SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 2020

Commission File Number 1-14926

 

 

KT Corporation

(Translation of registrant’s name into English)

 

 

90, Buljeong-ro,

Bundang-gu, Seongnam-si,

Gyeonggi-do,

Korea

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F   ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

    Yes  ☐            No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: May 29, 2020
KT Corporation
By:  

/s/ Seunghoon Chi

Name:   Seunghoon Chi
Title:   Vice President
By:  

/s/ Youngkyoon Yun

Name:   Youngkyoon Yun
Title:   Director


KT Corporation and Subsidiaries

Consolidated Interim Financial Statements

March 31, 2020 and 2019


KT Corporation and Subsidiaries

Index

March 31, 2020 and 2019

 

 

     Page(s)  

Report on Review of Interim Financial Statements

     1–2  

Consolidated Interim Financial Statements

  

Consolidated Interim Statements of Financial Position

     3– 4  

Consolidated Interim Statements of Profit or Loss

     5  

Consolidated Interim Statements of Comprehensive Income

     6  

Consolidated Interim Statements of Changes in Equity

     7  

Consolidated Interim Statements of Cash Flows

     8  

Notes to the Consolidated Interim Financial Statements

     9 – 52  


  

Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of

KT Corporation

Reviewed Financial Statements

We have reviewed the accompanying consolidated interim financial statements of KT Corporation and its subsidiaries (collectively referred to as the “Group”). These financial statements consist of the consolidated interim statement of financial position of the Group as at March 31, 2020, and the related consolidated interim statements of profit or loss, comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2020 and 2019, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to issue a report on these consolidated interim financial statements based on our review.

We conducted our review in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe the accompanying consolidated interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting.

Samil PricewaterhouseCoopers, 100 Hangang-daero, Yongsan-gu, Seoul 04386, Korea, WWW.samil.com


Other Matters

We have audited the consolidated statement of financial position of the Group as at December 31, 2019, and the related consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 10, 2020. The consolidated statement of financial position as at December 31, 2019, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as at December 31, 2019.

Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries.

 

 

May 15, 2020

Seoul, Korea

 

This report is effective as of May 15, 2020, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

2


KT Corporation and Subsidiaries

Consolidated Interim Statements of Financial Position    

March 31, 2020 and December 31, 2019

 

 

(in millions of Korean won)    Notes      March 31, 2020
(Unaudited)
     December 31, 2019  

Assets

        

Current assets

        

Cash and cash equivalents

     4      W 1,627,056      W 2,305,894  

Trade and other receivables, net

     4,5        5,510,047        5,906,445  

Other financial assets

     4,6        989,566        868,388  

Current tax assets

        2,054        68,120  

Inventories, net

     7        634,658        665,498  

Current assets held for sale

     9        82,992        83,602  

Other current assets

     8        2,040,786        2,000,308  
     

 

 

    

 

 

 

Total current assets

        10,887,159        11,898,255  
     

 

 

    

 

 

 

Non-current assets

        

Trade and other receivables, net

     4,5        1,074,424        1,181,797  

Other financial assets

     4,6        849,172        821,658  

Property and equipment, net

     10        13,497,432        13,785,299  

Right-of-use assets

     17        760,146        788,497  

Investment properties, net

     10        1,483,976        1,387,430  

Intangible assets, net

     10        2,716,246        2,834,037  

Investments in associates and joint ventures

     11        273,567        267,660  

Deferred tax assets

        411,301        411,171  

Other non-current assets

     8        677,531        685,488  
     

 

 

    

 

 

 

Total non-current assets

        21,743,795        22,163,037  
     

 

 

    

 

 

 

Total assets

      W 32,630,954      W 34,061,292  
     

 

 

    

 

 

 

 

3


KT Corporation and Subsidiaries

Consolidated Interim Statements of Financial Position    

March 31, 2020 and December 31, 2019

 

 

(in millions of Korean won)    Notes    March 31, 2020
(Unaudited)
    December 31, 2019  

Liabilities

       

Current liabilities

       

Trade and other payables

   4,12    W 6,524,084     W 7,597,478  

Borrowings

   4,13      1,271,262       1,185,725  

Other financial liabilities

   4,6      1,646       943  

Current tax liabilities

        122,426       66,266  

Provisions

   14      158,269       175,612  

Deferred income

        48,699       53,474  

Other current liabilities

   8      1,045,128       1,031,958  
     

 

 

   

 

 

 

Total current liabilities

        9,171,514       10,111,456  
     

 

 

   

 

 

 

Non-current liabilities

       

Trade and other payables

   4,12      801,655       1,082,219  

Borrowings

   4,13      6,015,635       6,113,142  

Other financial liabilities

   4,6      139,578       149,136  

Net defined benefit liabilities

   15      416,358       365,663  

Provisions

   14      98,975       78,549  

Deferred income

   20      99,675       99,180  

Deferred tax liabilities

        386,768       425,468  

Other non-current liabilities

   8      429,225       449,526  
     

 

 

   

 

 

 

Total non-current liabilities

        8,387,869       8,762,883  
     

 

 

   

 

 

 

Total liabilities

        17,559,383       18,874,339  
     

 

 

   

 

 

 

Equity attribute to owners of the Controlling Company

       

Share capital

        1,564,499       1,564,499  

Share premium

        1,440,258       1,440,258  

Retained earnings

   18      11,575,064       11,637,185  

Accumulated other comprehensive income

        147,959       194,934  

Other components of equity

   19      (1,159,537     (1,170,083
     

 

 

   

 

 

 
        13,568,243       13,666,793  

Non-controlling interests

        1,503,328       1,520,160  
     

 

 

   

 

 

 

Total equity

        15,071,571       15,186,953  
     

 

 

   

 

 

 

Total liabilities and equity

      W 32,630,954     W 34,061,292  
     

 

 

   

 

 

 

The above consolidated interim statements of financial position should be read in conjunction with the accompanying notes.

 

4


KT Corporation and Subsidiaries

Consolidated Interim Statements of Profit or Loss

Three-Month Periods Ended March 31, 2020 and 2019

 

 

          Three-Month Period Ended March 31  
(in millions of Korean won, except per share amounts)    Notes    2020
(Unaudited)
    2019
(Unaudited)
 

Operating revenue

   20    W 5,831,716     W 5,834,377  

Operating expenses

   21      5,448,638       5,432,287  
     

 

 

   

 

 

 

Operating profit

        383,078       402,090  

Other income

   22      48,857       64,069  

Other expenses

   22      58,993       63,590  

Finance income

   23      241,648       117,401  

Finance costs

   23      243,955       122,908  

Share of net profits (losses) of associates and joint ventures

   11      (3,453     659  
     

 

 

   

 

 

 

Profit before income tax expense

        367,182       397,721  

Income tax expense

        140,596       137,951  
     

 

 

   

 

 

 

Profit for the period

      W 226,586     W 259,770  
     

 

 

   

 

 

 

Profit for the period attributable to:

       

Owners of the Controlling Company:

      W 208,315     W 231,090  

Non-controlling interest:

        18,271       28,680  

Earnings per share attributable to the equity holders of the Controlling Company during the period (in Korean won):

   25     

Basic earnings per share

      W 849     W 943  

Diluted earnings per share

        849       943  

The above consolidated interim statements of profit or loss should be read in conjunction with the accompanying notes.

 

5


KT Corporation and Subsidiaries

Consolidated Interim Statements of Comprehensive Income

Three-Month Periods Ended March 31, 2020 and 2019

 

 

            Three-Month Period Ended March 31  
(in millions of Korean won)    Notes      2020
(Unaudited)
    2019
(Unaudited)
 

Profit for the period

      W 226,586     W 259,770  
     

 

 

   

 

 

 

Other comprehensive income

       

Items that will not be reclassified to profit or loss:

       

Remeasurements of the net defined benefit liabilities

     15        (573     (226

Share of remeasurement gain of associates and joint ventures

        840       661  

Gain (loss) on valuation of equity instruments at fair value through other comprehensive income

     6        (52,003     51,849  

Items that may be subsequently reclassified to profit or loss:

       

Valuation gain on cash flow hedges

     6        95,558       34,936  

Other comprehensive income from cash flow hedges reclassified to profit or loss

        (110,029     (27,260

Share of other comprehensive income from associates and joint ventures

        (131     (932

Exchange differences on translation of foreign operations

        2,047       1,775  
     

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

        (64,291     60,803  
     

 

 

   

 

 

 

Total comprehensive income for the period

      W 162,295     W 320,573  
     

 

 

   

 

 

 

Total comprehensive income for the period attributable to:

       

Owners of the Controlling Company

      W 162,360     W 275,115  

Non-controlling interests

        (65     45,458  

The above consolidated interim statements of comprehensive income should be read in conjunction with the accompanying notes.

 

6


KT Corporation and Subsidiaries                 

Consolidated Interim Statements of Changes in Equity     

Three-Month Periods Ended March 31, 2020 and 2019

 

 

        Attributable to owners of the Controlling Company              
(in millions of Korean won)   Notes   Share
capital
    Share
premium
    Retained
earnings
    Accumulated
other comprehensive
income
   

Other
components

of equity

    Total     Non-controlling
interest
   

Total

equity

 

Balance as at January 1, 2019

    W 1,564,499     W 1,440,258     W 11,328,859     W 50,158     W (1,181,083   W 13,202,691     W 1,528,589     W 14,731,280  

Changes in accounting policies

      —         —         (6,149     —         —         (6,149     —         (6,149

Comprehensive income

                 

Profit for the period

      —         —         231,090       —         —         231,090       28,680       259,770  

Remeasurements of net defined benefit liabilities

  15     —         —         (117     —         —         (117     (109     (226

Valuation gain on cash flow hedge

  6     —         —         —         7,676       —         7,676       —         7,676  

Share of other comprehensive income of associates and joint ventures

      —         —         —         (484     —         (484     (448     (932

Share of gain on remeasurements of associates and joint ventures

      —         —         648       —         —         648       13       661  

Gain on valuation of financial instruments at fair value through other comprehensive income

      —         —         —         34,461       —         34,461       17,388       51,849  

Exchange differences on translation of foreign operations

      —         —         —         1,841       —         1,841       (66     1,775  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

      —         —         231,621       43,494       —         275,115       45,458       320,573  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners

                 

Dividends paid by the Controlling Company

      —               (269,659     —         —         (269,659     —         (269,659

Dividends paid to non-controlling interest of subsidiaries

      —         —         —         —         —         —         (35,500     (35,500

Appropriations of loss on disposal of treasury stock

      —               (15,169     —         15,169       —         —         —    

Change in ownership interest in subsidiaries

      —               —         —         436       436       (3,974     (3,538

Others

      —               —         —         1,530       1,530       (62     1,468  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

      —         —         (284,828     —         17,135       (267,693     (39,536     (307,229
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2019 (Unaudited)

    W 1,564,499     W 1,440,258     W 11,269,503     W 93,652     W (1,163,948   W 13,203,964     W 1,534,511     W 14,738,475  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

7


KT Corporation and Subsidiaries                 

Consolidated Interim Statements of Changes in Equity     

Three-Month Periods Ended March 31, 2020 and 2019

 

 

        Attributable to owners of the Controlling Company              
(in millions of Korean won)   Notes   Share
capital
    Share
premium
    Retained
earnings
    Accumulated
other comprehensive
income
   

Other
components

of equity

    Total     Non-controlling
interest
    Total equity  

Balance as at January 1, 2020

    W 1,564,499     W 1,440,258     W 11,637,185     W 194,934     W (1,170,083   W 13,666,793     W 1,520,160     W 15,186,953  

Comprehensive income

                 

Profit for the period

      —         —         208,315       —         —         208,315       18,271       226,586  

Remeasurements of net defined benefit liabilities

  15     —         —         180       —         —         180       (753     (573

Valuation loss on cash flow hedges

  6     —         —         —         (14,370     —         (14,370     (101     (14,471

Share of other comprehensive income of associates and joint ventures

      —         —         —         (161     —         (161     30       (131

Share of gain on remeasurements of associates and joint ventures

      —         —         840       —         —         840       —         840  

Gain on valuation of financial instruments at fair value through other comprehensive income

      —         —         —         (34,732     —         (34,732     (17,271     (52,003

Exchange differences on translation of foreign operations

      —         —         —         2,288       —         2,288       (241     2,047  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

      —         —         209,335       (46,975     —         162,360       (65     162,295  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners

                 

Dividends paid by the Controlling Company

      —         —         (269,766     —         —         (269,766     —         (269,766

Dividends paid to non-controlling interests of subsidiaries

      —         —         —         —         —         —         (40,753     (40,753

Appropriations of loss on disposal of treasury stock

      —         —         (1,690     —         1,690       —         —         —    

Change in ownership interest in subsidiaries

      —         —         —         —         7,257       7,257       23,986       31,243  

Others

      —         —         —         —         1,599       1,599       —         1,599  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

      —         —         (271,456     —         10,546       (260,910     (16,767     (277,677
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2020 (Unaudited)

    W 1,564,499     W 1,440,258     W 11,575,064     W 147,959     W (1,159,537   W 13,568,243     W 1,503,328     W 15,071,571  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The above consolidated interim statements of changes in equity should be read in conjunction with the accompanying notes.

 

8


KT Corporation and Subsidiaries

Consolidated Interim Statements of Cash Flows

Three-Month Periods Ended March 31, 2020 and 2019

 

 

            Three-Month Period Ended March 31  
(in millions of Korean won)    Notes      2020
(Unaudited)
    2019
(Unaudited)
 

Cash flows from operating activities

       

Cash generated from operations

     26      W 952,724     W 1,113,201  

Interest paid

        (69,684     (68,971

Interest received

        62,969       70,041  

Dividends received

        3,188       10,473  

Income tax paid

        (24,887     (33,924
     

 

 

   

 

 

 

Net cash inflow from operating activities

        924,310       1,090,820  
     

 

 

   

 

 

 

Cash flows from investing activities

       

Collection of loans

        15,799       14,722  

Disposal of financial assets at fair value through profit or loss

        139,930       283,882  

Disposal of financial assets at amortized cost

        67,417       126,779  

Disposal of assets held-for-sale

        342       27,947  

Disposal of investments in associates and joint ventures

        109       8,474  

Disposal of property and equipment and investment properties

        9,559       9,435  

Disposal of intangible assets

        2,253       479  

Disposal of right-of-use assets

        153       2,058  

Discontinued operations

        —         2,000  

Loans granted

        (10,367     (12,637

Acquisition of financial assets at fair value through profit or loss

        (203,072     (301,439

Acquisition of financial assets at amortized cost

        (122,579     (126,270

Acquisition of investments in associates and joint ventures

        (4,305     (4,812

Acquisition of property and equipment and investment properties

        (894,773     (676,697

Acquisition of intangible assets

        (373,895     (388,564

Acquisition of right-of-use assets

        (1,479     (2,433
     

 

 

   

 

 

 

Net cash outflow from investing activities

        (1,374,908     (1,037,076
     

 

 

   

 

 

 

 

9


KT Corporation and Subsidiaries

Consolidated Interim Statements of Cash Flows

Three-Month Periods Ended March 31, 2020 and 2019

 

 

            Three-Month Period Ended March 31  
(in millions of Korean won)    Notes      2020     2019  

Cash flows from financing activities

       

Proceeds from borrowings

        199,035       570,750  

Cash inflow from consolidated capital transactions

        31,475       —    

Cash inflow from other financing activities

        614       18,995  

Repayments of borrowings

        (372,841     (470,892

Decrease in finance lease liabilities

        (87,054     (108,252

Cash outflow from consolidated capital transactions

        (101     (3,538
     

 

 

   

 

 

 

Net cash inflow (outflow) from financing activities

        (228,872     7,063  
     

 

 

   

 

 

 

Effect of exchange rate change on cash and cash equivalents

 

     632       722  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

        (678,838     61,529  

Cash and cash equivalents

       

Beginning of the period

        2,305,894       2,703,422  
     

 

 

   

 

 

 

End of the period

      W 1,627,056     W 2,764,951  
     

 

 

   

 

 

 

The above consolidated interim statements of cash flows should be read in conjunction with the accompanying notes.

 

10


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

1.

General Information

The consolidated financial statements include the accounts of KT Corporation, which is the controlling company as defined under Korean IFRS 1110 Consolidated Financial Statements, and its 65 controlled subsidiaries as described in Note 1.2 (collectively referred to as the “Group”).

 

  1.1

The Controlling Company

KT Corporation (the “Controlling Company”) commenced operations on January 1, 1982, when it spun off from the Korea Communications Commission (formerly the Korean Ministry of Information and Communications) to provide telephone services and to engage in the development of advanced communications services under the Act of Telecommunications of Korea. The headquarters are located in Seongnam City, Gyeonggi Province, Republic of Korea, and the address of its registered head office is 90, Buljeong-ro, Bundang-gu, Seongnam City, Gyeonggi Province.

On October 1, 1997, upon the announcement of the Government-Investment Enterprises Management Basic Act and the Privatization Law, the Controlling Company became a government-funded institution under the Commercial Code of Korea.

On December 23, 1998, the Controlling Company’s shares were listed on the Korea Stock Exchange.

On May 29, 1999, the Controlling Company issued 24,282,195 additional shares and issued American Depository Shares (ADS), which represents new shares and 20,813,311 government-owned shares, on the New York Stock Exchange. On July 2, 2001, the additional ADS representing 55,502,161 government-owned shares were issued at the New York Stock Exchange.

In 2002, the Controlling Company acquired the entire government-owned shares in accordance with the Korean government’s privatization plan. As at March 31, 2020, the Korean government does not own any shares in the Controlling Company.

 

  1.2

Consolidated Subsidiaries

The consolidated subsidiaries as at March 31, 2020 and December 31, 2019, are as follows:

 

               Controlling percentage
ownership1 (%)
      
Subsidiary    Type of business    Location    March 31,
2020
     December 31,
2019
     Closing
month

KT Powertel Co., Ltd. 2

   Trunk radio system business    Korea      44.8      44.8    December

KT Linkus Co., Ltd.

   Public telephone maintenance    Korea      92.4      92.4    December

KT Submarine Co., Ltd. 2,4

   Submarine cable construction and maintenance    Korea      39.3      39.3    December

KT Telecop Co., Ltd.

   Security service    Korea      86.8      86.8    December

KT Hitel Co., Ltd.

   Data communication    Korea      67.1      67.1    December

KT Service Bukbu Co., Ltd.

   Opening services of fixed line    Korea      67.3      67.3    December

KT Service Nambu Co., Ltd.

   Opening services of fixed line    Korea      77.3      77.3    December

KT Commerce Inc.

   B2C, B2B service    Korea      100.0      100.0    December

 

11


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

               Controlling percentage
ownership1 (%)
      
Subsidiary    Type of business    Location    March 31,
2020
     December 31,
2019
     Closing
month

KT Strategic Investment Fund No.2

   Investment fund    Korea      100.0      100.0    December

KT Strategic Investment Fund No.3

   Investment fund    Korea      100.0      100.0    December

KT Strategic Investment Fund No.4

   Investment fund    Korea      100.0      100.0    December

KT Strategic Investment Fund No.5

   Investment fund    Korea      100.0      100.0    December

BC-VP Strategic Investment Fund No.1

   Investment fund    Korea      100.0      100.0    December

BC Card Co., Ltd.

   Credit card business    Korea      69.5      69.5    December

VP Inc.

   Payment security service for credit card, others    Korea      50.9      50.9    December

H&C Network

   Call centre for financial sectors    Korea      100.0      100.0    December

BC Card China Co., Ltd.

   Software development and data processing    China      100.0      100.0    December

INITECH Co., Ltd. 4

   Internet banking ASP and security solutions    Korea      58.2      58.2    December

Smartro Co., Ltd.

   VAN (Value Added Network) business    Korea      64.5      64.5    December

KTDS Co., Ltd. 4

   System integration and maintenance    Korea      95.5      95.5    December

KT M Hows Co., Ltd.

   Mobile marketing    Korea      90.0      90.0    December

KT M&S Co., Ltd.

   PCS distribution    Korea      100.0      100.0    December

GENIE Music Corporation (KT Music Corporation) 2,4

   Online music production and distribution    Korea      36.2      36.0    December

KT MOS Bukbu Co., Ltd. 4

   Telecommunication facility maintenance    Korea      100.0      100.0    December

KT MOS Nambu Co., Ltd. 4

   Telecommunication facility maintenance    Korea      98.4      98.4    December

KT Skylife Co., Ltd. 4

   Satellite broadcasting business    Korea      50.3      50.3    December

Skylife TV Co., Ltd.

   TV contents provider    Korea      92.6      92.6    December

KT Estate Inc.

   Residential building development and supply    Korea      100.0      100.0    December

KT AMC Co., Ltd.

   Asset management and consulting services    Korea      100.0      100.0    December

NEXR Co., Ltd.

   Cloud system implementation    Korea      100.0      100.0    December

KTGDH Co., Ltd. (KTSB Data Service Co., Ltd.)

   Data centre development and related service    Korea      100.0      100.0    December

KT Sat Co., Ltd.

   Satellite communication business    Korea      100.0      100.0    December

Nasmedia, Inc.3,4

   Solution provider and IPTV advertisement sales business    Korea      44.0      44.0    December

KT Sports Co., Ltd.

   Management of sports group    Korea      100.0      100.0    December

KT Music Contents Fund No.1

   Music contents investment business    Korea      80.0      80.0    December

KT Music Contents Fund No.2

   Music contents investment business    Korea      100.0      100.0    December

KT-Michigan Global Content Fund

   Content investment business    Korea      88.6      88.6    December

Autopion Co., Ltd.

   Information and communication service    Korea      100.0      100.0    December

KTCS Corporation 2,4

   Database and online information provider    Korea      30.9      30.9    December

KTIS Corporation 2,4

   Database and online information provider    Korea      30.1      30.1    December

KT M Mobile

   Special category telecommunications operator and sales of communication device    Korea      100.0      100.0    December

KT Investment Co., Ltd.

   Technology business finance    Korea      100.0      100.0    December

Whowho&Company Co., Ltd.

   Software development and supply    Korea      100.0      100.0    December

 

12


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

               Controlling percentage
ownership1 (%)
      
Subsidiary    Type of business    Location    March 31,
2020
     December 31,
2019
     Closing
month

PlayD Co., Ltd.
(N Search Marketing Co., Ltd.)

   Advertising agency    Korea      70.4      100.0    December

Next Connect PFV

   Residential building development and supply    Korea      100.0      100.0    December

KT Rwanda Networks Ltd.

   Network installation and management    Rwanda      51.0      51.0    December

AOS Ltd.

   System integration and maintenance    Rwanda      51.0      51.0    December

KT Belgium

   Foreign investment business    Belgium      100.0      100.0    December

KT ORS Belgium

   Foreign investment business    Belgium      100.0      100.0    December

Korea Telecom Japan Co., Ltd.

   Foreign telecommunication business    Japan      100.0      100.0    December

KBTO sp.zo.o.

   Electronic communication business    Poland      97.4      97.2    December

Korea Telecom China Co., Ltd.

   Foreign telecommunication business    China      100.0      100.0    December

KT Dutch B.V.

   Super iMax and East Telecom management    Netherlands      100.0      100.0    December

East Telecom LLC

   Fixed line telecommunication business    Uzbekistan      91.6      91.0    December

Korea Telecom America, Inc.

   Foreign telecommunication business    USA      100.0      100.0    December

PT. KT Indonesia

   Foreign telecommunication business    Indonesia      99.0      99.0    December

PT. BC Card Asia Pacific

   Software development and supply    Indonesia      99.9      99.9    December

KT Hong Kong Telecommunications Co., Ltd.

   Fixed line communication business    Hong Kong      100.0      100.0    December

Korea Telecom Singapore Pte. Ltd.

   Foreign investment business    Singapore      100.0      100.0    December

Texnoprosistem LLP

   Fixed line internet business    Uzbekistan      100.0      100.0    December

Nasmedia Thailand Company Limited

   Internet advertising solution    Thailand      99.9      99.9    December

KT Huimangjieum

   Manufacturing    Korea      100.0      100.0    December

GE Premier 1st Corporate Restructuring Real Estate Investment Trust Co.

   Residential building investment and rent    Korea      63.5      63.5    December

K-REALTY RENTAL HOUSING

REIT 3

   Residential building    Korea      100.0      100.0    December

Storywiz

   Contents and software development and supply    Korea      100.0      —        December

 

1 

Sum of the ownership interests owned by the Controlling Company and subsidiaries.

2 

Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company can exercise the majority voting rights in its decision-making process at all times considering the historical voting pattern at the shareholders’ meetings.

3 

Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company holds the majority of voting right based on an agreement with other investors.

4 

The number of subsidiaries’ treasury stock is deducted from the total number of shares when calculating the controlling percentage ownership.

 

13


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

1.3

Changes in Scope of Consolidation

Subsidiaries newly included/merged in the consolidation during three-month period ended March 31, 2020:

 

Changes

  

Location

  

Name of subsidiary

  

Reason

Included

   Korea    Storywiz    Newly established

Excluded

   Uzbekistan    Super iMax LLC    Merged

Summarized information for consolidated subsidiaries as at March 31, 2020 and December 31, 2019 and for the three-month periods ended March 31, 2020 and 2019, is as follows:

 

(in millions of Korean won)    March 31, 2020  
     Total assets      Total liabilities      Operating
revenues
     Profit (loss)
for the period
 

KT Powertel Co., Ltd.

   W 116,906      W 18,315      W 13,852      W 1,178  

KT Linkus Co., Ltd.

     63,218        56,046        21,133        (1,378

KT Submarine Co., Ltd.

     124,849        20,438        18,475        2,535  

KT Telecop Co., Ltd.

     279,250        155,117        76,786        (1,165

KT Hitel Co., Ltd.

     276,749        80,788        81,754        (5,070

KT Service Bukbu Co., Ltd.

     59,780        55,190        50,194        (1,229

KT Service Nambu Co., Ltd.

     57,540        52,266        59,484        (3,100

BC Card Co., Ltd. 1

     3,274,889        2,061,553        799,429        27,180  

H&C Network 1

     262,570        56,793        78,758        (319

Nasmedia Co., Ltd. 1

     347,656        165,538        26,224        3,756  

KTDS Co., Ltd. 1

     135,369        87,396        98,992        896  

KT M Hows Co., Ltd.

     76,254        52,980        9,395        1,586  

KT M&S Co., Ltd.

     234,090        203,351        171,588        (1,626

GENIE Music Corporation

(KT Music Corporation)

     234,561        80,154        60,510        1,845  

KT MOS Bukbu Co., Ltd.

     28,905        25,365        14,768        (995

KT MOS Nambu Co., Ltd.

     32,728        25,484        14,963        (292

KT Skylife Co., Ltd. 1

     852,057        145,541        167,915        18,311  

KT Estate Inc. 1

     1,679,684        321,585        106,707        10,051  

KTGDH Co., Ltd.

(KTSB Data Service Co., Ltd.)

     10,667        1,769        1,070        89  

KT Sat Co., Ltd.

     643,106        120,646        34,924        (271

KT Sports Co., Ltd.

     20,427        16,787        7,728        (3,632

KT Music Contents Fund No.1

     10,209        1,521        89        54  

KT Music Contents Fund No.2

     7,372        72        16        (52

KT-Michigan Global Content Fund

     11,711        46        84        38  

Autopion Co., Ltd.

     6,613        4,514        1,137        (230

KT M Mobile Co., Ltd.

     134,352        29,422        39,886        (385

KT Investment Co., Ltd. 1

     67,449        50,151        634        47  

 

14


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    March 31, 2020  
     Total assets      Total liabilities      Operating
revenues
     Profit (loss)
for the period
 

KTCS Corporation 1

     336,900        173,940        187,599        2,053  

KTIS Corporation

     317,499        147,907        111,216        5,130  

Next Connect PFV

     378,688        17,710        8        (159

Korea Telecom Japan Co., Ltd.1

     1,888        2,943        473        29  

Korea Telecom China Co., Ltd.

     712        17        —          (171

KT Dutch B.V.

     32,723        111        —          (72

East Telecom LLC 1

     29,795        22,893        7,180        1,903  

Korea Telecom America, Inc.

     4,798        550        1,579        70  

PT. KT Indonesia

     7        —          —          —    

KT Rwanda Networks Ltd. 2

     141,674        203,084        4,187        (8,141

KT Belguium

     98,507        9        —          (33

KT ORS Belgium

     7,285        13        —          (14

KBTO sp.zo.o.

     1,851        235        127        (1,515

AOS Ltd. 2

     12,599        4,276        1,294        (292

KT Hong Kong Telecommunications Co., Ltd.

     5,018        2,351        4,155        322  

KT Huimangjieum

     2,076        1,416        518        (292

GE Premier 1st Corporate Restructuring Real Estate Investment Trust Co.

     6,169        1,131        64        (7

Storywiz

     13,789        —          —          (211

 

(in millions of Korean won)    December 31, 2019      March 31, 2019  
     Total assets      Total liabilities      Operating
revenues
     Profit (loss)
for the period
 

KT Powertel Co., Ltd.

   W 118,052      W 19,766      W 14,323      W 609  

KT Linkus Co., Ltd.

     70,494        62,088        22,805        (559

KT Submarine Co., Ltd.

     120,947        18,452        10,309        (908

KT Telecop Co., Ltd.

     279,878        153,841        79,602        452  

KT Hitel Co., Ltd.

     279,818        74,769        72,551        (230

KT Service Bukbu Co., Ltd.

     64,802        58,984        50,209        (772

KT Service Nambu Co., Ltd.

     63,917        55,548        62,091        (1,793

BC Card Co., Ltd. 1

     3,912,982        2,594,232        865,667        48,027  

H&C Network 1

     282,016        68,401        75,868        (202

Nasmedia Co., Ltd. 1

     356,236        203,105        28,161        6,298  

KTDS Co., Ltd. 1

     158,153        105,462        92,577        337  

KT M Hows Co., Ltd.

     74,326        50,638        6,806        706  

KT M&S Co., Ltd.

     248,142        215,777        181,131        4,655  

GENIE Music Corporation (KT Music Corporation)

     234,131        80,952        51,306        2,562  

KT MOS Bukbu Co., Ltd.

     33,376        28,841        12,467        (2,083

 

15


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    March 31, 2020  
     Total assets      Total liabilities      Operating
revenues
     Profit (loss)
for the period
 

KT MOS Nambu Co., Ltd.

     34,258        26,722        12,297        (702

KT Skylife Co., Ltd. 1

     848,276        142,839        170,699        14,273  

KT Estate Inc. 1

     1,686,000        295,706        116,448        18,637  

KTGDH Co., Ltd. (KTSB Data Service Co., Ltd.)

     10,437        1,628        996        186  

KT Sat Co., Ltd.

     651,195        127,523        32,546        2,098  

KT Sports Co., Ltd.

     15,603        8,333        10,359        (2,299

KT Music Contents Fund No.1

     10,579        1,677        131        61  

KT Music Contents Fund No.2

     7,675        279        183        126  

KT-Michigan Global Content Fund

     11,688        61        33        (115

Autopion Co., Ltd.

     7,460        4,894        1,320        (204

KT M Mobile Co., Ltd.

     135,917        30,603        39,421        (4,112

KT Investment Co., Ltd. 1

     73,463        56,212        621        192  

KTCS Corporation 1

     378,171        213,983        231,130        1,653  

KTIS Corporation

     305,798        137,524        112,214        6,041  

Next Connect PFV

     385,412        24,275        587        (460

Korea Telecom Japan Co., Ltd.1

     1,851        2,858        359        (107

Korea Telecom China Co., Ltd.

     879        39        —          (189

KT Dutch B.V.

     31,003        50        48        17  

Super iMax LLC

     3,568        5,304        1,169        24  

East Telecom LLC 1

     20,857        16,302        3,881        936  

Korea Telecom America, Inc.

     4,611        537        1,736        148  

PT. KT Indonesia

     8        —          —          —    

KT Rwanda Networks Ltd. 2

     132,461        183,164        4,124        (7,752

KT Belguium

     93,321        11        —          (34

KT ORS Belgium

     6,913        14        —          (16

KBTO sp.zo.o.

     1,767        245        120        (949

AOS Ltd. 2

     12,337        3,993        1,713        (124

KT Hong Kong Telecommunications Co., Ltd.

     5,126        2,923        2,545        152  

KT Huimangjieum

     2,129        1,019        —          (135

GE Premier 1st Corporate

Restructuring Real Estate Investment Trust Co.

     6,285        1,139        —          —    

K-REALTY RENTAL HOUSING REIT 3

     300        —          —          —    

 

1 

These companies are the intermediate controlling companies of other subsidiaries and the above financial information is from their consolidated financial statements.

2 

At the end of the reporting period, convertible preferred stock issued by subsidiaries is included in liabilities.

 

16


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

2.

Significant Accounting Policies

 

  2.1

Basis of Preparation

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with the International Financial Reporting Standards as issued by the Republic of Korea (Korean IFRS). The accompanying consolidated interim financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

The consolidated interim financial statements of the Group as at and for the three-month periods ended March 31, 2020, have been prepared in accordance with Korean IFRS 1034 Interim Financial Reporting. These consolidated interim financial statements have been prepared in accordance with Korean IFRS which is effective or has been early adopted as at March 31, 2020.

(1) New and amended standards and interpretations adopted by the Group

The Group has applied the following standards and interpretations for the first time for their annual reporting period commencing January 1, 2020.

 

   

Amendments to Korean IFRS 1001 Presentation of Financial Statements and Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material

The amendments clarify the explanation of the definition of material and amended Korean IFRS 1001 and Korean IFRS 1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Group. The amendment does not have a significant impact on the financial statements.

 

   

Amendments to Korean IFRS 1103 Business Combination – Definition of a Business

To consider the integration of the required activities and assets as a business, the amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and excludes economic benefits from the lower costs. An entity can apply a concentration test, an optional test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset or a group of similar assets, the assets acquired would not represent a business. The amendment does not have a significant impact on the financial statements.

 

   

Amendments to Korean IFRS 1109 Financial Instruments, Korean IFRS 1039 Financial Instruments: Recognition and Measurement and Korean IFRS 1107 Financial Instruments: Disclosure – Interest Rate Benchmark Reform

 

17


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

The amendments allow to apply the exceptions when forward-looking analysis is performed in relation the application of hedge accounting, while uncertainties arising from interest rate benchmark reform exist. The exceptions require the Group assumes that the interest rate benchmark, on which the hedged items and the hedging instruments are based on, is not altered as a result of interest rate benchmark reform, when determining whether the expected cash flows are highly probable, whether an economic relationship between the hedged item and the hedging instrument exists, and when assessing the hedging relationship is highly effective. The amendments do not have a significant impact on the financial statements. The Group’s risk exposure, directly affected by the interest rate benchmark reform, is the variable rate borrowings of USD 579,087 thousand with maximum remaining maturity of four years. To hedge fluctuations in cash flows of borrowings resulting from the changes in USD LIBOR of 3 months—an interest rate benchmark, the Group entered into an interest rate swap contract for a nominal amount of USD 579,087 thousand and designated it as a hedging instrument of cash flow hedge. However, the interest rate of USD LIBOR will be replaced to SOFR (Secured Overnight Financing Rate) based on actual transactions since 2022.

(2) New standards and interpretations not yet adopted by the Group

Certain new accounting standard and interpretation that have been published but have not been early adopted by the Group, are set out below.

 

   

Agenda Decision of the International Accounting Standards Committee – Lease Period

The International Accounting Standards Interpretations Committee (IFRS IC) announced on December 16, 2019 that all economic disadvantages resulting from the termination of a lease are taken into account when determining the enforceable period for ‘the useful life of lease term and lease asset improvement rights’. The Group is analyzing the effect of changes in accounting policies on the consolidated financial statements for enforceable periods in accordance with the decision and will reflect the effect in the consolidated financial statements after the analysis is completed.

 

  2.2

Accounting Policies

Significant accounting policies and method of computation used in the preparation of the condensed consolidated interim financial statements are consistent with those of the consolidated financial statements for the year ended December 31, 2019, except for the changes due to the application of amendment and enactments of standards described in Note 2.1 (1) and the one described below.

(1) Income Tax Expense

Income tax expense for the interim period is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate is applied to the pre-tax income.

 

18


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

3.

Critical Accounting Estimates and Assumptions

The Group makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. Actual results may differ from these estimates.

The outbreak of COVID-19 in 2020 poses significant impact on the global economy. Respectively, COVID-19 will have a negative influence on the demand for services provided by the Group and the ability of suppliers to distribute services to the Group. As a consequence, the ongoing pandemic, which could adversely affect the Group’s financial condition and operational results, is expected to continually impact the Group’s consolidated annual financial statements in 2020.

Significant accounting estimates and assumptions applied in the preparation of the consolidated interim financial statements are the same as those applied to the consolidated financial statements for the year ended December 31, 2019, except for the estimates used to determine income tax expense. However, estimates and assumptions are subject to adjustments due to uncertainties and fluctuations from COVID-19. At present, the ultimate impact of COVID-19 on the Group’s business, financial condition, and operational results cannot be predicted.

 

4.

Financial Instruments by Category

Financial instruments by category as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
Financial assets    Financial assets
at amortized
cost
    

Financial
assets at fair

value through
profit or loss

     Financial assets at
fair value through
other comprehensive
income
    

Derivatives

used for

hedging

     Total  

Cash and cash equivalents

   W 1,627,056      W —        W —        W —        W 1,627,056  

Trade and other receivables1

     5,287,371        —          1,258,204        —          6,545,575  

Other financial assets

     496,035        679,277        485,560        177,866        1,838,738  

 

1 

Lease receivables and others which are not applied to financial instruments by category are excluded.

 

(in millions of Korean won)    March 31, 2020  
Financial liabilities    Financial liabilities
at amortized cost
    

Financial liabilities
at fair value through

profit and loss

    

Derivatives

used for hedging

     Total  

Trade and other payables

   W 7,325,739      W —        W —        W 7,325,739  

Borrowings

     7,286,897        —          —          7,286,897  

Other financial liabilities

     138,115        62        3,047        141,224  

 

19


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    December 31, 2019  
Financial assets    Financial assets
at amortized
cost
     Financial
assets at fair
value through
profit or loss
     Financial assets at
fair value through
other comprehensive
income
    

Derivatives

used for hedging

     Total  

Cash and cash equivalents

   W 2,305,894      W —        W —        W —        W 2,305,894  

Trade and other receivables1

     5,796,207        —          1,256,266        —          7,052,473  

Other financial assets

     441,804        632,324        557,342        58,576        1,690,046  

 

1 

Lease receivables and others which are not applied to financial instruments by category are excluded.

 

(in millions of Korean won)    December 31, 2019  
Financial liabilities    Financial liabilities
at amortized cost
    

Financial liabilities
at fair value through

profit and loss

    

Derivatives

used for hedging

     Total  

Trade and other payables

   W 8,679,697      W —        W —        W 8,679,697  

Borrowings

     7,298,867        —          —          7,298,867  

Other financial liabilities

     129,945        38        20,096        150,079  

 

5.

Trade and Other Receivables

Trade and other receivables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Total amounts      Provision for
impairment
     Present value
discount
    

Carrying

amount

 

Current assets

           

Trade receivables

   W 3,601,519      W (296,747    W (7,742    W 3,297,030  

Other receivables

     2,295,877        (82,582      (278      2,213,017  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 5,897,396      W (379,329    W (8,020    W 5,510,047  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets

           

Trade receivables

     751,172        (4,330      (36,398      710,444  

Other receivables

     384,537        (5,817      (14,740      363,980  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 1,135,709      W (10,147    W (51,138    W 1,074,424  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

20


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    December 31, 2019  
     Total amounts      Provision for
impairment
     Present value
discount
    

Carrying

amount

 

Current assets

           

Trade receivables

   W 3,451,107      W (291,202    W (9,510    W 3,150,395  

Other receivables

     2,834,893        (78,572      (271      2,756,050  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 6,286,000      W (369,774    W (9,781    W 5,906,445  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets

           

Trade receivables

     874,859        (4,117      (43,597      827,145  

Other receivables

     382,468        (5,108      (22,708      354,652  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 1,257,327      W (9,225    W (66,305    W 1,181,797  
  

 

 

    

 

 

    

 

 

    

 

 

 

Details of other receivables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Loans

   W 80,424      W 84,148  

Receivables 1

     1,997,465        2,588,064  

Accrued income

     63,766        8,630  

Refundable deposits

     350,586        352,293  

Loans receivable

     116,007        105,961  

Finance lease receivables

     43,619        39,726  

Others

     13,529        15,560  

Less: Provision for impairment

     (88,399      (83,680
  

 

 

    

 

 

 
   W 2,576,997      W 3,110,702  
  

 

 

    

 

 

 

 

1 

The settlement receivables of BC Card Co., Ltd. of W 1,319,634 million (December 31, 2019: W 1,786,610 million) are included.

The maximum exposure of trade and other receivables to credit risk is the carrying amount of each class of receivables mentioned above as at March 31, 2020.

A portion of the trade receivables is classified as financial assets at fair value through other comprehensive income considering the trade receivables business model for managing the asset and the cash flow characteristics of the contract.

 

21


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

6.

Other Financial Assets and Liabilities

Details of other financial assets and liabilities as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Other financial assets

     

Financial assets at amortized cost 1

   W 496,035      W 441,804  

Financial assets at fair value through profit or loss 1,2

     679,277        632,324  

Financial assets at fair value through other comprehensive income 1

     485,560        557,342  

Derivatives used for hedging

     177,866        58,576  

Less: Non-current

     (849,172      (821,658
  

 

 

    

 

 

 

Current

   W 989,566      W 868,388  
  

 

 

    

 

 

 

Other financial liabilities

     

Financial liabilities at amortized cost

   W 138,115      W 129,945  

Financial liabilities at fair value through profit or loss

     62        38  

Derivatives used for hedging

     3,047        20,096  

Less: Non-current

     (139,578      (149,136
  

 

 

    

 

 

 

Current

   W 1,646      W 943  
  

 

 

    

 

 

 

 

1

As at March 31, 2020, the Group’s other financial assets amounting to W 92,050 million (December 31, 2019: W 91,445 million), which consist of checking account deposits, time deposits and others, are subject to withdrawal restrictions.

2 

As at March 31, 2020, MMW(Money Market Wrap) and MMT(Money Market Trust) amounting to W 372,140 million (December 31, 2019: 406,062 million are included in other financial assets.

Details of financial assets at fair value through profit or loss as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Equity instruments (Listed)

   W 94      W 232  

Equity instruments (Unlisted)

     119,674        90,357  

Debt securities

     559,325        541,657  

Derivative held for trading

     184        78  
  

 

 

    

 

 

 

Total

     679,277        632,324  

Less: Non-current

     (242,296      (219,026
  

 

 

    

 

 

 

Current

   W 436,981      W 413,298  
  

 

 

    

 

 

 

The maximum exposure of debt instruments of financial assets recognized at fair value through profit or loss to credit risk is the carrying amount as at March 31, 2020.

Investment in Korea Software Financial Cooperative amounting to W 1,849 million is provided as collateral.

 

22


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of financial assets at fair value through other comprehensive income as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Equity instruments (Listed)

   W 4,010      W 6,738  

Equity instruments (Unlisted)

     474,423        543,518  

Debt securities

     7,127        7,086  
  

 

 

    

 

 

 

Total

     485,560        557,342  

Less: Non-current

     (484,342      (556,147
  

 

 

    

 

 

 

Current

   W 1,218      W 1,195  
  

 

 

    

 

 

 

Upon disposal of these equity instruments, any balance within the accumulated other comprehensive income for these equity instruments is not reclassified to profit or loss, but to retained earnings. Upon disposal of debt securities, remaining balance of the accumulated other comprehensive income of debt investments is reclassified to profit or loss.

Details of valuation of derivatives used for hedging as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  
     Assets      Liabilities      Assets      Liabilities  

Interest rate swap 1

   W —        W 2,384      W —        W 1,464  

Currency swap 2

     170,767        663        55,569        18,632  

Currency forwards 3

     7,099        —          3,007        —    
  

 

 

       

 

 

    

 

 

 

Total

     177,866        3,047        58,576        20,096  

Less: Non-current

     (111,334      (1,442      (28,304      (19,177
  

 

 

       

 

 

    

 

 

 

Current

   W 66,532      W 1,605      W 30,272      W 919  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1

The interest rate swap contract is to hedge the risk of variability in future fair value of the borrowings.

2

The currency swap contract is to hedge the risk of variability in cash flow from the borrowings. In applying the cash flow hedge accounting, the Group hedges its exposures to cash flow fluctuation until September 7, 2034.

3

The currency forward contract is to hedge the risk of variability in cash flow from transactions in foreign currencies due to changes in foreign exchange rate.

The full value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

 

23


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

The valuation gains and losses on the derivative contracts for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020     2019  

Type of

transaction

   Valuation
gain
     Valuation
loss
    

Other

comprehensive
income1

    Valuation
gain
     Valuation
loss
    

Other

comprehensive
income1

 

Interest rate swap

   W —        W —        W (1,744   W —        W —        W (852

Currency swap

     152,506        661        132,113       36,412        —          47,397  

Currency forwards

     4,520        —          —         3,180        —          —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   W 157,026      W 661      W 130,369     W 39,592      W —        W 46,545  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

1 

The amounts are before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest.

The ineffective portion recognized in profit or loss on the cash flow hedge is valuation gain of W 2,039 million for the period ended March 31, 2020 (three-month period ended March 31, 2019: valuation gain of W 279 million).

Details of financial liabilities at fair value through profit or loss at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Financial liabilities at fair value through profit or loss

     

Derivative liabilities held for trading

   W 62      W 38  

The valuation gain and loss on financial liabilities at fair value through profit or loss for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  
    

Valuation

gain

    

Valuation

loss

    

Valuation

gain

    

Valuation

loss

 

Derivative liabilities held for trading

   W 117      W 24      W 82      W 74  

 

24


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

7.

Inventories

Inventories as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  
     Acquisition
cost
     Valuation
allowance
   

Carrying

amount

     Acquisition
cost
     Valuation
allowance
   

Carrying

amount

 

Merchandise

   W 778,023      W (149,560   W 628,463      W 805,691      W (144,438   W 661,253  

Others

     6,195        —         6,195        4,245        —         4,245  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   W 784,218      W (149,560   W 634,658      W 809,936      W (144,438   W 665,498  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Cost of inventories recognized as expenses for the three-month period ended March 31, 2020, amounts to W 983,421 million (three-month period ended March 31, 2019: W 957,787 million) and valuation loss on inventory amounts to W 5,122 million for the three-month period ended March 31, 2020 (three-month period ended March 31, 2019: valuation loss of W 2,061 million).

 

8.

Other Assets and Liabilities

Other assets and liabilities as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Other assets

     

Advance payments

   W 136,999      W 179,475  

Prepaid expenses 1

     2,011,961        1,935,037  

Contract assets 1

     540,931        557,041  

Others

     28,426        14,243  

Less: Non-current

     (677,531      (685,488
  

 

 

    

 

 

 

Current

   W 2,040,786      W 2,000,308  
  

 

 

    

 

 

 

Other liabilities

     

Advances received 1

   W 165,545      W 198,366  

Withholdings

     143,223        99,844  

Unearned revenue 1

     76,059        65,228  

Lease liabilities

     697,987        729,139  

Contract liabilities 1

     373,069        365,610  

Others

     18,470        23,297  

Less: Non-current

     (429,225      (449,526
  

 

 

    

 

 

 

Current

   W 1,045,128      W 1,031,958  
  

 

 

    

 

 

 

 

1 

The amounts include adjustments arising from adoption of Korean IFRS 1115 (Note 20).

 

29


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

9.

Assets Held for Sale

In the prior period, the Group has decided to sell all of the equity holdings of ISU-kth Content Investment Cooperative, with the approval of the Board of Directors and shareholders and classified them as assets held for sale. As at March 31, 2020, the Group is in the process of selling these assets with the approval of general meeting of members.

During the prior period, the Group decided to sell some real estate, in which the amount of W 82,865 million was classified as assets held for sale and will be sold in the current year.

 

10.

Property and Equipment, Investment Properties, and Intangible Assets

Changes in property and equipment for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 13,785,299      W 13,068,257  

Changes in accounting policy 1

     —          (209,760

Acquisition and capital expenditure

     498,732        648,019  

Disposal and termination

     (14,640      (12,042

Depreciation

     (639,748      (616,763

Transfer to investment property

     (108,377      (16,339

Others

     (23,834      (50,249
  

 

 

    

 

 

 

Ending, net

   W 13,497,432      W 12,811,123  
  

 

 

    

 

 

 

 

1 

With the application of Korean IFRS 1116, the assets were reclassified from property and equipment to right-of-use assets.

Details of property and equipment provided as collateral as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020
     Carrying
amount
     Secured
amount
     Related line
item
   Related
amount
     Secured party

Land and Buildings

   W  17,025      W 17,072      Borrowings
and others
   W 4,352      Industrial Bank of Korea/Korea Development Bank/K Bank

Others

     44,744        44,014      Borrowings      3,668      Shinhan Bank

 

26


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    December 31, 2019
     Carrying
amount
     Secured
amount
     Related line
item
     Related
amount
     Secured party

Land and Buildings

   W 17,097      W 18,705       
Borrowings
and others

 
   W 4,347      Industrial Bank of Korea/Korea Development Bank/K Bank

Others

     45,851        41,681        Borrowings        3,473      Shinhan Bank

Changes in investment properties for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 1,387,430      W 1,091,084  

Acquisition

     1,605        1,569  

Disposal

     (654      —    

Depreciation

     (18,002      (10,913

Transfer from property and equipment

     108,377        16,339  

Others

     5,220        —    
  

 

 

    

 

 

 

Ending, net

   W 1,483,976      W 1,098,079  
  

 

 

    

 

 

 

As at March 31, 2020, the Group (Lessor) has entered into a non-cancellable operating lease contract relating to real estate lease. The future minimum lease fee under this contract is W 60,919 million for one year or less, W 97,170 million more than one year and less than five years, W 89,840 million over five years, and W 247,929 million in total.

Details of investment properties provided as collateral as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Carrying
amount
     Secured
amount
     Related
account
     Related
amount
 

Land and Buildings

   W 835,620      W 63,354        Deposits      W 57,214  

Land and Buildings

     1,896        2,277        Borrowings        1,897  

 

(in millions of Korean won)    December 31, 2019  
     Carrying
amount
     Secured
amount
     Related
account
     Related
amount
 

Land and Buildings

   W 854,874      W 62,896        Deposits      W 56,831  

Land and Buildings

     1,915        3,044        Borrowings        1,903  

 

27


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Changes in intangible assets for the three-month periods ended March 31, 2019 and 2018, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 2,834,037      W 3,407,123  

Changes in accounting policy 1

     —          (26,207

Acquisition and capital expenditure

     39,744        35,841  

Disposal and termination

     (3,405      (2,169

Amortization

     (158,686      (164,449

Others

     4,556        2,998  
  

 

 

    

 

 

 

Ending, net

   W 2,716,246      W 3,253,137  
  

 

 

    

 

 

 

 

1 

With the application of Korean IFRS 1116, the assets were reclassified from intangible assets to right-of-use assets.

The carrying amount of membership rights and others, excluding goodwill, with indefinite useful life not subject to amortization is W 205,090 million as at March 31, 2020 (December 31, 2019: W 203,240 million).

Goodwill is allocated to the Group’s cash-generating unit which is identified by operating segments. As at March 31, 2020, goodwill allocated to each cash-generation unit is as follows:

 

(In millions of Korean won)       
Operating Segment    Cash generating Unit    Amount  

ICT

  

Mobile services1

   W 65,057  

Finance

  

BC Card Co., Ltd.1

     41,234  

Others

  

GENIE Music Corporation (KT Music Corporation) 1

     53,871  
  

PlayD Co., Ltd. (N SEARCH MARKETING Co., Ltd.) 1

     42,745  
  

KT Telecop Co., Ltd. 1

     15,418  
  

KT MOS Bukbu Co., Ltd. and others

     17,008  
     

 

 

 

Total

   W 235,333  
  

 

 

 

 

1

The recoverable amounts of telecom wireless business, BC Card Co., Ltd., PlayD Co., Ltd. (N SEARCH MARKETING Corporation) and KT Telecop Co., Ltd. are calculated based on value-in use calculations. The recoverable amounts of GENIE Music Corporation (KT Music Corporation) is calculated based on fair value less costs to sell. These calculations use pre-tax cash flow projections for the next five years based on financial budgets. Cash flow that exceeds the period of financial budgets is projected by expected growth rate. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate based on past performance and its expectation of future market changes. The Group determined cash flow projections based on past performance and its estimation of market growth. Specific risk of related operating segment is reflected in discount rate.

 

28


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

11.

Investments in Associates and Joint Ventures

Details of associates as at March 31, 2020 and December 31, 2019, are as follows:

 

     Percentage of ownership (%)     Location      Date of financial
statements
 
   March 31,
2020
    December 31,
2019
              

Korea Information & Technology Fund

     33.3     33.3     Korea        December 31  

KT-IBKC Future Investment Fund 1 1

     50.0     50.0     Korea        December 31  

KT-CKP New Media Investment Fund

     —         49.7     Korea        December 31  

K Bank Inc. 2

     10.0     10.0     Korea        December 31  

 

1

At the end of the reporting period, even though the Group has 50% ownership, the equity method of accounting has been applied as the Group, which is a limited partner of the investment fund, cannot participate in determining the operating and financial policies.

2

At the end of the reporting period, although the Group owns less than 20% ownership in ordinary share, this entity is included in investments in associates as the Group has a significant influence in determining the operating and financial policies. Furthermore, 12.1% of non-voting convertible stock are excluded from the ownership percentage.

Changes in investments in associates and joint ventures for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

     2020  
(in millions of Korean won)    Beginning      Acquisition
(Disposal)
    Share of net profit
(loss) from associates
and joint ventures 1
    Others     Ending  

Korea Information & Technology Fund

   W 163,975      W —       W 70     W —       W 164,045  

KT-IBKC Future Investment Fund 1

     14,100        —         (75     —         14,025  

KT-CKP New Media Investment Fund

     134        (134     —         —         —    

K Bank Inc.

     45,158        —         (5,304     70       39,924  

Others

     44,293        12,630       1,845       (3,195     55,573  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   W 267,660      W 12,496     W (3,464   W (3,125   W 273,567  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     2019  
(in millions of Korean won)    Beginning      Acquisition
(Disposal)
    Share of net profit
(loss) from associates
and joint ventures 1
    Others     Ending  

Korea Information & Technology Fund

   W 148,255      W     W (412)    W —       W 147,843  

KT-SB Venture Investment

     4,470        (4,470     —         —         —    

KT-IBKC Future Investment Fund 1

     9,961        3,250       (76     (1,318     11,817  

KT-CKP New Media Investment Fund

     281        —         16       —         297  

K Bank Inc.

     52,655        —         (4,538     (307     47,810  

Others

     56,785        (5,393     5,669       (8,875     48,186  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   W 272,407      W (6,613   W 659     W (10,500   W 255,953  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

29


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

1

KT investment Co., Ltd., a subsidiary of the Group, recognized its share in net profit (loss) from associates and joint ventures as operating revenue and expense. These include its share in net loss from associates and joint ventures of W 10 million (three-month period ended March 31, 2019: net income of W 2 million) recognized as operating revenue and expense during the period.

Summarized financial information of associates and joint ventures as at March 31, 2020 and December 31, 2019 and for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Assets      Liabilities      Operating
revenue
    

Profit (loss)

for the period

 

Korea Information & Technology Fund

   W 492,136      W —        W —        W 212  

KT-IBKC Future Investment Fund 1

     28,050        —          4        (150

K Bank Inc.

     1,964,490        1,783,717        18,972        (24,018

 

(in millions of Korean won)    December 31, 2019      March 31, 2019  
     Assets      Liabilities      Operating
revenue
    

Profit (loss)

for the period

 

Korea Information & Technology Fund

   W 491,924      W —        W —        W (1,235

KT-IBKC Future Investment Fund 1

     28,200        —          3        (152

KT-CKP New Media Investment Fund

     270        —          35        33  

K Bank Inc.

     2,558,631        2,354,159        21,468        (24,136

Due to the discontinuance of equity method of accounting, the Group has not recognized loss from associates and joint ventures of W 1,259 million for the three-month period ended March 31, 2020 (three-month period ended March 31, 2019: loss of W 6,482 million). The accumulated comprehensive loss of associates and joint ventures as at March 31, 2020, which was not recognized by the Group, is W 13,858 million (December 31, 2019: W 12,599 million).

 

30


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

12.

Trade and Other Payables

Details of trade and other payables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Current liabilities

     

Trade payables

   W  1,163,509      W  1,304,795  

Other payables

     5,360,575        6,292,683  
  

 

 

    

 

 

 

Total

   W  6,524,084      W  7,597,478  
  

 

 

    

 

 

 

Non-current liabilities

     

Trade payables

   W  1,712      W  1,733  

Other payables

     799,943        1,080,486  
  

 

 

    

 

 

 

Total

   W  801,655      W  1,082,219  
  

 

 

    

 

 

 

Details of other payables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Non-trade payables 1

   W  4,153,450      W  5,275,224  

Accrued expenses

     945,525        987,624  

Operating deposits

     864,802        910,045  

Others

     196,741        200,276  

Less: Non-current

     (799,943      (1,080,486
  

 

 

    

 

 

 

Current

   W  5,360,575      W  6,292,683  
  

 

 

    

 

 

 

 

1

Settlement payables of BC Card Co., Ltd., a subsidiary of the Group, of W 1,353,379 million related to credit card transactions are included as at March 31, 2020 (December 31, 2019: W 1,824,068 million).

 

31


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

13.

Borrowings

Details of borrowings as at March 31, 2020 and December 31, 2019, are as follows:

Debentures

 

(in millions of Korean won and foreign currencies in thousands)   March 31, 2020      December 31, 2019  
Type    Maturity    Annual interest
rates
  Foreign
currency
     Korean
won
     Foreign
currency
     Korean
won
 

MTNP notes 1

   Sep. 7, 2034    6.500%   USD   100,000      W 122,260      USD   100,000      W 115,780  

MTNP notes

   Jul. 18, 2026    2.500%   USD   400,000        489,040      USD   400,000        463,120  

MTNP notes

   Aug. 7, 2022    2.625%   USD   400,000        489,040      USD   400,000        463,120  

FR notes 2

   Aug. 23, 2020    LIBOR(3M)+0.40%   USD   200,000        244,520      USD   200,000        231,560  

FR notes 2

   Aug. 23, 2023    LIBOR(3M)+0.90%   USD   100,000        122,260      USD   100,000        115,780  

MTNP notes

   Jul. 6, 2020    0.310%   JPY   4,000,000        45,233      JPY   4,000,000        42,539  

MTNP notes

   Jul. 6, 2021    0.380%   JPY   16,000,000        180,933      JPY   16,000,000        170,155  

MTNP notes

   Nov. 13, 2020    0.300%   JPY   30,000,000        339,249      JPY   30,000,000        319,041  

MTNP notes

   Jul. 19, 2022    0.220%   JPY   29,600,000        334,726      JPY   29,600,000        314,787  

MTNP notes

   Jul. 19, 2024    0.330%   JPY   400,000        4,523      JPY   400,000        4,254  

FR notes 2

   Nov. 01, 2024    LIBOR(3M)+0.98%   USD   350,000        427,910      USD   350,000        405,230  

The 180-2nd Public bond

   Apr. 26, 2021    4.710%     —          380,000        —          380,000  

The 181-3rd Public bond

   Aug. 26, 2021    4.090%     —          250,000        —          250,000  

The 182-2nd Public bond

   Oct. 28, 2021    4.310%     —          100,000        —          100,000  

The 183-2nd Public bond

   Dec. 22, 2021    4.090%     —          90,000        —          90,000  

The 183-3rd Public bond

   Dec. 22, 2031    4.270%     —          160,000        —          160,000  

The 184-2nd Public bond

   Apr. 10, 2023    2.950%     —          190,000        —          190,000  

The 184-3rd Public bond

   Apr. 10, 2033    3.170%     —          100,000        —          100,000  

The 185-2nd Public bond

   Sep. 16, 2020    3.650%     —          300,000        —          300,000  

The 186-3rd Public bond

   Jun. 26, 2024    3.418%     —          110,000        —          110,000  

The 186-4th Public bond

   Jun. 26, 2034    3.695%     —          100,000        —          100,000  

The 187-3rd Public bond

   Sep. 2, 2024    3.314%     —          170,000        —          170,000  

The 187-4th Public bond

   Sep. 2, 2034    3.546%     —          100,000        —          100,000  

The 188-1st Public bond

   Jan. 29, 2020    —       —          —          —          160,000  

The 188-2nd Public bond

   Jan. 29, 2025    2.454%     —          240,000        —          240,000  

The 188-3rd Public bond

   Jan. 29, 2035    2.706%     —          50,000        —          50,000  

The 189-2nd Public bond

   Jan. 28, 2021    1.946%     —          130,000        —          130,000  

The 189-3rd Public bond

   Jan. 28, 2026    2.203%     —          100,000        —          100,000  

The 189-4rd Public bond

   Jan. 28, 2036    2.351%     —          70,000        —          70,000  

The 190-1st Public bond

   Jan. 29, 2021    2.548%     —          110,000        —          110,000  

The 190-2nd Public bond

   Jan. 30, 2023    2.749%     —          150,000        —          150,000  

The 190-3rd Public bond

   Jan. 30, 2028    2.947%     —          170,000        —          170,000  

The 190-4th Public bond

   Jan. 30, 2038    2.931%     —          70,000        —          70,000  

The 191-1st Public bond

   Jan. 14, 2022    2.048%     —          220,000        —          220,000  

The 191-2nd Public bond

   Jan. 15, 2024    2.088%     —          80,000        —          80,000  

The 191-3rd Public bond

   Jan. 15, 2029    2.160%     —          110,000        —          110,000  

The 191-4th Public bond

   Jan. 14, 2039    2.213%     —          90,000        —          90,000  

 

32


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won and foreign currencies in thousands)     March 31, 2020     December 31, 2019  
Type    Maturity    Annual interest
rates
    Foreign
currency
     Korean
won
    Foreign
currency
     Korean
won
 

The 192-1st Public bond

   Oct. 11, 2022      1.550     —          340,000       —          340,000  

The 192-2nd Public bond

   Oct. 11, 2024      1.578     —          100,000       —          100,000  

The 192-3rd Public bond

   Oct. 11, 2029      1.622     —          50,000       —          50,000  

The 192-4th Public bond

   Oct. 11, 2039      1.674     —          110,000       —          110,000  
       

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

 

           7,039,694       —          7,045,366  

Less: Current portion

 

    —          (1,168,005     —          (1,052,032

Discount on bonds

 

    —          (19,854     —          (20,780
 

 

 

    

 

 

   

 

 

    

 

 

 

Total

 

    —        W 5,851,835       —        W 5,972,554  
 

 

 

    

 

 

   

 

 

    

 

 

 

 

1 

As at March 31, 2020, the Group has outstanding notes in the amount of USD 100 million with fixed interest rates under Medium Term Note Program (“MTNP”) registered in the Singapore Stock Exchange, which allowed issuance of notes of up to USD 2,000 million. However, the MTNP has been terminated since 2007.

2 

The Libor (3M) is approximately 1.451% as at March 31, 2020.

Short-term borrowings

 

(in millions of Korean won)               
Type    Financial institution    Annual interest rates     March 31, 2020      December 31, 2019  

Operational

   NongHyup Bank      2.790%     W 15,000      W 15,000  
   Shinhan Bank      2.900%~3.400%       25,025        57,500  
   Korea Development Bank      3.850%       10,000        10,000  
   Soohyup Bank      —         —          1,000  
   Woori Bank      4.310%       312        —    
       

 

 

    

 

 

 

Total

        W 50,337      W 83,500  
       

 

 

    

 

 

 

 

33


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Long-term borrowings

 

(in millions of Korean won and thousands of foreign currencies)    March 31, 2020     December 31, 2019  
Financial institution    Type   

Annual interest

rates

  

Foreign

currency

    

Korean

won

   

Foreign

currency

    

Korean

won

 

Export-Import
Bank of Korea

   Inter-Korean
Cooperation Fund 1
   1.500%      —        W 3,208       —        W 3,454  

Industrial Bank of Korea

   General loans    2.980%      —          6,000       —          6,000  

Shinhan Bank

   General loans    2.810%      —          5,000       —          5,000  
   General loans    LIBOR(3M)+2.130%    USD   25,000        30,565       —          —    
   Facility loans    LIBOR(3M)+1.340%    USD   25,918        31,687     USD   25,918        30,008  
   Vessel facility loans 2    LIBOR(3M)+0.706%    USD   3,000        3,668     USD   3,000        3,473  

NongHyup Bank

   Facility loans    2.000%      —          73       —          79  

Korea Development Bank

   General loans    3.020%      —          10,000       —          10,000  
   General loans    3.310%      —          30,000       —          30,000  

Others

   Redeemable convertible preferred stock 3    1.000%      —          950       —          950  
   Kookmin Bank and other 2    LIBOR(3M)+1.850%    USD   78,169        95,569     USD   87,940        101,816  
           

 

 

      

 

 

 

Subtotal

              216,720          190,780  

Less: Current portion

              (52,920        (50,192
           

 

 

      

 

 

 

Total

            W 163,800        W 140,588  
     

 

 

      

 

 

 

 

1 

The above Inter-Korean Cooperation Fund is repayable in installments over 13 years after a seven-year grace period.

2 

LIBOR(3M) is approximately 1.451% as at March 31, 2020.

3 

Skylife TV Co., Ltd., a subsidiary of the Group, issued 1,900,000 of redeemable convertible preferred stock with a par value of W 500 per share in 2010.

Repayment schedule of the Group’s debentures and borrowings including the portion of current liabilities as at March 31, 2020, is as follows:

 

(in millions of Korean won)                                     
     Debentures      Borrowings      Total  
     In local
currency
     In foreign
currency
    

Sub-

total

     In local
currency
     In foreign
currency
    

Sub-

total

        

Apr. 1, 2020 ~ Mar. 31, 2021

   W 540,000      W 629,002      W 1,169,002      W 51,805      W 51,452      W 103,257      W 1,272,259  

Apr. 1, 2021 ~ Mar. 31, 2022

     1,040,000        180,933        1,220,933        51,518        47,784        99,302        1,320,235  

Apr. 1, 2022 ~ Mar. 31, 2023

     490,000        823,766        1,313,766        31,083        31,688        62,771        1,376,537  

Apr. 1, 2032 ~ Mar. 31, 2024

     270,000        122,260        392,260        493        —          493        392,753  

After Apr. 1, 2024

     1,900,000        1,043,733        2,943,733        1,234        —          1,234        2,944,967  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 4,240,000      W 2,799,694      W 7,039,694      W 136,133      W 130,924      W 267,057      W 7,306,751  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

34


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

14.

Provisions

Changes in provisions for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
     Litigation      Restoration cost      Others      Total  

Beginning balance

   W 64,241      W 113,289      W 76,631      W 254,161  

Increase (transfer)

     112        3,505        2,080        5,697  

Usage

     —          (512      (864      (1,376

Reversal

     —          (288      (950      (1,238
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   W 64,353      W 115,994      W 76,897      W 257,244  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

   W 64,241      W 20,326      W 73,702      W 158,269  

Non-current

     112        95,668        3,195        98,975  

 

(in millions of Korean won)    2019  
     Litigation      Restoration cost      Others      Total  

Beginning balance

   W 58,760      W 118,828      W 97,868      W 275,456  

Increase (transfer)

     224        (3,027      1,981        (822

Usage

     (34,143      (311      (4,662      (39,116

Reversal

     —          (1,798      30        (1,768
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   W 24,841      W 113,692      W 95,217      W 233,750  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

   W 14,513      W 1,750      W 92,955      W 109,218  

Non-current

     10,328        111,942        2,262        124,532  

 

15.

Net Defined Benefit Liabilities

The amounts recognized in the statements of financial position as at March 31, 2020 and December 31, 2019, are determined as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Present value of defined benefit obligations

   W 2,420,007      W 2,427,351  

Fair value of plan assets

     (2,008,447      (2,069,710
  

 

 

    

 

 

 

Liabilities

   W 416,358      W 365,663  
  

 

 

    

 

 

 

Assets

   W 4,798      W 8,022  
  

 

 

    

 

 

 

 

35


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Changes in the defined benefit obligations for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning

   W 2,427,351      W 2,201,876  

Current service cost

     60,545        59,769  

Interest expense

     10,817        11,576  

Benefit paid

     (83,307      (15,420

Remeasurements

     2,707        358  

Others

     1,894        —    
  

 

 

    

 

 

 

Ending

   W 2,420,007      W 2,258,159  
  

 

 

    

 

 

 

Changes in the fair value of plan assets for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning

   W 2,069,710      W 1,643,046  

Interest income

     9,213        8,827  

Remeasurements on plan assets

     1,727        11  

Employer contributions

     1,640        647  

Benefits paid

     (73,305      (19,016

Others

     (538      —    
  

 

 

    

 

 

 

Ending

   W 2,008,447      W 1,633,515  
  

 

 

    

 

 

 

Amounts recognized in the consolidated statement of profit or loss for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Current service cost

   W 60,545      W 59,769  

Net interest cost

     1,604        2,749  

Transfer out

     (3,412      (2,870
  

 

 

    

 

 

 

Total expenses

   W 58,737      W 59,648  
  

 

 

    

 

 

 

 

36


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

16.

Commitments and Contingencies

As at March 31, 2020, major commitments with local financial institutions are as follows:

 

(in millions of Korean won and foreign currencies in thousands)   Financial institution    Currency    Limit      Used amount  

Bank overdraft

  Kookmin Bank and others    KRW      1,637,000        —    

Inter-Korean Cooperation Fund

  Export-Import Bank of Korea    KRW      37,700        3,208  

Collateralized loan on electronic accounts receivable-trade

  Shinhan Bank and others    KRW      467,660        19,551  

Plus electronic notes payable

  Industrial Bank of Korea    KRW      50,000        6,455  

Loans for working capital

  Korea Development Bank and others    KRW      252,360        150,860  

Facility loans

  Shinhan Bank and others    KRW      102,123        74  
  Kookmin Bank and others    USD      212,000        78,169  

Facility loans on ships

  Shinhan Bank    USD      3,000        3,000  

Derivatives transaction limit

  Korea Development Bank    KRW      100,000        6,888  

Total

     KRW      2,646,843        187,036  
     USD      215,000        81,169  

 

37


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

As at March 31, 2020, guarantees received from financial institutions are as follows:

 

(in millions of Korean won and foreign currencies in thousands)   Financial institution    Currency    Limit  

Performance guarantee

  Seoul Guarantee Insurance and others    KRW      146,116  
     USD      8,569  

Guarantee for import letters of credit

  Industrial Bank of Korea and others    USD      5,980  

Guarantee for advances received refunds

  Korea Development Bank    USD      1,859  

Guarantee for payment in foreign currency

  KEB Hana Bank and others    USD      26,911  
     PLN1      13,751  

Comprehensive credit line

  KEB Hana Bank and others    KRW      40,000  
     USD      10,000  

Bid guarantee

  KEB Hana Bank    USD      400  

Bid guarantee

  Korea Software Financial Cooperative and others    KRW      42,581  

Performance guarantee / warranty guarantee

     KRW      460,871  

Guarantee for advance payments/others

     KRW      218,267  

Warranty guarantee

  Seoul Guarantee Insurance    KRW      555  

Bid guarantee

     KRW      180  

Guarantees for licensing

     KRW      4,953  

Guarantees for deposits

     KRW      6,508  

Merchant business guarantee insurance

     KRW      170  

Total

     KRW      920,201  
     USD      53,719  
     PLN1      13,751  

 

1 

Polish Zloty.

As at March 31, 2020, guarantees provided by the Group to a third party, are as follows:

 

(in millions of Korean won)                               
     Subject to payment guarantees    Creditor      Limit      Used
amount
     Period

KT Estate Inc.

   Busan Gaya Centreville Buyers      Shinhan Bank        4,907        4,907     

Nov. 10, 2017

~ Oct. 31, 2020

KT Estate Inc.

   Daegu Beomeo-Crossroads SeohanIDaum Buyers      Shinhan Bank        7,991        7,975     

Oct. 29, 2017

~ Nov. 30, 2020

KT Hitel Co., Ltd.

   Shinhan Bank      Cash payers        683        —       

Apr. 19, 2019

~ Apr. 17, 2020

The Controlling Company is jointly and severally obligated with KT Sat Co., Ltd. to pay KT Sat Co., Ltd.’s liabilities incurred prior to spin-off. As at March 31, 2020, the Controlling Company and KT Sat Co., Ltd. are jointly and severally liable for reimbursement of W 1,823 million.

For the three-month period ended March 31, 2020, the Group made agreements with the Securitization Specialty Companies (2020: Giga LTE Forty nineth Securitization Specialty Co., Ltd., 2019: Giga LTE Forty third to Forty eighth Securitization Specialty Co., Ltd.), and disposed of its trade receivables related to handset sales. The Group also made asset management agreements with each securitization specialty company and in accordance with the agreement the Group will receive asset management fees upon liquidation of securitization specialty company.

 

38


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

As at March 31, 2020, the Group is a defendant in 175 lawsuits with the total claimed amount of W 93,811 million (2019: W 214,877 million). As at March 31, 2020, litigation provisions of W 64,353 million for pending lawsuits and unasserted claims are recorded as liabilities for potential loss in the ordinary course of business. The final outcome of the cases cannot be estimated as at the end of the reporting period.

According to the financial and other covenants included in certain debentures and borrowings, the Group is required to maintain certain financial ratios such as debt-to-equity ratio, use the funds for the designated purpose and report to the creditors periodically. The covenant also contains restriction on provision of additional collateral and disposal of certain assets.

As at March 31, 2020, the Group participates in Algerie Sidi Abdela new town development consortium (percentage of ownership: 2.5%) and has joint liability with other consortium participants.

As at March 31, 2020, the contract amount of property and equipment acquisition agreement made but not yet recognized amounts to W 679,288 million (December 31, 2019: W 851,798 million).

 

17.

Leases

Set out below is information for leases when the Group is a lessee. Information when the Group is a lessor is described in Note 10.

The consolidated statement of financial position shows the following amounts relating to leases:

 

(In millions of Korean won)    March 31,
2020
     December 31,
2019
 

Right-of-use assets

     

Property and building

   W 525,162      W 540,787  

Machinery and track facilities

     134,941        140,296  

Others

     100,043        107,414  
  

 

 

    

 

 

 

Total

   W 760,146      W 788,497  
  

 

 

    

 

 

 

Investment property (buildings)

   W 42,993      W 50,010  

 

39


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    March 31,
2020
     December 31,
2019
 

Lease liabilities1

     

Current

   W 348,350      W 355,833  

Non-current

     349,637        373,306  
  

 

 

    

 

 

 
   W 697,987      W 729,139  
  

 

 

    

 

 

 

 

1 

Included in the line items ‘Other current liabilities and other non-current liabilities’ in the consolidated statement of financial position (Note 8).

For the three-month period ended March 31, 2020, right-of-use assets increased to W 75,534 million.

The consolidated statement of profit or loss shows the following amounts relating to leases:

 

(in millions of Korean won)    2020      2019  

Depreciation of right-of-use assets

     

Property and building

   W 73,023      W 77,449  

Machinery and track facilities

     16,699        22,522  

Others

     13,908        11,261  
  

 

 

    

 

 

 
   W 103,630      W 111,232  
  

 

 

    

 

 

 

Depreciation of investment properties

   W 5,638      W 4,078  

Interest expense relating to lease liabilities

     8,780        9,146  

Expense relating to short-term leases

     2,653        1,287  

Expense relating to leases of low-value assets that are not short-term leases

     4,898        7,536  

Expense relating to variable lease payments not included in lease liabilities

     1,903        —    

The total cash outflow for leases in 2020 was W 96,508 million.

 

40


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

18.

Retained Earnings

Details of retained earnings as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Legal reserve 1

   W 782,249      W 782,249  

Voluntary reserves 2

     4,651,362        4,651,362  

Unappropriated retained earnings

     6,141,453        6,203,574  
  

 

 

    

 

 

 

Total

   W 11,575,064      W 11,637,185  
  

 

 

    

 

 

 

 

1 

The Commercial Code of the Republic of Korea requires the Controlling Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued share capital. The reserve is not available for the payment of cash dividends, but may be transferred to share capital with the approval of the Controlling Company’s Board of Directors or used to reduce accumulated deficits, if any, with the ratification of the Controlling Company’s majority shareholders.

 

2 

In accordance with the Restrictions on Special Taxation Act R&D and HR related reserves under the voluntary reserves are separately accumulated when retained earnings from tax reserve funds are disposed, when income tax is recalculated from tax return adjustments.

 

19.

Other Components of Equity

The Group’s other components of equity as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Treasury stock

   W (825,838    W (825,838

Gain on disposal of treasury stock

     2,919        1,229  

Share-based payments

     9,368        7,769  

Equity transaction within consolidated entities 1

     (345,986      (353,243
  

 

 

    

 

 

 

Total

   W (1,159,537    W (1,170,083
  

 

 

    

 

 

 

 

1

Includes profit or loss from transactions with non-controlling interests and investment differences from changes in equity ratios of subsidiaries.

As at March 31, 2020 and December 31, 2019, the details of treasury stock are as follows:

 

     March 31, 2020      December 31, 2019  

Number of shares

     15,870,258        15,870,258  

Amount (in millions of Korean won)

   W 825,838      W 825,838  

Treasury stock is expected to be used for the stock compensation for the Group’s directors, employees and other purposes.

 

41


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

20.

Revenue from Contracts with Customers and Relevant Contract Assets and Liabilities

The Group has recognized the following amounts relating to revenue in the statement of profit or loss for the three-month periods ended March 31, 2020 and 2019:

 

(in millions of Korean won)    2020      2019  

Revenue from contracts with customers

   W 5,780,830      W 5,780,610  

Revenue from other sources

     50,886        53,767  
  

 

 

    

 

 

 

Total revenue

   W 5,831,716      W 5,834,377  
  

 

 

    

 

 

 

Operating revenues for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Services provided

   W 5,032,265      W 4,974,680  

Sale of goods

     799,451        859,697  
  

 

 

    

 

 

 

Total

   W 5,831,716      W 5,834,377  
  

 

 

    

 

 

 

Revenues from services provided are recognized over time, and sales of goods are recognized at a point of time. Revenues from construction commitments included in sales of goods are recognized using the percentage of completion method.

The contract assets and liabilities recognized in relation to revenue from contracts with customers are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Contract assets 1

   W 679,113      W 703,078  

Contract liabilities 1

     394,720        413,442  

Deferred revenue 2

     91,926        92,557  

 

1 

The Group recognized contract assets of W 138,182 million and contract liabilities of W 21,651 million for longterm construction contracts as at March 31, 2020 (2019: contract assets of W 146,037 million and contract liabilities of W 47,832 million). The Group recognizes contract assets as trade and other receivables, and contract liabilities as other current liabilities.

 

2 

Deferred revenue recognized relating to government grants is excluded.

The contract costs recognized as assets are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Incremental costs of contract establishment

   W 1,732,732      W 1,764,009  

Costs of Contract performance

     92,170        85,234  

The Group recognized W 432,740 million of operating expenses in the current reporting period (2019: W 380,016 million) which relate to contract cost assets.

 

42


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

For the three-month periods ended March 31, 2020 and 2019, the recognized revenue arising from carried-forward contract liabilities from prior year is as follows:

 

(in millions of Korean won)    2020      2019  

Revenue recognized that was included in the contract liabilities balance at the beginning of the year

     

Allocation of the transaction price

   W 76,259      W 83,527  

Deferred revenue of joining/installment fees

     10,591        12,737  
  

 

 

    

 

 

 

Total

     86,850        96,264  
  

 

 

    

 

 

 

 

21.

Operating Expenses

Operating expenses for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Salaries and wages

   W 1,003,946      W 983,797  

Depreciation

     651,292        627,676  

Depreciation of right-of-use assets

     103,630        115,310  

Amortization of intangible assets

     157,814        164,449  

Commissions

     245,688        218,035  

Interconnection charges

     131,302        139,707  

International interconnection fees

     44,879        55,491  

Purchase of inventories

     957,702        922,280  

Changes of inventories

     30,841        37,568  

Sales commissions

     531,278        548,339  

Service costs

     454,843        376,094  

Utilities

     86,618        76,479  

Taxes and dues

     61,505        64,478  

Rent

     31,810        36,847  

Insurance premiums

     18,322        18,233  

Installation fees

     24,745        39,543  

Advertising expenses

     26,136        29,479  

Research and development expenses

     39,951        40,048  

Card service costs

     682,746        739,217  

Others

     163,590        199,217  
  

 

 

    

 

 

 

Total

   W 5,448,638      W 5,432,287  
  

 

 

    

 

 

 

 

43


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of employee benefits for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Short-term employee benefits

   W 923,380      W 906,854  

Post-employment benefits (defined benefits)

     58,737        59,648  

Post-employment benefits (defined contributions)

     14,795        13,231  

Share-based payments

     1,599        1,489  

Others

     5,435        2,575  
  

 

 

    

 

 

 

Total

   W 1,003,946      W 983,797  
  

 

 

    

 

 

 

 

22.

Other Income and Other Expenses

Other income for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Gain on disposal of property and equipment and investment properties

   W 7,668      W 7,605  

Gain on disposal of intangible assets

     1,715        256  

Gain on disposal of right-of-use assets

     379        1,273  

Compensation on property and equipment

     28,948        19,771  

Gain on government subsidies

     4,177        3,467  

Others

     5,970        31,697  
  

 

 

    

 

 

 

Total

   W 48,857      W 64,069  
  

 

 

    

 

 

 

Other expenses for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Loss on disposal of property and equipment

   W 15,600      W 11,140  

Loss on disposal of intangible assets

     672        1,947  

Loss on disposal of right-of-use assets

     1,040        700  

Loss on disposal of associates

     25        3,473  

Donations

     257        21,821  

Other allowance for bad debts

     9,064        4,767  

Others

     32,335        19,742  
  

 

 

    

 

 

 

Total

   W 58,993      W 63,590  
  

 

 

    

 

 

 

 

44


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

23.

Financial Income and Costs

Details of financial income for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Interest income

   W 68,544      W 69,406  

Gain on foreign currency transactions

     6,063        1,624  

Gain on foreign currency translation

     8,333        3,482  

Gain on settlement of derivatives

     356        —    

Gain on valuation of derivatives

     157,143        39,674  

Others

     1,209        3,215  
  

 

 

    

 

 

 

Total

   W 241,648      W 117,401  
  

 

 

    

 

 

 

Details of financial costs for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Interest expenses

   W 68,360      W 73,710  

Loss on foreign currency transactions

     4,952        3,602  

Loss on foreign currency translation

     166,232        43,256  

Loss on settlement of derivatives

     14        —    

Loss on valuation of derivatives

     685        74  

Loss on disposal of trade receivables

     2,217        1,930  

Others

     1,495        336  
  

 

 

    

 

 

 

Total

   W 243,955      W 122,908  
  

 

 

    

 

 

 

 

24.

Income Tax Expense

Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. As at 31 March, 2020, the estimated average annual income tax rate used for the year ending December 31, 2020 is 38.29%.

 

45


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

25.

Earnings per Share

Basic earnings per share is calculated by dividing the profit from operations attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares purchased by the Group and held as treasury stock.

Basic earnings per share from operations for the three-month periods ended March 31, 2020 and 2019, are calculated as follows:

 

     2020      2019  

Profit attributable to ordinary shares (in millions of Korean won)

   W 208,315      W 231,090  

Weighted average number of ordinary shares outstanding (in number of shares)

     245,241,550        245,144,768  

Basic earnings per share (in Korean won)

   W 849      W 943  

Diluted earnings per share from operations is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has dilutive potential ordinary shares from convertible redeemable preferred stocks and other share-based payments.

Diluted earnings per share from operations for the three-month periods ended March 31, 2020 and 2019, are calculated as follows:

 

     2020      2019  

Profit attributable to ordinary shares (in millions of Korean won)

   W 208,315      W 231,090  

Adjusted net income attributable to ordinary shares (in millions of Korean won)

     (15      —    

Diluted profit attributable to ordinary shares (in millions of Korean won)

   W 208,300      W 231,090  

Number of dilutive potential ordinary shares outstanding (in number of shares)

     —          —    

Weighted average number of ordinary shares outstanding (in number of shares)

     245,241,550        245,144,768  

Diluted earnings per share (in Korean won)

   W 849      W 943  

Diluted earnings per share is earnings per outstanding of ordinary shares and dilutive potential ordinary shares. Diluted earnings per share is calculated by dividing adjusted profit for the period by the sum of the number of ordinary shares and dilutive potential ordinary shares excluding other share-based payments without dilutive effect.

 

46


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

26.

Cash Generated from Operations

Cash flows from operating activities for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

1. Profit for the period

   W 226,586      W 259,770  

2. Adjustments for:

     

Income tax expense

     140,596        137,951  

Interest income 1

     (73,475      (75,099

Interest expense 1

     68,514        73,838  

Dividend income

     (1,344      (1,260

Depreciation

     657,750        627,676  

Amortization of intangible assets

     158,686        164,449  

Depreciation of right-of-use assets

     103,630        115,310  

Provisions for severance benefits (defined benefits)

     62,149        59,648  

Allowance for bad debts

     30,159        28,641  

Share of net profit or loss of associates and joint ventures

     3,453        (659

Loss on disposal of associates and joint ventures

     25        3,473  

Loss on disposal of property and equipments,

and investment properties

     7,932        3,535  

Loss on disposal of right-of-use assets

     661        573  

Loss (gain) on disposal of intangible assets

     (1,043      1,691  

Loss on foreign currency translation

     157,899        39,774  

Gain on valuation of derivatives

     (156,800      (39,600

Loss on disposal of financial assets at amortized cost

     1        1  

Gain on disposal of financial assets at fair value through profit or loss

     (132      (1,868

Loss (gain) on valuation of financial assets at fair value through profit or loss

     1,076        (291

Others

     69,018        35,636  

3. Changes in operating assets and liabilities

     

Increase in trade receivables

     (26,973      (196,692

Decrease in other receivables

     607,929        17,155  

Increase in other current assets

     (35,791      (127,472

Increase in other non-current assets

     (15,604      (40,575

Decrease in inventories

     24,059        35,673  

Decrease in trade payables

     (153,260      (96,289

Decrease in other payables

     (893,099      (19,088

Increase (decrease) in other current liabilities

     (1,722      121,750  

Increase in other non-current liabilities

     4,563        20,933  

Increase (decrease) in provisions

     1,094        (35,892

Increase(decrease) in deferred revenue

     1,055        (115

Decrease in plan assets

     71,884        33,962  

Payment of severance benefits

     (86,752      (33,338
  

 

 

    

 

 

 

4. Cash generated from operations(1+2+3)

   W 952,724      W 1,113,201  
  

 

 

    

 

 

 

 

1 

BC Card Co., Ltd. and other subsidiaries of the Group recognized interest income and expenses as operating revenue and expenses, respectively. Related interest income W 4,931 million (three-month period ended March 31, 2019: W 5,693 million) recognized as operating revenue and expenses recognized as operating expenses are W 154 million (three-month period ended March 31, 2019: W 128 million)

 

47


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Significant transactions not affecting cash flows for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Reclassification of the current portion of borrowings

   W 240,016      W 160,132  

Reclassification of construction-in-progress to property and equipment

     331,085        336,961  

Reclassification of other payable from property and equipment

     (392,239      (27,082

Reclassification of other payable from intangible assets

     (336,346      (352,723

Reclassification of other payable from defined benefit liability

     (3,445      (17,918

Reclassification of other payable from plan assets

     (220      (15,593

Increase in dividend payable

     310,519        305,160  

 

27.

Changes in Liabilities Arising from Financing Activities

 

(in millions of Korean won)    2020  
                 Non-cash        
     Beginning     Cash flows     Newly
acquired
     Exchange
differences
    Fair value
changes
     Others     Ending  

Borrowings

   W 7,298,867     W (173,807   W 312      W 160,646     W —        W 878     W 7,286,896  

Lease liabilities

     729,139       (87,054     74,055        9       10        (18,172     697,987  

Derivative liabilities

     20,096       (261     —          (200     1,926        (18,451     3,110  

Derivative assets

     (58,576     (440     —          (144,327     16,329        8,964       (178,050
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   W 7,989,526     W (261,562   W 74,367      W 16,128     W 18,265      W (26,781   W 7,809,943  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

48


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    2019  
     Beginning     Cash flows     Non-cash     Ending  
    Newly
acquired
     Exchange
differences
    Fair value
changes
    Others  

Borrowings

   W 6,648,294     W 99,858     W —        W 40,327     W —       W 1,605     W 6,790,084  

Lease liabilities

     163,858       (108,252     691,984        —         566       120,578       868,734  

Derivative liabilities

     65,067       —         —          (10,244     (5,697     (12,566     36,560  

Derivative assets

     (29,843     —         —          (26,245     (6,466     11,199       (51,355
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W 6,847,376     W (8,394   W 691,984      W 3,838     W (11,597   W 120,816     W 7,644,023  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

28.

Segment Information

The Group’s operating segments are as follows:

 

Details    Business service
ICT    Mobile/fixed line telecommunication service and convergence business, B2B business and others
Finance    Credit card business and others
Satellite TV    Satellite TV business
Others    IT, facility security and global business, and others

Details of operating revenues and profit by each segment for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
    

Operating

revenues

    

Operating

profit

    

Depreciation

and amortization 1

 

ICT

   W 4,429,067      W 299,605      W 813,908  

Finance

     800,250        33,302        7,898  

Satellite TV

     167,915        24,211        21,740  

Others

     1,306,726        28,599        90,100  
  

 

 

    

 

 

    

 

 

 
     6,703,958        385,717        933,646  

Elimination

     (872,242      (2,639      (20,909
  

 

 

    

 

 

    

 

 

 

Consolidated amount

   W 5,831,716      W 383,078      W 912,737  
  

 

 

    

 

 

    

 

 

 

 

(in millions of Korean won)    2019  
    

Operating

revenues

    

Operating

profit

    

Depreciation

and amortization 1

 

ICT 2

   W 4,334,284      W 296,445      W 811,693  

Finance

     866,634        47,320        6,721  

Satellite TV

     170,699        21,098        24,027  

Others

     1,333,064        37,787        84,564  
  

 

 

    

 

 

    

 

 

 
     6,704,681        402,650        927,005  

Elimination

     (870,304      (560      (19,569
  

 

 

    

 

 

    

 

 

 

Consolidated amount

   W 5,834,377      W 402,090      W 907,436  
  

 

 

    

 

 

    

 

 

 

 

1 

Sum of depreciation of property and equipment, investment properties, right-of-use assets and amortization of intangible assets.

 

2 

The prior year segment reporting has been reclassified to reflect the current year changes for comparability purposes.

 

 

49


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Operating revenues for the three-month periods ended March 31, 2020 and 2019, and non-current assets as at March 31, 2020 and December 31, 2019, by geographical region, are as follows:

 

(in millions of Korean won)    Operating revenues      Non-current assets 1  
Location    2020      2019      March 31, 2020      December 31, 2019  

Domestic

   W 5,813,523      W 5,819,311      W 18,372,167      W 18,718,584  

Overseas

     18,193        15,066        85,633        76,679  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 5,831,716      W 5,834,377      W 18,457,800      W 18,795,263  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Non-current assets include property and equipment, intangible assets, investment properties, and right-of-use-assets

 

29.

Related Party Transactions

The list of related party of the Group as at March 31, 2020, is as follows:

 

Relationship    Name of Entity
Associates and joint ventures   

Korea Information & Technology Investment Fund, K- Realty CR-REITs No.1,

Boston Global Film & Contents Fund L.P., QTT Global (Group) Company Limited,

CU Industrial Development Co., Ltd., KD Living, Inc., Oscar Ent. Co., Ltd.,

LoginD Co., Ltd., K-REALTY CR-REIT 6, K Bank, Inc.,

ISU-kth Contents Investment Fund, Daiwon Broadcasting Co., Ltd.,

KT-DSC creative economy youth start-up investment fund,

Korea electronic Vehicle charging service, K-REALTY RENTAL HOUSING REIT 2,

AI RESEARCH INSTITUTE, KT-IBKC Future Investment Fund 1,

Gyeonggi-KT Yoojin Superman Fund, FUNDA Co., Ltd., CHAMP IT Co.,Ltd.,

Alliance Internet Corp., Little big pictures, Virtual Realm Sendirian Berhad,

KT Philippines Co., Ltd., KT-Smart Factory Investment Fund, Studio&NEW Co., Ltd., Studio Discovery Co., Ltd.

Others 1    KT ENGCORE Co., Ltd., KHS Corp.

 

1

Although the entity is not the related party of the Group in accordance with Korean IFRS 1024, the entity belongs to the Large Enterprise Group to which the Group also belongs in accordance with the Monopoly Regulation and Fair Trade Act.

 

50


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Outstanding balances of receivables and payables in relations to transactions with related parties as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
         Receivables      Payables  
         Trade
receivables
     Other
receivables
     Trade
payables
     Other
payables
    

Lease

liabilities

 

Associates and joint ventures

  K- Realty CR-REITs No.1    W 286      W 23,100      W —        W —        W 49,981  
  K Bank, Inc.      495        10,657        —          561        —    
  Others      145        1,208        —          636        —    

Others

  KT ENGCORE Co., Ltd.      2,859        4,424        73        85,877        42  
  KHS Corp.                    —          1         
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 3,785      W 39,389      W 73      W 87,075      W 50,023  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(in millions of Korean won)    December 31, 2019  
         Receivables      Payables  
         Trade
receivables
     Other
receivables
     Trade
payables
     Other
payables
    

Lease

liabilities

 

Associates and joint ventures

  K- Realty CR-REITs No.1    W 608      W 23,100      W —        W —        W 57,907  
  K Bank, Inc.      583        13,664        —          557        —    
  Others      434        1,177        —          711        —    

Others

  KT ENGCORE Co., Ltd.      4,497        9,517        1,169        148,503        74  
  KHS Corp.                           2         
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 6,122      W 47,458      W 1,169      W 149,773      W 57,981  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Significant transactions with related parties for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
          Sales      Purchases  
          Operating
revenue
    

Other

income

     Operating
expenses
     Others 1  

Associates and joint ventures

   K- Realty CR-REITs No.1    W 326      W —        W —        W —    
   K Bank, Inc.      4,278        —          1,858        —    
   Others      154        37        2,385        —    

Others

   KT ENGCORE Co., Ltd.      1,827        —          21,403        51,427  
   KHS      27        —          3.763        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 6,612      W 37      W 29,409      W 51,427  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Amounts include acquisition of property and equipment, and others.

 

51


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)         2019  
          Sales      Purchases  
          Operating
revenue
    

Other

income

     Operating
expenses
     Others 1  

Associates and joint ventures

   K- Realty CR-REITs No.1    W 322      W  —        W —        W —    
   K Bank, Inc.      4,057        —          2,019        —    
   KD Living, Inc.      8        —          1,315        —    
   Daiwon Broadcasting Co., Ltd.      —          —          1,654        —    
   Others      444        55        7        —    

Others

   KT ENGCORE Co., Ltd.      775        —          22,399        26,053  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

      W  5,606      W 55      W  27,394      W  26,053  
     

 

 

    

 

 

    

 

 

    

 

 

 

1 Amounts include acquisition of property and equipment, and others.

 

(in millions of Korean won)    2020      2019  
          Finance
costs
    

Finance

income

     Finance
costs
    

Finance

income

 

Associates and joint ventures

   K- Realty CR-REITs No.1    W 398      W 2,261      W 828      W 8,744  
   Daiwon Broadcasting Co., Ltd.      —          —          —          77  
   Others      —          43        —          69  

Others

   KT ENGCORE Co., Ltd      1        —          1        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 399      W  2,304      W 829      W 8,890  
  

 

 

    

 

 

    

 

 

    

 

 

 

Key management compensation for the three-month periods ended March 31, 2020 and 2019, consists of:

 

(in millions of Korean won)    2020      2019  

Salaries and other short-term benefits

   W  476      W  511  

Post-employment benefits

     74        99  

Stock-based compensation

     183        220  
  

 

 

    

 

 

 

Total

   W 733      W 830  
  

 

 

    

 

 

 

 

56


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Fund transactions with related parties for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
     Repayments     

Equity contributions

in cash and others

 

Associates and Joint ventures

     

K- Realty CR-REITs No.1

   W 7,190      W —    

Daiwon Broadcasting Co., Ltd.,

     —          —    

Studio&NEW Co., Ltd.

     —          8,333  

Studio Discovery Co., Ltd.

     —          1,500  

KT-Smart Factory Investment Fund

     —          2,800  

KT-CKP new media investment fund

     —          (148

Others

     

KT ENGCORE Co., Ltd

     34        46,800  
  

 

 

    

 

 

 

Total

   W  7,224      W  59,285  
  

 

 

    

 

 

 

 

(in millions of Korean won)    2019  
     Repayments     

Equity contributions

in cash and others

 

Associates and Joint ventures

     

KT-IBKC future investment fund 1

   W —        W 3,750  

Virtual Realm Sendirian Berhad

     —          562  

KT-DSC creative economy youth start-up investment fund

     —          (360

K- Realty CR-REITs No.1

     6,980        —    

Others

     34        —    
  

 

 

    

 

 

 

Total

   W  7,014      W  3,952  
  

 

 

    

 

 

 

At the end of the reporting period, there are no collateral and payment guarantees provided by the related parties.

 

57


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

30.

Fair Value

(1) Fair Value of Financial Instruments by Category

Carrying amount and fair value of financial instruments by category as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  
     Carrying
amount
     Fair value      Carrying
amount
     Fair value  

Financial assets

           

Cash and cash equivalents

   W 1,627,056        1       W 2,305,894        1   

Trade and other receivables

           

Financial assets measured at amortized cost 2

     5,287,371        1         5,796,207        1   

Financial assets at fair value through other comprehensive income

     1,258,204        1,258,204        1,256,266        1,256,266  

Other financial assets

           

Financial assets measured at amortized cost

     496,035        1         441,804        1   

Financial assets at fair value through profit or loss

     679,277        679,277        632,324        632,324  

Financial assets at fair value through other comprehensive income

     485,560        485,560        557,342        557,342  

Derivative financial assets for hedging

     177,866        177,866        58,576        58,576  
  

 

 

       

 

 

    

Total

   W  10,011,369         W  11,048,413     
  

 

 

       

 

 

    

Financial liabilities

           

Trade and other payables

     7,325,739        1         8,679,697        1   

Borrowings

     7,286,897        1         7,298,867        1   

Other financial liabilities

           

Financial liabilities at amortized cost

     138,115        1         129,945        1   

Financial liabilities at fair value through profit or loss

     62        62        38        38  

Derivative financial liabilities for hedging

     3,047        3,047        20,096        20,096  
  

 

 

       

 

 

    

Total

   W 14,753,860         W 16,128,643     
  

 

 

       

 

 

    

 

1 

The Group did not conduct fair value estimation since the book amount is a reasonable approximation of the fair value.

2 

With the application of Korean IFRS 1107, lease receivables are excluded from fair value disclosure.

 

58


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(2) Fair Value Hierarchy

To provide an indication about the reliability of the inputs used in determining fair value, the Group classifies its financial instruments into the three levels prescribed under the accounting standards. Financial instruments that are measured at fair value are categorized by the fair value hierarchy, and the defined levels are as follows:

 

   

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

 

   

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

 

   

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Level 1      Level 2      Level 3      Total  

Assets

           

Trade and other receivables

           

Financial assets at fair value through other comprehensive income

   W —        W 1,258,204      W —        W 1,258,204  

Other financial assets

           

Financial assets at fair value through profit or loss

     94        181,457        497,726        679,277  

Financial assets at fair value through other comprehensive income

     4,010        435,321        46,229        485,560  

Derivative financial assets for hedging

     —          129,273        48,593        177,866  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W  4,104      W  2,004,255      W  592,548      W  2,600,907  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

59


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Liabilities

           

Other financial liabilities

           

Financial liabilities at fair value through profit or loss

   W  —        W 62      W —        W 62  

Derivative financial liabilities for hedging

     —          3,047        —          3,047  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W —        W  3,109      W —        W  3,109  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(in millions of Korean won)    December 31, 2019  
     Level 1      Level 2      Level 3      Total  

Assets

           

Trade and other receivables

           

Financial assets at fair value through other comprehensive income

   W —        W 1,256,266      W —        W 1,256,266  

Other financial assets

           

Financial assets at fair value through profit or loss

     232        136,951        495,141        632,324  

Financial assets at fair value through other comprehensive income

     6,738        508,550        42,054        557,342  

Derivative financial assets for hedging

     —          40,788        17,788        58,576  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W  6,970      W  1,942,555      W  554,983      W  2,504,508  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Other financial liabilities

           

Financial liabilities at fair value through profit or loss

   W —        W 38      W —        W 38  

Derivative financial liabilities for hedging

     —          20,096        —          20,096  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W —        W 20,134      W —        W 20,134  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

60


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(3) Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements

There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements.

Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements are as follows:

 

(In millions of Korean won)                     
     2020  
     Financial assets  
     Financial assets at fair
value through profit or
loss
     Financial assets at fair
value through other
comprehensive income
     Derivative financial
assets (liabilities) for
hedging
 

Beginning balance

   W 495,141      W  42,054      W  17,788  

Purchases

     89,813        4,771        —    

Reclassifications

     (1,245      —          —    

Disposals

     (86,553      (129      —    

Amount recognized in profit or loss

     570        24        25,574  

Amount recognized in other comprehensive income

     —          (491      5,231  
  

 

 

    

 

 

    

 

 

 

Ending balance

   W 497,726      W 46,229      W 48,593  
  

 

 

    

 

 

    

 

 

 

 

(In millions of Korean won)    2019  
     Financial assets      Financial
liabilities
 
     Financial assets
at fair value
through profit or
loss
     Financial assets
at fair value
through other
comprehensive
income
     Derivative
financial assets
(liabilities) for
hedging
     Financial
liabilities at fair
value through
profit or loss
 

Beginning balance

   W 163,600      W  311,536      W (10,183    W 7,758  

Purchases

     8,619        76,002        —          —    

Sales

     (20,156      (3,995      —          —    

Amount recognized in profit or loss1

     8        —          7,524        —    

Amount recognized in other comprehensive income

     —          (36      4,801        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   W 152,071      W 383,507      W 2,142      W  7,758  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

61


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(4) Valuation Techniques and Inputs

Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020
     Fair value      Level      Valuation techniques

Assets

        

Trade and other receivables

        

Financial assets at fair value through other comprehensive income

   W  1,258,204        2      DCF Model

Other financial assets

        

Financial assets at fair value through profit or loss

     679,183        2,3      DCF Model,

Adjusted Net Asset model

Financial assets at fair value through other comprehensive income

     481,550        2,3      DCF Model

Comparable Company
Analysis

Derivative financial assets for hedging

     177,866        2,3      DCF Model,

Hull-White model

Liabilities

        

Other financial liabilities

        

Financial liabilities at fair value through profit or loss

   W 62        2      DCF Model

Derivative financial liabilities for hedging

     3,047        2      DCF Model

 

(in millions of Korean won)    December 31, 2019
     Fair value      Level      Valuation techniques

Assets

        

Trade and other receivables

        

Financial assets at fair value through other comprehensive income

   W  1,256,266        2      DCF Model

Other financial assets

        

Financial assets at fair value through profit or loss

     632,092        2,3      DCF Model,

Adjusted Net Asset model

Financial assets at fair value through other comprehensive income

     550,604        2,3      DCF Model,

Comparable Company
Analysis

Derivative financial assets for hedging

     58,576        2,3      DCF Model,

Hull-White model

 

62


KT Corporation and Subsidiaries

Notes to the Consolidated Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Liabilities

        

Other financial liabilities

        

Financial liabilities at fair value through profit or loss

   W 38        2        DCF Model  

Derivative financial liabilities for hedging

     20,096        2        DCF Model  

(5) Valuation Processes for Fair Value Measurements Categorized Within Level 3

The Group uses external experts that perform the fair value measurements required for financial reporting purposes. External experts report directly to the chief financial officer (CFO), and discuss valuation processes and results with the CFO in line with the Group’s closing dates.

(6) Gains and Losses on Valuation at the Transaction Date

In the case that the Group values derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instrument. However, in the case that inputs of the valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full in profit for the year.

In relation to this, details and changes of the total deferred differences for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  
     Derivatives used for
hedging
     Derivatives used for
hedging
 

I. Beginning balance

   W  3,682      W  5,107  

II. New transactions

     —          —    

III. Recognized at fair value through profit or loss

     (356      (356
  

 

 

    

 

 

 

IV. Ending balance (I+II+III)

   W 3,326      W 4,751  
  

 

 

    

 

 

 

 

31.

Events after Reporting Period

(1) In accordance with the resolution of The Board of Directors on April 14, 2020, BC Card, a subsidiary of the Group, decided to sell all or part of shares in Mastercard Inc. amounting to W 429,400 million as at March 31, 2020.

(2) The Group is expected to consolidate KT ENGCORE Co., Ltd. as a subsidiary, as the entity has completed its court rehabilitation proceedings on April 28, 2020.

 

63


KT Corporation

Separate Interim Financial Statements

March 31, 2020 and 2019


KT Corporation

Index

March 31, 2020 and 2019

 

 

 

     Page(s)  

Report on Review of Interim Financial Statements

     1-2  

Separate Interim Financial Statements

  

Separate Interim Statements of Financial Position

     3-4  

Separate Interim Statements of Profit or Loss

     5  

Separate Interim Statements of Comprehensive Income

     6  

Separate Interim Statements of Changes in Equity

     7  

Separate Interim Statements of Cash Flows

     8  

Notes to the Separate Interim Financial Statements

     9-52  


  

Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of

KT Corporation

Reviewed Financial Statements

We have reviewed the accompanying separate interim financial statements of KT Corporation (the

“Company”). These financial statements consist of the separate interim statement of financial position of the Company as at March 31, 2020, and the related separate interim statements of profit or loss, comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2020 and 2019, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these separate interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to issue a report on these separate interim financial statements based on our review.

We conducted our review in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe the accompanying separate interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting.

Samil PricewaterhouseCoopers, 100, Hangang-daero, Yongsan-gu, Seoul 04386, Korea, www.samil.com


Other Matters

We have audited the separate statement of financial position of the Company as at December 31, 2019, and the related separate statements of profit or loss, comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 10, 2020. The separate statement of financial position as at December 31, 2019, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as at December 31, 2019.

Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries.

 

 

May 15, 2020

Seoul, Korea

 

This report is effective as of May 15, 2020, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying separate interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.


KT Corporation

Separate Interim Statements of Financial Position

March 31, 2020 and December 31, 2019

 

 

 

(in millions of Korean won)    Notes      March 31, 2020
(Unaudited)
     December 31,
2019
 

Assets

        

Current assets

        

Cash and cash equivalents

     4      W 754,049      W 1,328,397  

Trade and other receivables, net

     4,5        3,490,206        3,231,008  

Other financial assets

     4,6        134,742        100,830  

Inventories, net

     7        439,379        477,138  

Current tax assets

        —          64,967  

Current assets held for sale

     9        82,865        82,865  

Other current assets

     8        1,983,221        1,951,064  
     

 

 

    

 

 

 

Total current assets

        6,884,462        7,236,269  
     

 

 

    

 

 

 

Non-current assets

        

Trade and other receivables, net

     4,5        954,393        1,063,440  

Other financial assets

     4,6        289,486        179,240  

Property and equipment, net

     10        11,284,558        11,447,952  

Right-of-use assets

     17        673,584        714,968  

Investment properties, net

     10        755,846        769,019  

Intangible assets, net

     10        2,122,330        2,239,882  

Investments in subsidiaries, associates and joint ventures

     11        3,518,945        3,501,391  

Other non-current assets

     8        585,471        581,693  
     

 

 

    

 

 

 

Total non-current assets

        20,184,613        20,497,585  
     

 

 

    

 

 

 

Total assets

      W 27,069,075      W 27,733,854  
     

 

 

    

 

 

 

 

3


KT Corporation    

Separate Interim Statements of Financial Position     

March 31, 2020 and December 31, 2019                          

 

 

 

(in millions of Korean won)    Notes      March 31, 2020
(Unaudited)
    December 31, 2019  

Liabilities

       

Current liabilities

       

Trade and other payables

     4,12      W 4,276,850     W 4,729,683  

Borrowings

     4,13        1,168,498       1,052,526  

Current tax liabilities

        63,871       —    

Provisions

     14        152,108       167,729  

Deferred income

        41,829       45,754  

Other current liabilities

     8        783,242       768,961  
     

 

 

   

 

 

 

Total current liabilities

        6,486,398       6,764,653  
     

 

 

   

 

 

 

Non-current liabilities

       

Trade and other payables

     4,12        744,112       1,028,886  

Borrowings

     4,13        5,854,549       5,975,514  

Other financial liabilities

     4,6        2       18,632  

Net defined benefit liabilities

     15        301,194       274,598  

Provisions

     14        85,668       69,990  

Deferred income

     20        90,259       91,703  

Deferred tax liabilities

        186,182       206,440  

Other non-current liabilities

     8        384,960       406,737  
     

 

 

   

 

 

 

Total non-current liabilities

        7,646,926       8,072,500  
     

 

 

   

 

 

 

Total liabilities

        14,133,324       14,837,153  
     

 

 

   

 

 

 

Equity

       

Share capital

        1,564,499       1,564,499  

Share premium

        1,440,258       1,440,258  

Retained earnings

     18        10,919,597       10,869,987  

Accumulated other comprehensive income

        9,600       23,449  

Other components of equity

     19        (998,203     (1,001,492
     

 

 

   

 

 

 

Total equity

        12,935,751       12,896,701  

Total liabilities and equity

      W 27,069,075     W 27,733,854  
     

 

 

   

 

 

 

The above separate interim statements of financial position should be read in conjunction with the accompanying notes.

 

4


KT Corporation

Separate Interim Statements of Profit or Loss

Three-Month Periods Ended March 31, 2020 and 2019

 

 

 

            Three Month Period Ended March 31  
(in millions of Korean won, except per share amounts)    Notes      2020
(Unaudited)
     2019
(Unaudited)
 

Operating revenue

     20      W 4,429,067      W 4,334,284  

Operating expenses

     21        4,129,462        4,037,839  
     

 

 

    

 

 

 

Operating profit

        299,605        296,445  

Other income

     22        162,572        165,397  

Other expenses

     22        29,462        56,836  

Finance income

     23        226,431        106,287  

Finance costs

     23        225,332        114,110  
     

 

 

    

 

 

 

Profit before income tax expense

        433,814        397,183  

Income tax expense

        113,789        104,548  
     

 

 

    

 

 

 

Profit for the period

      W 320,025      W 292,635  
     

 

 

    

 

 

 

Earnings per share

        

Basic earnings per share

     25      W 1,305      W 1,194  

Diluted earnings per share

     25        1,305        1,194  

The above separate interim statements of profit or loss should be read in conjunction with the accompanying notes.

 

5


KT Corporation

Separate Interim Statements of Comprehensive Income

Three-Month Periods Ended March 31, 2020 and 2019

 

 

 

            Three Month Period Ended March 31  
(in millions of Korean won)    Notes      2020
(Unaudited)
    2019
(Unaudited)
 

Profit for the period

      W 320,025     W 292,635  

Other comprehensive income

       

Items that will not be subsequently reclassified to profit or loss:

       

Remeasurements of the net defined benefit liabilities

     15        1,041       27  

Loss on valuation of financial instruments at fair value through other comprehensive income

        (792     (85

Items that may be subsequently reclassified to profit or loss

       

Valuation gain on cash flow hedge

     6        96,972       34,936  

Other comprehensive income from cash flow hedges reclassified to profit or loss

        (110,029     (26,896
     

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

        (12,808     7,982  
     

 

 

   

 

 

 

Total comprehensive income for the period

      W 307,217     W 300,617  
     

 

 

   

 

 

 

The above separate interim statements of comprehensive income should be read in conjunction with the accompanying notes.

 

6


KT Corporation    

Separate Interim Statements of Changes in Equity    

Three-Month Periods Ended March 31, 2020 and 2019                     

 

 

 

(in millions of Korean won)    Notes      Share capital      Share
premium
     Retained
earnings
    Accumulated
other
comprehensive
income
    Other
components of
equity
    Total equity  

Balance as at January 1, 2019

      W 1,564,499      W 1,440,258      W 10,740,042     W (11,251   W (1,021,820   W 12,711,728  

Changes in accounting policies

        —          —          (6,149     —         —         (6,149

Comprehensive income

                 

Profit for the period

        —          —          292,635       —         —         292,635  

Loss on valuation of financial assets at fair value through other comprehensive income

     6        —          —          —         (85     —         (85

Remeasurements of net defined benefit liabilities

     15        —          —          27       —         —         27  

Valuation gain on cash flow hedge

     6        —          —          —         8,040       —         8,040  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

        —          —          292,662       7,955       —         300,617  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners

                 

Dividends paid

        —          —          (269,659     —         —         (269,659

Appropriation of retained earnings related to loss on disposal of treasury stock

        —          —          (15,169     —         15,169       —    

Others

        —          —          —         —         1,489       1,489  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

        —          —          (284,828     —         16,658       (268,170
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2019 (Unaudited)

      W 1,564,499      W 1,440,258      W 10,741,727     W (3,296   W (1,005,162   W 12,738,026  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at January 1, 2020

      W 1,564,499      W 1,440,258      W 10,869,987     W 23,449     W (1,001,492   W 12,896,701  

Comprehensive income

                 

Profit for the period

        —          —          320,025       —         —         320,025  

Loss on valuation of financial assets at fair value through other comprehensive income

     6        —          —          —         (792     —         (792

Remeasurements of net defined benefit liabilities

     15        —          —          1,041       —         —         1,041  

Valuation loss on cash flow hedge

     6        —          —          —         (13,057     —         (13,057
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

        —          —          321,066       (13,849     —         307,217  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners

                 

Dividends paid

        —          —          (269,766     —         —         (269,766

Appropriation of retained earnings related to loss on disposal of treasury stock

        —          —          (1,690     —         1,690       —    

Others

        —          —          —         —         1,599       1,599  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

        —          —          (271,456     —         3,289       (268,167
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2020 (Unaudited)

      W 1,564,499      W 1,440,258      W 10,919,597     W 9,600     W (998,203   W 12,935,751  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The above separate interim statements of changes in equity should be read in conjunction with the accompanying notes.

 

7


KT Corporation    

Separate Interim Statements of Cash Flows    

Three-Month Periods Ended March 31, 2020 and 2019         

 

 

 

            Three-Month Period Ended March 31  
(in millions of Korean won)    Notes      2020
(Unaudited)
     2019
(Unaudited)
 

Cash flows from operating activities

        

Cash generated from operations

     26      W 915,273      W 983,565  

Interest paid

        (65,745      (64,475

Interest received

        55,374        60,109  

Dividends received

        2,262        9,247  

Income tax paid

        (972      (17,453
     

 

 

    

 

 

 

Net cash inflow from operating activities

        906,192        970,993  
     

 

 

    

 

 

 

Cash flows from investing activities

        

Collection of loans

        15,332        13,860  

Disposal of investments in subsidiaries, associates and joint ventures

        109        3,550  

Disposal of property and equipment

        6,902        8,287  

Disposal of intangible assets

        677        —    

Disposal of right-of-use assets

        21        1,872  

Loans granted

        (8,508      (11,398

Acquisition of current financial assets at amortized cost

        —          (22,034

Acquisition of financial assets at fair value through profit or loss

        (30,873      (1,125

Acquisition of investments in subsidiaries, associates and joint ventures

        (17,681      (14,752

Acquisition of property and equipment

        (839,467      (635,532

Acquisition of intangible assets

        (357,499      (354,062

Acquisition of right-of-use assets

        (1,347      (1,635
     

 

 

    

 

 

 

Net cash outflow from investing activities

        (1,232,334      (1,012,969
     

 

 

    

 

 

 

Cash flows from financing activities

        

Proceeds from borrowings

        —          498,450  

Repayments of borrowings

        (160,247      (400,247

Decrease in lease liabilities

        (87,837      (86,017
     

 

 

    

 

 

 

Net cash outflow from financing activities

     27        (248,084      12,186  
     

 

 

    

 

 

 

Effect of exchange rate change on cash and cash equivalents

 

     (122      169  
  

 

 

    

 

 

 

Net decrease in cash and cash equivalents

        (574,348      (29,621

Cash and cash equivalents

        

Beginning of the period

        1,328,397        1,779,745  
     

 

 

    

 

 

 

End of the period

      W 754,049      W 1,750,124  
     

 

 

    

 

 

 

The above separate interim statements of cash flows should be read in conjunction with the accompanying notes.

 

8


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

1.

General Information

KT Corporation (the “Company”) commenced operations on January 1, 1982, when it spun off from the Korea Communications Commission (formerly the Korean Ministry of Information and Communications) to provide telephone services and to engage in the development of advanced communications services under the Act of Telecommunications of Korea. The address of the Company’s registered office is 90, Buljeong-ro, Bundang-gu, Seongnam City, Gyeonggi Province, Korea.

On October 1, 1997, upon the announcement of the Act on the Management of Government-Invested Institutions and the Privatization Law, the Company became a government-funded institution under the Commercial Code of Korea.

On December 23, 1998, the Company’s shares were listed on the Korea Stock Exchange.

On May 29, 1999, the Company issued 24,282,195 additional shares and issued American Depository Shares (ADS), which represents new shares and 20,813,311 government-owned shares, on the New York Stock Exchange. On July 2, 2001, the additional ADS representing 55,502,161 government-shares were issued at the New York Stock Exchange.

In 2002, the Company acquired the entire government-owned shares in accordance with the Korean government’s privatization plan. As at March 31, 2020, the Korean government does not own any shares in the Company.

 

2.

Significant Accounting Policies

 

  2.1

Basis of Preparation

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying separate interim financial statements have been translated into English from the Korean language financial statements.

The Company’s separate interim financial statements for the three-month periods ended March 31, 2020, have been prepared in accordance with Korean IFRS 1034 Interim Financial Reporting. These separate interim financial statements have been prepared in accordance with Korean IFRS which is effective or has been early adopted as at March 31, 2020.

(1) New and amended standards adopted by the Company

The Company has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2020.

 

9


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

   

Amendments to Korean IFRS 1001 Presentation of Financial Statements, Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material

The amendments clarify the explanation of the definition of material and amended Korean IFRS 1001 and Korean IFRS 1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Company. The amendment does not have a significant impact on the financial statements.

 

   

Amendments to Korean IFRS 1103 Business Combination – Definition of a Business

To consider the integration of the required activities and assets as a business, the amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and excludes economic benefits from the lower costs. An entity can apply a concentration test, an optional test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset or a group of similar assets, the assets acquired would not represent a business. The amendment does not have a significant impact on the financial statements.

 

   

Amendments to Korean IFRS 1109 Financial Instruments, Korean IFRS 1039 Financial Instruments: Recognition and Measurement and Korean IFRS 1107 Financial Instruments: Disclosures – Interest Rate Benchmark Reform

The amendments allow to apply the exceptions when forward-looking analysis is performed in relation the application of hedge accounting while uncertainties arising from interest rate benchmark reform exist. The exceptions require the Company assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based on is not altered as a result of interest rate benchmark reform, when determining whether the expected cash flows are highly probable, whether an economic relationship between the hedged item and the hedging instrument exists, and when assessing the hedging relationship is highly effective. The amendments do not have a significant impact on the financial statements. The Company’s risk exposure directly affected by interest rate benchmark reform, is the variable rate borrowings of USD 450 thousand with maximum remaining maturity of four years. To hedge fluctuations in cash flows of borrowings resulting from the changes in USD LIBOR of 3 months—an interest rate benchmark, the Company entered into an interest rate swap contract for a nominal amount of USD 450 thousand and designated it as a hedging instrument of cash flow hedge. However, the interest rate of USD LIBOR will be replaced to SOFR (Secured Overnight Financing Rate) based on actual transactions since 2022.

(2) New standards and interpretations not yet adopted by the Company

Certain new accounting standard and interpretation that have been published but have not been early adopted by the Company are set out below.

 

   

Agenda Decision of the International Accounting Standards Interpretations Committee – Lease Period

 

10


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

The International Accounting Standards Interpretations Committee (IFRS IC) announced on December 16, 2019 that all economic disadvantages resulting from the termination of a lease are taken into account when determining the enforceable period for ‘the useful life of lease term and lease asset improvement rights’. The Company is analyzing the effect of changes in accounting policies on the separate financial statements for enforceable periods in accordance with the decision and will reflect the effect in the separate financial statements after the analysis is completed.

 

  2.2

Significant Accounting Policies

Significant accounting policies and method of computation used in the presentation of the condensed separate interim financial statements are consistent with those of the separate financial statements for the year ended December 31, 2019, except for the changes due to the application of amendment and enactments of standards described in Note 2.1 (1) the one described below.

 

  2.2.1

Income Tax Expense

Income tax expense for the interim period is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate is applied to the pre-tax income.

 

  2.2.2

Subsidiaries, Associates and Joint Ventures

The financial statements of the Company are the separate financial statements prepared in accordance with Korean IFRS 1027 Separate Financial Statements. Investments in subsidiaries, joint ventures and associates are recognized at cost under the direct equity method. Management applied the carrying amounts under the previous K-GAAP at the time of transition to Korean IFRS as deemed cost of investments. The Company recognizes dividend income from subsidiaries, joint ventures and associates in profit or loss when its right to receive the dividend is established.

 

3.

Critical Accounting Estimates and Assumptions

The Company makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. Actual results may differ from these estimates.

The outbreak of COVID-19 in 2020 poses significant impact on the global economy. Respectively, COVID-19 will have a negative influence on the demand for services provided by the Company and the ability of suppliers to distribute services to the Company. As a consequence, the ongoing pandemic, which could adversely affect the Company’s financial condition and operational results, is expected to continually impact the Company’s separate annual financial statements in 2020.

 

11


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Significant accounting estimates and assumptions applied in the preparation of these separate interim financial statements are the same as those applied to the separate interim financial statements for the year ended December 31, 2019, except for the estimates used to determine income tax expense. However, estimates and assumptions are subject to adjustments due to uncertainties and fluctuations from COVID-19. At present, the ultimate impact of COVID-19 on the Company’s business, financial condition, and operational results cannot be predicted.

 

12


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

4.

Financial Instruments by Category

Financial instruments by category as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
Financial assets   

Financial assets
at amortized

cost

     Financial
assets at fair
value through
profit or loss
     Financial assets at
fair value through
other comprehensive
income
    

Derivatives

used for
hedging

     Total  

Cash and cash equivalents

   W 754,049      W —        W —        W —        W 754,049  

Trade and other receivables 1

     3,184,721        —          1,258,204        —          4,442,925  

Other financial assets

     72,329        162,079        19,903        169,917        424,228  

 

1

Lease receivables and others which are not applied to financial instruments by category are excluded.

 

(in millions of Korean won)    March 31, 2020  
Financial liabilities    Financial liabilities at
amortized cost
    

Derivatives

used for hedging

     Total  

Trade and other payables

   W 5,020,962      W —        W 5,020,962  

Borrowings

     7,023,047        —          7,023,047  

Other financial liabilities

     —          2        2  

 

(in millions of Korean won)    December 31, 2019  
Financial assets    Financial assets
at amortized
cost
     Financial
assets at fair
value through
profit or loss
     Financial assets at
fair value through
other comprehensive
income
    

Derivatives

used for
hedging

     Total  

Cash and cash equivalents

   W 1,328,397      W —        W —        W —        W 1,328,397  

Trade and other receivables1

     3,035,777        —          1,256,266        —          4,298,043  

Other financial assets

     72,329        131,344        20,974        55,423        280,070  

 

1

Lease receivables and others which are not applied to financial Instruments by category are excluded.

 

(in millions of Korean won)    December 31, 2019  
Financial liabilities    Financial liabilities at
amortized cost
    

Derivatives

used for hedging

     Total  

Trade and other payables

   W 5,787,569      W —        W 5,787,569  

Borrowings

     7,028,040        —          7,028,040  

Other financial liabilities

     —          18,632        18,632  

 

13


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

5.

Trade and Other Receivables

Trade and other receivables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Total amounts      Provision for
impairment
     Present value
discount
    

Carrying

amount

 

Current assets

           

Trade receivables

   W 3,222,130      W (247,623    W (7,303    W 2,967,204  

Other receivables

     579,947        (50,153      (6,792      523,002  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 3,802,077      W (297,776    W (14,095    W 3,490,206  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets

           

Trade receivables

   W 737,072      W (3,833    W (35,417    W 697,822  

Other receivables

     271,924        (5      (15,348      256,571  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 1,008,996      W (3,838    W (50,765    W 954,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(in millions of Korean won)    December 31, 2019  
     Total amounts      Provision for
impairment
     Present value
discount
    

Carrying

amount

 

Current assets

           

Trade receivables

   W 3,078,278      W (244,078    W (9,029    W 2,825,171  

Other receivables

     454,987        (48,991      (159      405,837  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 3,533,265      W (293,069    W (9,188    W 3,231,008  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets

           

Trade receivables

   W 858,435      W (3,833    W (42,353    W 812,249  

Other receivables

     275,042        (5      (23,846      251,191  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 1,133,477      W (3,838    W (66,199    W 1,063,440  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of other receivables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Loans

   W 67,581      W 73,606  

Receivables

     314,089        300,656  

Accrued income

     116,761        1,485  

Refundable deposits

     329,625        327,748  

Others

     1,675        2,529  

Less: Provision for impairment

     (50,158      (48,996
  

 

 

    

 

 

 
     W779,573      W657,028  
  

 

 

    

 

 

 

The maximum exposure of trade and other receivables to credit risk is the carrying amount of each class of receivables mentioned above as at March 31, 2020.

A portion of the trade receivables is classified as financial assets at fair value through other comprehensive income considering the trade receivables business model for managing the asset and the cash flow characteristics of the contract.

 

6.

Other Financial Assets and Liabilities

Details of other financial assets and liabilities as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Other financial assets

     

Financial assets at amortized cost 1

   W 72,329      W 72,329  

Financial assets at fair value through profit or loss

     162,079        131,344  

Financial assets at fair value through other comprehensive income

     19,903        20,974  

Derivatives used for hedging

     169,917        55,423  

Less: Non-current

     (289,486      (179,240
  

 

 

    

 

 

 

Current

   W 134,742      W 100,830  
  

 

 

    

 

 

 

Other financial liabilities

     

Derivatives used for hedging

   W 2      W 18,632  

Less: Non-current

     (2      (18,632
  

 

 

    

 

 

 

Current

   W —        W —    
  

 

 

    

 

 

 

 

1

As at March 31, 2020, the Company’s financial instruments amounting to W22,329 million (December 31, 2019: W22,329 million), which consist of checking account deposits, time deposits and others, are subject to withdrawal restrictions.

 

15


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of financial assets at fair value through profit or loss as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Equity instruments (Listed)

   W 94      W 232  

Equity instruments (Unlisted)

     28,000        —    

Debt securities

     133,985        131,112  

Less: Non-current

     (162,079      (131,344
  

 

 

    

 

 

 

Current

   W —        W —    
  

 

 

    

 

 

 

The maximum exposure of debt instruments of financial assets recognized at fair value through profit or loss to credit risk is the carrying amount as at March 31, 2020.

Investment in Korea Software Financial Cooperative amounting to W1,136 million is provided as collateral.

Details of financial assets at fair value through other comprehensive income as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Equity instruments (Listed)

   W 939      W 2,010  

Equity instruments (Unlisted)

     18,964        18,964  

Less: Non-current

     (19,903      (20,974
  

 

 

    

 

 

 

Current

   W —        W —    
  

 

 

    

 

 

 

Upon disposal of these equity instruments, any balance within the accumulated other comprehensive income for these equity instruments is not reclassified to profit or loss, but to retained earnings. Upon disposal of debt securities, remaining balance of the accumulated other comprehensive income of debt investments is reclassified to profit or loss.

 

16


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of valuation of derivatives used for hedging as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  
     Assets      Liabilities      Assets      Liabilities  

Currency swap 1

   W 169,917      W 2      W 55,423      W 18,632  

Less: Non-current

     (107,499      (2      (26,917      (18,632
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

   W 62,416      W      W 28,506      W —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1

The currency swap contract is to hedge the risk of variability in cash flow from the bond. In applying the cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 7, 2034.

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

The valuation gains and losses on the derivative contracts for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  
Type of transaction    Valuation
gain
     Valuation
loss
    

Other

comprehensive
income 1

     Valuation
gain
     Valuation
loss
    

Other

comprehensive
income 1

 

Currency swap

   W 150,816      W —        W 131,452      W 36,412      W      W 47,397  

 

1 

The amounts are before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest.

The ineffective portion recognized in profit or loss on the cash flow hedge is valuation gain of W2,028 million for the current period (three-month period ended March 31, 2019: valuation gain of W297 million).

 

7.

Inventories

Inventories as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  
     Acquisition
cost
     Valuation
allowance
   

Carrying

amount

     Acquisition
cost
     Valuation
allowance
   

Carrying

amount

 

Merchandise

   W 583,543      W (144,164   W 439,379      W 616,203      W (139,065   W 477,138  

Cost of inventories recognized as expenses for three-month period ended March 31, 2020, amounts to W869,787 million (three-month period ended March 31, 2019: W806,385 million) and valuation loss on inventory amounts to W5,099 million for three-month period ended March 31, 2020 (three-month period ended March 31, 2019: valuation loss of W2,394 million).

 

17


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

8.

Other Assets and Liabilities

Other assets and liabilities as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Other assets

     

Advance payments

   W 52,972      W 77,670  

Prepaid expenses 1

     2,019,000        1,942,179  

Contract assets 1

     496,720        512,908  

Less: Non-current

     (585,471      (581,693
  

 

 

    

 

 

 

Current

   W 1,983,221      W 1,951,064  
  

 

 

    

 

 

 

Other liabilities

     

Advances received 1

   W 86,683      W 110,960  

Withholdings

     58,340        21,712  

Unearned revenue

     50,526        40,789  

Lease liabilities

     600,396        638,614  

Contract liabilities 1

     372,257        363,624  

Less: Non-current

     (384,960      (406,737
  

 

 

    

 

 

 

Current

   W 783,242      W 768,962  
  

 

 

    

 

 

 

 

1 

The amounts include adjustments arising from adoption of Korean IFRS 1115 (Note 20).

 

9.

Assets Held for Sale

During the prior period, the Company decided to sell some real estate, in which the amount of W82,865 was classified as assets held for sale and will be sold in the current year.

 

18


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

10.

Property and Equipment, Investment Properties, and Intangible Assets

Changes in property and equipment for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 11,447,952      W 10,864,398  

Changes in accounting policy 1

     —          (209,703

Acquisition and capital expenditure

     440,505        559,922  

Disposal and termination

     (12,723      (11,407

Depreciation

     (576,410      (560,508

Transfer from investment property

     (1,714      8,903  

Transfer from intangible assets

            249  

Others

     (13,052      4,874  
  

 

 

    

 

 

 

Ending, net

   W 11,284,558      W 10,656,728  
  

 

 

    

 

 

 

 

1 

With the application of Korean IFRS 1116, the assets were reclassified from property and equipment to right-of-use assets.

Changes in investment properties for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 769,019      W 600,624  

Changes in accounting policy1

     —          46,666  

Depreciation

     (13,519      (10,930

Transfer

     346        16,644  
  

 

 

    

 

 

 

Ending, net

   W 755,846      W 653,004  
  

 

 

    

 

 

 

 

1 

With the application of Korean IFRS 1116, the assets were reclassified from right-of-use assets to investment properties.

As at March 31 2020, the Company (Lessor) has entered into a non-cancellable operating lease contract relation to real estate lease. The future minimum lease fee under this contract is W104,433 million for one year or less, W71,068 million more than one year and less than five years, W61,235 million over five years, and W236,736 million in total.

 

19


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of investment properties provided as collateral as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Carrying
amount
     Secured
amount
     Related account      Related
amount
 

Land and Buildings

   W 154,686      W 38,268        Deposits received      W 34,800  

 

(in millions of Korean won)    December 31, 2019  
     Carrying
amount
     Secured
amount
     Related account      Related
amount
 

Land and Buildings

   W 165,487      W 37,984        Deposits received      W 34,584  

Changes in intangible assets for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 2,239,882      W 2,773,387  

Changes in accounting policy 1

     —          (26,208

Acquisition and capital expenditure

     18,301        14,855  

Disposal and termination

     (801      (1,663

Amortization

     (135,052      (142,804

Transfer to property and equipment

     —          (249
  

 

 

    

 

 

 

Ending, net

   W 2,122,330      W 2,617,318  
  

 

 

    

 

 

 

 

1 

With the application of Korean IFRS 1116, the assets were reclassified from intangible assets to right-of-use assets.

The carrying amount of goodwill with indefinite useful life not subject to amortization is W65,057 million as at March 31, 2020 (December 31, 2019: W65,057 million). The carrying amount of membership rights with indefinite useful life not subject to amortization is W65,952 million as at March 31, 2020 (December 31, 2019: W64,825 million).

 

20


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

11.

Investments in Subsidiaries, Associates and Joint Ventures

Carrying amount in investments in subsidiaries, associates and joint ventures as at March 31, 2020 and December 31, 2019, is as follows:

 

(in millions of Korean won)    March 31,
2020
     December 31,
2019
 

Subsidiaries

   W 3,286,451      W 3,270,770  

Associates and joint ventures

     232,494        230,621  
  

 

 

    

 

 

 

Total

   W 3,518,945      W 3,501,391  
  

 

 

    

 

 

 

Investments in subsidiaries as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)               Carrying amount  
   Location    Percentage of
ownership (%)
   

March 31,

2020

    

December 31,

2019

 

KT Estate Inc.

   Korea      100.0   W 1,084,522      W 1,084,522  

KT Sat Co., Ltd.

   Korea      100.0     390,530        390,530  

KTCS Corporation 1

   Korea      7.6     6,427        6,427  

KTIS Corporation 1

   Korea      30.1     30,633        30,633  

KT Skylife Co., Ltd.

   Korea      50.3     311,696        311,696  

BC Card Co., Ltd.

   Korea      69.5     633,004        633,004  

KT M&S Co., Ltd.

   Korea      100.0     26,764        26,764  

KT Hitel Co., Ltd.

   Korea      63.7     120,078        120,078  

KT Belgium

   Belgium      100.0     22,743        22,743  

KT Powertel Co., Ltd. 1

   Korea      44.8     37,419        37,419  

Genie Music Corporation 1 (KT Music Corporation)

   Korea      36.2     37,417        37,417  

KT Dutch B.V.

   Netherlands      100.0     32,359        32,359  

KT Telecop Co., Ltd.

   Korea      86.8     134,308        134,308  

KT Submarine Co., Ltd. 1

   Korea      39.3     24,370        24,370  

Nasmedia, Inc. 2

   Korea      44.0     23,051        23,051  

KTDS Co., Ltd.

   Korea      95.5     19,616        19,616  

KTGDH Co., Ltd. (KTSB Data Service Co., Ltd.)

   Korea      100.0     7,544        7,544  

KT Strategic Investment Fund No.2

   Korea      90.9     10,245        10,245  

KT Sports

   Korea      66.0     9,900        9,900  

KT M Mobile Co., Ltd.

   Korea      100.0     136,174        136,174  

KT Service Bukbu Co., Ltd.

   Korea      67.3     7,092        7,092  

KT Service Nambu Co., Ltd.

   Korea      76.4     10,160        10,160  

KT Strategic Investment Fund No.3

   Korea      86.7     4,507        4,507  

KT Strategic Investment Fund No.4

   Korea      95.0     19,000        19,000  

PlayD Co., Ltd. (N Search Marketing Co., Ltd.) 3

   Korea      23.5     20,000        20,000  

KT MOS Bukbu Co., Ltd.

   Korea      100.0     6,334        6,334  

KT MOS Nambu Co., Ltd.

   Korea      98.4     4,267        4,267  

Next Connect PFV

   Korea      100.0     23,421        23,421  

KT Strategic Investment Fund No.5

   Korea      96.0     6,000        6,000  

Storywiz

   Korea      100.0     14,000        —    

Others

   —        —         72,870        71,189  
       

 

 

    

 

 

 

Total

        W 3,286,451      W 3,270,770  
       

 

 

    

 

 

 

 

21


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

1 

At the end of the reporting period, although sum of percentage of ownership of the Company and its subsidiaries is less than 50% ownership in this entity, this entity is included in investments in subsidiaries due to the dispersion of the non-controlling interests and voting patterns at the shareholders’ meetings in the past.

2 

At the end of the reporting period, although the Company owns less than 50% ownership in this entity, this entity is included in investments in subsidiaries as the Company holds the majority of voting right based on an agreement with other investors.

3

At the end of the reporting period, this entity is included in investments in subsidiaries as Nasmedia Inc. holds ownership of 46.9%, and the Company and subsidiary holds ownership of 70.4%.

Investments in associates and joint ventures as at March 31, 2020 and December 31, 2019, are as follows:

 

          Percentage of
ownership (%)
    Carrying amount  
(in millions of Korean won)    Location  

March 31,

2020

    

December 31,

2019

 

KIF Investment Fund

   Korea      33.3   W 115,636      W 115,636  

KT-IBKC Future Investment Fund 1

   Korea      43.3     12,090        12,090  

KT-CKP New Media Investment Fund

   Korea      —                127  

K Bank Inc. 1

   Korea      10.0     50,950        50,950  

Others

          53,818        51,818  
       

 

 

    

Total

        W 232,494      W 230,621  
       

 

 

    

 

 

 

 

1

At the end of the reporting period, although the Company owns less than 20% ownership in this entity, this entity is included in investments in associates as the Company has significant influence on determining the operating and financial policies. Furthermore, 12.1% of non-voting convertible stock are excluded from the ownership percentage.

Changes in investments in associates and joint ventures for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning, net

   W 3,501,391      W 3,547,683  

Acquisition

     17,681        14,752  

Disposal

     (127      (7,797
  

 

 

    

 

 

 

Ending, net

   W 3,518,945      W 3,554,638  
  

 

 

    

 

 

 

 

22


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

12.

Trade and Other Payables

Details of trade and other payables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Current liabilities

     

Trade payables

   W 825,326      W 888,971  

Other payables

     3,451,524        3,840,712  
  

 

 

    

 

 

 

Total

   W 4,276,850      W 4,729,683  
  

 

 

    

 

 

 

Non-current liabilities

     

Other payables

   W 744,112      W 1,028,886  
  

 

 

    

 

 

 

Total

   W 744,112      W 1,028,886  
  

 

 

    

 

 

 

Details of other payables as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Non-trade payables

   W 2,816,554      W 3,527,333  

Accrued expenses

     700,542        698,083  

Operating deposits

     531,952        480,638  

Others

     146,588        163,544  

Less: Non-current

     (744,112      (1,028,886
  

 

 

    

 

 

 

Current

   W 3,451,524      W 3,840,712  
  

 

 

    

 

 

 

 

23


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

13.

Borrowings

Details of borrowings as at March 31, 2020 and December 31, 2019, are as follows:

Debentures

 

(in millions of Korean won and foreign currencies in thousands)     March 31, 2020      December 31, 2019  
Type    Maturity      Annual
interest
rates
    Foreign
currency
     Korean
won
     Foreign
currency
     Korean
won
 

MTNP notes 1

     Sep. 7, 2034        6.500     USD 100,000      W 122,260        USD 100,000      W 115,780  

MTNP notes

     Jul. 18, 2026        2.500     USD 400,000        489,040        USD 400,000        463,120  

MTNP notes

     Aug. 7, 2022        2.625     USD 400,000        489,040        USD 400,000        463,120  

FR notes 2

     Aug. 23, 2020       

LIBOR

+0.400

(3M) 

    USD 200,000        244,520        USD 200,000        231,560  

FR notes 2

     Aug. 23, 2023       

LIBOR

+0.900

(3M) 

    USD 100,000        122,260        USD 100,000        115,780  

MTNP notes

     Jul. 6, 2020        0.310     JPY 4,000,000        45,233        JPY 4,000,000        42,539  

MTNP notes

     Jul. 6, 2021        0.380     JPY 16,000,000        180,933        JPY 16,000,000        170,155  

MTNP notes

     Nov. 13, 2020        0.300     JPY 30,000,000        339,249        JPY 30,000,000        319,041  

MTNP notes

     Jul. 19, 2022        0.220     JPY 29,600,000        334,726        JPY 29,600,000        314,787  

MTNP notes

     Jul. 19, 2024        0.330     JPY 400,000        4,523        JPY 400,000        4,254  

FR notes 2

     Nov. 1, 2024       

LIBOR

+0.980

(3M) 

    USD 350,000        427,910        USD 350,000        405,230  

The 180-2nd Public bond

     Apr. 26, 2021        4.710     —          380,000        —          380,000  

The 181-3rd Public bond

     Aug. 26, 2021        4.090     —          250,000        —          250,000  

The 182-2nd Public bond

     Oct. 28, 2021        4.310     —          100,000        —          100,000  

The 183-2nd Public bond

     Dec. 22, 2021        4.090     —          90,000        —          90,000  

The 183-3rd Public bond

     Dec. 22, 2031        4.270     —          160,000        —          160,000  

The 184-2nd Public bond

     Apr. 10, 2023        2.950     —          190,000        —          190,000  

The 184-3rd Public bond

     Apr. 10, 2033        3.170     —          100,000        —          100,000  

The 185-2nd Public bond

     Sep. 16, 2020        3.650     —          300,000        —          300,000  

The 186-3rd Public bond

     Jun. 26, 2024        3.418     —          110,000        —          110,000  

The 186-4th Public bond

     Jun. 26, 2034        3.695     —          100,000        —          100,000  

The 187-3rd Public bond

     Sep. 2, 2024        3.314     —          170,000        —          170,000  

The 187-4th Public bond

     Sep. 2, 2034        3.546     —          100,000        —          100,000  

The 188-1st Public bond

     Jan. 29, 2020        —         —                 —          160,000  

The 188-2nd Public bond

     Jan. 29, 2025        2.454     —          240,000        —          240,000  

The 188-3rd Public bond

     Jan. 29, 2035        2.706     —          50,000        —          50,000  

The 189-2nd Public bond

     Jan. 28, 2021        1.946     —          130,000        —          130,000  

The 189-3rd Public bond

     Jan. 28, 2026        2.203     —          100,000        —          100,000  

The 189-4rd Public bond

     Jan. 28, 2036        2.351     —          70,000        —          70,000  

The 190-1st Public bond

     Jan. 29, 2021        2.548     —          110,000        —          110,000  

The 190-2nd Public bond

     Jan. 30, 2023        2.749     —          150,000        —          150,000  

The 190-3rd Public bond

     Jan. 30, 2028        2.947     —          170,000        —          170,000  

The 190-4th Public bond

     Jan. 30, 2038        2.931     —          70,000        —          70,000  

The 191-1st Public bond

     Jan. 14, 2022        2.048     —          220,000        —          220,000  

The 191-2nd Public bond

     Jan. 15, 2024        2.088     —          80,000        —          80,000  

The 191-3rd Public bond

     Jan. 15, 2029        2.160     —          110,000        —          110,000  

The 191-4th Public bond

     Jan. 14, 2039        2.213     —          90,000        —          90,000  

 

24


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won and foreign currencies in thousands)     March 31, 2020     December 31, 2019  
Type    Maturity    Annual interest
rates
    Foreign
currency
     Korean
won
    Foreign
currency
     Korean
won
 

The 192-1st Public bond

   Oct. 11, 2022      1.550     —          340,000       —          340,000  

The 192-2nd Public bond

   Oct. 11, 2024      1.578     —          100,000       —          100,000  

The 192-3rd Public bond

   Oct. 11, 2029      1.622     —          50,000       —          50,000  

The 192-4th Public bond

   Oct. 11, 2039      1.674     —          110,000       —          110,000  
       

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

 

    —          7,039,694       —          7,045,366  

Less: Current portion

 

    —          (1,168,005     —          (1,052,033

Discount on bonds

 

    —          (19,854     —          (20,780
 

 

 

    

 

 

   

 

 

    

 

 

 

Total

 

    —        W 5,851,835       —        W 5,972,553  
       

 

 

    

 

 

   

 

 

    

 

 

 

 

1 

As at March 31, 2020, the Company has outstanding notes in the amount of USD 100 million with fixed interest rates under Medium Term Note Program (“MTNP”) registered in the Singapore Stock Exchange, which allowed issuance of notes of up to USD 2,000 million. However, the MTN program has been suspended since 2007.

2 

The Libor (3M) is approximately 1.451% as at March 31, 2020.

Long-term borrowings

 

(in millions of Korean won)

Financial institution

                               
   Type     Maturity      Annual
interest
rates
    March 31, 2020     December 31, 2019  

Export-Import Bank of Korea

     Inter-Korean Cooperation Fund 1      July 10, 2026        1.500   W 3,207     W 3,454  
         

 

 

   

 

 

 

Subtotal

 

    3,207       3,454  

Less: Current portion

 

    (493     (493
 

 

 

   

 

 

 

Total

 

  W 2,714     W 2,961  
         

 

 

   

 

 

 

 

1 

Inter-Korean Cooperation Fund is repayable in installments over 13 years after a seven-year grace period.

Repayment schedule of the Company’s debentures and borrowings including the portion of current liabilities as at March 31, 2020, is as follows:

 

(in millions of Korean won)    Debentures                
     In local
currency
     In foreign
currency
    

Sub-

total

     Borrowings      Total  

Apr.1, 2020 ~ Mar. 30, 2021

   W 540,000      W 629,002      W 1,169,002      W 493      W 1,169,495  

Apr.1, 2021 ~ Mar. 30, 2022

     1,040,000        180,933        1,220,933        493        1,221,426  

Apr.1, 2022 ~ Mar. 30, 2023

     490,000        823,766        1,313,766        493        1,314,259  

Apr.1, 2023 ~ Mar. 30, 2024

     270,000        122,260        392,260        493        392,753  

After Apr.1, 2024

     1,900,000        1,043,733        2,943,733        1,235        2,944,968  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 4,240,000      W 2,799,694      W 7,039,694      W 3,207      W 7,042,901  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

25


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

14.

Provisions

Changes in provisions for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
     Litigation      Restoration cost      Others      Total  

Beginning balance

   W 64,042      W 103,895      W 69,782      W 237,719  

Increase (transfer)

     —          (1,080      2,437        1,357  

Usage

     —          (330      (692      (1,022

Reversal

     —          (278      —          (278
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   W 64,042      W 102,207      W 71,527      W 237,776  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

   W 64,042      W 19,230      W 68,836      W 152,108  

Non-current

     —          82,977        2,691        85,668  

 

(in millions of Korean won)    2019  
     Litigation      Restoration cost      Others      Total  

Beginning balance

   W 14,513      W 110,195      W 90,977      W 215,685  

Increase (transfer)

     —          (3,857      1,511        (2,346

Usage

     —          (231      (4,308      (4,539

Reversal

     —          (1,737      (1      (1,738
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   W 14,513      W 104,370      W 88,179      W 207,062  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

   W 14,513      W —        W 86,391      W 100,904  

Non-current

     —          104,370        1,788        106,158  

 

26


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

15.

Net Defined Benefit Liabilities

The amounts recognized in the statements of financial position as at March 31, 2020 and December 31, 2019, are determined as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Present value of defined benefit obligations

   W 1,755,706      W 1,774,582  

Fair value of plan assets

     (1,454,512      (1,499,984
  

 

 

    

 

 

 

Liabilities, net

   W 301,194      W 274,598  
  

 

 

    

 

 

 

Changes in the defined benefit obligations for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning

   W 1,774,582      W 1,620,349  

Current service cost

     35,733        35,164  

Interest expense

     8,412        9,183  

Benefit paid

     (63,021      (1,843
  

 

 

    

 

 

 

Ending

   W 1,755,706      W 1,662,853  
  

 

 

    

 

 

 

Changes in the fair value of plan assets for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Beginning

   W 1,499,984      W 1,191,186  

Interest income

     7,110        6,751  

Remeasurements on plan assets

     1,411        37  

Benefits paid

     (53,993      (2,252
  

 

 

    

 

 

 

Ending

   W 1,454,512      W 1,195,722  
  

 

 

    

 

 

 

Amounts recognized in the separate statement of profit or loss for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Current service cost

   W 35,733      W 35,164  

Net interest cost

     1,302        2,432  

Transfer out

     (4,233      (3,529
  

 

 

    

 

 

 

Total expenses

   W 32,802      W 34,067  
  

 

 

    

 

 

 

 

27


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

16.

Commitments and Contingencies

As at March 31, 2020, major commitments with local financial institutions are as follows:

 

(in millions of Korean won)    Financial institution    Currency      Limit      Used
amount
 

Bank overdraft

  

Kookmin Bank and others

     KRW        1,630,000        —    
     

 

 

    

 

 

    

 

 

 

Inter-Korean Cooperation Fund

  

Export-Import Bank of Korea

     KRW        37,700        3,208  
     

 

 

    

 

 

    

 

 

 

Collateralized loan on electronic

accounts receivable-trade

  

Shinhan Bank and others

     KRW        312,000        9,578  
     

 

 

    

 

 

    

 

 

 

Plus electronic notes payable

  

Industrial Bank of Korea

     KRW        50,000        6,455  
     

 

 

    

 

 

    

 

 

 

Derivatives transaction limit

  

Korea Development Bank

     KRW        100,000        18,458  
     

 

 

    

 

 

    

 

 

 

Total

     KRW        2,129,700        37,699  
  

 

 

    

 

 

    

 

 

 

As at March 31, 2020, guarantees received from financial institutions are as follows:

 

(in millions of Korean won and

foreign currencies in thousands)

   Financial institution    Currency      Limit  

Comprehensive credit line

   KEB Hana Bank      KRW        3,000  
     USD        10,000  
     

 

 

    

 

 

 

Guarantee for advances received refund

   Korea Development Bank      USD        1,859  
     

 

 

    

 

 

 

Bid guarantee

  

Korea Software Financial Cooperative

     KRW        32,836  

Performance guarantee / warranty guarantee

     KRW        363,030  

Guarantee for advance payments

     KRW        211,568  
     

 

 

    

 

 

 

Guarantee for payment in foreign currency

   Kookmin Bank and others      USD        16,948  
   Shinhan Bank      USD        9,144  
   KEB Hana Bank      PLN  1       13,751  
     

 

 

    

 

 

 

Performance guarantee

   Shinhan Bank      KRW        7,828  
   Korea Development Bank      USD        7,369  
     

 

 

    

 

 

 

Performance guarantee

   Seoul Guarantee Insurance      KRW        11,473  

Guarantees for licensing

     KRW        3,221  

Guarantee for deposits

     KRW        1,762  
     

 

 

    

 

 

 

Total

        KRW        634,718  
     USD        45,320  
     PLN  1       13,751  
  

 

 

    

 

 

 

 

1 

Polish Zloty.

The Company is jointly and severally obligated with KT Sat Co., Ltd. to pay KT Sat Co., Ltd.’s liabilities incurred prior to spin-off. As at March 31, 2020, the Company and KT Sat Co., Ltd. are jointly and severally liable for reimbursement of W 1,823 million.

For the three-month period ended March 31, 2020, the Company made agreements with the Securitization Specialty Companies (2020: First 5G Forty ninth Securitization Specialty Co., Ltd., 2019: First 5G Forty third to Forty eighth Securitization Specialty Co., Ltd.), and disposed of its trade receivables related to handset sales. The Company also made asset management agreements with each securitization specialty company and in accordance with the agreement the Company will receive asset management fees upon liquidation of securitization specialty company.

 

28


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

As at March 31, 2020, the Company is a defendant in 144 lawsuits with the total claimed amount of W 80,463 million. As at March 31, 2020, litigation provisions of W 64,042 million for pending lawsuits and unasserted claims are recorded as liabilities for potential loss in the ordinary course of business. The final outcomes of the cases cannot be estimated at the end of the reporting period.

According to the financial and other covenants included in certain debentures and borrowings, the Company is required to maintain certain financial ratios such as debt-to-equity ratio, use the funds for the designated purpose and report to the creditors periodically. The covenant also contains restriction on provision of additional collateral and disposal of certain assets.

As at March 31, 2020, the Company participates in Algerie Sidi Abdela new town development consortium (percentage of ownership: 2.5%) and has joint liability with other consortium participants.

As at March 31, 2020, the contract amount of property and equipment and intangible assets acquisition agreement made but not yet recognized amounts to W 677,496 million (December 31, 2019: W 850,054 million).

 

29


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

17.

Leases

Set out below is Information for leases when the Company is a lessee. Information when the Company is a lessor is provided in Note 10.

The separate statement of financial position shows the following amounts relating to leases:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Right-of-use assets

     

Property and building

   W 502,849      W 531,195  

Machinery and track facilities

     131,048        138,678  

Others

     39,687        45,095  
  

 

 

    

 

 

 
   W 673,584      W 714,968  
  

 

 

    

 

 

 

Investment properties(building)

   W 43,159      W 50,131  

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Lease liabilities 1

     

Current

   W 283,278      W 295,981  

Non-current

     317,118        342,633  
  

 

 

    

 

 

 
   W 600,396      W 638,614  
  

 

 

    

 

 

 

 

1 

It included in the line item ‘other current liabilities and non-current liabilities’ in the separate statement of financial position (Note 8)

For the three-month period ended March 31, 2020, right-of-use assets has increased to W 60,936 million.

The separate statement of profit or loss shows the following amounts relating to leases:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Depreciation of right-of-use assets

     

Property and building

   W 75,527      W 81,642  

Machinery and track facilities

     16,555        22,523  

Others

     5,259        4,083  
  

 

 

    

 

 

 
   W 97,341      W 108,248  
  

 

 

    

 

 

 

Depreciation of investment properties

   W 5,604      W 4,050  

Interest expense relating to lease liabilities

     8,148        9,641  

Expense relating to short-term leases

     683        —    

Expense relating to leases of low-value assets that are not short-term leases

     2,174        5,085  

The total cash outflow for leases for the three-month periods ended March 31, 2020 and 2019 was W 90,694 million and W91,102 million, respectively.

 

30


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

18.

Retained Earnings

Details of retained earnings as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Legal reserve 1

   W 782,249      W 782,249  

Voluntary reserves 2

     4,651,362        4,651,362  

Unappropriated retained earnings

     5,485,986        5,436,376  
  

 

 

    

 

 

 

Total

   W 10,919,597      W 10,869,987  
  

 

 

    

 

 

 

 

1 

The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued share capital. The reserve is not available for the payment of cash dividends, but may be transferred to share capital with the approval of the Company’s Board of Directors or used to reduce accumulated deficits, if any, with the ratification of the Company’s majority shareholders.

2 

In accordance with the Restrictions on Special Taxation Act, R&D and HR related reserves under the voluntary reserves are separately accumulated when retained earnings from tax reserve funds are disposed, when income tax is recalculated from tax return adjustments.

 

19.

Other Components of Equity

The Company’s other components of equity as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Treasury stock

   W (825,838    W (825,838

Gain or loss on disposal of treasury stock

     —          (1,690

Share-based payments

     9,368        7,769  

Others

     (181,733      (181,733
  

 

 

    

 

 

 

Total

   W (998,203    W (1,001,492
  

 

 

    

 

 

 

As at March 31, 2020 and December 31, 2019, the details of treasury stock are as follows:

 

     March 31, 2020      December 31, 2019  

Number of shares

     15,870,258        15,870,258  

Amount (in millions of Korean won)

   W 825,838      W 825,838  

Treasury stock is expected to be used as compensation for the Company’s directors employees and other purposes.

 

31


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

20.

Revenue from Contracts with Customers and Relevant Contract Assets and Liabilities

The Company has recognized the following amounts relating to revenue in the statement of profit or loss for the three-month periods ended March 31, 2020 and 2019:

 

(in millions of Korean won)    2020      2019  

Revenue from contracts with customers

   W 4,382,751      W 4,286,867  

Revenue from other sources

     46,316        47,417  
  

 

 

    

 

 

 

Total revenue

   W 4,429,067      W 4,334,284  
  

 

 

    

 

 

 

Operating revenues for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Services provided

   W 3,749,884      W 3,646,606  

Sale of goods

     679,183        687,678  
  

 

 

    

 

 

 

Total

   W 4,429,067      W 4,334,284  
  

 

 

    

 

 

 

Revenues from services provided are recognized over time, and sales of goods are recognized at a point of time.

The contract assets, liabilities and deferred revenue recognized in relation to revenue from contracts with customers are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Contract assets 1

   W 585,530      W 611,196  

Contract liabilities 1

     393,908        411,456  

Deferred revenue 2

     78,433        78,872  

 

1

The Company recognized contract assets of W 88,810 million and contract liabilities of W 21,651 million for longterm construction contracts as at March 31, 2020 (2019: contract assets of W 98,288 million and contract liabilities of W 47,832 million). The Company recognizes contract assets as trade and other receivables, and contract liabilities as other current liabilities.

2

Deferred revenue recognized relating to government grants is excluded.

The contract costs recognized as assets are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  

Incremental costs of contract establishment

   W 1,728,928      W 1,751,389  

Costs of contract performance

     128,092        124,934  

The Company recognized W435,545 million of operating expenses in the current reporting period (2019: W 391,211 million) which relate to contract cost assets.

The Company did not recognize an impairment loss in anticipation of full recovery of costs recognized as assets.

 

32


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

For the three-month periods ended March 31, 2020 and 2019, the recognized revenue arising from carried-forward contract liabilities and deferred revenue from prior year are as follows:

 

(in millions of Korean won)    2020      2019  

Revenue recognized that was included in balance at the beginning of the year

     

Allocation of the transaction price

   W 74,495      W 78,500  

Deferred revenue of joining/installment fees

     10,547        12,020  
  

 

 

    

 

 

 

Total

   W 85,042      W 90,520  
  

 

 

    

 

 

 

 

21.

Operating Expenses

Operating expenses for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Salaries and wages

   W 555,095      W 543,593  

Depreciation

     582,055        557,580  

Depreciation of right-of-use assets

     97,341        112,298  

Amortization of intangible assets

     134,512        141,815  

Commissions

     362,235        355,625  

Interconnection charges

     131,354        139,764  

International interconnection fees

     44,906        55,538  

Purchase of inventories

     837,128        789,869  

Changes of inventories

     37,758        18,910  

Sales commissions

     575,783        580,989  

Service costs

     164,965        157,122  

Purchase of contents

     153,578        139,390  

Utilities

     77,522        71,404  

Taxes and dues

     54,365        58,142  

Rent

     25,882        26,540  

Insurance premiums

     15,211        14,048  

Installation fees

     101,152        114,817  

Advertising expenses

     24,334        29,146  

Research and development expenses

     41,763        40,391  

Others

     112,523        90,858  
  

 

 

    

 

 

 

Total

   W 4,129,462      W 4,037,839  
  

 

 

    

 

 

 

 

33


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Details of employee benefits for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Short-term employee benefits

   W 504,608      W 495,682  

Post-employment benefits (defined benefits)

     32,802        34,067  

Post-employment benefits (defined contributions)

     10,792        9,802  

Share-based payments

     1,599        1,490  

Others

     5,294        2,552  
  

 

 

    

 

 

 

Total

   W 555,095      W 543,593  
  

 

 

    

 

 

 

 

22.

Other Income and Other Expenses

Other income for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Gain on disposal of property and equipment

   W 6,662      W 7,587  

Gain on disposal of right-of-use assets

     355        1,272  

Gain on disposal of intangible assets

     62        —    

Compensation on property and equipment

     28,948        19,771  

Dividends received

     116,985        121,926  

Gain on government subsidies

     4,177        3,467  

Others

     5,383        11,374  
  

 

 

    

 

 

 

Total

   W 162,572      W 165,397  
  

 

 

    

 

 

 

Other expenses for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Loss on disposal of property and equipment

   W 12,483      W 10,703  

Loss on disposal of right-of-use assets

     1,038        702  

Loss on disposal of intangible assets

     186        1,663  

Donations

     —          21,746  

Others

     15,755        22,022  
  

 

 

    

 

 

 

Total

   W 29,462      W 56,836  
  

 

 

    

 

 

 

 

34


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

23.

Financial Income and Costs

Details of financial income for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Interest income

   W 62,986      W 64,422  

Gain on foreign currency transactions

     4,986        1,318  

Gain on foreign currency translation

     7,643        3,248  

Gain on valuation of derivatives

     150,816        36,412  

Others

     —          887  
  

 

 

    

 

 

 

Total

   W 226,431      W 106,287  
  

 

 

    

 

 

 

Details of financial costs for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Interest expenses

   W 62,158      W 70,336  

Loss on foreign currency transactions

     3,810        1,138  

Loss on foreign currency translation

     157,009        40,706  

Loss on disposal of trade receivables

     2,217        1,930  

Others

     138        —    
  

 

 

    

 

 

 

Total

   W 225,332      W 114,110  
  

 

 

    

 

 

 

 

24.

Income Tax Expense

Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. As at March 31, 2020, the estimated average annual income tax rate used for the year ending December 31, 2020 is 26.23%.

 

25.

Earnings per Share

Basic earnings per share is calculated by dividing the profit from operations attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares purchased by the Company and held as treasury stock.

 

35


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Basic earnings per share from operations for the three-month periods ended March 31, 2020 and 2019, are calculated as follows:

 

     2020      2019  

Profit attributable to ordinary shares (in millions of Korean won)

   W 320,025      W 292,635  

Weighted average number of ordinary shares outstanding (in number of shares)

     245,241,550        245,144,768  

Basic earnings per share (in Korean won)

   W 1,305      W 1,194  

Diluted earnings per share from operations is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has dilutive potential ordinary shares from other share-based payments.

Diluted earnings per share from operations for the three-month periods ended March 31, 2020 and 2019, are calculated as follows:

 

     2020      2019  

Profit attributable to ordinary shares (in millions of Korean won)

   W 320,025      W 292,635  

Diluted profit attributable to ordinary shares (in millions of Korean won)

   W 320,025      W 292,635  

Number of dilutive potential ordinary shares outstanding (in number of shares)

     —          —    

Weighted average number of ordinary shares outstanding (in number of shares)

     245,241,550        245,144,768  

Diluted earnings per share (in Korean won)

   W 1,305      W 1,194  

Diluted earnings per share is earnings per outstanding of ordinary shares and dilutive potential ordinary shares. Diluted earnings per share is calculated by dividing adjusted profit for the period by the sum of the number of ordinary shares and dilutive potential ordinary shares excluding other share-based payments without dilutive effect.

 

36


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

26.

Cash Generated from Operations

Cash flows from operating activities for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

1. Profit for the period

   W 320,025      W 292,635  

2. Adjustments for:

     

Income tax expense

     113,789        104,548  

Interest income

     (62,986      (64,422

Interest expense

     62,158        70,336  

Dividend income

     (116,985      (122,429

Depreciation

     589,929        571,438  

Amortization of intangible assets

     135,052        142,804  

Depreciation of right-of-use assets

     97,341        108,248  

Provisions for severance benefits (defined benefits)

     37,035        37,596  

Allowance for bad debts

     19,727        20,369  

Loss on disposal of investments in subsidiaries, associates and joint ventures

     17        4,247  

Loss on disposal of property and equipment

     5,821        3,116  

Loss on disposal of intangible assets

     124        1,663  

Loss (gain) on disposal of right-of-use assets

     683        (570

Loss on foreign currency translation

     149,366        37,458  

Gain on valuation of derivatives, net

     (150,816      (36,412

Loss (gain) on valuation of financial assets at fair value through profit or loss

     138        (383

Others

     (1,184      (9,849

3. Changes in operating assets and liabilities

     

Increase in trade receivables

     (27,718      (182,785

Decrease in finance lease receivables

     730        681  

Increase (decrease) in other receivables

     (19,048      12,273  

Increase in other current assets

     (32,226      (136,116

Increase (decrease) in other non-current assets

     (3,778      10,226  

Decrease in inventories

     32,660        16,515  

Decrease (increase) in trade payables

     (67,295      19,620  

Decrease (increase) in other payables

     (184,720      50,690  

Increase in other current liabilities

     26,643        43,995  

Decrease (increase) in other non-current liabilities

     3,738        (2,481

Decrease (increase) in provisions

     1,793        (1,540

Decrease in deferred revenue

     (5,369      (6,463

Post-employment benefits paid (defined benefits)

     (63,584      (20,290

Decrease in plan assets

     54,213        18,847  
  

 

 

    

 

 

 

4. Cash generated from operations (1+2+3)

   W 915,273      W 983,565  
  

 

 

    

 

 

 

 

37


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Significant transactions not affecting cash flows for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  

Reclassification of the current portion of borrowings

   W 240,010      W 160,126  

Reclassification of construction-in-progress to property and equipment

     397,348        345,302  

Reclassification of other payables from property and equipment

     (415,486      (88,308

Reclassification of right-of-use assets from property and equipment

     —          (209,703

Reclassification of other payables from intangible assets

     —          26,456  

Reclassification of other payables from defined benefit liabilities

     (563      (18,447

Reclassification of other payables from plan assets

     (220      (16,595

Increase in dividends payable

     269,766        269,659  

 

27.

Cash Generated from Financing Activities

Changes in liabilities arising from financial activities for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
     Beginning     Cash flows     Non-cash     Ending  
    Newly
acquired
     Exchange
differences
    Fair value
changes
     Others  

Borrowings

   W 7,028,040     W (160,247   W —        W 153,617     W —        W 1,637     W 7,023,047  

Financial lease liabilities

     638,614       (87,837     58,413        —         —          (8,794     600,396  

Derivative liabilities

     18,632       —         —          (269     129        (18,490     2  

Derivative assets

     (55,423     —         —          (148,875     15,535        18,846       (169,917
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   W 7,629,863     W (248,084   W 58,413      W 4,473     W 15,664      W (6,801   W 7,453,528  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(in millions of Korean won)    2019  
     Beginning     Cash flows     Non-cash     Ending  
    Newly
acquired
     Exchange
differences
    Fair value
changes
    Others  

Borrowings

   W 6,313,537     W 98,203     W —        W 37,840     W —       W 1,605     W 6,451,185  

Financial lease liabilities

     163,710       (86,017     691,611        —         —         (12,836     756,468  

Derivative liabilities

     61,833       —         —          (10,244     (4,000     (12,284     35,305  

Derivative assets

     (29,843           —          (26,245     (7,186     12,639       (50,635
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W 6,509,237     W 12,186     W 691,611      W 1,351     W (11,186   W (10,876   W 7,192,323  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

38


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

28.

Related Party Transactions

The list of related party of the Company as at March 31, 2020, is as follows:

 

Relationship    Name of Entity
Subsidiaries   

KT Hitel Co., Ltd., KTCS Corporation, KTIS Corporation, KT Service Bukbu Co., Ltd.,

KT Service Nambu Co., Ltd., KT Powertel Co., Ltd., KT Linkus Co., Ltd.,

KT Telecop Co., Ltd., KTDS Co., Ltd., Nasmedia, Inc., KT M Hows Co., Ltd.,

KT M&S Co., Ltd., GENIE Music Corporation (KT Music Corporation), KT Estate Inc.,

KT Skylife Co., Ltd., H&C Network, KTGDH Co., Ltd. (KTSB Data Service Co., Ltd.),

KT Sat Co., Ltd., KT Submarine Co., Ltd., KT Sports Co., Ltd.,

KT Strategic Investment Fund No.2, KT Music Contents Fund 1

Korea Telecom America, Inc., Korea Telecom Japan Co., Ltd., Korea Telecom China Co., Ltd., KT Dutch B.V.,

PT. KT Indonesia, KT AMC, KT Commerce Inc., BC Card Co., Ltd., VP Inc.,

BC Card Science and Technology (Shanghai) Co., Ltd., Skylife TV Co., Ltd., Initech Co., Ltd., Smartro Co., Ltd., East Telecom LLC, KT NEXR Co., Ltd., KT Rwanda Networks Ltd.,

KT Belgium, KT ORS Belgium, KT-Michigan Global Contents Fund, Autopion Co., Ltd.,

KBTO sp.zo.o, AOS Ltd., KT M mobile Co., Ltd., KT investment Co., Ltd,

PT. BC Card Asia Pacific, Whowho&Company Co., Ltd.,

KT Hongkong Telecommunications Co., Ltd., KT Strategic Investment Fund No.3,

PlayD Co., Ltd. (N search Marketing Co., Ltd.), Korea Telecom Singapore Pte, Ltd., Texnoprosistem LLP, KT Music Contents Fund No.2, KT Strategic Investment Fund No.4,

BC-VP Strategic Investment Fund No.1, KT MOS Bukbu Co., Ltd.,

KT MOS Nambu Co., Ltd., Nasmedia Thailand Co., Ltd., Next Connect PFV,

KT huimangjieum, KT Strategic Investment Fund No.5

GE Premier 1st Corporate Restructuring Real Estate Investment Trust Company,

K-REALTY RENTAL HOUSING REIT 3, Storywiz., Ltd.

Associates   

KIF Investment Fund, K-REALTY CR REITs No.1,

Boston Global Film & Contents Fund L.P., QTT Global (Group) Company Limited,

CU Industrial Development Co., Ltd, KD Living, Inc., Oscar Ent. Co., Ltd., LoginD Co., Ltd., K-REALTY CR-REIT 6, K Bank Inc.,

ISU-kth Contents Investment Fund, Daiwon Broadcasting Co., Ltd.,

KT-DSC creative economy youth start-up investment fund,

Korea Electronic Vehicle Charging Service, K-REALTY RENTAL HOUSING REIT 2,

AI RESEARCH INSTITUTE, KT-IBKC Future Investment Fund 1,

Gyeonggi-KT Yoojin Superman Fund, FUNDA Co., Ltd, CHAMP IT Co., Ltd.,

Alliance Internet Corp., Little big pictures, Virtua Realm Sendirian Berhad, KT Philippines

KT-Smart Factory Investment Fund, Studio Discovery Co., Ltd., Studio&NEW Co., Ltd.

Others 1    KT ENGCORE Co., Ltd., KHS Corporation

1 Although the entity is not the related party of the Company in accordance with Korean IFRS 1024, the entity belongs to the Large Enterprise Group to which the Company also belongs in accordance with the Monopoly Regulation and Fair Trade Act.

The amount of the installment handset sales receivable succeeded by KTIS Corporation, KTCS Corporation and KT M&S Co., Ltd. is W 146,203 million.

 

39


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

The Company has entered into an additional agreements in relation to providing communication services in wholesale with KT M mobile Co., Ltd.. In connection with the agreement, the Company offsets all or partial receivables against payables for joining mobile telecommunication services and network usage arising from telecommunication operations.

Outstanding balances of receivables and payables in relation to transactions with related parties as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)           March 31, 2020  
     Receivables      Payables  
     Trade
receivables
     Loans
and
others
     Other
receivables
    

Lease

receivables

     Trade
payables
     Other
payables
    

Lease

liabilities

 

Subsidiaries

                    

KT Linkus Co., Ltd.

   W 819      W —        W —        W —        W —        W 14,750      W —    

KT Telecop Co., Ltd.

     292        —          95        —          1,290        2,986        10  

KTCS Corporation

     871        —          445        —          —          52,620        2  

KTIS Corporation

     338        —          6,225        13        —          36,828        —    

KT Service Bukbu Co., Ltd.

     16        —          7        20        17,890        196        —    

KT Service Nambu Co., Ltd.

     —          —          1        —                 19,727        —    

KT Skylife Co., Ltd.

     3,027        —          11,689        —          —          8,485        —    

KTDS Co., Ltd.

     849        —          9,023        —          —          59,216        —    

KT Estate Inc.

     —          —          88,888        —          —          24,795        83,390  

Skylife TV Co., Ltd 2

     1        3,687        22        —          —          1,694        —    

BC Card Co., Ltd.1

     651        —          52,126        —          —          717        —    

KT Sat Co., Ltd.

     1,028        —          —          —          —          1,724        —    

KT Hitel Co., Ltd.

     2,327        —          455        —          14,893        6,959        —    

KT Commerce Inc.

     88        —          —          —          1,537        14,211        —    

KT M Hows Co., Ltd.

     15        —          1,587        —          —          2,694        —    

KT M&S Co., Ltd.

     362        3,313        409        —          —          86,980        —    

GENIE Music Corporation (KT Music Corporation)

     —          —          —          —          152        14,591        —    

KT M mobile Co., Ltd.

     12,521        —          51        —          —          537        —    

Nasmedia, Inc.

     5,551        —          2,470        —          —          439        —    

KT MOS Bukbu Co., Ltd.

     7        —          —          —                 5,827        —    

KT MOS Nambu Co., Ltd.

     —          —          4,732        —          —          6,471        —    

Others

     3,571        500        9,472        —          410        10,477        —    

 

40


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)           March 31, 2020  
     Receivables      Payables  
     Trade
receivables
     Loans
and
others
     Other
receivables
    

Lease

receivables

     Trade
payables
     Other
payables
    

Lease

liabilities

 

Associates and joint ventures

                    

K-REALTY CR REITs No.1

     —          —          23,100        —          —          —          49,981  

K Bank Inc.

     199        —          —          —          —          —          —    

Others

     130        —          2        —          —          —          —    

Others

                    

KT ENGCORE Co., Ltd.

     6        —          4,420        —          73        85,086        42  

KHS Corporation

     —          —          —          —          —          1        —    

Total

   W 32,669      W 7,500      W 215,219      W 33      W 36,245      W 458,011      W 133,425  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(in millions of Korean won)           December 31, 2019  
     Receivables      Payables  
     Trade
receivables
     Loans and
others
     Other
receivables
    

Lease

receivables

     Trade
payables
     Other
payables
    

Lease

liabilities

 

Subsidiaries

                    

KT Linkus Co., Ltd.

   W 1,243      W —        W 2      W 3      W —        W 16,378      W —    

KT Telecop Co., Ltd.

     849        —          96        —          1,791        2,985        10  

KTCS Corporation

     63        —          —          —          —          52,550        2  

KTIS Corporation

     986        —          3,099        —          —          37,257        —    

KT Service Bukbu Co., Ltd.

     16        —          9        30        —          20,992        —    

KT Service Nambu Co., Ltd.

     —          —          17        —          —          22,612        —    

KT Skylife Co., Ltd.

     5,243        —          2,795        —          —          14,647        —    

KTDS Co., Ltd.

     307        —          925        —          —          85,327        —    

KT Estate Inc.

     834        —          46,064        —          —          43,780        86,018  

Skylife TV Co., Ltd 2

     7        3,687        —          —          —          2,524        —    

BC Card Co., Ltd.1

     4,255        —          77        —          —          1,153        —    

KT Sat Co., Ltd.

     576        —          1        —          —          1,954        —    

KT Hitel Co., Ltd.

     1,794        —          386        —          17,380        7,192        —    

KT Commerce Inc.

     89        —          —          —          8,837        36,750        —    

KT M Hows Co., Ltd.

     119        —          61        —          —          2,665        —    

KT M&S Co., Ltd.

     200        4,235        10        —          —          91,693        —    

GENIE Music Corporation (KT Music Corporation)

     185        —          4        —          8,705        4,023        —    

KT M mobile Co., Ltd.

     10,394        —          —          —          —          752        —    

Nasmedia, Inc.

     6,727        —          13        —          —          933        —    

KT MOS Bukbu Co., Ltd.

     7        —          —          —          —          9,169        —    

 

41


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    December 31, 2019  
     Receivables      Payables  
     Trade
receivables
     Loans and
others
     Other
receivables
    

Lease

receivables

     Trade
payables
     Other
payables
    

Lease

liabilities

 

KT MOS Nambu Co., Ltd.

     2        —          2,390               —          8,698        —    

Others

     3,534        500        4,080               382        10,146        6  

Associates and joint ventures

                    

K-REALTY CR REITs No.1

     —          —          23,100        —          —          —          57,907  

K Bank Inc.

     188        —          —                 —          —          —    

Others

     402        —          2               —                 —    

Others

                    

KT ENGCORE Co., Ltd.

     —          —          9,401        —          85        147,369        74  

KHS Corporation

     —          —          —          —          —          2        —    

Total

   W  38,020      W  8,422      W  92,532      W 33      W  37,180      W  621,551      W  144,017  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1

As at March 31, 2020, W 700 million of the unsettled amount (December 31, 2019: W 1,081 million) in credit card transaction with BC Card Co., Ltd. is included in trade payables.

2

As at March 31, 2020, the convertible bonds issued by Skylife TV Co., Ltd. amounting to W 3,000 million is classified as financial assets at fair value through profit or loss.

Significant transactions with related parties for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
     Sales      Purchases      Acquisition
of right-of-use
assets
    

Finance

income

    

Finance

costs

     Dividends
received
 
     Operating
revenue
    

Other

income

     Operating
expenses
     Others 1  

Subsidiaries

                       

KT Linkus Co., Ltd.

   W 2,068      W  —        W  15,316      W  511      W  —        W  —        W  —        W —    

KT Telecop Co., Ltd.

     2,346        —          3,594        —          —          —          —          —    

KTCS Corporation

     19,819        —          76,162        636        —          —          —          254  

KTIS Corporation

     12,465        —          70,918        —          —          —          —          918  

KT Service Bukbu Co., Ltd.

     3,461        2        48,292        —          —          —          —          —    

KT Service Nambu Co., Ltd.

     3,277        2        56,498        —          —          —          —          —    

KT Skylife Co., Ltd.

     7,464        13        8,964        —          —          —          —          8,368  

KTDS Co., Ltd.

     3,761        1        69,289        —          —          —          —          5,208  

KT Estate Inc.

     2,876        —          36,024        —          1        —          564        42,680  

 

42


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    2020  
     Sales      Purchases      Acquisition
of right-of-use
assets
    

Finance

income

    

Finance

costs

     Dividends
received
 
     Operating
revenue
    

Other

income

     Operating
expenses
     Others 1  

Skylife TV Co., Ltd.

     871        —          1,681        —          —          22        —          —    

BC Card Co., Ltd.

     1,980        24        7,367        —          —          1        —          52,013  

KT Sat Co., Ltd.

     2,135        —          3,946        —          —          —          —          —    

KT Hitel Co., Ltd.

     6,169        —          16,513        —          —          —          —          —    

KT Commerce Inc.

     222        —          15,978        10,925        —          —          —          —    

KT M Hows Co., Ltd.

     290        —          141        —          —          —          —          1,520  

KT M&S Co., Ltd.

     109,725        14        55,978        —          —          —          —          —    

GENIE Music Corporation

(KT Music Corporation)

     2,219        —          13,951        —          —          —          —          —    

KT M mobile Co., Ltd.

     19,457        —          2,441        —          —          —          —          —    

Nasmedia, Inc.

     107        —          1,507        —          —          —          —          2,470  

KT MOS Nambu Co., Ltd.

     440        5        14,477        147        —          —          —          —    

KT MOS Bukbu Co., Ltd.

     589        —          14,645        —          —          —          —          —    

Others

     5,721        6        11,486        —          —          4        1        1,293  

Associates and joint ventures

 

K-REALTY CR REITs No.1

     —          —          —          —          —          —          398        2,261  

K Bank Inc.

     527        —          1        —          —          —          —          —    

Others

     113        37        742        —          —          —          —          —    

Others

                       

KT ENGCORE Co., Ltd.

     111        —          20,774        51,427        —          —          1        —    

KHS Corporation

     2        —          3,735        —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W  208,215      W  104      W  570,420      W  63,646      W 1      W 27      W  964      W  116,985  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Amounts includes acquisition of property and equipment, and others.

 

43


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    2019  
     Sales      Purchases      Acquisition
of right-of-use
assets
    

Finance

income

    

Finance

costs

     Dividends
received
 
     Operating
revenue
    

Other

income

     Operating
expenses
     Others 1  

Subsidiaries

                       

KT Linkus Co., Ltd.

   W 2,921      W  —        W  13,951      W —        W  —        W  —        W —        W —    

KT Telecop Co., Ltd.

     4,585        —          5,033        284        —          3        4        —    

KTCS Corporation

     15,047        1        79,610        892        —          1        1,397        286  

KTIS Corporation

     10,982        —          71,690        63        —          1        93        816  

KT Service Bukbu Co., Ltd.

     2,705        —          48,335        —          —          1        —          —    

KT Service Nambu Co., Ltd.

     3,237        —          58,364        37        —          —          —          —    

KT Skylife Co., Ltd.

     8,714        1        13,182        54        —          —          5        8,368  

KTDS Co., Ltd.

     3,322        2        62,575        9,390        —          —          —          4,440  

KT Estate Inc.

     4,332        1        35,653        7,009        158        —          868        48,671  

Skylife TV Co., Ltd.

     1,336        —          2,008        —          —          69        —          —    

BC Card Co., Ltd.

     2,716        28        6,869        —          —          1        —          43,140  

KT Sat Co., Ltd.

     1,054        1        4,217        —          —          —          —          4,400  

KT Hitel Co., Ltd.

     4,681        —          12,607        1,911        —          —          —          —    

KT Commerce Inc.

     229        —          29,809        22,540        —          —          —          —    

KT M Hows Co., Ltd.

     509        —          528        —          —          —          —          836  

KT M&S Co., Ltd.

     95,020        —          52,100        18        —          —          1,617        —    

GENIE Music Corporation

(KT Music Corporation)

     560        —          12,617        —          —          —          —          —    

KT M mobile Co., Ltd.

     16,668        —          1,653        —          —          —          —          —    

Nasmedia, Inc.

     134        —          1,902        —          —          —          —          1,983  

KT MOS Nambu Co., Ltd.

     464        —          12,145        —          —          —          —          —    

KT MOS Bukbu Co., Ltd.

     557        —          12,066        —          —          —          —          —    

Others

     6,659        109        12,116        452        372        12        4        242  

Associates and joint ventures

 

K-REALTY CR REITs No.1

     —          —          —          —          —          —          828        8,744  

K Bank Inc.

     527        —          1        —          —          —          —          —    

Others

     247        55        1,269        —          —          —          —          —    

Others

                       

KT ENGCORE Co., Ltd.

     110               21,645        26,045        —          —          1        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W  187,316      W 198      W  571,945      W  68,695      W 530      W 88      W  4,817      W  121,926  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1 Amounts includes acquisition of property and equipment, and others.

 

44


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

Key management compensation for the three-month periods ended March 31, 2020 and 2019, consists of:

 

(in millions of Korean won)    2020      2019  

Salaries and other short-term benefits

   W  476      W  511  

Post-employment benefits

     74        99  

Stock-based compensation

     183        220  
  

 

 

    

 

 

 

Total

   W 733      W 830  
  

 

 

    

 

 

 

Fund transactions with related parties for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020  
     Loan transactions      Borrowing transactions      Equity
contributions
in cash
 
     Loans      Collections      Borrowings      Refunds  

Subsidiaries

              

KTIS Corporation

   W  —        W  —        W  —        W 8      W —    

KT Estate Inc.

     —          —          1        6,978        —    

KBTO Sp.z o.o.

     —          —          —          —          1,681  

KT M&S Co., Ltd.

     —          923        —          —          —    

Storywiz., Ltd.

     —          —          —          —          14,000  

Others

     —          —          —          81        —    

Associates and joint ventures

              

KT-Smart Factory Investment Fund

     —          —          —          —          2,000  

K-REALTY CR REIT 1

     —          —          —          7,190        —    

KT-CKP New Media Investment Fund

     —          —          —          —          (148

Others

              

KT ENGCORE Co., Ltd.

     —          —          —          34        28,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W —        W 923      W 1      W  14,291      W  45,533  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1 Borrowing transactions include lease transactions.

 

45


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    2019  
     Borrowing transactions1      Equity
contributions
in cash
 
     Borrowings      Refunds  

Subsidiaries

        

KTCS Corporation

   W —        W 2      W —    

KTIS Corporation

     —          7        —    

KT Estate Inc.

     176        6,755        —    

KT Strategic Investment Fund No.5

     —          —          6,000  

KT huimangjieum

     —          —          1,500  

Others

     372        173        —    

Associates and joint ventures

        

KT-DSC creative economy youth start-up investment fund

     —          —          (360

KT-IBKC Future Investment Fund 1

     —          —          3,250  

Virtua Realm Sendirian Berhad

     —          —          562  

K-REALTY CR REITs No. 1

     —          6,980        —    

Others

        

KT ENGCORE Co., Ltd.

     —          34        —    
  

 

 

    

 

 

    

 

 

 

Total

   W  548      W  13,951      W  10,952  
  

 

 

    

 

 

    

 

 

 
1 

Borrowing transactions include lease transactions.

At the end of the reporting period, the Company entered into a credit card agreement with a limit of W 4,742 million (December 31, 2019: W 4,851 million) with BC Card Co., Ltd.

At the end of reporting period, there are no collateral and payment guarantees provided by the related parties.

 

46


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

29. Fair Value

 

  (1)    Fair

Value of Financial Instruments by Category

Carrying amount and fair value of financial instruments by category as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020      December 31, 2019  
     Carrying
amount
     Fair value      Carrying
amount
     Fair value  

Financial assets

           

Cash and cash equivalents

   W 754,049        1       W 1,328,397        1   

Trade and other receivables

           

Financial assets measured at amortized cost2

     3,184,721        1         3,035,777        1   

Financial assets at fair value through profit or loss

     1,258,204      W 1,258,204        1,256,266      W 1,256,266  

Other financial assets

           

Financial assets measured at amortized cost

     72,329        1         72,329        1   

Financial assets at fair value through profit or loss

     162,079        162,079        131,344        131,344  

Financial assets at fair value through other comprehensive income

     19,903        19,903        20,974        20,974  

Derivative financial assets for hedging

     169,917        169,917        55,423        55,423  
  

 

 

       

 

 

    

Total

   W 5,621,202         W 5,900,510     
  

 

 

       

 

 

    

Financial liabilities

           

Trade and other payables2

   W 5,020,962        1       W 5,758,569        1   

Borrowings

     7,023,047        1         7,028,040        1   

Other financial liabilities

           

Derivative financial liabilities for hedging

     2        —          18,632        18,632  
  

 

 

       

 

 

    

Total

   W 12,044,011         W 12,805,241     
  

 

 

       

 

 

    

1 The Company did not conduct fair value estimation since the book amount is a reasonable approximation of the fair value.

2 With the application of Korean IFRS 1107, lease receivables and lease liabilities are excluded from fair value disclosure.

 

47


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(2)

Fair Value Hierarchy

To provide an indication about the reliability of the inputs used in determining fair value, the Company classifies its financial instruments into the three levels prescribed under the accounting standards. Financial instruments that are measured at fair value are categorized by the fair value hierarchy, and the defined levels are as follows:

 

   

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted marked price used for financial assets held by the Company is the current bid price. These instruments are included in level 1.

 

   

Level 2: The fair value of financial instruments that are not traded in an active markets are determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

 

   

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Fair value hierarchy classifications of financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Level 1      Level 2      Level 3      Total  

Assets

           

Trade and other receivables

           

Financial assets at fair value through other comprehensive income

   W —        W 1,258,204      W —        W 1,258,204  

Other financial assets

           

Financial assets at fair value through profit or loss

     94        —          161,985        162,079  

Financial assets at fair value through other comprehensive income

     939        —          18,964        19,903  

Derivative financial assets for hedging

     —          122,174        47,743        169,917  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 1,033      W 1,380,378      W 228,692      W 1,610,103  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Other financial liabilities

           

Derivative financial liabilities for hedging

   W —        W 2        —        W 2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W —        W 2      W —        W 2  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

48


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(in millions of Korean won)    December 31, 2019  
     Level 1      Level 2      Level 3      Total  

Assets

           

Trade and other receivables

           

Financial assets at fair value through other comprehensive income

   W —        W 1,256,266      W —        W 1,256,266  

Other financial assets

           

Financial assets at fair value through profit or loss

     232        —          131,112        131,344  

Financial assets at fair value through other comprehensive income

     2,010        —          18,964        20,974  

Derivative financial assets for hedging

     —          37,781        17,642        55,423  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W 2,242      W 1,294,047      W 167,718      W 1,464,007  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Other financial liabilities

           

Derivative financial liabilities for hedging

   W —        W 18,632      W —        W 18,632  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   W —        W 18,632      W —        W 18,632  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

49


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(3)

Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements

There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements.

Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements are as follows:

 

(in millions of Korean won)    2020  
     Financial assets  
    

Financial assets at fair

value through profit or
loss

    

Financial assets at fair

value through other

comprehensive income

     Derivative financial
assets for hedging
 

Beginning balance

   W 131,112      W 18,964      W 17,642  

Amount recognized in profit or loss

     —          —          25,564  

Amount recognized in other comprehensive income

     —          —          4,537  

Acquisition amount

     30,873        —          —    
  

 

 

    

 

 

    

 

 

 

Ending balance

   W 161,985      W 18,964      W 47,743  
  

 

 

    

 

 

    

 

 

 

 

(in millions of Korean won)    2019  
     Financial assets      Financial
liabilities
 
     Financial assets
at fair value
through profit
or loss
     Financial assets
at fair value
through other
comprehensive
income
     Derivative
financial
assets(liabilities)
for hedging
    

Financial

liabilities at fair
value through
profit or loss

 

Beginning balance

   W 101,156      W 17,762      W (10,183    W 7,758  

Amount recognized in profit or loss

     —          —          7,524        —    

Amount recognized in other comprehensive income

     —          —          4,801        —    

Acquisition amount

     1,125        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   W 102,281      W 17,762      W 2,142      W 7,758  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

50


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(4)    Valuation Techniques and Inputs

Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair value categorized within Level 2 and Level 3 of the fair value hierarchy as at March 31, 2020 and December 31, 2019, are as follows:

 

(in millions of Korean won)    March 31, 2020  
     Fair value      Level      Valuation techniques  

Assets

        

Trade and other receivables

        

Financial assets at fair value through other comprehensive income

   W
 

1,258,204
 
 
     2        DCF Model  

Other financial assets

        

Financial assets at fair value through profit or loss

     161,985        3       

DCF Model,

Adjusted net asset model

 

 

Financial assets at fair value through other comprehensive income

     18,964        3        DCF Model  

Derivative financial assets for hedging

     122,174        2        DCF Model  
     47,743        3       

Hull-White model,

DCF Model

 

 

Liabilities

        

Other financial liabilities

        

Derivative financial liabilities for hedging

   W 2        2        DCF Model,  

 

(in millions of Korean won)    December 31, 2019  
     Fair value      Level      Valuation techniques  

Assets

        

Trade and other receivables

        

Financial assets at fair value through other comprehensive income

   W 1,256,266        2        DCF Model  

Other financial assets

        

Financial assets at fair value through profit or loss

     131,112        3       

DCF Model,

Adjusted net asset model

 

 

Financial assets at fair value through other comprehensive income

     18,964        3        DCF Model  

Derivative financial assets for hedging

     37,781        2        DCF Model  
     17,642        3       

Hull-White model,

DCF Model

 

 

Liabilities

        

Other financial liabilities

        

Derivative financial liabilities for hedging

     18,632        2        DCF Model  

 

51


KT Corporation

Notes to the Separate Interim Financial Statements

March 31, 2020 and 2019 (Unaudited), and December 31, 2019

 

 

 

(5)

Valuation Processes for Fair Value Measurements Categorized Within Level 3

The Company uses external experts that perform the fair value measurements required for financial reporting purposes. External experts report directly to the chief financial officer (CFO), and discuss valuation processes and results with the CFO in line with the Company’s closing dates.

 

(6)

Gains and Losses on Valuation at the Transaction Date

In the case that the Company values derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instrument. However, in the case that inputs of the valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full in profit for the period.

In relation to this, details and changes of the total deferred difference for the three-month periods ended March 31, 2020 and 2019, are as follows:

 

(in millions of Korean won)    2020      2019  
     Derivatives used for
hedging
     Derivatives used for
hedging
 

I. Beginning balance

   W 3,682      W 5,107  

II. New transactions

     —          —    

III. Recognized at fair value through profit or loss

     (356      (356
  

 

 

    

 

 

 

IV. Ending balance (I+II+III)

   W 3,326      W 4,751  
  

 

 

    

 

 

 

30. Events after Reporting Period

(1) In accordance with the resolution of the Board of Directors on April 16, 2020, the Company will sell all of its shares in K Bank Inc., which it holds as an investment in associate, to BC Card Co., Ltd., a subsidiary.

(2) As of April 28, 2020, the Company plans to reclassify its shares in KT ENGCORE Co., Ltd. from financial assets measured at fair value through profit or loss to investment in subsidiaries as the court rehabilitation process of KT ENGCORE Co., Ltd. is completed.

 

52