Annual Financial Report of Kt Corporation
Total Page：16
File Type：pdf, Size：1020Kb
ANNUAL FINANCIAL REPORT OF KT CORPORATION (From January 1, 2014 to December 31, 2014) Table of Contents I. HISTORY AND DEVELOPMENT OF THE COMPANY ............................................................ 3 II. BUSINESS OVERVIEW ........................................................................................................... 4 III. OPERATING AND FINANCIAL REVIEW AND PROSPECTS ............................................. 31 1. Operating Results ......................................................................................................... 31 2. Liquidity and Capital Resources ................................................................................... 55 3. Research and Development, Patents and Licenses, Etc. ............................................ 58 IV. DIRECTORS AND SENIOR MANAGEMENT AND EMPLOYEES ...................................... 59 V. QUANTITATIVE AND QUALITATIVE DISLOSURES ABOUT MARKET RISK .................. 67 VI. CORPORATE GOVERNANCE STATEMENT ..................................................................... 71 1. Corporate Governance ................................................................................................. 71 2. Controls and Procedures .............................................................................................. 73 3. Administrative, Management and Supervisory Bodies and Committees ...................... 75 VII. THE PRINCIPAL RISKS AND UNCERTAINTIES FACING THE COMPANY .................... 78 1. Risks Relating to Our Business .................................................................................... 78 2. Risks Relating to Korea ................................................................................................ 85 (EXHIBIT 99-1 : CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013 AND INDEPENDENT AUDITORS’ REPORT) 2 I. HISTORY AND DEVELOPMENT OF THE COMPANY In 1981, the Government established us under the Korea Telecom Act to operate the telecommunications services business that it previously directly operated. Under the Korea Telecom Act and the Government-Invested Enterprises Management Basic Act, the Government exercised substantial control over our business and affairs. Effective October 1, 1997, the Korea Telecom Act was repealed and the Government-Invested Enterprises Management Basic Act became inapplicable to us. As a result, we became a corporation under the Commercial Code, and our corporate organization and shareholders’ rights were governed by the Privatization Law and the Commercial Code. Among other things, we began to exercise greater autonomy in setting our annual budget and making investments in the telecommunications industry, and our shareholders began electing our directors, who had previously been appointed by the Government under the Korea Telecom Act. Prior to 1993, the Government owned all of the issued shares of our common stock. From 1993 through May 2002, the Government disposed of all of its equity interest in us, and the Privatization Law ceased to apply to us in August 2002. We amended our legal name from Korea Telecom Corp. to KT Corporation in March 2002. Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. The Government began to introduce competition in the telecommunications services market in the early 1990’s. As a result, including ourselves, there are currently three local telephone service providers, five domestic long-distance carriers and numerous international long- distance carriers (including voice resellers) in Korea. In addition, the Government awarded licenses to several service providers to promote competition in other telecommunications business areas such as mobile telephone services and data network services. In June 2009, KTF, a subsidiary providing mobile telephone services, merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. Our legal and commercial name is KT Corporation. Our principal executive offices are located at KT Gwanghwamun Building East, 33, Jong-ro 3-gil, Jongno-gu, 110-130, Seoul, Korea and our telephone number is (8231) 727-0114. 3 II. BUSINESS OVERVIEW We are the leading telecommunications service provider in Korea and one of the largest and most advanced in Asia. As an integrated telecommunications service provider, our principal services include: • mobile voice and data telecommunications services based on 3G W-CDMA technology and 4G LTE technology; • fixed-line services, which include: − telephone services, including local, domestic long-distance and international long-distance fixed- line and VoIP telephone services and interconnection services to other telecommunications companies; − broadband Internet access service and other Internet-related services, including IPTV services; and − data communication service, including leased line service and dedicated broadband internet connection service to institutional customers; • credit card processing and other financial services through KT Capital Co., Ltd. and BC Card Co., Ltd.; and • various other services, including satellite service and information technology, real estate business, satellite TV service, media contents business and network services such as cloud computing services. We also offered automobile rental services through KT Rental Co., Ltd. An agreement to sell KT Rental to the Lotte Group for approximately W1.02 trillion (with estimated proceeds to KT Corporation being approximately W772 billion) was entered into in March 2015, and the sale is expected to be completed in May 2015. Leveraging on our dominant position in the fixed-line telephone services market and our established customer base in Korea, we have successfully pursued new growth opportunities during the past decade and obtained strong market positions in each of our principal lines of business. In particular: • in the mobile services market in Korea, we achieved a market share of 30.3% with approximately 17.3 million subscribers as of December 31, 2014; • in the fixed-line telephone services market in Korea, we continue to be the dominant provider with approximately 23.9 million installed lines, of which 13.7 million lines were in service as of December 31, 2014. As of such date, our market share of the local market was 81.0% and our market share of the domestic long-distance market was 78.9%; • we are Korea’s largest broadband Internet access provider with 8.1 million subscribers as of December 31, 2014, representing a market share of 42.3%; and • we are also the leading provider of data communication services in Korea. For the year ended December 31, 2014, our operating revenues were W23,727 billion, our loss for the period was W941 billion and our basic loss per share was W4,215. As of December 31, 2014, our total assets were W33,799 billion, total liabilities were W22,012 billion and total equity was W11,788 billion. Business Strategy We believe the telecommunications market in Korea is nearing saturation, despite certain areas of growth remaining due to Korea’s growing economy, consumers’ willingness to adopt new technologies, relatively high income and a relatively large middle class. To maintain our competitiveness, we believe we need to pursue 4 growth in other areas, while maintaining our strength in existing businesses. In order to enhance the management efficiencies of our mobile and fixed-line telecommunications operations as well as more effectively respond to the convergence trends in the telecommunications industry, KTF merged into KT Corporation in June 2009, with KT Corporation surviving the merger. In 2014, we restructured our organization into five business groups, the Marketing Group, the Customer Group, the Enterprise Operations Group, the Global Business Group and the Future Convergence Business Group, so that we may achieve higher synergies, more effectively address differing needs of our customer segments, as well as strengthen our competitiveness and discover new growth opportunities. As part of our efforts to improve our operational efficiencies, we transferred all operations relating to fixed-line sales activities (including on-site sales, line activation, after service, and customer center operations) to our subsidiaries in 2014. We also established subsidiaries to oversee our satellite and real estate operations, and expanded the number of specialized employees for each business, to further strengthen such operations and to pursue strategic alliances with other global corporates. In May 2014, we announced our “GiGAtopia” corporate vision, which seeks to converge ultra-fast broadband services to our smartphone services, and launched our olleh GiGA Internet service, which provides transmission speed of up to 1 Gbps, in October 2014 (“olleh GiGA Internet Service”). We also seek to provide other services that converge information & communication technology with other fields such as energy, security, media, healthcare and transportation, utilizing our fixed-line and wireless infrastructure based on our olleh GiGA Internet Services and LTE mobile services. By promoting our convergence services, we aim to contribute in changing the current subsidy-based Korean telecommunication market competition to one based on innovative technology,