KT Corporation — FY2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; filed April 29, 2020. This is an annual report, not a standalone 2019 fourth-quarter filing, so Q4 results cannot be isolated from the supplied filing text. Financial statements are audited and prepared under IFRS as issued by the IASB; amounts below are in Korean won (KRW).
Business context
KT is a South Korean integrated telecommunications provider, with mobile, fixed-line, broadband, media and content, financial services (primarily BC Card), IT, real estate and handset sales businesses. At year-end, it reported about 21.9 million mobile subscribers, 9.0 million broadband subscribers and 8.4 million IPTV subscribers. Commercial 5G service launched in April 2019.
Key financial metrics
| Metric (KRW billions, except per-share data) | 2018 | 2019 | Change |
|---|---|---|---|
| Operating revenue | 23,436 | 24,899 | +6.2% |
| Operating expenses | 22,335 | 23,879 | +6.9% |
| Operating profit | 1,101 | 1,020 | -7.3% |
| Operating margin | 4.7% | 4.1% | -0.6 percentage points |
| Profit for the year | 719 | 699 | -2.8% |
| Profit attributable to parent owners | 646 | 649 | +0.5% |
| Basic EPS (KRW) | 2,634 | 2,648 | +0.5% |
| Operating cash flow | 4,010 | 3,745 | -6.6% |
| Cash used in investing activities | (2,704) | (3,887) | Greater outflow |
| Cash used in financing activities | (532) | (250) | Smaller outflow |
Cash and cash equivalents were KRW 2,306 billion at year-end, down from KRW 2,703 billion. Cash purchases of property, equipment and investment property were KRW 3,263 billion; operating cash flow less these purchases was approximately KRW 482 billion negative, before other investing items.
Total assets were KRW 34,153 billion, total liabilities KRW 19,009 billion and total equity KRW 15,144 billion. Borrowings and debentures totaled KRW 7,299 billion, including KRW 1,186 billion current and KRW 6,113 billion non-current. Net debt, using reported cash, was about KRW 4,993 billion. Current assets of KRW 11,977 billion exceeded current liabilities of KRW 10,111 billion by KRW 1,865 billion. The reported debt-to-equity ratio was 126%; gearing was 25%.
The annual dividend was KRW 1,100 per share, unchanged from 2018. The filing states that the 2019 dividend was approved at the March 30, 2020 shareholders’ meeting.
Material changes versus 2018
- Revenue growth was led by handset sales (+27.5%), media and content (+11.2%), financial services (+5.7%) and other businesses (+5.2%). Fixed-line and VoIP telephone revenue fell 7.6%; mobile revenue declined 0.5%.
- Mobile subscriber numbers rose 3.8% to 21.9 million, including 1.4 million 5G users, but average monthly revenue per subscriber fell from KRW 32,021 to KRW 31,625. Management cited subscription discounts, lower-cost second-device plans and a revenue presentation change, partly offset by higher-priced 5G plans.
- Operating expenses grew faster than revenue. Sales commissions rose 19.2%, mainly due to 5G subscriber acquisition; salaries and wages rose 3.3%. Operating profit and margin declined.
- Operating cash flow decreased while cash investment in property, equipment and investment property increased. Investing outflow reached KRW 3,887 billion, and cash declined by KRW 398 billion during the year.
- Net debt rose from KRW 3,945 billion to KRW 4,993 billion, as borrowings increased and cash fell.
Outlook, commentary, risks and unusual items
- Investment outlook: KT expected 2020 capital expenditure for property, plant, equipment and investment property of about KRW 3.1 trillion on a standalone basis, versus KRW 3.3 trillion consolidated in 2019. Actual spending remained subject to market conditions, results and 5G build-out plans. Management expected capital expenditure and contractual commitments to remain significant funding uses.
- COVID-19: The filing, prepared in April 2020, says KT could not estimate the pandemic’s duration or full financial impact. It identified possible operational disruption, demand and payment pressure, capacity constraints, supply interruptions and currency-related equipment cost increases. Remote work had been introduced for some employees; management said it had not then caused a material adverse impact.
- Competition and regulation: 5G rollout intensified competition and increased marketing and network investment needs. Competitors’ cable-TV acquisitions and global OTT services could add pressure. Regulation and rate discounts may constrain pricing; mobile ARPU has declined in recent years. KT and KT Skylife together held 31.6% of Korean pay-TV subscribers, near the stated one-third regulatory limit.
- Legal and compliance matters: KT disclosed continuing Korean investigations and SEC inquiries concerning allegations related to political donations, hiring and other matters, including FCPA compliance. Outcomes, timing and potential costs were uncertain. It also disclosed a KRW 5.7 billion competition penalty and a six-month restriction on certain public-institution bids from January to July 2020, plus other handset-sales penalties. An Enspert damages case was on appeal after a 2020 lower-court award of about KRW 6.7 billion. Litigation provisions were KRW 62.2 billion in the audited notes; another section describes provisions as approximately KRW 64 billion.
- Accounting and impairment: IFRS 16 was adopted in 2019, adding KRW 788 billion of year-end right-of-use assets and KRW 729 billion of lease liabilities; it also shifted expense presentation from rent to depreciation and interest. 2018 comparatives were not restated. KT recorded a KRW 38.5 billion impairment related to a KT Skylife group cash-generating unit and KRW 61.9 billion of total intangible-asset impairment in 2019.
- Foreign exchange: KRW 2,781 billion of KRW 7,299 billion borrowings and debentures was foreign-currency denominated. KT reported that a 10% exchange-rate increase would reduce 2019 pre-tax income by KRW 51.6 billion, assuming other variables constant.
- Dividend and operating context: Dividend per share remained KRW 1,100. The filing also cites prior service outages from a 2018 facility fire and past cybersecurity incidents as risks, alongside bandwidth, network reliability, pension and labor exposures.
Important facts for investors to verify
- Use the audited consolidated statements’ 2019 operating revenue of KRW 24,899 billion: one business-overview passage states KRW 24,889 billion, an apparent inconsistency.
- Review whether 5G subscriber growth and planned coverage expansion can offset lower mobile ARPU, rising acquisition costs and fixed-line declines.
- Reconcile cash conversion and investment needs, including KRW 3,263 billion of 2019 property and investment-property purchases, 2020 standalone capex expectations and the maturity schedule for debt and lease obligations.
- Track the status and potential financial or reputational consequences of the SEC and Korean investigations, litigation and public-bidding restriction.
- Assess COVID-19 effects, foreign-currency exposure and the comparability of reported expenses after IFRS 16 adoption; review the filing’s stated litigation-provision range and revenue discrepancy.