Kddi Corp Unsp/Adr

Thank you very much for waiting. We will now begin the financial results briefing and Q&A of KDDI Corporation for the first quarter of fiscal year ending March 2026. Thank you very much for taking time out of your busy schedule to join us today. I am Miyakawa of IR department and will serve as the moderator today. This briefing will be broadcast live on the Internet with simultaneous Japanese to English interpretation. The presentation will be available on demand on our IR website at a later date. Thank you for your understanding in advance. Let me introduce the participants today. Kuwahara, Executive Vice President, Representative Director and Executive Director of Business Solutions Sector. Saishoji, Senior Managing Executive Officer, Director, CFO, and Executive Director of Corporate Sector. Takezawa, Senior Managing Executive Officer, Director, and Executive Director of Personal Business Sector. Katsuki, Managing Executive Officer, Director, CSO, CDO, and Executive Director of Corporate Strategy Planning Division. Yoshimura, Senior Managing Executive Officer, CTO, and Executive Director of Core Technology Sector. Akita, Executive Officer and Executive Director of Corporate Management Division. We have three financial results-related materials and TSE, timely disclosure material. Total four materials are posted on our IR website. Please refer to the disclaimer in the material regarding statements made in these documents, performance targets, and projected subscriber numbers explained in the Q&A session today. Saishoji will first explain the financial results summary, followed by Q&A. Ms. Saishoji, please. Let me explain our first quarter financial results for the fiscal year ending March 2026. First is our consolidated results. Revenue increased and profit decreased on a consolidated basis, but progress is in line with the initial forecast. Top row, operating revenue was 1,436,3 billion yen, up 3.4% year-on-year. Middle row, operating income was 272.5 billion yen, down 1.6%. Bottom row, profit for the period attributable to owners of the parent was 171.1 billion yen, down 3.3%. Next is factors for change in consolidated operating income. From the left, mobile on personal services segment basis aims for a year-on-year profit increase of 1.9 billion yen and our initial forecast of full-year profit growth of over 30 billion yen. Financial and energy businesses combined were up 6.2 billion yen. Lawson's equity method profit was up 5.7 billion yen, DX was up 2.9 billion yen, technological structural reform was up 3.2 billion yen, and the impact of prior year's promotional expenses, including a 7.3 billion yen one-time expense, was negative 21.4 billion yen. including others such as returns to shareholders, stakeholders, and decrease in rock and roaming revenue. Operating income was down 4.4 billion yen. However, as mentioned here, our core businesses are progressing steadily, and the impact of sales promotion expenses was factored in at the beginning of the year, so it is in line with our forecast. In the full year results briefing in May, I touched on two points on the left regarding our commitment for the next growth. Digital data and AI will generate new values. So as you see on the right, We will focus on growing our foundational power to connect and making it a strong competitive foundation of KDDI. To achieve this, we will provide the value of connected experience and expand the telecom business foundation both to C and to B. As the outcome of these business activities, it is important to grow our mobile revenues, which is communications plus value-added services in both personal and business service segments. To show the progress of our growth to all our supporting stakeholders, we will change and promote our KPI disclosure. The detail on KPI disclosure, please look at the appendix. This shows the mobile revenue status for personal and business services segments combined. Left side, mobile revenues were 550.6 billion yen, up 7.6 billion yen year-on-year. In the center, mobile ARPU was 4,340 yen, up 60 yen. Right side, the number of smartphone subscriptions increased by 450,000 yen. Personal segment basis mobile revenues is promoting the communication and added value services. And year-on-year, it is up $2.3 billion. We're making steady progress. Right side, Q1, mobile approval. and smartphone subscriptions are steadily increasing, and new plans offering connected experience value are well-received and are off to a good start. Both grant migration and churn rate trends have improved. We expect significant growth in the second half, including the impact of service revisions, and will continue to aim to achieve a virtuous economic cycle. Next slide.

The new plans launched in June are off to a good start. On the left-hand side, new value of connected experience such as AU5G Fastlane, Startlink Direct, and unlimited data overseas have been extremely well received. As a result, about 80% of customers choose the AU ValueLink plan and Unlimited Data Max Plus, which combine reliable unlimited data use with the value of connectivity. On the right, at UQ Mobile, due to the increased data usage, about 40% of customers choose KomiKomi plan value, which offers the largest capacity. Due to value of connected experience and data demand, high capacity plan is very well accepted. This is the effect of the multi-brand strategy we redesigned along with our service revisions. It has worked as expected, with both AU and UQ mobile seeing improved trends. On the left, as AU's attractiveness has increased, brand migration trend has improved, and its flattening is in sight for FI March 26. The number of migrations from UQ Mobile to AU continues to increase, expanding 1.4 times year-on-year. We will continue to strengthen efforts to make AU more attractive, aiming for further growth. The number of migrations from AU to UQ Mobile decreased significantly in June. On the right, churn rates have also been positively affected, with that of AU remaining low and that of UQ Mobile showing a significant improvement in June. The trend continues in July as well. Recently, we have seen a trend within the industry toward focusing on contracts with highly engaged customers. We too will transform our structure to the one that is more conscious of lifetime value. While many companies are focusing on finance, I'd like to reiterate the strengths of KDDI's financial services. On the left, KDDI has been a pioneer in creating a synergy model between telecommunications and finance. In the fall of 2025, we will begin collaboration with SBI Securities to strengthen alliance between banking and securities. In addition to Mitsubishi UFJ-E Smart Securities, SBI Securities will join as a partner for this alliance. By using real-time direct debit set up with AU Jibun Bank, customers will receive preferential interest rates. This will also help us increase our bank deposits. we will continue to expand our collaboration with securities firms in order to strengthen our financial functions together with our partners. The financial businesses performance and KPIs are progressing smoothly. On the left, AU Financial Holdings operating income increased 33% year-on-year to 11.7 billion yen. On the right, AU Money Activity Plan, which has now exceeded cumulative number of subscriptions of 1.6 million, has been successful, expanding our customer base, including AU Pay Gold Card members. Next, we will look at the performance of the business services segment. On the left, consolidated operating revenue was 349.7 billion, up 4.5% year-on-year, and operating income was 57.5 billion yen, up 5.4%. For base, revenue grew with growth in mobile revenues, and both ID and APU were solid, resulting in an increase of 3.9 billion, or up 2.5%. In growth area, operating revenue was up 6.2% due to delays in integration progress at Altios Link. Toward the end of the fiscal year, we aim to expand the growth in focus areas such as security and IoT and to bottom out and accelerate BPO performance. Finally, today's summary. As to the first quarter consolidated results, despite the decrease in profit compared to the previous fiscal year, progress is in line with our initial forecast. New plans are off to a good start, and the new connected experience value has been well received. Our multi-plan redesign has been successful, and we continue to aim for a full-year profit increase of over 30 billion yen in mobile in the personal services segment. In the financial services business, we will strengthen bank securities alliance and further expand the value we provide by combining telecommunications and finance. In the business services segment, we will strengthen initiatives in focus areas and accelerate our growth trend. That's all. Now we would like to move on to Q&A.

Thank you, Ms. Saishoji. We will now take your questions. If you have questions, please tap the Zoom raise hand icon or raise hand button in the reaction. When you are nominated, please tap unmute and ask your question after the presenter mentions your company name and name. To receive questions from as many people as possible, please limit your questions to two per person. If you do not have your name or company name, we cannot appoint you, so please mention your name. We will now take your questions. First question is from Daiwa Securities, Tokunaga-san. Please unmute yourself and ask your question. Hello, this is Tokunaga from Daiwa Securities. I have two questions. first is about the sales promotional expenses so one reason profit declined is because the sales promotion was big excluding the one-off basis out there and all players are having strong results so this means that you are you have this result in the pew one And this competition will continue on a full year? Or you're not using much expenses now? It's just this past year factor that is impacting your results this time? Thank you for the question. So I mentioned in the increase decrease of profits, the sales promotion expenses increased, which pushed down the profit. For the one-off factor, $7.3 billion. And for others, was this spent this year or prior years? I think your question is on that point. So this is personal services segment. Takezawa would like to explain. Thank you very much for your question. Takezawa would like to answer. First of all, as you rightly said, $7.3 billion is the promotion expense related gain on the reversal of the provision. So that was one-off factor. It will not be incurred from now on. And for the others... So our smartphone Tokusuru program, the program that we offer, this is the expense increase for the past existing customers. And this Tokusuru program, this started in September 2021. And with the installment receivables, we had the customers who purchased using the installment increased. And so from the device purchase, two years or after three years from the purchase, this benefit is executed. And when this benefit is exercised, the residual value portion tends to rise. And that is where we are now. Going forward, this benefit will end among some customers and the customers who will newly join will become better balanced and so the YOY impact will improve. But for this year, we will gradually improve. So this was factored in at the beginning of the year as we planned for the full year. We will continue our efforts to achieve the target. Thank you. So, this quarter, the smartphone subscriptions net addition is slowing down. It's a bit weak, but the expense was not injected in this quarter. And so, for the new injections, you are being rather restrictive, suppressive? Yes, you're right. Well, we're not really restraining, but... looking at the profit situation and right now we are in the middle of the service revisions so we will watch the market condition and that use our promotional expenses accordingly for now on the payment basis we are not dramatically increasing this year thank you and my second question is about mobile revenues personal segment around 2 billion increase in q1 on the full year 30 billion profit increase I think you said so profit increase means how much mobile revenue increase are you anticipating for the full year and I think it's partially due to the revisions service revisions so this will increase as we go through q2 q3 So are you in line with the profit increase plan? So the 30 billion yen full year forecast for mobile revenues. Thank you for the question. So full year 30 billion profit increase is the target in the personal services segment. Q1 profit increase seems a bit weak. I think that is the gist of your question. So this is, again, personal, business-related, so Takezawa will answer. Thank you for the question. So let me answer. $2.3 billion profit increase, but as you see in the waterfall chart, the profit, $1.9 billion. so the revenue was not converted 100% into profit there was added value revenue included in the mobile revenues that's the reason so 30 billion profit increase on the profit basis we need to increase profit by 40 billion and From August 1st, we started our service revisions and some price revisions. And the new pricing plan started in June is now seeing an upside compared to the plan. So we hope we can maintain our momentum until the end of the year and Net additions of smartphones need to accelerate. So summer to fall and towards the end of the year, we will try to promote and drive this business and keep the momentum so that we can increase the profit by 40 billion to achieve the 30 billion yen target. thank you my follow-up question is so this revision on August 1st the progress given that you are your new pricing is off to a good start second third week mobile revenue value added I think this is a good progress can I see it that way including the subscriptions Yes, the base telecom revenue will rise and the added value will also be offered to our users accordingly. So the mobile revenues overall can grow, we think.

Thank you. Thank you. Next question. Please tap the read hand button. I have two questions. First about personal section. Mobile revenue. So 2.5% and the 9.7% increase for business. So altogether 1.4 goes up to plus 1.4. So As to personal, 0.5% increase. That's rather limited. So it's not really a real growth. And as to APU in the first quarter, maybe not so much growth. Am I right? So in a simple calculation about the repricing, at the seven months from October, 300 yen per And the 70 million yen, that's from the smartphones, so the 350 yen or so, the increase. So from the June Q, the gross new, the 4 million assumed, and over 10 times, maybe 8 billion or so. Altogether, the 40 billion yen or so increase revenue. So from the repricing, 40 billion yen increase, then the personal section, we'll see increase in profit. I think that's your plan. As the overall structure of the financial business and Lawson are continuing the positive growth, am I right to understand that that is going to be the biggest change for the personal sector? the sector. The current APU and the 40 billion yen increase in revenue because of the repricing. Am I right? Thank you for your question. For the first quarter, actuals in the first quarter, mobile revenue, APU It doesn't look like growing so much. So in order to achieve the initial target of profit, is it mainly by the impact coming from repricing? That is, I think, the intent of the other question, and Ataka Sasan is going to answer your question. Thank you for the question. Our view is more or less in line with your comment. As I mentioned earlier, the revenue itself in the service revision, some of them are doing very well, but the middle capacity, low capacity zone with the current service revision as to that zone. we decided to make more focus on the LTV and more engaged users. So the net increase there in that zone is not really satisfactory as the basis for AP. But with this re-pricing and service revision within this fiscal year, we would like to make another challenge. And with that included, as to upper revenue, as I mentioned earlier, in terms of revenue, about 40 billion yen and profit, 30 billion yen plus. That's the realistic in our minds. And we'd like to take necessary measures going forward as well. Thank you. Thank you. As to business sector, business services sector, in the first quarter, mobile revenue increased 10%, plus 5.3 billion yen. I think profit came here, came from here. ARPU grew by about 1%, so did in terms of number of business volumes increased. must have been increased a lot. Data center and VPO are not growing really. But the growth area is doing well. So IoT or data center, business, VPO excluded. The rest, I think, must be growing. Other than the area, other than these three highlighted areas, what is really growing? And if it is growing, that's good. But is it contributing to profit? Mobile is doing well. And the volume is driving the profit. And in the gross area, other areas, my intent is to know more about the other area. As to business-related revenue, well, the mobile revenue is increasing, but data center, BPO are not really growing. So what about the rest of the business? What is growing? What is the current status of growth area? That was the question. So Kuwahara-san answers your question. Thank you for the question. The base growth separately, starting with base, mobile is performing very well. Audi, Apple, and the mobile value-added services are positively affecting to produce profit. And as to growth side, the good news and bad news, starting with the good ones, there's something which is not shown here. Our new focus, namely cybersecurity and facility solution or Starlink drone. They are growing very steadily. Meanwhile, digital BPO is not doing so well. Year on year was revenue and profit decreased. So the turnaround there will be a key point. As to data center, it's somewhat weakening, but in the first quarter last year had some one-off factor and also effects impact as well. And that is why it is a bit weaker, but on a full year basis, the profit is expected to grow by double digit. Thank you. Digital BPO, the situation remained the same from the last year, and in the past you said that on the customer's side, the size of orders was decreasing, you said, in the past. That trend continues? Could you please elaborate on the background? Thank you. Digital BPO, here is what we are doing as to existing customers. We are digitalizing those customer bases. That means that the revenue decreases to some extent. And to set it off, we are going to acquire new customers so that the ultimate results will be positive. So from the last year, the progress is kind of slow. But comparing last year and this year, the number of transactions increased 1.6 times. So in the second half of the year, we will see some positive growth in results. Thank you. Thank you, Masuno-san.

Next question. Please tap the raise hand button on Zoom. So Okasan Securities, Okumura-san, please tap the unmute button and ask your question. Thank you. I'm Okumura from Okasan Securities. Can you hear me? Yes? Thank you. I have two questions. First is on the new pricing plan. Since it was introduced, how is the competitive landscape? You mentioned that you are doing good. And in the short-term perspective, since June 3rd, since the plan was introduced, smartphone subscription has been positive. How is MNP moving? And in addition to that, which brand, which attribute customers are changing or showing some changes? You mentioned what is happening in the brand, but vis-a-vis competitors, how have you seen any changes in the competitive landscape? Thank you. Thank you for the question. So after the new pricing plan was introduced, how the competition changed? Subscriptions, M&P, brand, and vis-a-vis competitors. This is personal services sector, so Takezawa will explain. Thank you for the question. So Takezawa will answer your question. First, on June 3rd, the new pricing plan started in a U-value link plan. As mentioned in the presentation, 80% of AU users joined this. And in UQ side, komikomi value and Toktoku plan 2, the two new pricing plans are launched. The komikomi value, 40% have joined. So we are seeing an upside compared to our plans. But on the other hand, these are the competitors. The mid-volume and above, we are fully competitive. But in UQ, the volume area, we have many, many plans. We closed the new applications for this lowest bracket. So it's not so much churn. In terms of acquisition, we're seeing an impact. And for this part, Tokutoku Plan 2... appeal product attractiveness is being pursued so how we compete in the low volume area is the key smartphone net addition is not strong enough as mentioned earlier so we are trying to come up with the comprehensive measures to address this first starting today some new pricing plan was introduced So this new pricing plan that is off to a good start will be used to compete effectively with our competitors. Thank you. Thank you. So compared to April and May, June smartphone subscriptions on MNP has settled somewhat. Yes, churn in June was settled, stabilized compared to April and May, but in terms of acquisitions, we were a bit behind. So the key is how we reinforce that part. Thank you. My second question is on business services segment. So this may be repetitive, but in growth domains, excluding lack consolidation is the actual real-term profit is down or so you're struggling with digital PPO but now you will are expecting positives in the second half as you've been explaining from the past what is the probability of the growth accelerating in the second half thank you Thank you. So in growth area, excluding lack, it seems that it is negative growth. So you want to know the probability of the growth in the second half. So Kuwahara will answer your question. Thank you for the question. First, what we do in the second half. In our plan, looking at first and second half, as every year, we are second half heavy, especially fourth quarter. The one-off money, sort of the seasonality-wise, we have this ramp-up in the fourth quarter. For example, mobile, smartphone, IoT, the monthly revenue is progressing steadily. So the remainder is the temporary factor. So excluding security, we look at security together. So the security, think we can continue growing security thank you I hope this answers your question thank you just one follow-up question on the business services segment so the corporate mobile price revision what is your thinking plan or progress anything you could share with us thank you so on the corporate side We have revised our plan. New pricing plan has been introduced. But on the corporate side, we have a one-on-one bilateral contract with companies. the number of connections, subscriptions. We discuss with customers and revise accordingly. Starlink Direct or remote Zoom that companies use or Teams. The additional, we have a plan where we add the Giga. So this is highly welcomed by corporates. So this is a bilateral negotiation and contract. So we negotiate and revise accordingly. Thank you very much. That's all from me.

Okamura-san, thank you. Next question, please. Please touch the raise hand button. Tsusaka-san from Morgan Stanley MAFG Securities. Here is Tsusaka. Can you hear me? Yes, we can. I have one question. The net increase of smartphone subscriptions quarter on quarter, that was extremely small growth. By changing prices... In the market, it is said that it is because of the repricing and the churn rate has risen up. And in August, there's the other price hike for the existing plans. Some users understand it, but other users don't. The quarter starting in September, maybe you cannot expect a lot for the net increase for this fiscal year. In the personal area, mobile revenue and the design and the structure, not the number of users but the migration to large capacity plans, is that your focus? So in June, that net increase was very small, and the churn rate going up, and with the rate hike in August, maybe could be an additional risk? What is your thought? Thank you. Thank you for your summary. So Takezawa-san answers your question. Thank you for the question. As you mentioned, this net increase level, the small changes in the market, and some changes in our account measures vis-a-vis customers because of these changes and that we need to wait for those changes to pay off to be effective. So we did make some pricing change and the changes that we announced in May. What will be the timing for them and to what extent? And of course, we will watch closely market conditions to make decisions in that area. When the right time comes, we would like to talk about it to you. As to the overall structure, here is our thought. There are customers who could change the carriers or the plants. It is a good thing for us to have customers who are very loyal to us. But we are afraid of the engagement with customers becoming weaker, and that would have some impact on churn rate as well. So, as we announced at the beginning of the fiscal year, and we started this new value link plan from June, and also for UQ, Rokutoku 2, and Komikomi Value, Centering around those other programs or plans, we would like to make advancements. As to the other competitiveness or competitive edge for low capacity side, how should we think about it? Well, some countermeasures included. We are thinking about how to maintain or recover our momentum in the competition. I think this is quite possible that we move on to that direction. In any case, we are going to watch closely the market to make the next move. I'm sorry, could you please make some follow-ups? The APU revenue or mobile revenue increase... that comes mainly from the repricing of existing customers, but once the first round is completed, beyond that, the planned change only will bring about the ARPU increase. If that's the case, then the organic pricing change is good, but I think the number of subscription contracts is also important. and also pricing, prices for the plan. What will be the good balance? Once the re-pricing has completed its course, then what will be your next step? Well, basically, revenue, ID times the APU, that is for telecommunication, that remains unchanged. And for Apu, we have been working on Apu. And we have accumulated to some extent. But this time, in addition, along with the provision of values, we also changed prices. And as you pointed out, the remaining element is the number of customers. And I think I have been saying this repeatedly, that we are looking at ID as an important element as well. Because that will lead to more revenue. ID times are poor, and we need to maximize the result of that calculation, and that way we need to operate our business.

Thank you. Thank you, Tsutaka-san. So it is exactly time. We will close KDDI's first quarter briefing of fiscal year ending March 2026. Thank you very much for your attendance.