Kddi Corp Unsp/Adr

Let me start the explanation meeting. My name is Hiraoka from Public Relations Department of KDDI. I serve as MC. Today's meeting, as is disclosed on a timely basis, to present preliminary results of the third quarter of the year ending in March 2026 of KDDI. Today's presentation is being distributed on YouTube and other media in addition to the on-site. And we have put up three related materials on the KDDI website. Please refer to the materials at hand. This is a message for the people in the on-site audience. Today's attendees are as follows. Hiromichi Matsuda, President, Representative Director, CEO. Senior Managing Executive Officer, CFO, Executive Director, Corporate Sector, Nanae Saishoji. Managing Executive Officer, Director, CSO and CDO, Executive Director, Corporate Strategy Division, Tomohiko Katsuki. Executive Officer, Executive Director, Corporate Management Division, Corporate Sector, Kenji Aketa. These four are in attendance. President Masuda, please.

Thank you very much for gathering here today despite your busy schedules. First and foremost, we sincerely apologize for the significant inconvenience and concern caused to our customers, business partners, shareholders, investors and many other stakeholders, including our employees, due to the suspected improper transactions at our subsidiary. We recognize this matter as a serious issue that could potentially undermine the trust in the entire KDDI group. As the top management, I feel a profound sense of responsibility for the occurrence of this matter and for failing to prevent it. Today, I will carefully explain the details available at this time and sincerely answer your questions. Please be assured that this matter relates solely to transactions within the advertising agency business and has no impact whatsoever on the provision of communication services, including BigLogue. I will explain the purpose of today's preliminary results explanation. As the Special Investigation Committee's inquiry into inappropriate transactions is ongoing, the impact on our financial statements remains undetermined at this time. Therefore, we have decided to postpone the disclosure of our Q3 FY March 26 earnings release. Therefore, today's explanation is titled Q3 FY Preliminary results explanation. We will report on the facts currently recognized by the company, the outline of the financial impact and separate from this matter, the business progress for the third quarter and initiatives for future growth. Please note that the Q3 preliminary results, prior year results, and financial impact figures related to this matter presented today are reference values based on facts currently recognized by the company. These figures may be subject to revision based on the findings of the Special Investigation Committee and the audit results of the accounting auditor. Final figures will be reported promptly upon completion of the investigation. At this time, we plan to receive and disclose the investigation report from the Special Investigation Committee by the end of March. Based on this assumption, we will plan to announce the Q3 results at the end of March, and we currently intend to proceed with FY March 26 financial results announcement without delay. I will now outline the key points of today's business performance briefing and preliminary results explanation. First, the inappropriate transactions that occurred at our subsidiary. Then, the growth of our core business foundations, including mobile and our key focus areas, and the growth in the AI era. First, regarding the improper transactions that occurred at our subsidiary, This was disclosed on January 14th. It has been discovered that improper transactions were allegedly conducted by employees of Big Loathe, a consolidated subsidiary of the company, and its subsidiary G-Plan within their advertising agency business. Regarding the advertising agency business... The possibility that sales and other figures had been overstated came to light following delayed payments from certain agencies in December 2025. To clarify the facts and causes related to this matter, we determined it necessary to conduct a more specialized and objective investigation accordingly we established a special investigation committee composed of external attorneys and certified public accountants on January 14th. Next, an overview of the fictitious transactions we have identified. Both... So this is the left side which we have anticipated. Usually, from the advertiser, advertiser approaches us. Usually, there is a request to the advertising agency. And the web media becomes multiple, so there is another existence, publishing agencies. Big Globe and G-Plan are in the upstream. Advertising agencies and publishing agencies, they are the intermediary. Around 2017, G-Plan launched this business and Big Globe later entered to develop new ventures. you can see the flow here within this business the money is also flowing subtracting the fees and the advertisement fee is paid Within this business, we confirmed suspicions that subsidiary employees conducted fictitious transactions for advertising agency services despite the absence of actual advisors, advertisers, resulting in the recording of fictitious sales revenue and other figures over multiple years. Now, let me use the right side to explain. First of all, the discovery process. the transaction volume increased. So, following an internal investigation, KDDI instructed Big Globe and GPlan to reduce orders to downstream agencies to strengthen management systems and manage business risks. This led to delayed payments from upstream agencies. Within the structure where upstream agencies deducted commissions from payments related to Big Lobe and G-Plans transactions and returned them to upstream agencies, a reduction in payments from both companies decreased the funds flowing to upstream agencies. Therefore, upstream agencies became unable to make payments to both companies. So this transaction volume snowballed and reaching hundreds of billions of yen per month in recent periods beyond the publishing agencies there is number three and number one the upstream agencies we understood that those one and three are identical and through this fictitious transaction Big Globe and G Plan. Posting of revenue was excessive and because it's fictitious transactions, the fee was flowing outside and the impact is on the next page.

At the top, as of today, these are the impacts that we recognize. As I mentioned earlier, because of fictitious transactions, we need to cancel booked revenue, part of the booked revenue. And this is before FY24 March, about 96 billion yen, and for FY25 March, 82 billion yen, and FY26 March, 68 billion yen, the total of 246 billion yen. Below that, operating income. Reversal of recorded income about 8 billion yen or 17 billion yen and about 25 billion yen. These profits are to be cancelled. In addition, as I mentioned earlier, the commissions which are outflow and we have reasoning for that 5 billion, 11 billion and 17 billion yen. And as to 33 billion yen, approximate number, we are going to make efforts to recover this amount. In addition, including the prior years, there is a possibility of recognizing impairment losses. At the bottom, next steps, as I mentioned earlier, At the end of March or beyond, we are going to publicize the report of investigation as well as financial results without delay. In addition, in a parallel way, doing and strengthening the company group's governance and examining the recurrence prevention measures will be taken. Now, this is our commitment to future actions. First, We are fully committed to cooperating with the Special Investigation Committee, diligently uncovering the facts and thoroughly analysing the causes. I myself will take the lead in actively addressing these issues to restore and strengthen the trust for our group. Our company upholds the KDDI philosophy which embodies the shared values and code of conduct that every individual should uphold. We will create an environment where transparency and fairness underpin our work, ensuring that these principles are communicated throughout the entire group and practiced consistently. By doing so, we aim to foster a culture that enhances both human capabilities and ethical standards. to meet the expectation and to regain trust. Of course, we will make efforts to do everything to avoid any reoccurrence of similar matters. At the same time, it is indispensable for us to continue to develop our business for sustainable business operation. So from now on, I would like to communicate to you specifically what initiatives or measures we will take. Now, this is as reference figures. I present consolidated results for the third quarter of 2025. And we have revised both prior year and this year because of the impact coming from the matter. Please refer to the bottom column. and we have cancelled the revenue and income associated with fictitious transactions. And on the right-hand side, we are showing the numbers as reference values after the provisioning of external outflow. So in year-on-year comparison with the actual results, The cumulative results for the first three quarters are as follows. Operating revenue plus 3.8%, operating income plus 2%, and the profit for the period plus 5.3%, we are performing well. So that is the cumulative-based consolidated results. Change factors from the left hand side that we have the mobile personal services segment base plus 27.2 billion yen and the finance energy lossen. plus 18.2 billion and DX business services segment plus 8.5 billion technological structure reform plus 12.9 billion yen and impact of prior years promotional expenses minus 28.9 billion yen and based on those numbers the total of plus 17.4 billion yen positive and also the mobile related revenue grew and it's expanded and the finance and the DX are moving on smoothly. And this is the Q3 alone consolidated operating income and factors for change. In addition to each business domain growth, negative impact from prior years promotional expenses has also subsided, so we are seeing positive growth. And now I would like to explain about UCS topics.