Five-Star Business Finance Ltd

NSE:FIVESTAR

Good morning, and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the Fiscal Year 2024 Fourth Quarter Earnings Results by CJ ENM. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now, we shall commence the presentation on the fiscal year 2024 quarter earnings results by CJ ENM.

Good afternoon. This is Kay Choi from CJ ENM's IR. I thank the shareholders and analysts for taking time out of their busy schedules to attend our earnings session.

Now, we will begin Q4 2024 CJ ENM's earnings presentation. Please note that the financial and management results presented today have yet to undergo an external auditor's review and could be subject to changes upon such review. We have here with us CFO, Deuk-su Hwang and heads of different business divisions. From Media, we have, Ki Sung Hong; from Music, Hyung-kwan Shin; [indiscernible]; Global, [ Joseph Kim ]; and from Commerce, we have Ms. Jihyun Kim. We have Studio Dragon CFO, Kwangsuk Oh; TVING CEO, Choi Ju-hui; and CJ Studio CEO, Yong Soo-ha.

First, CFO, Deuk-su Hwang and Jihyun Kim from Commerce will present on 2025 management plans and goals.

Good afternoon. This is CFO, Deuk-su Hwang. In 2024, despite the downturn in upstream industry, CJ ENM successfully achieved a turnaround by strengthening its business with a focus on profitability. Marking its 30th anniversary in 2025, we will continue this profit turnaround through execution of strong business strategy. Our key strategic initiatives include quantitative and qualitative growth in content, acceleration of global expansion, reinforcement of digital platforms and mobile live commerce strategy, all of which will drive profit growth in 2025.

First, regarding our content strategy. Last year, CJ ENM's Queen of Tears set a record for the highest viewership ratings in TV and drama history, resulting in a syndrome-like popularity. Additionally, our entertainment content ranked first across all channels and target ratings during prime time, achieving remarkable success. In 2025, despite market contraction, we will produce more, produce better and expand our global reach, accelerating our growth strategy. For dramas, we will introduce tentpole productions every quarter, striving to create the next Queen of Tears. Starting in the second half of the year, we will also resume midweek dramas featuring rising stars to optimize production costs and maximize additional revenue from content. In entertainment, we will expand proven season-based and new format programs. We will also strengthen the presence of Korean Entertainment content by broadening its distribution in the global market.

Our 2025 content lineup is more diverse than ever. On tvN and TVING, audiences will be able to watch top global stars such as [indiscernible] in major tentpole dramas such as Resident Playbook, The Tyrant's Chef, Typhoon Company and [indiscernible]. Additionally, we will continue expanding season-based entertainment shows such as Sixth Sense, The Great Escape, Fresh off the Sea, Genius Paik and Exchange. Furthermore, Producer [indiscernible] under our label will extend the influence of CJNM's entertainment concept beyond tvN and TVING to Netflix with new productions, including [indiscernible].

CJ ENM has designated this year as the foundation for global expansion focusing on content production and distribution. TVING's overseas expansion and the growth of HIP based on global NPS. We will strengthen local content production through studios in Korea, Japan and the U.S. while expanding content distribution in new markets such as India, South America and the Middle East. TVING aims to increase its global subscriber base and brand recognition by entering more actively into the global market through branded channels, thereby enhancing synergies with our global distribution business. For music, we plan to expand HIP initiatives in Korea, Japan and Greater China while continuing growth through the reinforcement of our multi-label strategy.

Next, digital platform strategy. We will drive digital and expand B2C content and commerce through the enhancement of TVING and Mnet Plus and ONSTYLE platform. TVING is accelerating its business integration with Wavve, strengthening its competitive edge in the domestic content while targeting 15 million subscribers globally by 2027 through international expansion. It will evolve into a multi-genre content platform for providing differentiated user experiences such as sports, live streaming and short-form content.

Mnet Plus, which has been expanding traffic through K-pop content is enhancing its business model with digital content, commerce integration and region-specific human IP strategies. Meanwhile, ONSTYLE is evolving into a curated live shopping platform. Our differentiated mobile live commerce strategy based on content is leading platform growth with plans to expand new brands and maximize synergies between content and commerce.

For detailed strategies in the I would now like to invite Jihyun Kim, Head of Growth Strategy for the details.

Good afternoon. This is Jihyun Kim, Head of Growth Strategy for the Commerce division. Despite a stagnant domestic retail market with 0 growth in 2024, our Commerce division successfully transitioned from a traditional home shopping model to a growth-oriented business model by advancing first, our One Platform strategy and accelerating our mobile commerce business. The market environment in 2025 is expected to remain challenging. However, with the potential for market consolidation, only a few key players favored by consumers will experience distinct growth. Our company is now recognized by brands as an essential platform for rapid brand scaling and successful new product launches. At the same time, from the consumers' perspective, we are repositioning ourselves as a trendy and trustworthy platform with mobile live commerce at the core of this transformation.

To accelerate the verified growth structure established last year, we will focus on 4 key strategies in 2025. First, enhancing product competitiveness. We target not everyday shopping items, but high involvement differentiated product categories. By leveraging data-driven trend analysis, we will expand sourcing for random-based brands. Once sourced, we will amplify sales through the One Platform strategy and pursue exclusive distribution rights to further differentiate our offerings. Second, securing major high-impact IPs. We will acquire multiple large-scale IPs to best market trendy products. In addition to existing IPs such as [indiscernible], we will develop additional flag IPs. These content assets will be diversified across live broadcast, short-form and mid-form formats, maximizing long-tail sales potential.

Third, we will expand seamless customer experience across multiple channels. We will integrate our platform with various external channels where customer viewership is high, including YouTube, Instagram, TikTok, TVING and offline spaces. To achieve this, we will further refine our content production and digital marketing capabilities tailored to each media platform. Lastly, on strengthening synergy with the Entertainment division, we will accelerate collaboration with the entertainment sector through joint IP planning, exclusive product development and integrated advertiser growth.

As is shown on the chart on Page 9, our mobile live commerce business has demonstrated rapid growth with transaction volumes increasing from KRW 140 billion in 2022 to approximately KRW 320 billion in 2023, a 2.3x increase over 2 years. By executing the 4 key strategies outlined above, we aim to maintain an annual growth rate of over 60%, targeting KRW 870 billion in transaction volume by 2026. This business is not just a cash cow, but a key driver of shareholder value enhancement and we are committed to improving its growth momentum.

CJ ENM as a content commerce corporation will endeavor to realize platform growth and global market expansion in 2025. I wish the best of health for our shareholders in closing. Thank you.

Now, we will be hearing from Studio Dragon.

Good afternoon. This is Kwangsuk Oh, CFO of Studio Dragon. I would like to present our 2024 annual and Q4 business performance. In 2024, the challenging media environment persisted, negatively impacting drama production industry business operations. The company also experienced a 40.4% decline in the annual lineup compared to the previous year. Despite these challenges, we expanded the proportion of pre-sold new titles by 20 percentage points -- 24 percentage points, strengthened our IP business and introduced cost-plus models in the second half of the year to minimize market impact. And as a result, we recorded an annual revenue of KRW 550.1 billion and annual operating profit of KRW 36.4 billion.

In Q4, the total number of broadcasted episodes decreased by 35% Y-o-Y to 46 episodes. However, by pre-selling the entire lineup of new titles such as [indiscernible], we maximize sales efficiency while actively working on cost reduction to improve profitability. And as a result, in Q4, we achieved a revenue of KRW 130.6 billion with operating profit of KRW 5.4 billion, marking a return to profitability. Now on our outlook for 2025. In 2025, we aim to rebuild our fundamentals and secure future growth drivers by diversifying platforms domestically and internationally to expand our lineup, enhancing HIP ratio by securing S or A-grade creators and optimizing processes and exploring new and global business opportunities to establish a strong foundation for high growth.

Thank you for your attention.

Now CJ ENM's results will be presented.

Good afternoon. This is Jihyun Kim, Head of Finance. In 2024, our annual revenue reached KRW 5.2314 trillion, reflecting a 19.8% growth, while operating profit recorded KRW 104.5 billion, marking a successful turnaround. Entertainment division recorded revenue of KRW 3.78 trillion with operating profit of KRW 21.3 billion. Commerce division saw revenue of KRW 1.4514 trillion with operating profit of KRW 83.2 billion. The profitability improvement [indiscernible] and fifth season, along with the revenue expansion from music such as [indiscernible] contributed to both top line growth and profitability enhancement in the Entertainment division. Meanwhile, the Commerce division achieved revenue growth and margin improvement through the rapid expansion of mobile live commerce and a strengthened product portfolio strategy. For more detailed information on each business segment, please refer to the provided materials. Thank you.

Now, we will move on to entertain your questions. Given the time constraint, please limit your questions to [Technical Difficulty].

[Operator Instructions] The first question will be given by Kim Hoi Jae from Daishin Securities.

I have 3 questions. First is on LiveCity. Can you provide us with update on how things are going with your LiveCity project? Would there be any further cash out, including the event that took place in January 23? And will it influence your numbers in your book in the future? And my second question is on [Technical Difficulty] season in Q4. Could you give us the revenue related to Q4? And could you also provide us with an operating profit number for Q4 for fifth season? And I would appreciate if you would give us the target numbers for year '25 and also the outlook for this year? And my third question goes to Studio Dragon. In your presentation, you have stated quite a high target for this year, year 2025. Could you please give us more color on what kind of cost that would entail and your plans to attract good creators. And I would much appreciate the update on your [Technical Difficulty].

Yes, if I will first address your LiveCity question. At the end of year 2024, our borrowings related to the LiveCity project stood at KRW 380 billion, of which KRW 200 billion will see maturing in year '25. For the remaining KRW 180 billion, the maturity will fall between year '26 and '27. And these borrowings and liabilities, they have already been reflected on a consolidated basis on our book. Yes. And now for the losses that were reflected with the LiveCity project nullification, well, in Q3 2024, the losses related to nullification of the content have already been reflected in our accounting. And in Q4, about the operational amount related to managing our legal entity related to LiveCity project, that has been reflected, but that was it. And there will be no further reflection of losses in our [Technical Difficulty].

Now on the Q4 numbers for fifth season, the revenue stood at KRW 602.7 billion and operating profit at 8. Yes. Now on the delivery in Q4 by fifth season. Out of the 7 episodes of Season 2, we delivered much of it and the 4 out of 9, we delivered 6. And in '25, we will deliver remaining 3 episodes of 44 and it's for Netflix and other platforms. The number of episodes compared to year '24, we will see a doubling from the 33 episodes in '24 to about 52 this year. But the revenue will pretty much remain the same as we saw in '24.

Yes, this is [indiscernible] answering your question. Well, we've engaged in various cost-cutting measures. And starting from the second half of last year, we went with a cost-plus model. So, starting from second half last year, it was 100% cost-plus basis. And this year, we will continue to expand the cost-plus model. And we are also thinking of a midweek drama. So, for the midweek programs or midweek titles, we are thinking of using less guarantee and thus lowering the budget required for production. And these efforts will result in cost cutting throughout the year.

Yes. And on how to even further our bonds with S and A level creators. Well, we have announced our lineup for year '24, which includes Tyson Corporation, Tyrant's Chef and [indiscernible]. And also we have [indiscernible] with Netflix. And these were works of S level creators. Our collaboration with such S level, A level creators will continue going into year '26, although we have yet to fix a firm lineup. Now on shareholder return measures, of course, we would have to calculate everything at the end of the second half of this year. But should our OP margin touch a 2-digit number and should we see a positive free cash flow, then we will think about the policy that we could implement for shareholder return.

Next question, please.

The following question is given by Shin Eun Jung from DB Investment Securities.

I have 3 questions. First is on TV advertisement. It seems that you have seen a turnaround when it comes to TV advertisement. Will this trend continue in year '25? And could you please give us about the trend that you have witnessed for the month of January and February? And my second question, can I get the revenue and operating profit number for TVING? And could you please tell us the influence that came from the collaboration between Naver and Netflix? And are you currently in search of another alliance partner? And my third question, you did mention in your presentation, the [ 15 ] million strong subscriber basis by '27. Could you please give us a yearly breakdown and does this 15 million number include the merger effects with Wavve.

This is [indiscernible] answering to your question. Yes, we did see a recovery and a turnaround for our TV ad business in the fourth quarter despite the low market conditions. We aimed for the older advertisers with older advertisers plus low market share advertisers and combine this with our content competitiveness, which gave us the desired results. And well, it's too early to say, but we are seeing a little more stagnant move in the month of January and February, but it's really difficult to annualize the results from the 2 months on an annual basis. But once again, our target is growth in the single-digit level.

Yes. And if I may bring your attention to Page 4, starting last year in '24, we've taken an integrated approach, integrated sales approach by combining TV ad sales activities with digital ad sales activities. So, this is a combined approach and we also went on to use the resources of TVING and tvN selling ad basis. And on a combined basis, combined basis, meaning combination of broadcasting plus digital, we hope to get and see a higher number than our past figures. Yes. And if I may give you a short answer for achieving revenue and operating profit numbers, well, the revenue stood at KRW 122.7 billion with operating loss of KRW 14 billion. And we will be hearing more from TVING.

Yes. This is Choi Ju-hui, CEO of TVING, addressing your question. Yes, it's true that we've ended our alliance with Naver and that could give us momentary influence, but we are well defending the influence. Well, a precursor to the subscriber bases, well, the pre-indicator could be our traffic numbers and we're well maintaining our monthly average user basis of 7 million. So, we hope to see full recovery in 2 to 3 months. And as for our future plans for future alliance with other entities, well, we're seeking healthy relationship with diverse players. Yes. And for our time line, well, we did give you an indicative number of 15 million, and it does include the subscriber from Wavve. And in 2 years' time period, we hope to gain 7 million to 8 million subscribers domestically and also the same number, 7 million to 8 million from overseas operations.

Yes. And if I may further elaborate on how we were going to strengthen our subscriber bases in the domestic market, well, 6, 7, 8 million mark. Well, we are going to work, of course, on improving our content and service provided through attracting more sports fans, and we would also be working with news content and short program. Yes, we will bring back our representative IP such as Exchange and Great Escape. And we will also introduce the [indiscernible] titles in the second half to attract more users or subscribers. And we will also introduce account sharing stock in the near future. And we have also introduced various combined plans to bring together the subscriber bases of Wavve.

The following question is by [indiscernible].

First question is on TV. I believe that TV business has been concentrating in the [Technical Difficulty] but you said that you would also be looking to external market, international market. And you said that you will set your 2025 as the foundational year for going more international, more global. Why so? Why year '25 to go more global? And what's the strategy that will take you there? And what kind of markets are you going to tackle? And well, looking at the operating profit achieving, well, the domestic business itself did not give you the desired operating profit numbers. But since you've decided to go forward, you will be burning more OpEx, how will that influence your OP numbers?

And now my second question is on MLC. Is it on [Technical Difficulty]? And what's the percentage of that in your commerce business? And my third question is on fifth season. The revenue number is fine. But relatively speaking, your operating profit numbers does not really follow the growth trajectory on the revenue numbers. Why so?

Yes. This is CEO, addressing your TVING question. Why set year '25 as the foundation year for going international. First, it's on the subscriber basis. Well, we think we have reached a certain level when it comes to domestic subscriber basis and we believe that we would be reaching close to our BP numbers this year. So that is why we've decided to go for the international market. And secondly, Korean content is gaining more popularity than ever in the growth stage. And on a company-wide level, we decided that we do not want to lose out on this good timing.

Yes. Well, if I may add more to our international strategy, well, the Korean content, Korean is very popular in the Asian nations. So, we will target these regions first. And as you've mentioned, we will be working very diligently to minimize [Technical Difficulty] burn. So, we will be going into regions where we already have a firm established partnership and we'll be establishing our brand there. And we will also be launching a B2C app and take this 2-track approach.

Now on the MLC-related question for commerce, it's on net order amount. This is Commerce answering your question. So on a GMV basis in '24, the number amounted to KRW 200 billion. And although we do not keep our numbers according to revenue, revenue-wise, it will be between KRW 90 billion to KRW 100 billion. So, out of the revenue numbers, it will be about 10%. Yes. And now the lower-than-expected profit numbers to revenue in Q4, it's mainly because of impairment losses amounting to KRW 24.7 billion. So, we enter into a binding contract with the creative and production companies. And in order for us to actually have this binding contract be expected as expensive, well, there are some processes that we have to follow. And for the older contracts, we have to write them off. And these contracts, they last somewhere between 18 to 21 years. And these older contracts that we had to write off, they were entered into prior to us buying fifth.

The following question is by Choi Hyun Yong by KB Securities.

Yes. I have a question. First on the merger between TVING and Wavve. Well, many had expected to see an economy of scale type of effect from the merger in attrition of the major shareholders to Wavve. And therefore, this has led to some questions about the actual synergy effect due to the merger. So, does the CEO see much synergy effect coming from the merger between TVING and Wavve? This is my first question. And now to my second question, there was an announcement by CJ ENM CEO about 2 days ago on expanding content investment by KRW 150 billion. I do understand the need for such investments. But from a shareholder incentive, would this be really added investment really lead to a leverage effect.

This is CEO, Sang Hyun Yoon addressing your question. Well, the merger between TVING and Wavve really lead to an economy of scale? Yes, I believe so, because the subscriber bases of TVING and Wavve were quite different. The overlap was only about 30%. So, we're seeing a healthy traffic and maintenance of the subscriber basis. And I do believe that we have realized an economy of scale through our merger. Yes, as you've mentioned, there was some attrition of shareholders. But by this merger, we were able to create a legal entity that provides good entertainment formats plus dramas. And with this, I do believe that our subscriber base will strengthen going forward. And with that, we would find more room for content investment going into the future, leading to and creation of a virtuous cycle. And with this virtuous cycle in place, I think we will be able to [Technical Difficulty] our globalization effort.

Yes. This is Deuk-su Hwang, CFO, addressing your questions. Yes, I think you're referring to what was announced on our Media Day by our CEO. He did mention to you more investment in content. And given the market situation, you may have doubts on how much we can recoup on the investment. But as was mentioned in my presentation, we will be producing more and producing quality content and taking it to the global stage in year 2025. And as was mentioned by Studio Dragon and also myself, we will be creating new slots for midweek dramas. With that, we would be spending more in terms of investment, but we would hire and recruit new faces, new rising stars. And we would also seek to get more value-add from our investment. And with these activities in place, we do think we will be able to improve the investment that we spend on these new types of productions. The same could be said for our non-scripted entertainment programs. We have outstanding quality content, and we could distribute this over global OTT. And with that, we would also be getting profit from the international platforms, the global stage as well. And well, I think you could worry less on us spending more in terms of investment.

The following question is by Lee Ki-hun from Hana Securities.

Yes. My question might be a bit redundant, but I would ask it. So you mentioned TVING going global and Studio Dragon has also talked about their pre-sales by domestic and other overseas OTTs. And could the 2 strategies coexist? Well, I see that you are going to sell more both platforms in the global stage, thus the requirement for added investment. But is this a sustainable thing? Because I see that the accumulated loss over the decade amounts to about KRW 1 trillion and your leverage, it has snowball to somewhere around KRW 1.7 trillion. And you announced an additional investment amounting to KRW 150 billion plus the losses from LiveCity project amounting to KRW 380 billion. So, all these negative numbers amounting is everything financially sustainable?

This is the CFO addressing the TVING and Studio Dragon conflict of interest or cannibalization question. So, if I may bring your attention to Page 7 of the presentation deck, it shows how TVING will go global. We did mention to you regions, including Japan and Southeast Asia, where we could go to minimize the clash of interest with Studio Dragon's efforts. So, we did give you some regions, including India, South Americas, MENA and probably down the road, the European region. Well, we will be working closely with Netflix, Disney, [Technical Difficulty] but we would also be working with regional OTTs and very local OTTs. And by taking this approach, I think we would be able to maintain the required profitability.

Yes. This is Kim from Finance, addressing your financial-related questions. Yes, in year 2024, we sold off our shares with Netmarble and we wanted to add more efficiency to our operating capital and we decreased our debt -- net debt by KRW 340 billion. And currently, the level is somewhere around KRW 1.7 trillion. We will continue our activities to deleverage in year 2025 as well. We have changed and made some alterations to our settlement conditions and we want to make maximum and more efficient use of our capital. And in order to add more efficiency to our working capital down the road, keeping a keen eye on the market conditions, we will seek to securitize more of our noncore assets.

Do you have any further questions? Yes, I see no for further Q&A then hope to conclude the session now. Thanks for your time and this will end Q4 earnings results. Thank you.

This concludes the fiscal year 2024 fourth quarter earnings results by CJ ENM. Thank you for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]