Bloomberg News

KT Corp Fourth-Quarter Profit Rises, Helped by One-Time Gain

February 07, 2012

(Updates with closing share price in the sixth paragraph.)

Feb. 6 (Bloomberg) -- KT Corp., South Korea’s largest phone and Internet company, reported a 13 percent increase in fourth- quarter profit as a one-time gain masked higher costs and falling sales from phone calls.

Net income rose to 210.6 billion won ($188 million) from a revised 187.1 billion won a year earlier, the Seongnam, South Korea-based company said in a statement today. The result compares with the 211.3 billion won average of 14 analyst estimates compiled by Bloomberg.

KT booked a one-time gain of 295.8 billion won from selling real estate, offsetting a 28 percent increase in operational costs and lower revenue from both mobile and fixed-lined calls, it said. The carrier joined local competitors SK Telecom Co. and LG Uplus Corp. in reporting earnings that were eroded by government-initiated tariff cuts and competition to lure subscribers.

“Even if you factor in seasonality, it’s pretty bad earnings,” Kim Hue Jae, a Seoul-based analyst at Daishin Securities Co., said by telephone. “The tariff cuts are affecting all three carriers. On top of that, what’s making things worse for KT is falling revenue from the fixed-line business. It’s hard to expect a dramatic improvement in KT’s earnings this year.”

Operating profit, or sales excluding the cost of goods sold and administrative expenses, fell 17 percent to 287.6 billion won. Sales increased 25 percent to 6.4 trillion won.

Mobile-Phone Calls

KT fell 0.6 percent to 33,500 won at the close of trading in Seoul, while the benchmark Kospi index was little changed.

The figures released today, including year-earlier results, were based on the International Financial Reporting Standards that the company began to use in 2011.

Revenue from mobile-phone calls fell 25 percent after KT began to lower telephone bills in October to help the government curb inflation, even as the number of smartphone users more than doubled, the company said. Sales from the fixed-line business declined 11 percent.

KT began in October to cut basic mobile-phone fees by 1,000 won and offer 50 free text messages, a month after SK Telecom started offering similar discounts under an agreement with the government. SK Telecom reported a 61 percent decline in fourth- quarter profit last week.

Marketing Costs

Marketing costs rose 14.5 percent as the carrier increased spending on promotions to avoid losing subscribers to rivals that began fourth-generation services earlier. The company spent an additional 110 billion won to switch its second-generation networks to 4G service using the long-term evolution, or LTE, technology, KT said.

SK Telecom and LG Uplus began LTE services in Seoul in July, and KT followed last month after a court blocked its plan to use its 2G networks for the next-generation service.

The number of SK Telecom LTE users surpassed 1 million on Jan. 31, the company said on the day.

KT aims for 20 trillion won in revenue in 2012, compared with 22 trillion won last year, the company said. The carrier plans to spend 3.5 trillion won this year, after 3.3 trillion won of capital expenditure in 2011.

--Editors: Suresh Seshadri, Anand Krishnamoorthy.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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