Kddi Corp Unsp/Adr

We will now begin KDDI Corporation's March 2027 first quarter earnings briefing and Q&A session. Thank you very much for taking the time to join and view our briefing today. My name is Miyakawa from the IR department and I will be serving as today's moderator. This briefing is live streamed with simultaneous English-Japanese translation. Today's contents will also be available on demand at a later date on our IR website. Now let me introduce today's attendees. CFO Executive Director of Corporate Sector, Saishoji. CSO and CDO and Executive Director of Corporate Strategy Division, Katsuki Executive Director of Business Solutions, Core Sector, Hosoi Executive Director of Personal, Core Business Sector, Sasaki General Manager of Corporate Management Division, Akita Today, we have posted five documents on our IR website, three earnings-related materials and two TSC disclosure documents. Regarding the content of the materials, as well as the performance and subscription targets that will be discussed in today's Q&A, please refer to the disclaimers in each document. First, Saishoji will explain the FY2027 March first quarter earnings summary, followed by a Q&A. So Executive Vice President Saishoji, please go ahead.

Thank you for taking time out of your busy schedules today to join us for our FI27 March Q1 earnings presentation. I will focus on the key points for investors and analysts in my presentation. Q1 saw growth in both revenue and profit, marking a strong start to the fiscal year relative to our full-year forecast. On the left, operating revenue was up 5.1% year-on-year, and the progress rate against the full-year forecast was 23.2%. In the middle, adjusted operating income was up with a progress of 26%. It was up 21%. On the right, Adjusted net income was up 21.6%, progress rate 26.5%, respectively. Next, here are the operating revenue figures for each segment. For the first time, we are disclosing revenue for the new segments and sub-segments. For the first time, reflecting our confidence and determination to steadily expand each area, as you can see, operating revenue increased across all segments, and our core businesses including mobile communications revenue are growing steadily. This shows the factors affecting the change in adjusted operating income. In Q1, mobile communication revenue drove the increase in profit. Growth areas also made steady progress toward double-digit growth for the full year. For the full year, as shown on the right, we are firmly aiming for our initial forecast of 1 trillion 210 billion yen. Key KPIs are improving thanks to our lifetime value LTV focused initiatives. From the left, the number of active smartphones in Q1 was 33.3 million, an increase of 390,000 year-on-year. Additionally, the churn rate was 1.17%, a significant improvement of 0.06 percentage points year-on-year. On the right, Mobile ARPU in Q1 was ¥4,400, year-on-year increase of ¥160, a substantial 3.8% growth. The number of subscribers on top-tier plans across all brands is expanding steadily, laying the foundation for profit growth in the second half of the fiscal year. Next, here's an overview of our growth areas for FY27 March. On the left, personal growth. First quarter operating income for personal growth grew 9.3% year on year with all five sub-segments performing well. On the right, which is business growth, operating income grew 21.6% year-on-year with all five sub-segments reporting increases in both revenue and profit. Following this, I will explain the key points for each business segment. First, regarding the financial business. AU Financial Holdings Operating Income was down ¥3.7 billion year-on-year, but this was in line with our expectations. In addition to the challenge of increasing deposits, a key issue for a bank, we had factored in the impact of mark-to-market losses due to rising interest rates into our forecasts at the start of the fiscal year. Excluding these factors, our core credit card and banking businesses are growing steadily and we are moving forward with measures to further strengthen them. Next, I will discuss our devices business and Lawson Point Pass. On the left, Revenue from device-related services and point-of-pass is growing, and active user rates are also improving. On the right, we are making progress in creating value in partnership with Lawson.

Next is AI integration. Combined AI integration and cybersecurity, Q1 revenue grew at a solid 19.2% year-on-year. A secure cloud environment is a prerequisite for AI implementation and we leverage the group's strength to accelerate implementation support. At present, we are focusing on expanding our cloud infrastructure with Q1 revenue growing by more than 30% year-on-year. Connectivity Data Center is capturing AI inference needs with Q1 operating revenue growing a solid 20.6% year-on-year. EBITDA also accrues similarly year-on-year with the EBITDA margin exceeding 40%. We will continue to capture growth opportunities accompanying the spread of AI. Next, in relation to inappropriate transactions on the progress of our group governance strengthening and recurrence prevention measures. At the top, by June of this year, we completed comprehensive inspections of the 110 target companies and have been developing new rules and structures. We are now operating and monitoring the new rules under the new structure In the middle, to build relationships of mutual trust, the top management visited major strategic subsidiaries and held dialogue sessions with the top executives of group companies. At the bottom, in terms of AI and system utilization, we have introduced an AI system for credit screening and an anomaly detection tool using financial data. Going forward, we will begin using these under the new rules and continue development toward comprehensive use of AI in systems. Regarding the recent unauthorized access incident affecting the email system provided to ISP operators, we take the administrative guidance seriously and will do our utmost to prevent recurrence, and we will work to improve and raise awareness of security standards across the industry. In light of the issues brought to light, to strengthen security, we are using frontier AI to conduct vulnerability diagnostics, among other measures. I will also report on progress in improving management quality, which is one of the important themes of this midterm period. On the left, core free cash flow, the source of funding for growth investments, and its margin have remained stable. The operating cash flow margin also stands at 21.6%, further strengthening the fundamentals for growth investment. In addition, we are strengthening our review structure for growth investments and expanding our pipeline. On the right, so far this fiscal year we have decided on 11 divestments which is generating approximately 150 billion yen in cash. Thank you for your attention. In addition, as an opportunity to further deepen your understanding of our strategy and businesses, we are also considering holding an IR Day in mid-September. We will provide the details once they are finalized. We will continue to drive our initiatives forward to achieve our full year forecast. Thank you very much for your attention.