KT CORP annual report, Q4 FY2020

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KT Corporation — FY2020 Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2020; filed April 30, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements use IFRS as issued by the IASB; amounts below are Korean won (KRW), generally in billions unless stated otherwise.

Business context

KT is a Korea-based integrated telecommunications and platform company, with mobile, fixed-line, broadband, media and content, financial services, IT, and real-estate activities. Management described a strategy to develop digital platforms, including B2B, media, content, and financial services. The group reported four segments: ICT, finance, satellite TV, and others.

Financial performance and position

  • Revenue: Operating revenue was KRW 24,441 billion, down 1.8% from 2019. Operating expenses declined 1.9% to KRW 23,418 billion.
  • Profit and margins: Operating profit was KRW 1,022 billion, down 0.5%; operating margin was 4.2%, versus 4.1%. Profit for the year was KRW 746 billion, up 7.2%; net margin was 3.1%, versus 2.8%. Profit attributable to owners was KRW 701 billion; basic EPS was KRW 2,858.
  • Cash flow: Operating cash flow was KRW 4,740 billion, versus KRW 3,745 billion in 2019. Investing cash outflow was KRW 3,761 billion and financing cash outflow was KRW 648 billion. Cash and cash equivalents ended the year at KRW 2,635 billion.
  • Investment and capital spending: Cash acquisition of property, equipment, and investment property was KRW 3,208 billion. 2021 spending for these items was expected to be comparable to 2020 on a standalone basis, subject to market conditions, results, and 5G build-out plans.
  • Debt and liquidity: Borrowings and debentures had a book value of KRW 7,316 billion, including KRW 2,741 billion denominated in foreign currencies. Net debt was KRW 4,682 billion; gearing was 23%, down from 25%. Current assets of KRW 11,154 billion exceeded current liabilities of KRW 9,192 billion, leaving working capital of KRW 1,962 billion.
  • Other metrics: Total assets were KRW 33,663 billion, total liabilities KRW 18,111 billion, and total equity KRW 15,551 billion. Dividends of KRW 1,350 per share, totaling KRW 326 billion, were approved in March 2021 for FY2020. KT repurchased 4.55 million shares in November and December 2020.

Material changes versus 2019

  • Mobile revenue was nearly flat at KRW 6,805 billion; subscribers rose 1.7% to 22.3 million, including 3.6 million 5G subscribers, while average monthly revenue per subscriber increased slightly to KRW 31,683.
  • Broadband revenue rose 3.6% to KRW 2,256 billion, and media and content revenue increased 4.8% to KRW 2,638 billion. IPTV subscribers increased to approximately 8.8 million.
  • Fixed-line and VoIP telephone revenue fell 7.3% to KRW 1,464 billion as lines in service declined. Financial services revenue fell 4.1% to KRW 3,494 billion, reflecting reduced card usage during the pandemic.
  • Sales-of-goods revenue fell 14.3% to KRW 3,593 billion, mainly from lower handset and real-estate sales. Other revenue increased 6.9% to KRW 3,084 billion, including growth in IT and network services.
  • Operating cash flow improved, while cash investment outflow remained substantial. Year-end cash rose from KRW 2,306 billion to KRW 2,635 billion, and net debt declined.

Outlook, risks, contingencies, and unusual items

  • Outlook and investment: KT planned further nationwide 5G coverage and speed improvements, continued fiber upgrades, and expansion of digital, cloud, and enterprise services. No quantified revenue or earnings guidance was provided. Management cautioned that competition and technology investment could require significant spending.
  • Acquisitions: KT Skylife proposed acquiring Hyundai HCN for KRW 491 billion; regulatory approval was pending, with completion expected in the second half of 2021. KT also planned to merge KTH and KT mhows, targeting completion by July 2021.
  • COVID-19: The pandemic reduced roaming, card usage, handset sales, and real-estate sales. KT said it could not estimate the outbreak’s duration or full impact; further effects could include customer payment stress, service or supply disruptions, and higher imported-equipment costs.
  • Impairment and market volatility: KT recorded a KRW 191 billion impairment on its 28 GHz spectrum license. Foreign-exchange and derivative valuation movements were significant: 2020 included a KRW 138 billion net foreign-currency translation gain but a KRW 164 billion loss on derivative valuation.
  • Legal and regulatory exposure: The filing reports 195 lawsuits with claims totaling KRW 110.4 billion and litigation provisions of KRW 76.5 billion. Separate public-bidding collusion proceedings and government damage claims remain relevant. KT also said it was cooperating with an SEC investigation concerning FCPA compliance; the outcome and potential costs were uncertain. The filing describes historical political-donation and hiring matters and states that no charges were brought against KT or its current executives in the specified cases.
  • Other risks: Intense competition, 5G marketing and capital requirements, bandwidth renewal and usage costs, extensive Korean regulation, cybersecurity and service outages, labor relations, foreign-currency debt, and Korean economic and geopolitical conditions may affect results.
  • Audit and accounting: The auditor issued an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective. The audit identified ICT cash-generating-unit impairment testing as a critical audit matter. KT retrospectively adjusted 2019 for a lease-term accounting change; comparability should account for that change.

Most important facts for investors to verify

  • Whether core service revenue and cash generation can offset declining fixed-line usage and pandemic-sensitive financial, handset, and real-estate revenue.
  • Actual 2021 5G and other capital spending versus the stated expectation that property and equipment investment would be comparable to 2020 standalone spending.
  • Regulatory approval, final price, and integration economics for the HCN acquisition, and progress on the KTH–KT mhows merger.
  • Developments in the SEC investigation, bidding-related proceedings, and other litigation, including any change in provisions or potential financial exposure.
  • Whether spectrum renewal terms, 5G network returns, and any further spectrum impairment alter expected investment needs or profitability.
  • Debt maturity and foreign-currency exposure, derivative-related volatility, and whether the reported liquidity position remains adequate after planned investment and shareholder distributions.