KT Corporation — FY2017 Form 20-F summary
Reporting period: Fiscal year ended December 31, 2017; filed April 30, 2018. This is an annual report, not a quarterly Q4 filing. Financial statements are consolidated and prepared under IFRS as issued by the IASB. Amounts below are in Korean won (KRW), generally billions, unless noted.
Business context and financial performance
KT is an integrated Korean telecommunications provider, with mobile, fixed-line, broadband, IPTV, data communications, credit-card processing, satellite and other businesses. Its core market is mature and intensely competitive; the company is pursuing convergence and platform services, including AI, security, IoT and 5G.
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Operating revenue | KRW 23,547bn | KRW 23,121bn | +1.8% |
| Operating profit | KRW 1,069bn | KRW 1,340bn | -20.2% |
| Operating margin | 4.5% | 5.8% | -1.3 percentage points |
| Profit for the year | KRW 546bn | KRW 795bn | -31.3% |
| Profit attributable to parent shareholders | KRW 462bn | KRW 708bn | Down |
| Basic earnings per share | KRW 1,884 | KRW 2,893 | Down |
| Net profit margin | 2.3% | 3.5% | -1.2 percentage points |
| Cash from operating activities | KRW 3,878bn | KRW 4,771bn | Down KRW 893bn |
Revenue growth was led by goods sales (+24.3%, principally handsets) and Internet services (+10.0%). Mobile service revenue fell 3.3%, mainly from lower average revenue per user and increased tariff discounts, despite subscriber growth. Fixed-line telephone revenue declined 10.7% as lines and usage continued to fall. Operating expenses increased 3.2%, driven in part by handset inventory purchases, sales commissions and service costs.
Other key indicators: mobile subscribers reached 20.0 million, up 5.9%; broadband subscribers were 8.8 million and IPTV subscribers 7.5 million. Average monthly mobile revenue per subscriber declined to KRW 34,444 from KRW 35,524. The reported 2017 dividend was KRW 1,000 per share, approved in March 2018.
Financial position, debt and liquidity
- Year-end cash and cash equivalents were KRW 1,928bn, down from KRW 2,900bn; total assets were KRW 29,745bn, liabilities KRW 16,696bn and equity KRW 13,049bn.
- Borrowings and debentures had a carrying value of KRW 6,684bn, down from KRW 8,121bn. KRW 2,062bn of debt was denominated in foreign currencies. Net debt was KRW 4,932bn and the reported gearing ratio was 27% (30% in 2016); debt-to-equity was 128%.
- Working capital was positive KRW 220bn, compared with KRW 193bn in 2016. The company reported commitments with financial institutions of KRW 2,881bn and US$254m, of which KRW 563bn and US$181m were used.
- Cash used in investing activities was KRW 3,483bn. Purchases of property, plant and investment property were KRW 2,442bn; intangible asset purchases were KRW 614bn. Cash used in financing was KRW 1,363bn, including KRW 1,780bn of debt repayments and KRW 243bn of dividends paid.
Outlook, risks and unusual items
- Investment and strategy: KT planned approximately KRW 2,300bn of 2018 capital expenditures, subject to market conditions and results, including network, enterprise and other investments. Management targeted 5G commercialization by the end of 2019, ahead of its original timetable; spectrum acquisition and network investment remain important execution and cost risks.
- Pricing and regulation: Government-mandated welfare discounts of KRW 11,000 per month began in December 2017 and covered about 0.8 million KT subscribers at year-end. A proposed KRW 20,000 “universal” mobile plan for the dominant carrier was still subject to legislation. Tariff pressure could weigh on sector economics.
- Accounting transition: KT expected IFRS 15 adoption in 2018 to reduce operating income and expenses and estimated a KRW 900–1,100bn adjustment to opening retained earnings. This is an accounting transition estimate, not a stated cash outflow.
- Foreign exchange and derivatives: Won appreciation generated a KRW 213bn foreign-currency translation gain in 2017, while derivative valuation losses rose to KRW 210bn. These largely offsetting, volatile effects affected reported finance results. A 10% adverse foreign-exchange sensitivity was estimated to reduce pre-tax income by KRW 10bn.
- Contingencies and investigations: KT faced 187 lawsuits with total claims of KRW 112.6bn and recorded litigation provisions of KRW 18.3bn; management did not expect the matters, in aggregate, to materially affect results, but outcomes were uncertain. The Koreasat-3 arbitration awarded ABS about US$0.75m plus about US$0.29m pre-award interest and 9% post-award interest; KT and KT SAT planned further challenges. The filing also described an ongoing police investigation into alleged political-funds violations by current and former employees; KT said it had not been charged in the related matters.
- Other material risks: Intense competition, possible renewed handset-subsidy competition, spectrum costs, personal-data breaches and related litigation, labor disputes, foreign-currency exposure, Korean economic and geopolitical conditions, and government regulation. KT disclosed past data breaches affecting millions of subscribers and continuing civil cases. The 2017 impairment charges included KRW 78bn of Satellite TV goodwill and impairment of indefinite-lived intangibles amid competition.
- Audit and controls: The auditor gave an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective as of year-end.
Investor verification priorities
- Reconcile 2017 operating and net-profit declines with handset sales costs, subscriber mix, pricing discounts and other recurring versus non-recurring expenses.
- Review the trajectory of operating cash flow, year-end cash, debt maturities and foreign-currency debt, alongside planned capital spending and 5G spectrum costs.
- Assess whether broadband, IPTV and convergence growth can offset mobile ARPU pressure and continuing fixed-line declines.
- Verify the final IFRS 15 opening-equity adjustment and subsequent reported revenue and expense effects.
- Track regulatory pricing proposals, litigation and data-breach cases, the political-funds investigation, and the Koreasat-3 arbitration outcome.