We will now start the Q&A session. We plan to end at 7 p.m. Let me introduce the participants today. First row from the center to your left, President Takahashi. Muramoto, Executive Vice President and Executive Director of Corporate Sector. From the center to your right, Mori, Senior Managing Executive Officer and Executive Director of Solutions Business Sector. Amemiya, Managing Executive Officer and Executive Director of Personal Business Sector. Second row to your right, Yoshimura, Managing Executive Officer and Executive Director of Technology Sector. Lastly, second row to your left, Aketa, Executive Officer and General Manager of Corporate Management Division.
We would like to entertain your questions. To give a chance to ask questions to as many of you as possible, we would like to limit the number of questions to two per person. If you have two questions, wait for the answer to your first question and then ask the second question, please. Please raise your hand if you have a question. Nomura Securities, Masuno-san.
Nomura Securities, Masuno. There are many messages when I look at this mid-term management strategy. I have two questions. First, about profit target or income target. I understand there's a big EPS, but your focal area is JPY 100 billion operating income, and cost reduction JPY 100 billion. What surprised me was that in two years you are going to actually make the rebound of ARPU. You made a declaration regarding consumers.
If we think that the profit will come back and accumulating the past years in operating income JPY 1.3 trillion or somewhere around that figure. So such profit level, is that what you envisage? In two years, you made a declaration to achieve the ARPU rebound. What are the kind of preconditions or assumptions to achieve all these things? That's my first question.
Thank you. Let me see. Internally, yeah, we have been doing this ambidextrous management. Not just growing new businesses, but 5G, that's our core, and then it has to be on the growth trajectory as a business, otherwise we can't enjoy the sustainable growth. We had extensive discussions internally. I don't know about other companies, but I know about 5G ARPU, how best we can enjoy the recovery. We would like to really give our full commitment to this.
In this term, somehow, we would like to hit the bottom, and JPY 70 billion-JPY 80 billion is the impact level of the price cut. On the following years, we would like to make it comparable to the previous year. All of us are really working hard to achieve this. Having said that, no possibilities. As we look at the United States, for instance, Verizon, AT&T, concerning 5G, there are something like OTT players. With the collaboration, there is a good track record to make an achievement. If you look at them as a role model, I think there is still possibility and potential. Now, Amemiya will give you more about the details about this.
About the growth areas, finance, energy, and obviously DX, centering on these three, expanding that, those businesses, as we saw in the previous midterm strategy, we are now confident that we can enjoy the growth in those areas. Sustainable growth strategy is what we call this new strategy. March 2025, in this term, JPY 1.3 trillion, that might be a kind of a stretched target, but at least EPS 1.5 times, that's still a target. To be honest with you, in the third year, the CAGR increase is only 1.5%, so there's going to be perhaps one year delay to achieve this, but we would like to do it as soon as possible, and that's behind our passion in crafting the midterm strategy. About ARPU, I would like to invite our Amemiya to give you some supplementary information.
About ARPU, as facts, this is what we know. 4G to 5G, when there's movement, what triggered customers to move to 5G? The traffic increase is one, and Unlimited MAX plan. The ratio of that Unlimited MAX plan goes up. That much we know for sure. Now, currently, regarding customers' plan breakdown in 4G Pitatto ratio and UQ S plan ratio, there are certain level of users. By promoting migration to 5G, there is still room for increased ARPU, especially with those Pitatto S plan people. There are those customers who don't really use them, it's true. For such people, such customers, making good communication to them about the advantage and convenience of smartphones by conveying that to such people so that they can enjoy smartphones better, that's what we intend to do
With povo, communication with customers is something we have been doing, and that know-how, I think, will be useful. In povo, we kept communicating to customers, and then customers use them. Then the know-how we have acquired from that experience, I think that can be utilized in au and UQ as well. Those numbers are not easy targets, but it is not at all impossible.
Thank you. My second question, also it's about the mid-term management strategy, capital allocation. JPY 1.5 trillion, that's the shareholder return. If I do the calculation, at least it might every year, 10-year increase, and every year with this JPY 200 billion, that's the buyback. Still, you may not be able to achieve this JPY 1.5 trillion. That might really be the minimum line based on my calculation now. Is my interpretation correct?
Dividend and the balance between the dividend payment and the share buyback. 700 billion yen, the one before the last, there was a budget for the JPY 500 billion. What was the validation? I think there was that question. Based on that JPY 700 billion , how do you look at the JPY 700 billion ? If you do all of them, JPY 1 trillion , I mean, you have used JPY 4 trillion, you still have the five trillion free cash flow. There's going to be still JPY 1 trillion . What are you going to do about this remainder JPY 1 trillion ? Question on the capital allocation, please.
Thank you for your question. First of all, about shareholder returns. Masuno-san, you shared with us your view. Roughly speaking, it is all right.
Basically, 40%, more than 40% payout ratio that we have been doing. Obviously, there's going to be. You can look at the growth number, and you can make a calculation. The rest is buyback. That's the kind of image we have. About M&A, I will defer to Takaya-san. The JPY 5 trillion , you did a subtraction, and you said there's a remainder JPY 1 trillion. So JPY 5 trillion level, to be more precise, a little less than JPY 5 trillion, JPY 4.7 trillion or so. As for the rest, IFRS 16 related lease repayments. In three years, several hundred billion yen, that's also included. I hope you will interpret in this way. About JPY 700 billion for growth investment. Last year, the JPY 500 billion was shared more like a budget.
That's why it was not received warmly. We have no intention to budget it. Capital allocation, JPY 700 billion, we would like to use it for growth areas for M&A. In terms of the domains, DX, finance and energy that I shared with you. In addition to that, what we call LX, life transformation. Into that new area, we would like to really put focus on. To achieve budget, the wasteful investment is not something we do. If there are good cases within the JPY 700 billion framework, we would like to make an investment. Thank you.
Thank you. We will take the next question, SMBC Nikko Securities, Kikuchi-san, please. Yes.
This is SMBC Nikko Securities, Kikuchi speaking. This is a follow-up to Masuno-san's question. ARPU. In the short time, ARPU may turn around. Is that the reason you have this plan? I think in the fourth quarter, compared to the second and third quarter, fourth quarter ARPU seemed to have declined. Compared to the fourth quarter, the new year's ARPU may not decline that much. If there are some specific unique movements with ARPU, I would like to know. ARPU in the new year on a quarterly basis, what will the trend look like? If you could give me the breakdown. Thank you very much. That's my first question.
Thank you. Amemiya-san. Amemiya-san.
One unique factor of the first quarter is the access charge settlement. The decline may seem a little bigger than than usual. Other than that, it is a normal number. This fiscal year, ARPU trend. Our priority, our focus is to stop the decline. In the first quarter, it will not be a decline. We will start turning flat. By the end of this fiscal year, we want to turn this upward. That is our aspiration. It seems like I wonder what combination leads to this result? I don't think we are still in alignment here. The brand is shifting to the lower price. In last spring, there was a price reduction, and that impact will deepen until iPhone this fall, I think.
There are positive factors, I understand that. The balance among these factors, so the impact of the lower telecom charges, the lower price reduction and others, could you give us the breakdown?
I cannot quantify, give you specific numbers, multi-brand ARPU is shown to you. ARPU by brand has not changed much. The price reduction impact is reflected more strongly here, the migration among brands. Now this migration among brands is settling down, calming down, I think the decline will stop. Now, as I mentioned earlier, by moving from 4G to 5G, this ARPU by brand can stop declining. That is how we want to stop the decline of ARPU and turn this around, turn it upward.
Thank you. My second question. Page 35 of the slide, cost efficiency. JPY 100 billion cost reduction is aimed for.
CapEx is a slight increase this year, and I think there are different contents in this infrastructure sharing, the optimal control of the investment, appropriate control investment, so you will reduce through appropriate control. Your competitor, SoftBank, said they will drastically cut the CapEx because the 5G investment will run its course. Based on the plan of reducing the investment, your infrastructure cost is planned to be declining? My second question is your CapEx plan. CapEx, we do not have a plan of reducing CapEx. We plan to keep it flat. Now, the cost efficiency of JPY 100 billion, around half is the 3G migration, 3G suspension, end of 3G. About half is the cost reduction there.
The sales cost reduction will be a little less than half, the other half. The sales cost, obviously the structural reform and business structure, the common cost reduction. There are many ways to cut costs here. It's not that we will reduce CapEx. It will be 3G suspension and the reduction in the sales cost. That is JPY 100 billion. 3G suspension, this JPY 80 billion, that is separate outside of this JPY 100 billion?
It's included.
I see.
You can achieve +JPY 20 billion. Of the JPY 100 billion, half is 3G suspension-related. Part of the JPY 80 billion is included here.
Understood. Thank you. Just to follow up. It's JPY 100 billion comparing, three years later, the third year, and JPY 50 billion is, as Mr. Takahashi just said, this is the JPY 50 billion that will be reduced from 3G suspension and sales cost. Sales expense, 3G-related, we used JPY 30 billion last year. When we look at the midterm period, other competitors will face the 3G suspension, and they will use aggressive sales promotion cost. We may use aggressive sales promotion cost. We are not reducing the amount. There are other structural reform measures that will build this number up. Last question. This roaming revenue from Rakuten, this will be decline included as decline last year, right?
Yes, it's included. This year, -JPY 50 billion. It will not be zero right away. It will be in a stepwise manner, around tens of billions, in a stepwise phased manner.
Next question, please.
If you have a question, please raise your hand. Mitsubishi UFJ Morgan Stanley Securities, Mr. Tanaka.
My name is Tanaka. First, I would like you to give me more explanation about focus areas. First, about finance. Currently, in terms of profitability, compared with the existing communications, it's not so high, but I assume that starting from this term, it might increase. Perhaps it's related to loans. What are the structural changes in terms of profitability and mortgage loans market size? What is your presence? About LX. Again, it's difficult for me to have an image of this, especially Metaverse. It's a buzzword, and I think it's likely to enjoy some growth. But as on the part of KDDI, how are you planning to actually make profit? What's the, your vision in this regard? On finance, Amemiya-san, would you like to address that?
About finance. Since last year, regarding mortgage loans and credit card business, without doubt they are likely to enjoy growth going forward. They are likely to be the center. In the case of finance, we have a bank, and that is significant, au PAY, it's the account settlement. Let me see. Significant number of customers are using this. This being the gateway or entry, and from the account, bank accounts or cards, you can charge things in them between the securities and the bank, collaboration between the two entities. Other services to other kinds of financial services, we would like to see the expansion. By this expansion, by regarding cards and loans, the profitability just merely from those, that's what we enjoyed. In the periphery, we could also see the other types of profits, and we believe that in finance, the profitability can be accelerated. Excuse me.
About PayPay. They are enjoying significant growth and with sales promotion and not much profitability because of that promotion.
Regarding au PAY, are you making a lot of profit? What about the marketing cost? Versus PayPay, compared with PayPay, what is your positioning? I mean, you have a Jibun Bank, so you are doing fine or. Some more information, please. About au PAY. With au PAY alone, it's not that we are seeing a great profitability, but compared with PayPay, our operation is not something that we suffer from huge losses. What's the biggest difference?
au UQ to KDDI customers, these advantageous promotional activities, by doing so, it's not a huge amount of promotion cost. Effective promotion cost is what we spend. Without spending so much cost, we are trying to seek higher efficiency. That's the kind of operation we are doing. About LX.
To be honest with you, on that part, it's still a kind of image. Life Design's next chapter, moving to the next step. That's why we call this life transformation. It's called Web3, the network after Web 2.0, from centralized to decentralized one. Whether we can really move on to that, we don't know for certain, but we would like to be a pioneer. As a structure, Web3, and there is work on NFT and Metaverse work so that NFT can be utilized. Concerning those, we don't know the actual profitability at the moment, but we would like to be a pioneer. That's why we would like to do this in the midterm strategy. This is life transformation, so drones or SpaceX initiatives to transform lifestyles, those can be applied as well.
What would be the level of profitability in this midterm strategy?
It's not really covered in a significant way, but this is an exciting area, and this is the declaration we are going to do this. I think, I hope you will interpret in this way.
Thank you.
For the time being, you would like to take up many challenges, so even if you have to spend cost within making investment, even if you have to suffer a little bit of losses, you are doing this. Regarding LX, yes, that's fine.
My second question. IoT, Mr. Mori.
IoT cumulative connections in this year, I think in the detailed material says that your plan is to robust increase. But automotive sales units, given that, I think this can be doable. But in terms of profitability increase, unlike in the past, is it going to be accelerated? Can we expect to see good changes?
You're not making much profit. Any additional information, please?
First of all, about the number. Admittedly, there are various issues, semiconductor issue is one, centering on automotive in terms of the number of production units, sales unit, number of sales units. Those are possible factors that may have an influence on what we do. Having said that, not just vehicles, not just cars. Gas, the number is on the significant increase with regard to infrastructure. The area is expanding with more IoTs added, so I hope you will understand in this way. About profitability, as I shared with you the last time, now we are seeing profits being generated. Of course, we are making investment for the future as well, but certain level, not so bad profitability can be enjoyed now. Regarding DX, IoT will become a kind of a basis. That's what we see.
Thank you.
Credit Suisse Securities, Eguchi please.
Eguchi speaking.
Yes, just one question. About the slide that shows the analysis, ARPU decline and the new area profit contribution, I understand, but 30-40 on the far right, others, what are included there in the operating income? And another question, in the fourth quarter, Life Design Domain sales grew strongly. Was there any extraordinary factors in the fourth quarter, and is it sustainable in the new year, this year? Thank you.
Thank you. I will talk, answer the first part. This year, others, right? Number four this year, others. Yes. On a year-on-year basis, marketing cost will be lower than last year. The details is last year, au PAY related cost was used in various, for various customers to promote the usage of various customers. That was one cost item. In this busy sales season, in order to sell the device at an affordable cost, affordable price, we used cost, especially in March. We were able to increase ID as a result of that. This year, we can save or suppress this part. That is our view on cost.
The second question was on Life Design. Fourth quarter sales grew strongly, fourth quarter last year. Was there any extraordinary factor?
No special factor, but the biggest growth was in Denki, electricity. Because of seasonality, the fourth quarter, electricity sales tend to grow, so that was a big contributor.
Since it's time, with this, we would like to conclude the KDDI meeting on the business results ending in March 2022. Thank you so much for your kind participation.