KT Corporation — FY 2018 Form 20-F
Reporting period: Year ended December 31, 2018; filed April 30, 2019. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and reported in Korean won (₩).
Business context
KT is an integrated Korean telecommunications provider, with mobile and fixed-line services, broadband, media and content, financial services (principally BC Card), and other businesses. Mobile, fixed-line, and broadband markets face intense competition; KT also highlighted the planned expansion of 5G and pay-TV competition.
Financial and operating performance
| Metric | FY 2018 | Prior comparable period |
|---|---|---|
| Operating revenue | ₩23,436 billion | ₩23,547 billion in 2017; down 0.5% as reported |
| Operating profit / margin | ₩1,101 billion / 4.7% | ₩1,069 billion / 4.5% |
| Profit for the year / net margin | ₩719 billion / 3.1% | ₩546 billion / 2.3% |
| Profit attributable to parent shareholders | ₩646 billion; basic EPS ₩2,634 | ₩462 billion; basic EPS ₩1,884 |
| Operating cash flow | ₩4,010 billion | ₩3,878 billion in 2017 |
| Investing cash flow | ₩(2,704) billion | ₩(3,483) billion in 2017 |
| Financing cash flow | ₩(532) billion | ₩(1,363) billion in 2017 |
| Cash and cash equivalents | ₩2,703 billion | ₩1,928 billion at year-end 2017 |
| Total assets / liabilities / equity | ₩32,474 billion / ₩17,816 billion / ₩14,658 billion | At year-end 2017: ₩29,896 billion / ₩16,712 billion / ₩13,183 billion |
| Borrowings and net debt | ₩6,648 billion borrowings; ₩3,945 billion net debt after cash | ₩6,861 billion borrowings; ₩4,932 billion net debt in 2017 |
| Working capital | ₩2,764 billion surplus | ₩354 billion surplus in 2017 |
Revenue trends were mixed: media and content grew 13.1% to ₩3,182 billion, while mobile revenue fell 4.1% to ₩6,828 billion and fixed-line services fell 2.3% to ₩4,869 billion. Mobile subscribers increased 5.5% to 21.1 million, but average monthly revenue per subscriber declined from ₩34,444 to ₩32,021. IPTV subscribers rose to 7.9 million. The annual dividend was ₩1,100 per share, up from ₩1,000; shareholders approved the 2018 dividend in March 2019.
Material changes and accounting considerations
- Profit improved despite slightly lower reported revenue. Lower finance costs (₩436 billion versus ₩645 billion) contributed to the increase in pretax profit, alongside modest operating-profit growth.
- KT adopted IFRS 15 in 2018 using the modified retrospective method; prior-year figures were not restated for that standard. The company reported 2018 revenue of ₩23,436 billion and profit of ₩719 billion under IFRS 15. It estimated that under the prior revenue standard, 2018 revenue would have been ₩23,704 billion and profit ₩668 billion. Accordingly, reported year-over-year revenue comparisons are affected by the accounting change.
- KT also revised prior-period financial statements for omitted revenue data transfers from its billing system to its finance system. The filing says the errors were not material to prior annual periods individually, but reports cumulative adjustments to prior-period retained earnings and financial position.
- KT adopted IFRS 9 in 2018. It stated the initial adoption increased opening retained earnings by ₩24 billion, before the separate IFRS 15 adjustment.
Outlook, risks, and unusual items
- Management expected 2019 capital expenditure on property, plant, equipment, and investment property to increase from the 2018 level of ₩2,261 billion, subject to market conditions and the 5G build-out plan. The filing gives no quantified earnings or revenue guidance.
- KT launched commercial 5G services in April 2019 and planned gradual nationwide coverage expansion and higher speeds. Management cited potential additional spectrum, network, and marketing costs, with no assurance that new services will achieve returns sufficient to justify investment.
- 5G spectrum obligations are significant: the 2018 awards included 3.5 GHz and 28 GHz licenses with stated total payable amounts of ₩968 billion and ₩208 billion, respectively, payable over the specified license terms. KT reported ₩573 billion of bandwidth-license payments in 2018.
- In November 2018, a fire at a Seoul facility disrupted wireless, fixed-line, and IPTV services in seven districts. Most services were restored within four days and fixed-line public switched telephone services within 11 days. KT refunded affected subscribers and said it planned appropriate financial assistance for small businesses.
- Material risks include price and regulatory pressure, declining legacy fixed-line usage, foreign-exchange exposure, cybersecurity and service outages, and the cost and execution risks of 5G. Korean authorities were investigating matters involving alleged political donations, hiring, and consulting contracts; KT stated it had not been indicted in the described matters as of the filing. Litigation provisions were ₩59 billion; management said the ultimate outcomes were not expected to materially affect results, while noting uncertainty.
- IFRS 16 adoption was scheduled for 2019. KT estimated approximately ₩617 billion of lease assets and liabilities would be recognized at transition.
Most important facts for investors to verify
- Reconcile reported versus prior-standard 2018 results and assess comparability after IFRS 15 adoption and prior-period revisions.
- Track whether 5G spending, coverage, subscriber uptake, and revenue offset lower mobile ARPU and competitive pricing pressure.
- Review cash conversion, capital spending, spectrum payments, debt maturities, and the impact of IFRS 16 on reported leverage and cash-flow classification.
- Monitor the status and financial exposure of investigations, litigation, and the November 2018 service disruption.
- Confirm the approved dividend and distinguish the audited financial-statement figures from inconsistent summary figures elsewhere in the filing.