And so, I think the biggest role will be offering technical consulting. So, it will be mainly C-level consulting services or pre-consulting service, understanding the AX needs of the customer and giving advice on how they can leverage technology to achieve their AX goals. Yes. So, when I say consulting, you may think of more conceptual consulting, but this is the reason why I mentioned that it will be a technological consulting service because the customer will be having a clear idea on the final output all the way up to the POV stage. And so, I think this type of additional service is something that we can differentiate ourselves from other competitors in the market. So, this type of service offering requires high level of expertise. This is why we will be fostering talent within KT. We will be recruiting experts from the…

The following question will be presented by Eun Jung Shin from DB Financial and Investment Securities.

I have three questions. First, regarding the value of program. One measure is that you will be tripling revenue of AI and IT by 2028. So, I would like to have a better understanding on your strategies to achieve the goa? And then second, you just went through the AX company that you are developing together with Microsoft. And I think earlier, you also mentioned revenue outlook around KRW4.6 trillion. So, what would be the role of KT in achieving that? And then third, there is reassignment of workforce that is currently being implemented by KT. So, I would appreciate a status update and how much the budget or impact it will have on the financials? If you can share color on that, that will be helpful, too.

Thank you for the questions. I will be taking the first and third question, and Mr. Jang will be taking the second question. So regarding the tripling the revenue of AIIT, base assumption is that we will be transforming ourselves from a CT and LINE-based company to a B2B AI DX service company. On a separate basis, the AI IT revenue is currently around 6%, and we plan to increase this number significantly by 2028. The absolute number will be around KRW3 trillion. And regarding the reassignment of workforce, the process of receiving the request have almost come to completion now. So there will be 1,700 employees that will be reassigned to the newly established subsidiaries, two of them and 28 employees have signed up for retirement program. So a total of 4,500 employees will be reduced from the headcount. And so in terms of the impact on financials, the payment for retirement will be booked in this year's accounting. And then the payment for the salaries of the employees that are being reassigned to the new two subsidiaries will be paid as a fee from KT to the subsidiary. And this amount should be lower than what we are making as payment at the current stage. So for the payment to the employees that are being reassigned to the new subsidiaries, that amount can be saved immediately from next year.

Yes. And I will be taking the second question. Your question was regarding the revenue outlook. So when we mentioned KRW4.6 trillion, it was based on projections from consulting firm, and there are largely two pillars, AI and cloud. It is not an accurate number, but we believe that the breakdown between AI and cloud will be largely 50 to 50. And as the AI technology evolves and the AX market takes off, we think that the growth in this segment can be quite exponential in the next couple of years. But regarding the cloud business, so this will be driven by partnership with Microsoft, and it will be mainly the sovereign secure public cloud business. And this business is largely impacted by government regulations. While the finance sector is experiencing more relaxed regulations and there should be, therefore, higher demand for external cloud usage. On the public sector, I think it may take longer for this market to open up to other companies. So early on, we will be mainly targeting strategic large customers who have demand for sovereign cloud services, and we will be monitoring the regulatory environment to expand into finance and the public sector later on.

There are no further questions. We will conclude the Q&A session. Thank you for your interest and questions.