Thank you very much for gathering. Now, we are starting the briefing by Special Investigation Committee on the findings of investigation. I'll be serving as the moderator. I am Hiraoka from Public Relations of KDDI. This briefing session is streamed to multiple channels, such as YouTube, in addition to the venue. Also, the briefing materials have been uploaded onto KDDI's website. Now, those who are attending in the venue, please refer to the materials in front of you. In the briefing session, firstly, we will start with the findings on this matter to be explained by the Special Investigation Committee, which is going to be followed by Mr. Matsuda from KDDI's explanation on future initiatives in the wake of the findings. Then we will take your questions. Now, without any further ado, let us move on to findings by the Special Investigation Committee. Let me introduce the committee members.
Chair of the Special Investigation Committee, Attorney-at-Law, Mr. Toshiya Natori. Member of the Special Investigation Committee, Attorney-at-Law, Mr. Tomohiro Hen. The member of the Special Investigation Committee, CPA, Mr. Yasunori Sato. Now I'm passing the microphone to the Special Investigation Committee.
Thank you for the introduction. As has been introduced, my name is Natori, Chairperson of the Special Investigation Committee. I would like to report on the investigation results of the Special Investigation Committee at this moment. First, the outline of the investigation. The Special Investigation Committee, on January 14, 2026, was assigned by KDDI to investigate the circular transactions lacking substance at Biglobe and G-Plan. We're going to refer to it, from this onward as the fictitious circular transactions. There are five purposes to the investigation. First, conduct a fact-finding investigation into the fictitious circular transactions. Secondly, to examine whether there was any impact by the fictitious circular transactions on the consolidated financial statements of KDDI, and if so, the amount of the impact. Three, identify whether there were any incidents similar to these transactions, similar cases.
Four, analyze the root causes for the occurrence of fictitious circular transactions and recommend recurrence prevention measures. Five, others deemed necessary by the committee. The composition of the committee is such that, I, Natori, serve as the chairperson, and Attorney-at-Law Hen at Nagashima Ohno & Tsunematsu, as well as, Sato, Certified Public Accountant from Deloitte Touche Tohmatsu LLC. So there are three of us on the committee. Now, as to the method of investigation. From January 14, 2026 to March 31, 2026, the committee conducted an investigation into fictitious circular transactions and similar cases. As to the method of investigation, there are three major aspects to it. One, review of relevant documents. Two, conducting digital forensic investigation, including approximately 3.37 million electronic records that we collected, including emails and chats.
Of that, we reviewed 123,485 electronic records. Number three, interviews with 80 relevant persons, totaling 98 interviews. With respect to investigation into similar cases for KDDI and all of its consolidated subsidiaries as of December 2025, we conducted investigation into similar cases at these entities. We conducted written surveys to 778 executives and employees of Biglobe and G-Plan. 738 individuals responded to the survey. Now, let me explain the limitations of the investigation. This investigation was conducted on a voluntary basis and was limited to the extent of the voluntary cooperation obtained from the parties involved.
Since Biglobe and G-Plan did not retain materials or documents regarding parties other than their direct business partners and dealt with a large number of advertisers and advertisement placement agencies, the actual circumstances relating to all advertisement placements have not been verified. Instead, the verification has been limited to confirming the existence of any evidence indicating the authenticity of certain randomly selected transactions. Next, factual findings and overview of the fictitious circular transactions. First, factual findings of the investigation. There are four major points that I would like to explain as part of the outline of factual findings. Now as to the period when these transactions took place, it was found that during the period from August 2018 at the latest to December 2025, a fictitious circular transaction had been carried out.
This was done under the leadership of Person A, concurrently seconded to Biglobe, since January 2026, while remaining employed at G-Plan and with the cooperation of Person B. Secondly, approximately 99.7% of the sales of advertising agency business of G-Plan and Biglobe was recorded through fictitious circular transactions. No similar cases have been identified with respect to the consolidated subsidiaries. It was confirmed that the fictitious circular transactions did not involve any organized scheme by G-Plan, Biglobe, and KDDI. Next, overview of the fictitious circular transactions.
The advertising agency business involved in the fictitious circular transactions is a business in which G-Plan or Biglobe intermediated web advertising transactions between upstream advertising agencies, referred to as upstream agencies, and downstream advertising agencies, referred to as downstream agencies, and received commission revenue based on the number of successful transactions. Circular transactions in which they made it appear as though they received and accepted advertisement placement orders from advertisers, the orders did not actually exist, subcontracted those orders and made payments to the downstream agencies. The legitimate advertisement placement business should have the actual orders, but that was not the case. The fictitious circular transactions were conducted. As is on the right-hand side diagram, you can see the fund flow is in blue under G-Plan and Biglobe in between upstream and downstream agencies.
Fictitious circular transactions were conducted with 21 of the total 218 business partners of Biglobe and G-Plan in the advertising agency business. Next, about the background of the fictitious circular transactions. First, as I said at the beginning, in February 2018, under the leadership of Person A, agency business was started, and the business incurred a loss on the order of several hundred thousand yen and failure to meet the sales target. Driven by unease, Person A, in order to meet the target and cover the loss, engaged in the advertising agency business and conceived the idea of recording fictitious sales to cover the loss and achieve the sales target. Person A initiated these fictitious circular transactions from August 2018 at the latest.
In order to increase the staffing for the business, Person B joined G-Plan. In order to expand the advertising agency business by leveraging Biglobe's financial resources and credit worthiness, in around December 2022, Biglobe entered the commercial flows of the advertising agency business and also utilized KDDI's group finance. The fictitious circular transactions were initiated by Biglobe with substantial involvement of Person A and B. Person A and Person B, while remaining employees of G-Plan, were also concurrently seconded to Biglobe. In around February 2025, our Chairman, then President and Representative Director of KDDI, who is now the Chairman and then President and Representative Director of KDDI, expressed concerns during KDDI's management strategy meeting about potential compliance risk with respect to Biglobe's advertising agency business.
Subsequently, the statutory auditors, they consulted with the internal audit division and accounting auditors, and in collaboration with them, continued a preliminary investigation in preparation for the subsidiary audit of Biglobe to be implemented by the auditors in the fall of the same year. The accounting auditors pointed out the possibility of fictitious circular transactions, and an internal investigation team led by KDDI's auditors was formed as a result. In response to the internal investigation, Person A colluded with certain advertising agencies to avoid detection. Following that, KDDI instructed Biglobe to reduce the transaction amounts of its advertising agency business. In December 2025, following delays in payments from the upstream agency, Person A acknowledged the existence of fictitious circular transactions. Now, this is a scheme of the fictitious circular transactions.
This used differences in payment terms for transaction continuity. We have payments for transactions closed at the end of April and payments for transactions closed at the end of May. Two different flows are shown here, but this has been an ongoing matter, April, May, June, July. This has been ongoing, and through this transaction continuity, circulation of funds are continued. In the diagram, in boxes, you see numbers indicated. This actually indicates the flow of funds, and this is just an illustration. Besides this, multiple agencies are involved in other types of transactions, but this is to give you an easy to understand illustrative example. If you look at this diagram from Biglobe, you see transaction number one, and funds flowed to the downstream agency.
From this downstream agency, it goes all the way up to an upstream agency, dated May 15th. This shows the flow of funds from the downstream agency to the upstream agency. If you look at the payments for transactions closed at the end of May, on the right-hand side, you see transaction number three. Again, this is from Biglobe to a downstream agency, and then from this downstream agency to an upstream agency. For payments of transactions closed at the end of May, the upstream agency received funds, and using this as a source, using the funds they received, the upstream agency made a transaction number five from upstream agency to G-Plan shown on the left-hand side. As you see, using the differences in payment terms, funds are circulated in these transactions.
As a result, the amount that has been circulated needed to be sufficient to cover the payments made in the previous payment cycle and also sufficient to cover the fees for relevant agencies involved in the transactions, and therefore the scale of the amounts involved was structured to grow larger. Such fictitious circular transactions had been ongoing, and the reasons for why such transactions had been ongoing without any detection, Person A and Person B had taken a variety of measures to avoid detection. First, related to measures taken when initiating or executing transactions, Person A ensured that as much as possible, the downstream agencies and the upstream agencies did not come into contact in a manner that did not involve G-Plan or Person A or Person B.
If the agencies, both downstream and upstream, would come into contact, it would be known that the funds had been circulating. Therefore, in order to avoid such from being detected, Person A and Person B took these measures. Also, contracts and invoices with each agency were prepared to create the appearance of legitimate transactions with evidence of such contracts and invoices. Furthermore, products with high unit prices were selected. These served as a basis for fee payments. Such products were selected to justify the large transaction amount. Next, I will talk about responses to officers and employees of G-Plan and Biglobe. Basically, inside the organization, in order to prevent these transactions from being detected, such responses were taken internally in the company.
First, Person A and Person B exclusively engaged in communication in respect of the fictitious circular transactions with each advertising agency, preventing other executives and employees from becoming involved. Secondly, as the amounts of those transactions became larger, there were questions or concerns raised by other officers and employees within G-Plan and Biglobe. In response to those questions or concerns, Person A and Person B provided explanations with supporting reasons to resolve doubts or prevented such questions from arising. I would like to give one example. Preventing the entire business flow from becoming known by providing explanations that the identities of each advertising agency's clients constitute such advertising agency's proprietary know-how, and if this information were disclosed, direct transactions without going through such advertising agencies would become possible. Therefore, it was standard industry practice not to verify the upstream and downstream business flow of each advertising agency.
Such explanation had been given in order to conceal the entirety of the flow of the transactions. Also when preparing performance reports, which served as a basis for calculating compensation containing false information, Person A and Person B took measures to make the reports appear realistic. For instance, rather than showing a simple upward trend in the number of successful transactions, they included periods of decline and provided explanations for why results were not achieved during those periods. These performance reports were developed or created in such a way that they appeared realistic. This was another matter that was confirmed. Next, these are the parties involved in the fictitious circular transactions.
An explanation has already been provided, but we have a former employee of G-Plan, Person A, who concurrently seconded to Biglobe since January 2023, and also former employee of G-Plan, Person B, concurrently seconded to Biglobe at the same time. Person A started the advertising agency business in 2015 and led these fictitious circular transactions. As to the motives, these are the facts confirmed by the investigation committee. First, Person A felt a sense of urgency that the performance of the advertising agency business Person A had launched was falling short of the initial expectations, and that if he was not able to improve revenue and profit, G-Plan would instruct Person A to withdraw from the business.
Under these circumstances, Person A initiated the fictitious circular transactions to cover the losses incurred by the business and to meet sales targets. However, as the amounts involved became significantly larger, Person A was placed in a situation where Person A was unable to suspend the fictitious circular transactions. Person A stated that Person A did not engage in the fictitious circular transactions for his personal benefit or that of those involved in such transactions. On the other hand, it was confirmed in the investigation that a representative of an upstream agency had been providing Person A with cash payments corresponding to expenses such as meals over the past two years. From September 2023 to December 2025, approximately JPY 30 million of payments have been confirmed.
It may be argued that this exchange of money shows the provision of personal benefits in connection with the continuation of the fictitious circular transactions. It is difficult to deny the possibility that the receipt of such benefits was one of the factors in Person A's failure to discontinue the fictitious circular transactions. Next is Person B. He joined G-Plan mid-career and was in charge of the advertising agency business, and as instructed by Person A, was also involved in the fictitious circular transactions. While it cannot be said that Person B led the fictitious circular transactions, Person B played a significant role as a collaborator contributing to their continuation. As for the motives, Person B was feeling indebted to Person A for giving him the chance to work at G-Plan, which is a workplace that suited Person B's family circumstances.
While not fully understanding the overall nature of the fictitious circular transactions, Person B began to get involved in the fictitious circular transactions at Person A's instructions. As for Person B, no circumstances were confirmed that would suggest that Person B derived personal benefit from the fictitious circular transactions. It has been confirmed that no one other than the two individuals mentioned above, Person A or Person B, was involved in G-Plan, Biglobe, or KDDI, and that as the investigation committee, this was not an organized incident, as we confirmed .
Next, let me explain accounting impact. As for the impact, as you see in the table, for March 2023 and before that, and March 2024, March 2025, and year ending March 2026 Q3. For these periods within KDDI Group, the revenues to be restated and gross profit to be restated are shown in the table. Also, as for the amounts of external outflow, you see the outflow amounts for each year, which we have confirmed. As for the outflow other than G-Plan and Biglobe, in the name of fees, these are the outflow that went to external parties. Based upon the findings, we have conducted root cause analysis and created recommendations regarding preventing recurrence. Firstly, for G-Plan and Biglobe. As advertising agency business operators, from that perspective, we have conducted root cause analysis and then proposed recurrence prevention measures on that basis.
The details are shown in this slide, but as the root cause for G-Plan and Biglobe, what was common in terms of cause was that they had the company-wide lack of expertise regarding the advertising agency business and insufficient risk awareness. Also, as the issue related to first line, there was concentration of work to specific personnel and the failure of checks and balances. Advertising agency business concentrated on certain individuals. People other than Person A, Person B, including other people and officers at G-Plan and Biglobe, the people in charge were fixed same concept individuals, so there was concentration of work on certain individuals. As for the ordering to downstream agency and payment process, authority was not fully divided. Ordering and the payment processes were managed single-handedly by Person A and Person B.
As for issue with second line, there was insufficient management of business divisions. Firstly, there was insufficient credit management. Against upstream agency, they were conducting credit management, but it was not sufficient. Also, it's not really about the credit management, but when it came to the relation with downstream agency, large amount advertising posting, whether they had the capabilities of taking right-sized order. From that perspective, not sufficient validation was conducted and more than anything else, there was insufficient verification of existence of transactions. As I mentioned earlier, regarding the substance of transaction, there were attempts made to verify the existence, but Person A and Person A, due to the reason of business practice, the verification involving upstream and downstream agencies were prevented by his explanation, which persuaded others to not pursue further.
As for Biglobe, regarding group finance, there was insufficient judgment regarding group finance. As for third line, for both entities, internal audit was insufficient. That's the committee's finding. As for the recommendations regarding prevention of recurrence for G-Plan and Biglobe as the executing entities, based upon the root causes we have identified, we have recommended prevention measures. Company-wide, strengthening of risk assessment for misconduct and risk management systems for new businesses has been proposed. As for first line, elimination of opportunities for misconduct by reviewing the structure of business divisions has been recommended. The content is elimination of reliance on specific individuals for tasks and strict separation of responsibilities in the ordering and payment processes.
As for the second line, we recommended strengthening of business security and misconduct detection functions by corporate divisions, such as strengthening of credit management, establishment of strict procedures for verifying eligibility of suppliers, and verification of evidence in revenue recognition and payment processes. In addition, as for Biglobe related to group finance, cash flow focused accounting has been recommended by the Special Investigation Committee. As for third line, we have recommended strengthening of internal audit systems and methodologies. Next, when it comes to issues related to the management of subsidiaries, we have analyzed cause and recommended recurrence prevention measures. As for Biglobe, they are business executing company, and also they have the responsibility to oversee their subsidiaries. So Biglobe appears once again here. As company-wide cause, there was company-wide lack of expertise regarding the advertising agency business and insufficient risk awareness.
Regarding direct management divisions, the challenge is the same for Biglobe as I mentioned earlier. As for KDDI, there was insufficient risk detection regarding the advertising agency business. There was insufficient understanding of the division of duties such as ordering and payment. Also, overall, there was insufficient management system for subsidiaries. As for the challenge regarding the corporate division, as for Biglobe, there was insufficient credit management. As for KDDI, there was over-reliance on credit limits in group finance management. The specific, the loan purpose and the use of funds were not necessarily managed thoroughly, so the credit limits was pretty much the focus of their management. Also, regarding subsidiaries management, the department in charge of subsidiary management was fragmented, and communication among those departments were not sufficient. As for audit division, for Biglobe, it's the same as what I've said.
The substance of transaction was not effectively or sufficiently audited. For KDDI, there was failure to conduct specialized internal audits that address the risk of misconduct in the business of advertising agencies, which we have pointed out. Based on this, in response, we have recommended recurrence prevention measures addressing the root cause, as you see in the table. From company-wide perspective, strengthening of risk assessment for misconduct and risk management systems for new businesses was proposed. For KDDI, we recommended the promotion of understanding of businesses where expertise is limited and strengthening and improving of risk awareness.
As for direct management divisions, especially for KDDI, the content is similar to what I've covered, but we've recommended thorough review of details of business and arrangement of a risk detection system and the strengthening of understanding of internal controls and division of duties of subsidiaries and strengthening of human resources infrastructure for managing investee companies. By having a solid management system and enforcing it is what we recommended. As for corporate, for Biglobe, we recommended supervision of credit management. For KDDI, we recommended strengthening of verification of the appropriateness of funding needs in group finance. In other words, not just the credit limit, but the validity of each needs for a fund should be reviewed. Also, we recommended strengthening of subsidiary management and centralization and integration of financial management functions.
Regarding how subsidiaries are managed, we recommend it. As for audit division, we recommended review of audit methodologies for subsidiaries and enhancement of internal audits in the group. I have covered the Special Investigation Committee's report or findings. Finally, our expectations to KDDI from the investigation committee. By expressing our expectation, I would like to close my report. The committee strongly expects the management team to take the lead, formulate effective recurrence prevention measures tailored to the management structures of each of the companies of the group, and implement them thoroughly. With this, I am concluding the report from the Special Investigation Committee. Thank you very much.
Mr. Natori, Mr. Hen, and Mr. Sato, thank you very much. You may now step down. This concludes the report on the investigation results. Any questions regarding these findings can be addressed during the Q&A session scheduled shortly. Thank you for your understanding. Next, we will have a presentation from KDDI Corporation on future initiatives in response to the investigation report. Allow me to introduce the speakers for this part. From KDDI Corporation, President, Representative Director, CEO Hiromichi Matsuda. Senior Managing Executive Officer, Director, and CFO Nanae Saishoji. These are the two presenters. Now, President Matsuda will provide an explanation.
My name is Matsuda from KDDI. Thank you very much for taking the time to attend this session despite your busy schedules on the final day of the fiscal year. You have just heard an explanation from the Special Investigation Committee. To address this matter, we established the Special Investigation Committee on January 14th. Over the past two and a half months, the committee has conducted a thorough investigation with a high degree of expertise and objectivity. I would like to express my sincere gratitude to all the members of the Special Investigation Committee at this moment. Once again, we sincerely apologize for the considerable inconvenience and concern caused to our customers, business partners, shareholders, employees, and many other stakeholders due to the recent inappropriate transactions at our subsidiaries, as was reported earlier.
As was reported earlier, we take extremely seriously the facts revealed by the investigation, specifically the fictitious circular transactions conducted within our advertising agency business, the analysis of the causes leading to this matter, and proposed recurrence prevention measures. We will explain our initiatives aimed at preventing similar misconduct from ever happening again, including recurrence prevention measures and efforts to strengthen the group governance. Since members of the Special Investigation Committee are also present today, we will answer all of your questions thoroughly and sincerely. This is what we will explain today. First, upon receiving the investigation report today, we will explain the following items related to the matter and its future initiatives, including impact on financial results, personnel measures, recurrence prevention, and then measures and strengthening governance.
Next, we will explain the financial results for the third quarter of fiscal year ending March 2026, and the revisions to the full year financial forecast. First, our response upon receiving the investigation report. Here's the sequence of events related to this matter. As was reported earlier, in February 2018, G-Plan's advertising agency business, launched by Person A, incurred a deficit of several hundred thousand yen. Driven by unease and the urgency to deliver results, the individual began fictitious circular transactions to cover the shortfall at least as early as August 2018. In December 2022, on the back of its financial capacity and creditworthiness, Biglobe commenced the commercial transactions in which it was involved, aiming to cultivate new businesses.
Through 2025, as transaction amounts increased, the number of agencies involved in fictitious circular transactions expanded, totaling 21 companies. To strengthen the management framework for Biglobe and G-Plan's advertising agency business, internal corporate auditors and Internal Audit Department investigated the validity of transactions. To restate this, as we reported at the earnings briefing on February 6, but today we received and disclosed the investigation report from the Special Investigation Committee. We failed to detect the attempts to conceal the issue, and because it took time to obtain objective evidence, approximately 85% of the total impact has been concentrated in the past two years. We deeply regret this situation. The financial impact of this matter has been finalized, so I would like to use this slide to explain it.
Regarding operating revenue, a cumulative total of JPY 246.1 billion has been reversed for the revenue recorded in connection with fictitious circular transactions. Operating profit below has been reduced by JPY 49.9 billion due to the reversal of posted profits. In addition, JPY 32.9 billion has been identified as funds flowed out to external parties, and there are no significant changes to these numbers from the announcement made on February 6. While there were transactions related to our legitimate advertising agency business, their proportion was negligible, only 0.3% of the total. We have calculated the impact amount based on the full amount of this business.
Furthermore, since the profits and losses for each of the prior fiscal years were revised, we have reconducted impairment tests on the goodwill and identifiable intangible assets recorded at the time of the Biglobe acquisition retroactively based on the revised plan. As a result, over the three-year period from FY 2023 to FY 2025, we recorded a cumulative impairment loss of JPY 64.6 billion in prior fiscal years. In addition, reflecting the impact of impairment-related amortization expenses, as well as impact of taxes and tax effects, the total impact on operating income amounts to a cumulative JPY 150.8 billion, and the impact on net income amounts to a cumulative JPY 129 billion. Next, I'll explain the personnel measures we are taking.
With regard to Biglobe and G-Plan, key executives and other personnel have resigned effective today, and we are implementing personnel measures for other officers and employees to clarify management responsibility. Additionally, we have dismissed the two former employees involved through disciplinary action already. Regarding executives and other officers at our parent company, KDDI, we will voluntarily return a certain portion of our compensation from the perspective of management responsibility. The main details of these measures are as described above. From this part, to explain the analysis of the root cause and measures to prevent recurrence, we have summarized where the issues pertaining to this matter exist. On the left is a simplified diagram that describes the relationships among G-Plan, Biglobe, KDDI, and agencies.
In the report as well, it was made clear that KDDI did not have direct involvement in the transaction flows, but the slide explains its position with respect to group finance and supervision of its subsidiaries. On the right is a table that shows the locus of issues in relation to each entity's position. We recognize that G-Plan has had issues as an executing entity, Biglobe as an executing entity and one with supervisory responsibility for its subsidiary, KDDI as an entity with supervisory responsibility for its subsidiaries. The main issues are as described here. They will be explained with concrete examples later. First, regarding G-Plan. The issues relate to so-called over-reliance on specific individuals for certain tasks where authority was concentrated in the hands of specific individuals.
This made it easy, for example, to conceal the circular nature of the business flow. Furthermore, while large expenditures were regularly subjected to board resolutions and some executives harbored concerns about the rapid expansion of the advertising agency business, they failed to detect the cleverly crafted reports and false explanations, and consequently allowed the expansion and continuation of the business. Additionally, the same individual handled everything from approval requests to ordering and acceptance, and the existence of advertisers and products was not verified. As a result, the separation of duties in the ordering and payment processes was insufficient. To address these issues, we will implement measures to eliminate over-reliance on specific individuals, such as personnel rotation systems. On the right are the issues related to business management.
Within the corporate division at G-Plan, they conduct credit reviews of business partners based on data from Teikoku Databank and have a system in place to put the brakes on transactions based on payment terms and credit limits. However, we had not anticipated credit exposure on the scales of tens of billions of yen, as seen in this case. Furthermore, since many upstream agencies lack available data, there were no established rules for screening them, and the screening process was left to the discretion of the responsible staff, resulting in insufficient credit evaluation. Although the system itself existed, it did not reflect actual conditions. Therefore, we will proceed with a review of our management standards for business partners and credit. Next is Biglobe. On the left-hand side, we list insufficient risk awareness in new business initiatives.
The advertising agency business was a new domain for the company, and sufficient expertise had not yet been accumulated. Ideally, the company should have conducted detailed verification of deliverables, held top-level meetings with key clients, strengthened the team, and reorganized its structure. However, despite sensing irregularities, and due to rebuttals from the employee, it was not able to carry out deeper verification of the actual existence of the business.
Also, the funds, or payments were made in advance the following short payment terms. As the business expanded, it became an issue that the business assessments were overly optimistic regarding differences in payment and collection terms and the deterioration of operating cash flow. As a result, there was insufficient restraint on the rapid expansion of the business. On the right-hand side are deficiencies in subsidiary management with respect to G-Plan. Biglobe's credit management standards require confirmation of the end user at the start of a transaction, a proper understanding of the deal details, and clarification of contractual relationships, along with ongoing updates of credit limits. However, G-Plan, which also functioned as an upstream agency from the eyes of Biglobe, was treated in a manner equivalent to KDDI and its consolidated subsidiaries.
As a result, credit management was not conducted, and a full review of the entire transaction flow was not carried out. In addition, as was mentioned before, internal audits were deemed to have no issues without supporting verification, such as document checks, resulting in an insufficient response. Going forward, we will review counterparty and credit management standards and rebuild the monitoring framework. Lastly, KDDI. On the left are issues in managing subsidiary operations. In the business plan review for subsidiary management, P&L contribution was prioritized, and we must acknowledge that verification of market size and trends in the advertising agency business, Biglobe's market share, counterparties, and cash flow was insufficient. In addition, we tended to accept explanations from Biglobe at face value, which we recognize as an issue. Going forward, we will strengthen monthly profitability and cash flow management and increase communication opportunities.
On the right-hand side is group finance management. The group finance scheme contributed to the expansion of the impact of this issue. In principle, subsidiary borrowings are handled through group finance, but management was overly focused on credit limits. These limits are set based on business plan reviews for the following year and group finance reviews grounded in monthly cash flow plans. However, once they are set, loans were generally extended upon request from subsidiaries as long as the limits were not exceeded. In other words, verification of the appropriateness of lending was insufficient, which contributed to the expansion of this issue. We have already implemented improvement measures to the group finance review process, and we will continue to work to strengthen the financial monitoring process. Now, regarding our initiatives for improvement, the investigation committee has provided recommendations on the identified issues and measures to prevent recurrence.
Taking these into account and incorporating the matters we have independently reviewed, the table on the left presents a comprehensive summary of the root cause analysis. As shown on the right, we will address these issues thoroughly through our recurrence prevention measures. We will carefully review the recommendations and continue refining our preventive measures to make them more effective going forward. In addition, as shown at the bottom, we believe it is essential to implement a two-layered approach, combining these measures with further initiatives to strengthen our overall framework. To build more robust governance, we will go beyond formal measures and focus on ensuring real effectiveness, while also fostering a corporate culture that supports this and reexamining our approach to group management. I would like to express my determination to strengthen group management.
We take this matter very seriously, recognizing that there were issues to be addressed at each layer of group governance, G-Plan, Biglobe, and KDDI. As the business continues to diversify and expand, we have held ongoing discussions, including with outside directors, on how group management should function. We have been advancing initiatives such as developing CFO talent at each company, establishing reporting lines, and supporting shared corporate functions such as accounting and payroll. However, this incident has also revealed shortcomings, particularly in our understanding of new businesses within group companies and in our dialogue on the type of talent required. This advertising agency business was not a growth-driving area for achieving the midterm plan.
In other words, in our view, one major factor is that within the parent-subsidiary relationship, we were not sufficiently engaged with businesses outside the group's designated strategic growth areas. Addressing this requires not only formal or structural measures, but also highly practical and effective efforts. In particular, the softer aspects are critical, creating an environment where even minor concerns can be raised without hesitation, and to foster a culture that prevents departments from becoming isolated. For subsidiaries as well, a strong sense that the parent company is closely engaged serves as a major source of motivation for employees on the ground, while also functioning as a powerful deterrent against misconduct. That is our conviction. We believe that the shared foundation enabling such relationships and mutual trust is the KDDI Philosophy, which serves as the group's common code of conduct and set of values.
Taking this incident with the utmost seriousness, we will conduct a comprehensive review of governance across the entire group. At the same time, we will use this difficult experience as an opportunity to strengthen unity across the group and evolve into a more resilient and integrated corporate group. To that end, I will demonstrate leadership and commit myself fully to these efforts. Within our company, we have established a Risk Management Committee under the Board of Directors. In addition, we have newly set up a Group Governance Enhancement Measures Meeting under it, which I personally lead. We will not only formulate measures to prevent recurrence of this issue, but also ensure their thorough implementation across the entire group.
Next, I will explain our consolidated results for the fiscal year ending March 2026. First, the official consolidated result for the third quarter of the year ending March 2026. We have made adjustments related to fictitious circular transactions and implemented resulting accounting treatments. Regarding the changes since the earnings briefing on February 6, there are no particular changes to the performance of our core businesses. These businesses are performing well, with increases in both sales and profit. As for the accounting treatment related to the fictitious circular transactions, which is a point of change, there is an impact of JPY +2.6 billion on operating profit and JPY +8.6 billion on net income.
These respective impacts are due to the cancellation of amortization expenses resulting from the impairment of intangible assets in previous years and the tax impact related to the fictitious circular transactions. Next, I will explain the revisions to the consolidated result forecast for the year ending March 2026 compared to the initial forecast. There are two main reasons. One is the impact of the inappropriate transactions, and the other is revision reflecting changes in the mobile competitive environment, which is unrelated to the fictitious circular transactions. On the left, relative to the initial forecast, we have revised revenue downward by JPY 270 billion- JPY 6.06 trillion from JPY 5.8 trillion of last year.
Similarly, operating profit has been revised downward by JPY 88 billion- JPY 1.09 trillion, and net income by JPY 50 billion- JPY 698 billion. On the right, regarding the main factors for the profit revision. The first is the impact of the fictitious circular transactions, which includes the JPY 25 billion reversal of recorded profits and JPY 17.1 billion impact from the outflow of funds to external parties. The second, I will explain the second reason, the revision based on changes in the mobile competitive environment. Of the sales commissions incurred at the time of a customer's contract in the personal business, the portion expected to be recovered through future communication service revenue is capitalized as contract costs.
Our company has shifted to a sales strategy that emphasizes lifetime value, and we have adopted a policy of not spending excessive promotional expenses on SIM-only subscribers or customers expected to cancel in the short term. Based on this policy, we will review our accounting treatment starting next year and have decided to exclude from the scope of capitalization the expenses for which cost recovery is difficult. Based on this, we are implementing an impairment loss on the contract costs capitalized in the past by carving out the portion related to these short-term cancellations. As a result, we will record impairment loss of JPY 50 billion in the fourth quarter of this fiscal year. Please note that even after these adjustments, there's no impact on our cash flow generation capability. I will explain the key points of the revised consolidated results.
The fiscal year ending March 2026 is the final year of our current medium-term management strategy and is an extremely important year for us. We are committed to achieving both an increase in profit and effective realization of our medium-term EPS target. On the left, even at the revised profit level, we are at a level that achieves a profit increase compared to the previous fiscal year. On the right, we have been pushing forward with our medium-term plan, aiming for an EPS of JPY 194.3 , which is 1.5 x the level of the year ended March 2019. Although the revised EPS forecast does not reach the target in terms of nominal figures, we believe it is attainable on an underlying basis, excluding one-off factors. I will now explain those one-off factors. The 22 point...
Sorry, the JPY 25 billion in reversed profits from the inappropriate transactions is not a one-time factor, but rather a business-related element, which we will recover through our initiatives. On the other hand, the outflow of funds and the impairment of mobile contract costs are subsequent one-time factors with an impact of about JPY 50 billion on a net income basis. As a result, excluding these one-time factors, we believe we can reach the level of our initial forecast of JPY 748 billion. We appreciate your understanding of these points as a reflection of our strong commitment. Finally, I would like to discuss our future outlook. Accepting the facts uncovered by the Special Investigation Committee, we will strive to restore the trust of all our stakeholders by ensuring that recurrence prevention measures are thoroughly implemented throughout the entire KDDI Group.
Furthermore, we have confirmed that this matter pertains to transactions within the advertising agency business and has no impact on the provision of our telecommunication services, including Biglobe, so please be assured of this point. We will promptly file civil lawsuits for damages against the parties believed to have been involved in the fictitious transactions, and we'll make effort to recover the funds that flowed out of the company. Also, we are considering filing criminal charges against the involved parties, and we are already consulting with the police. This matter does not have impact on our cash flow generation capability or the next medium-term management plan currently under consideration. We will proceed with both our full year results announcement in May and the next medium-term management plan as scheduled and without delay.
We will continue to manage our operations toward sustainable growth by strengthening our business foundation to enhance governance alongside driving business expansion. Finally, regarding the expectations for KDDI, the investigation committee stated they expect the management to take the lead and implement effective recurrence prevention measures thoroughly. I promise to respond firmly to this expectation to learn from this difficult experience and by taking the lead myself and putting in the necessary work to evolve ourselves into a more resilient and unified corporate group. That concludes my presentation. Thank you very much for your attention.
President Matsuda and Director Saishoji, please step down. We need to clear the stage. Thank you. We would like to move on to questions and answers at this moment. In today's meeting, both members of the press and analysts are attending jointly. We would like to take questions from both groups. Questions will be taken from those of you at the venue and those of you participating via Zoom webinar. Please make sure to state your name and affiliation before asking questions. We would like to accommodate as many people as possible, so let us limit the number of questions to two questions per person at a time. If you have two questions you wish to ask, please wait until the answer is given to your first question before proceeding to the second question.
Those of you who are at the venue wishing to ask questions, please raise your hand. Once you're called upon, our staff will bring you a microphone. Those of you participating over the Zoom webinar, please press the button for raising hands, and if you're called upon by the host, please mute your microphone and start your questions. If you could please bear with us for another short while. Thank you. Let us begin questions and answers. At this moment, we would like to have Matsuda and Saishoji from KDDI, and the Chair of Special Investigation Committee, Mr. Natori, Attorney at Law, and Mr. Hen, Attorney at Law, a member of the Special Investigation Committee. The four people will respond to your questions. Those of you here at the venue, please raise your hand.
Those of you online, please press the hand raise button. Row D or block D, the first row closer to the MC.
My name is Kuroda from The Asahi Shimbun. I would like to ask you to confirm the details. Fictitious circular transactions started as early as August 2018, and in terms of the revenue that was affected, April 2017, that was the starting point of counting the cumulative revenue. The time points are different. If you could please explain the reason as to why that is the case.
Thank you. Allow me to answer. As you rightly pointed out, as we calculate the impact on our revenue, as you rightly pointed out. We have covered all the advertising agency business following the year ending March 2018. As a result of the investigation of those transactions following March 2018, as we described, fictitious circular transactions were the majority. Therefore, legitimate business transactions was very small as a proportion of the total, very negligible, and that is why we have looked at the entire amount of business as being affected. That's how we arrived at the amount impacted.
Thank you. Next I would like to ask about the future. Biglobe and G-Plan advertising business, what is your plan to deal with that? According to some press reports, you are to withdraw from advertising business in these entities. What's been the progress?
Thank you for your question.
Advertising agency business, 99.7% of the business, was through fictitious circular transactions, and that was strictly related to advertising agency business. The majority of the business was fictitious circular transactions, so we have no intention of resuming this advertising agency business. On a cumulative basis, fictitious transactions accounted for 18% of the total revenue of Biglobe. I gave you numbers with respect to our advertising agency business for the year ending March 2018 and onward, and what the cumulative number has meant.
The two companies will withdraw from advertising agency business going forward. Is that correct?
Yes. There was no substance to the business. Therefore, we will withdraw. Thank you.
If you have a question, please raise your hand. In G block, first row, closer to the entrance.
I am Kobayashi of The Yomiuri Shimbun newspaper. I have a question to Mr. Natori. Why this conduct, this kind of misconduct, went on for a number of years without being detected? That's where I don't understand. KDDI, what do you see as issues in relation to the group governance at KDDI? Why was this misconduct not detected for many years? What do you think are the reasons, and what do you think are the issues contributing to this?
Yes, thank you for the question. For many years, it is true that this misconduct went on and was continued. From various perspectives, I think we can talk about the causes of this. One big contributing factor, in my view, is that, as I explained before, at the group level, there was very insufficient knowledge of this new business. We believe that this was one of the fundamental causes of this incident. As a result of that, the various business departments, the second line, third line supervision.
Consequently, were also insufficient in many ways. Person A and the other cleverly put together this scheme for fictitious circular transactions, including the lack of the evidence or the trail. Furthermore, at each company, even there were persons who doubted and who questioned the transactions. However, looking back in hindsight, explanations given at that time were insufficient. Coupled with the lack of knowledge of this new business, the persons who raised the questions were convinced. These were multilayered reasons leading to this incident.
Thank you. I have one more question, and this is for President Matsuda. As for your responsibility as management, would you comment on that, please?
Yes. Thank you for the question. I briefly touched upon this in the previous slides, but this time we have the executing entity, G-Plan, Biglobe, a supervisory responsibility, and of course, KDDI, who is in a position to demonstrate a supervision as an entire group. We do seriously take this responsibility. The Special Investigation Committee investigation confirmed no involvement of KDDI executives or other employees in this matter. Going forward, to strengthen the group governance, I intend to lead the efforts to further strengthen group governance. Thank you.
Next person. Anyone? Block three, row three, the person close to the moderator.
I'm [Rai] from Diamond. I have two questions. First, to Mr. Natori of Special Investigation Committee. The confirmation I'd like to make is as follows. The finding, G-Plan and Biglobe, almost all transactions were considered as fictitious. In other words, the advertisement agency business, excluding 0.3%, 99.9% was fictitious circular transaction. Is it the right understanding? If so, what about the deliverables or the advertisers other than the 0.3%? Is it the right understanding there was no substance?
Yes. As your understanding is right. For the 0.3% of total, it's based upon revenue.
For 0.3% portion, there were advertisers and there was legitimate transactions, and there were posting agencies and deliverables existing. But for 99.7%, that portion was fictitious. There was no advertisers, and there was no posting agencies. The deliverables advertisement did not exist. Thank you.
Okay, in that case, excluding 0.3% portion for Biglobe and G-Plan, so advertising agency business, in most of that JPY 240 billion of business, they had no clients and deliverables for multiple years. Such business, how could such business continue for multiple years? Was the lack of expertise may be the biggest factor, but the difficulty of understanding affiliate business, that may be the factor. What was the reason why this business could continue for such a long time?
Thank you. In addition to what I have already said, if I may add, advertising agency business is said to have handled affiliate advertisements, which in a way is a relatively new format, which is online advertisement. That's one of the factors it appears. Especially, there was lack of expertise, so from officers' perspective, what was the specific way of distribution of advertisement? There was a definitive lack of expertise among officers, so that is why they were convinced by the explanation by Person A, and the case, this matter went unnoticed for a long time. Excuse me, Mr. Hen will add to my explanation.
If I may add one thing.
As you saw in the commercial flow, the advertising agency business has the core, which is the non-direct interaction with advertisers, and it didn't involve direct interaction with the media, advertising media. This business was a brokerage business that resides in between parties in generating revenue. Immediate access to advertisers or the check of advertisement deliverable was not readily made available according to the explanation provided. The advertisement deliverables should have been checked, and the advertisers should have been contacted based on this matter. There are such points being raised, and I agree with such perspective as the investigation committee, but it's a difficult point. Person A, Person B clearly explained the situation. If I may make confirmation to our committee members.
There was no substantial advertisers, but there were 21 advertising agencies. Regarding those 21 agencies, they did not know about their involvement in the fraud, or were they aware of what Person A and Person B were doing? Were there some agencies that were involved, that were accomplice? In our investigation regarding individual transactions with each agency, whether they were aware of fictitious circular transactions, that perspective is not necessarily the purpose of our investigation. The investigation could not be exhaustive enough. Not necessarily we can tell whether individual firm had the awareness. We cannot say definitively whether they were aware. Majority of agencies say they were not aware.
It's possible some of them were aware?
What I said was not sufficient.
Based on our investigations, all agencies said they were not aware of the fictitious nature. Thank you.
President Matsuda. This time, one of the causes was the lack of expertise regarding group companies, regarding Biglobe in the 2010s. B2B c ommunications. It was a company acquired in the 2010s, including companies acquired in the past. You acquired in the past. Similarly, within the group, regarding companies about which you have a lack of expertise, how many such companies are there? Regarding those companies about which you have lack of expertise, how do you investigate or how should I understand the current situation?
Thank you very much for your question. Regarding Biglobe, they have communications and internet business. As communications and internet business operator, we acquired Biglobe in the past.
Regarding our expertise and interest level and interest are intertwined. Lack of. It's not about the matter of expertise, but we need to have interest. Satellite growth strategies or strategy, peripheral area, such as financial service or retailing of power, that positions adjacent to the core, we have grown those businesses with high level of interest. Naturally, when it comes to new businesses, we would like to continue accumulating expertise and generate synergy with communication and grow those peripheral or adjacent businesses. That's what we would like to continue to do. On the other hand, the lack of interest, I believe, was a major factor from Biglobe perspective. For them, communication is the core business, and the advertising agency business was a new business for them.
What kind of business model can they adopt, and what kind of financial flow should they have? Regarding those matters, did they have enough interest or questions? How would they grow the revenue? They did not have sufficient level of interest. From KDDI, Biglobe's P&L contribution was growing, but KDDI did not have enough interest on the Biglobe's P&L contribution. That was a big factor. Thank you. Mr. Hen, if you may, would you add to your perspective about the awareness among the agencies?
Right. Regarding the awareness among agencies, Mr. Natori explained this, but in our investigation, whether they were aware of the fictitious nature or if they were involved as accomplice, there was no agency that admitted. Everyone said they were not aware of the fictitious nature.
Our investigation is a voluntary investigation seeking voluntary cooperation. We had access to email or social media interactions that we could obtain. On the other hand, interactions
Only among agencies. Even if we requested submission, there were cases where we did not receive access to everything, so it is not that we looked at everything. In that sense, it was a voluntary investigation which had limits. On that basis, regarding awareness of advertising agencies, we cannot definitively make decisions. That's our conclusion, and that point is not explicitly stated in our investigation report. As President Matsuda said, for example, civil litigation or a criminal charge such process, I believe will help clarify the facts. That's the view of investigation committee. Thank you.
Thank you. Anyone with further questions, please raise your hand. Block A, row six, closer to the MC podium.
Tokunaga from Daiwa Securities. I would like to ask two questions related to numbers. Question number one, page 18, you made a revision to the forecast. You have made a downward revision of JPY 88 billion and net income revision of JPY 50 billion. But on the right-hand side, the numbers are JPY 42 billion, JPY 50 billion impairment. What are the relationships among these numbers, if you could please clarify?
I am sorry. It may have been difficult to understand. These are revised forecasts vis-à-vis the initial forecast that we put out. The part that has been going well, the other parts that are not going very well, JPY 17.1 billion, JPY -25 billion and JPY 50 billion. If you add them up, JPY 92 billion, the operating level.
There are those businesses that have recovered from the initial forecast, and therefore the number is JPY 88 billion. JPY 50 billion downward revision to net income is because of reduced revenue?
Yes. If we could please have a look at the next slide. The breakdown of JPY 50 billion as is on the right-hand side. JPY 17.1 billion external outflow and impairment cost, and therefore JPY 50 billion.
Thank you. I have the same question. JPY 190 billion revenue, and I think this reflects one-off costs. Excluding those one-off factors, what is the operating profit that is the basis of your business?
Thank you for the question.
For these numbers that we have shown, certainly there are one-off factors that are reflected. However, what is our true capability? With respect to net income, on the right-hand side, on page 19, if you could have a look at the right-hand side of page 19, EPS target that we initially set, JPY 748 billion of net income. I think we are in a position to achieve this level of a number to attain the initial EPS target.
The basis of your performance in terms of operating profit would be JPY 1.14 trillion or something?
Yes. I think your understanding is correct.
Thank you. If you have questions, please raise your hand. Row B, second row, closer to the door, please.
I am Mitsumori from TV Tokyo. I have a question to Mr. Matsuda. Earlier, the attorneys mentioned the involvement of related parties in these fictitious circular transactions. You will move speedily with civil litigations. The related parties, does this include companies, corporations?
Thank you for the question. This time, as the attorneys have mentioned, in total 21 agencies and counterparties, of course, have been identified. As was mentioned, there was nobody that said they were aware of their involvement in these fictitious transactions. We expect that a huge number of agencies were involved in this business flow in order to receive fees, and maybe some of them were aware of the circular nature of these transactions. This is of course started by employees of the company initiating these transactions, and KDDI was not able to discover the misconduct, and this is something for us to reflect. That is our understanding.
As for the fact-finding, we believe this matter should be resolved in court.
As of today, with respect to the advertising agencies, you are not initiating consultations with those agencies for the possibility of recovering the amount that was externally flowed?
In that sense, right. We've mentioned the 21 counterparties, and of them maybe we have not identified any that was aware that they were involved in this fictitious circular transactions.
I see. My question next is to Mr. Natori. Based on your response earlier, agencies were not aware of their involvement in these transactions. Without the help, without the cooperation of the agencies, I wonder if such transactions were able to go on. What is your thought on this?
It is true that there is certainly room for such doubts to arise.
However, as I mentioned in my explanation, by Person A and other, we have upstream agencies and downstream agencies. In between, there were various interactions methods utilized to make sure they were not in direct contact with each other between the upstream and downstream agencies. I don't necessarily know that was a common practice of this business. Between the agencies as to advertising materials or confirmation with clients that are advertisers were not made as part of the practice. Also, subtracting just the fees. Such transactions that were merely to receive funds were also found to be among the transactions investigated.
Objectively, it may be concluded that they were involved in these circular transactions, fictitious circular transactions, but it will be difficult for the committee to conclude that they were aware of their involvement in the fictitious circular transactions. Of course, depending on the degree of the involvement, there were agencies with the possibility of awareness on their part that they were part of these fictitious circular transactions. This is also our understanding that we have not been able to make a definitive conclusion on this.
Block C, the person in the second row, the person close to the entrance.
Kawashima from Kyodo. I have a question to Mr. Natori. Among agencies, so from downstream to upstream, there is flow of funds. In the interaction, so downstream and upstream. This reverse direction, is it possible? In February, in the briefing, some agencies, so the upstream and downstream agencies were the same. But were there such cases, or is it possible for the downstream agency to become upstream?
As for, there are many commercial flows in this, in some commercial flow, from G-Plan perspective, the downstream agency, this agency could be upstream agency in another commercial flow. Upstream and downstream depends on whose perspective, that's the key point.
As mentioned earlier, Biglobe or from G-Plan perspective, the agencies are either upstream or downstream. Seen from different perspective, upstream can turn into downstream or vice versa. In any case, the agency can become upstream or downstream. That's the reality. Whether it is if some agencies were working as both upstream or downstream, it is not like they pretended like they were upstream, even if they are downstream, even in legitimate transactions that could happen, the reversal. Even if they are not involved in the fictitious transaction. From G-Plan perspective, agency that's downstream, but objectively the, let's see, the fund flows to upstream, but in explanation by Person A, that's not the explanation that it's an upstream agency, but it's an agency that's further downstream, so that does not create the circula rity.
Another question to Mr. Matsuda.
The diversification of business and the future growth. As you start new businesses to acquire new businesses, what kind of points do you consider? What kind of changes are you going to implement?
Thank you. Based on what happened, as mentioned, we are going to have the right level of interest. All along, we have launched new businesses by defining them as growth areas. The expertise, as mentioned earlier, we will ensure we have expertise and generate synergy with telecommunications. That is our basic approach. That's what we are going to continue. As we do so, some remote area of business such as advertising agency business, where the level of interest may be low, or the business that may be more difficult to understand, we understand we need to enhance our structure. Thank you.
Thank you. Those of you with questions, please raise your hand. Block F, row two, close to the entrance.
Hayakawa from Jiji. To check with KDDI, Person A and Person B involved in this matter, what are their titles? Were they general managers? At what level or title did they have?
Thank you for the question. Person A at G-Plan was the general manager of the division, and Person B was the team leader working under Person A. Both are male. Both are men. Thank you.
Another question. About the motive for Person A, without being able to recover a business or performance, he thought that he had to withdraw from the business.
Was there any excessive pressure exerted from KDDI on new businesses such as the one run by Person A?
Thank you for the question. Excessive pressure was not identified by the Special Investigation Committee. Person A actually came up with a plan for the new business for the ad agency business. It was launched but it ended up incurring hundreds of thousands of yen and he sort of felt a sense of urgency or unease. It was not a business area that would lead our management strategy. Our understanding is that we did not exert any excessive pressure. Thank you.
Allow us to add on behalf of the Special Investigation Committee.
In a case like this, was there any excessive pressure on performance, and was that the cause that led to misconduct? Well, those are cases in which the company would set an unreasonable, unattainable target. When the target is not met, from the management of the company, there would be a lot of harassment that would be conducted, and the person who's in charge of the business would be oppressed. That would be problematic. In this particular case, such circumstances were not identified or found. The sales target that was the starting point was one that was attainable, we believe. Just because the sales target was not met, would there be any harassment in G-Plan? That was not the case.
Harassment did not take place. It was unease and a sense of urgency on the part of Person A that caused all of this. That was our understanding of the cause. Thank you.
Please raise your hand if you have questions. Block A, fifth row, closer to the moderator.
Thank you. I am Kikuchi from SMBC Nikko Securities. Since I'm an analyst, shareholders and investors from the perspective of whether they are able to hold the company's stock with a sense of ease, these are my questions. The first, you have made significant changes to the past years and starting from 2017. So, from 2017 on the securities reports, will you be able to publish the securities report without any issue? Of course, in the Special Investigation Committee, the audit companies in charge of, like, the company were not involved in the committee investigation. What kind of communication has taken place with them? How are they involved?
Regarding this matter, as for securities report, of course, there are important matters to be considered, but we are making preparations to make sure that the report will be published.
For the auditing firm, will you continue with the same audit firm? You've already had sufficient communication with the audit firm?
We've made disclosures, timely disclosures, for the past years, and the audit firm has been overseeing those as well. The Tanshin has in effect been audited by the audit firm. I would like to respond to your question. For the revisions to the prior years, the financial results report and securities report have already been revised. As for the revisions, sufficiently the audit firm has scrutinized the revisions and gave approval that these revisions present no issues.
I see. Thank you. The second question is this. As was briefly discussed earlier, JPY 50 billion is the impairment loss amount. You started from first half of last year, and this term as well, you've made some impairment losses as well. Compared to JPY 30 billion that we've seen in the past, are you saying of a different nature? If we combined, I wouldn't say the amount would reach JPY 100 billion, but at least the amount would be JPY 70 billion- JPY 80 billion in total if we combine. Including Docomo and SoftBank, they are all making these impairment losses. Compared to these companies, your company's amount appears to be larger. Of course, there isn't a true comparison to be made with the other companies.
Maybe some special circumstances contributed to this amount, and also from next fiscal year and beyond, will you also have similar accounting treatment?
I will respond to your question. For the past years, what we've implemented was different in nature from what we have been discussing today. What we've implemented in the prior years, the Sumaho Tokusuru Program for the subscribers of this program. Since we have seen an increase in the number of subscribers exercising the rights to benefits, and therefore the residual value costs are also increasing, and that is why we've additionally recorded this amount. Also, this time, what we've implemented relates to the change in how we sell at the company. In line with this, the accounting treatment will be changed from next fiscal year.
The contract costs that has been accumulated on the balance sheets will be reduced by taking this treatment. They are of different nature. If I may add, the residual value setting for the handheld terminals, as we've been saying, to an extent, we have been able to control this. The treatment was done for the past years. This time, this is not so much related to the terminals, but more related to subscribers who cancel their contracts after short term. There were certain costs that were used for promotion of sales, and they will be eliminated from next fiscal year onward.
Block E, first row, closer to the moderator.
Sekiguchi from Keitai Watch. I have two questions.
First question, as President Matsuda answered regarding the strategy of mobile strategy, and this is a question for confirmation. The timing when you changed your policy, the new policy is going to be applied from next fiscal year. The other day, in February, at the briefing session, you did not explain it, if I recall. Regarding the policy change, when did you make the change, and what was the reason? You already answered the reason, but what's the timing for the policy change? Thank you.
Regarding this matter, our policy shift was something we had been considering. In the fourth quarter, our accounting treatment will be changed from next year. What's accumulated all along was slated for impairment in the fourth quarter.
As for the timing, what we have been considering has been announced at this timing of restatement. Thank you.
The other question. About the fictitious circular transaction background. This is a question for confirmation.
When it was uncovered, as Mr. Natori said, after February 2025, at the strategy meeting, the current chairman pointed out. But what was the trigger? By looking at the numbers, the suspicion may arise. Is it a quantitative, qualitative notice? On the side of KDDI, is there some kind of criteria and that picked up the sign? Thank you.
Let me answer. In February 2025, at the strategy meeting, the then president expressed concern. What you asked about, the firm I don't think had criteria.
Advertising agency business was growing rapidly, so against the growth rate, the then CEO expressed concern. That's my understanding.
If I may add. We have a master plan, which is annual business plan. At the beginning of year, we have plan and the progress of plan. Progress was significant based on the growth. February timing was the timing for approving next year's plan, and then that point was raised, and then the auditors got involved, and point was raised. Thank you.
Please raise your hands if you have questions. Block C, row four, closer to the emcee's podium, please. In the black suit.
Kaneko from Nikkei BP. My first question is directed to Ms. Saishoji. Because of your position, G-Plan, Biglobe financial statements are being viewed, I'm sure, by yourself. Looking at their financial statements and accounts receivable on Biglobe and G-Plan's financial statements must have been growing very rapidly, and I'm sure that must have made you uneasy or uncomfortable. Looking at their financial statements, did you not ever feel unease, if I may ask you that? Thank you for your question. On our part, it was possible to confirm, but what we were trying to validate was the overall business of Biglobe, not necessarily focused on the ad agency business per se. Biglobe itself is growing very much. Why was it growing so much?
Ad agency business is somewhat different from our conventional business. We should have had a sense of urgency and dug deeper to try to find what was going on. We were not able to do so, which is a lesson for us. We were watching profit and loss closely, but sub-subsidiaries' profit and loss. When it comes to sub-subsidiaries' profit and loss, we fail to examine them closely. As part of recurrence prevention measures, a profit and loss, balance sheet, cash flow of all the subsidiaries as well as sub-subsidiaries on a comprehensive basis. We're going to take such a measure, and we're starting to discuss how that should be done.
In relation to the March 2023 year ending, at that timing, Biglobe's current assets stood at JPY 33.9 billion. Next year it hit JPY 53 billion. A year later, JPY 119 billion. Current assets were growing very, very rapidly. That alone looked strange from a layperson's perspective, because I now know that there was a problem, perhaps. I feel so. But frankly, why did not people notice the rapid growth in current assets alone? Well, thank you for the question. As you rightly pointed out, but as I explained earlier, in actuality, when it comes to the details of each of the entities within the group, we were not able to exercise enough oversight. That is a very hard lesson that we are learning.
Secondly, in relation to that, if I may ask, Matsuda-san. So Biglobe's profitability was growing very dramatically. That was outside of the core business. It was in the ad agency business that was growing. That in itself, from the parent's perspective, what was your understanding? So it was outside of your plan. Nonetheless, it was growing. But that was. You were warmly watching over that, thinking that it's a good thing. February 2025, you started to note concerns. Why did your attitude change? Where was the point of inflection? So as a parent company, supervising or watching over Biglobe, how did that change? How was the perspective changed?
Thank you for your question.
As I said earlier, the amount of impact in the last two years, 85% of the impact was concentrated in the last two years, as we said. For the past two years, the ad agency business was growing very much. February 2025, in our strategy meeting, it was called out. There are two perspectives. One is the compliance perspective. Does this pose a problem compliance-wise? Statutory auditor internal audit started to work together to look into it. That was the timing when that happened. Up until that point, certainly, the business is growing compared to the initial plan.
Not that we were warmly watching over them, but our core telecom business and the new business, if the two can be linked together, and if the new business is growing, we will be able to increase our core business. We were able to renovate our telecom systems as a result of the growing new business. That was our awareness. Thank you.
Thank you. If you have a question, please raise your hand.
Block E, first row. Closer to the entrance, please.
I am Ishikawa, freelance reporter. My question is to Mr. Natori. For a company as big as Biglobe, several tens of billions of yen being generated in sales by just two employees, I think they must be very competent employees. Before this incident came to light, how were they assessed? How were they regarded internally?
As for details of a personnel assessment, because of the issues of privacy, I will not divulge, but as was mentioned in your question, in the advertising agency business, they have managed to generate significant profits and they received awards. They were recognized internally for their performance.
Thank you.
If you have a question, please raise your hand. Block D, fourth row. The person who is close to the entrance.
Horikoshi from Nikkei [BP]. First, to Mr. Natori, I have a question regarding the motive for the fictitious transaction. Person A had unease about failing to deliver targets and also outflow related to the meals and also JPY 240 billion, and then JPY 30 billion of external outflow is a huge amount, and I have a suspicion about the motives. Was there a suspicious point about the JPY 30 billion outflow?
Page 59 or so of the PDF file, the agency's commercial flow is shown in a diagram, and a payment to company C stands out. Company C is upstream firm, but it also plays a downstream role as well. It seems this firm is a key player in the commercial flow.
I have not read everything, but see, the commercial flow containing SC, were they just being brought in? Could you explain more about the motive? Thank you. As to what you asked about, firstly, one thing I want to explain is, regarding the in-kind cost, it's not necessarily that, as it's not positioned as the motive for starting fictitious circular transactions for a certain while based upon our confirmation. A while after the fictitious transaction started, the in-kind cost was being given. That doesn't seem to be the motive for having started the fictitious transaction. The failure to achieve sales target, also Person A's launched business initially, dozens of losses were being incurred.
Also more than JPY 30 billion of outflow, external outflow, there is a sense of imbalance as you pointed out. As explained, this mechanism with circularity, every circularity, the fee compounds or increases larger and the size needs to keep growing, otherwise the mechanism would have collapsed. In that sense, as the fictitious transaction grew, continued, the magnitude grew to this level. Regarding the parties involved, as explained earlier and as Mr. Hen explained, it is not necessarily that we fully understand the awareness of counterparties. It's difficult for us to definitively judge their awareness. At least other firms, they did not invite Person A to start such transactions. Due to Person A's motive, circular transactions started and some firms got involved. Multiple companies ended up getting involved. That's our understanding. Thank you.
If the starting point was unease, sense of unease, after that, agencies that got involved, in some way, if they get involved, they receive a fee, it appears they had understanding that if they get involved, they can make money. What is your view?
Yes, your understanding is right. Advertisement, actual advertisements were not created, and it was just a circulation of funds. By circulating funds, fee was paid. Firms involved ended up receiving fees. That was the nature of the mechanism. Regarding the motive, if I may add my perspective. As mentioned several times, a loss of several hundred thousand yen and a gap against the final value, there's a gap, but it's a starting initial motive.
Back then, the magnitude was about several million of yen, way smaller than the most recent figure. By repeating transactions, the value amount grew bigger and bigger, and it was unstoppable. As mentioned, internally, the person received a reward. It's a business that he himself started, and that business was succeeding, so he couldn't stop the business. That seems to be the motive of him in the latter part of the period. We should differentiate the motives.
Thank you very much. My second question is to President Matsuda. Initial motive was Person A's sense of unease. If so, then Person A's sense of unease, well, KDDI has an annual master plan and semi-annual modified master plan.
This incident is not linked to the medium-term plan, but as a natural culture, corporate culture, I believe there was atmosphere that the master plan needs to be achieved no matter what. What was the atmosphere? Thank you.
In our group, it can be said about the entirety of our group, but since we are an operating company, so we should have an ambitious target toward which we should make efforts. That's a natural course of action. As Mr. Natori said, unreasonable goal-setting or harassment were mentioned earlier. In our case, ambitious target set, that's a reasonable thing to do as a operating company. Thank you.
Those of you with questions, please raise your hand. Block F, row three. Closer to the moderator's podium.
My name is Otsubo, [Nikkei]. A specialized financial services paper. Once again, I would like to go over the impact on your performance. Telecom business, financial business. No change to such businesses and the performance forecast from what you announced in February?
Thank you for your question. Yes, your understanding is correct. That's question number one. Another question is as follows. You will promote measures to strengthen governance, that's part of what you said. You will follow up on some subsidiaries in detail going forward.
There's a limit to what you can do, I think. For businesses that are not relevant to our telecom business, you said that you will have a good follow-up.
For your businesses that are different from the core business, perhaps you should not engage in such businesses outside of your telecom business. What do you think?
Thank you for your question. What I earlier said is that, the parent and the subsidiary, the relationship between the two, should be smoother. That was what I meant to say. Well, so far, we have set up new businesses, including financial services business, quite a number of them. There's a pattern of growth through setting up new businesses. That is the pattern that we would like to apply to other businesses. You said not relevant to telecom business, part of our strategy is to increase businesses adjacent to the telecom business, our core business.
As we do so, we need to follow up on our subsidiaries. We need to have interest in what they're doing, and that is something that needs to be sustained. Outside directors are sent as directors to subsidiaries. Inclusive of such an arrangement, we need to hold interest in the subsidiary's business. Thank you.
If you have questions, please raise your hand. Block D, fourth row, I believe, closer to the MC.
I am Yoshikawa of ITmedia News. Regarding Person A and a collaborator, Person B, I have questions about these individuals to President Matsuda. Regarding Person B, looking at the explanation provided on this person, due to working circumstances, it says that Person B felt indebted to Person A for allowing him to join G-Plan. Was the relationship between the individuals such that certain benefits were provided from Person A to Person B? What were the circumstances?
Perhaps, this should be answered by the Mr. Natori.
Yes, this concerns a fact, so I will take this answer. Person B joining G-Plan, whether certain benefits, conveniences were afforded. They had known each other since before. Person B was looking for work and he was introduced to the company.
Thank you. The second question is also to Mr. Natori. Person B is a collaborator. What s pecifically, what was the work that this person did or played?
Person B was instructed by Person A to compile performance reports, and the reports were shared with upstream and downstream agencies to realize the circulation of funds. I see. Thank you very much.
Thank you. If you have a question, please raise your hand. Block E, third row. The person who is close to the moderator.
Fujiya from Sankei Shimbun. I might have missed, so my question may overlap with what you've said about Person A, Person B's motives. My question is to Mr. Natori. Excuse me. The transaction was continued until the magnitude grew to this size. There are many things which I am not fully convinced about. The start was to compensate for the loss, but the transaction was continued for so long. Why? By incorporating legitimate transactions, the persons did not think about those things. What kind of explanation was provided?
Thank you. As you say, whether it is Person A or Well, as Mr. Hen said, from the middle of the process, the size of the transaction grew too big, so he couldn't put a stop to the transaction. That's the factor. That's a big factor. In the lead-up to that point, generating profit from legitimate transactions to make a reconciliation, Person A had such intention according to him, but such ambition was not realized. The negative spiral continued. These fictitious circular transactions were continued for a long time. Then agencies who were counterparties, none of them say they were aware of the fictitious transactions. As long as deliverables were not delivered, it cannot be just transactions were conducted in a legitimate way. Just because the performance report was produced, even though it's affiliate. Some agencies need to post ads.
Were there agencies who were actually posting ads or in the commercial flow, a specific work did not happen and all agencies ended up being brokers?
Somebody asked a question earlier, but in this series of transactions, ad deliverables do not exist. As you asked about which firm created ad deliverables, no ad deliverable was created. Performance report was produced to kind of shape the fictitious transactions. It's a false report to the effect that deliverables were produced, but there was no substance there.
Okay. The counterparties, there is no agency that's counterparty that has said they have delivered a created ad or deliverables.
Yes. There is no such firm. Thank you.
Okay, those of you with questions, please raise your hand. Block D, row one, close to the entrance, please.
Ishino, a freelancer. About the involvement of ad agencies, I have a further question. The fund is circulating. In the process, there's this upstream and downstream agencies where the fund would circulate. Initially, you received a fictitious order, and that would involve funds from Biglobe and G-Plan. In the initial phase, what were the ad agencies and what was their awareness at the starting point?
In the starting point, not that we have revealed everything that went on in the initial phase.
What we said about the period starting in August of that year, there were no deliverables, and it all started with the mobilization of the fund and the circular transactions. It got off to a start that is the same with all the other transactions that followed.
Understood. My second question. The current chairman first aired his concern with respect to compliance in February 2025. I think it was around the time when it was announced that Mr. Matsuda was to become the president. I think it was right at the time of the handover. There was this potential issue of compliance, and at the time, what did you think, Mr. Matsuda? That was around the time that you were announced to be the president.
Thank you for your question. I think it was in mid-February timing. The statutory auditor of KDDI and Biglobe's auditor in collaboration with them. Internal instructions were given to conduct an audit on the ad agency business. In collaboration with the statutory auditor and internal audit division, work went on. After that, outside accounting auditor was involved. This created an opportunity for accounting auditor to call out. Therefore, in that sequence, investigation was begun and continued. That's my awareness.
Thank you. When you became president, did you have this resolve that you're going to solve this issue, fix this problem?
Well, after becoming president, I took over various issues, and this is one of such issues.
If it was growing very rapidly, I wanted to take over and contribute to the performance. There was negative aspect, but we have taken action. In that regard, I think we have been able to identify the problem properly and have continued the work that was necessary. Thank you.
If you have questions, please raise your hand. Block E, fourth row, closer to the MC.
I'm Hashimoto of Teikoku Databank. I have two questions. First, the Special Investigation Committee conducted investigations and the results. On page nine, accounting impact amount is described. The amounts are to be restated for the revenue. Is this the total amount, or is it only for the fees? Because going back to page six, the table listed on page six, there are several million funds actually moved and fees of several tens of thousands, 150,000. I think the impact may differ depending on which this constitutes. That is my question. Thank you.
My apologies. Regarding your question, are you talking about the PowerPoint, slide number?
Yes, that's correct. On the PowerPoint.
As for the impact in terms of accounting, whether this is the total amount or not, I believe was the question. The answer is yes, this is the total amount. As for page six, this is just an illustrative diagram. The figures are included to facilitate your understanding. They are irrespective of actual transactions. This is merely to show how funds flows, how fees increase in a compounding manner. This is not directly linked to the accounting impact. I apologize for the lack of explanation on this point. Thank you.
My second question is related to recurrence prevention. For the cause, one of the cause of this incident was credit management. For the operating companies going forward, you said that you will review the credit management. Specifically, how will this management be reviewed and revised? Not limited to G-Plan for other operating companies, will you conduct a similar or the same review of credit management?
Thank you for the question. You are exactly correct. We will target all group companies in reviewing the credit management. Of course, there are credit management specific to individual companies, but we are implementing this review process. G-Plan and Biglobe, to an extent, they had reasonable credit management criteria. However, as I said before, as for the transactions going from or loans going from subsidiaries to the sub-subsidiary, such reviews were not conducted. We are conducting company-wide review of the management process.
Thank you. If you have question, please raise your hand. Section B, first row, the person close to the moderator.
Yamamoto from Nikkei. I have a question. In February, at the press briefing, you mentioned regarding antisocial forces, and then you did not explicitly give answer. Were you able to confirm involvement of antisocial group?
First, KDDI's perspective.
In our understanding, there was talk about credit, but antisocial forces screening is thoroughly conducted. In addition, multiple databases are being used in conducting the screening against antisocial forces, and there was no agency that was identified as antisocial. From the viewpoint of investigation committee, as part of credit management, antisocial forces screening is conducted, and the screening had been conducted. Once again, the company reported that credit antisocial forces screening was applied. Also the investigation committee conducted interviews of stakeholders, and also we have performed digital forensics and checked various data. As part of our review, there was no agency that was viewed as antisocial forces.
Thank you. I understood.
Thank you. Okay, those of you with questions, raise your hand, please. Block E, row three. Closer to the entrance, please.
Chayama from Toyo Keizai. Just to be sure, let me go over the facts once again. 21 agencies who are said to be involved in fictitious circular transactions. There's an agency that provided JPY 3 million to Person A, and that agency is also saying that they were not aware of the wrongdoing. That is correct. JPY 33 billion of external outflows, what is the prospect of recovering that? For the corporations where external outflows went to, you're thinking of having civil litigations. For the 21 agencies, I think it will take time for the conclusion to be arrived at. What is the prospect of recovering external outflows? What is your view?
Thank you for the question. As was mentioned, 21 companies.
Among them, as I said earlier, those who were simply involved in the commercial flow, although there was no substance, and by so doing, they earned commissions. Ad agencies where there are suspicion that they perhaps were aware of fictitious transactions, and we would like to work so that we will be able to sue them in a civil litigations. Biglobe management, their awareness of ad agency, a business, that's what I would like to ask next. For Biglobe, this is a non-core business, so there was little interest. Biglobe in 2022 was involved in the commercial flows. Group Finance from KDDI also started to be involved, and from there on, the amount increased.
Though it was non-core business, inclusive of G-Plan, it accounted for one-third of the consolidated levels. Biglobe management not being involved, it's hard to believe that they were not involved.
What were the circumstances that led to Biglobe's involvement, and what was Biglobe's management awareness regarding ad agency business?
Let me report on behalf of the Special Investigation Committee because it's factual. Biglobe started to be involved in the ad agency business starting in 2022. Within Biglobe, they considered entering a new business. G-Plan, its subsidiary, was growing ad agency business quite dramatically. Biglobe had the credibility as well as financial capability.
The idea was that, by Biglobe being involved in the ad agency business, that they were able to grow it even further. It was not considered as a growth business. Is that correct?
Well, thank you for the question. As we discussed, our business plan at Biglobe, this business was growing. They looked at it as a new business that was growing very much. That was their take. Thank you.
Thank you. Please raise your hand if you have questions. Block B, sixth row six. Go ahead, please.
I am Masunori from Nomura Securities. I have two questions. First, on accounting. For short-term churn, impairment of JPY 50 billion, I believe is a significant amount. In terms of number of contracts, a short-term churn, how many millions of, or tens of thousands of, customers, does it equate? I would like to have a better image of the contracts and how they affect these numbers.
Thank you for the question. As for how many customers this constitutes, I do not have that exact information with me. Basically.
For the short-term churn customers, they are now segmented out, so they will not be capitalized going forward. That is, I believe your understanding, but I do not have information as to how many customers exactly.
The second question is related to these fictitious transactions. 2025 February timing, an alarm was sounded within the company. Perhaps before March, if you had addressed this issue, this could have prevented some amounts that was externally outflowed. Independent auditor or statutory auditors in their audit processes, how were agents audited in their processes? For instance, you have been working on [au] from 2000.
Although they were not affiliates, but you've been involved in the advertising business for a total of 25 years. I'm sure you are well familiar with the industry and what the major players are saying in the industry. For the financial results announcement and prior to that, how was this issue dealt with in the audit?
Thank you for the question. Of course, as a group, we have been doing this advertising business. As you said, we did have opportunities to ask around and inquire about the advertising business within the group. Because this was considered as a Biglobe business, we were delayed in taking action. Had we consulted experts, of course it was possible that we would have gotten advice that we should have taken a closer look. That is something we take as part of reflection. That's something that as the business we should have done.
If you have a question, please raise your hand. Block E, the person in the second row, closer to the entrance.
Nishida, freelance. I have two questions. First, President Matsuda, future of Biglobe. For advertising business, you are ending it, but as telecommunication business, which has substance. Do you retain the Biglobe's brand and Biglobe as entity? Or is it possible that Biglobe will be restructured?
Thank you. Firstly, regarding Biglobe's business, from KDDI's perspective regarding telecom business, they have our full trust, and their telecom business is well established, so that should be pursued further. But there was an issue with governance. Starting from first of April, new structure or management structure will be put in place. As external director, Saishoji will be involved. Also, they will have two statutory auditors. What's missing will be enhanced.
In other words, Biglobe's shape will not be changed, but their audit will be strengthened. That's right. That's right understanding.
My second question also is addressed to you. Now, in a remote domain where the level of interest was low, the discovery did not happen early, but is it possible that a similar thing can happen somewhere else? For example, are there any other domains in your group where the audit needs to be strengthened?
Thank you very much for your question. This case can be a starting point for many things. For the entire group, it is a good starting point for us to give the overhaul of the entire business. But, for example, just enhancing management of group companies is not sufficient.
In that sense, what kind of communication are we going to have from parent to group companies? That kind of communication coming from us is important. Also, we are a company that's conducting digital services. How do we use digital technologies to reduce burden? That's another thing we should tackle. On top of that, as we continue various businesses, some businesses will be strong, while other businesses will have to adapt to environment. As I said the other day for the earnings briefing, based upon capital allocation, some businesses might be divested. Thank you very much.
Further questions, please raise your hand. Block B, row four, closer to the entrance, please.
Okudaira from Nikkei. This partly overlaps with Nishida-san's question about the future of the group going forward. I have a question. You said that you will look at each individual entity. I think there are 240 or so entities within your group, if I'm not wrong. Is that the right volume if you had to look at them individually? Or are you going to reorganize some of the entities according to functions? Do you have such a plan or thought? Another question has to do with G-Plan. The ad agency business appeared large. If you eliminate that, I think your business will shrink. Would you reorganize this one way or the other?
Two questions. Your first question, thank you for the questions.
On a consolidated basis, we have 189 consolidated entities. I said individually, of course, naturally, we should have the mindset that we should be looking at them individually. That kind of mindset is necessary. What I said is that there are business divisions who are responsible for different entities. Biglobe is engaged in telecom business. Personal business department or division who's responsible for providing oversight did they have interest in the ad agency business, is the question. While diversified autonomously, we would like to provide oversight. Rather than individually looking at them one by one, we need to come up with a mechanism so that we will be able to be effective in exercising governance.
Biglobe's ad agency business, the vast majority of that was fictitious, so we're not going to engage in that business any longer. In the existing business, there are business operations that are strongly supported by our customers. What is most critical is not to cause problems or nuisance to our customers. We will change the makeup of our business, and we will consider what the business should be for G-Plan as well as its organization. Thank you.
If you have questions, please raise your hand. Block F, I believe fourth row, closer to the moderator.
I am Takagi of Sankei, a newspaper. My first question, I would like to confirm the facts. Of the 218 companies, 21 companies have been confirmed to be involved in these fictitious transactions. For the advertising agency business, 99.7% have been deemed fictitious. The remaining 197 companies are responsible for the 0.3% of the business?
Yes, you are correct.
Thank you. The other question is to Mr. Natori and Mr. Matsuda. For digital advertising per se, is often talked about in relation to fraud and other issues. This incident at this time for online advertisement, similar fictitious transactions, may be easily induced in online advertising business. President Matsuda, information coming from the internet space, how do you ensure information coming from this space, as well as the soundness of this online media business? You said that you will withdraw from this ad agency business going forward, but how do you ensure the soundness of this space?
First, I will respond to this question. Of course, the investigation committee was not able to investigate the entirety of the internet advertisement space. Also, we did not have enough information to determine whether the entire space contributes to fictitious transactions or not. I will refrain from making any further comment on that. Thank you for your question.
In relation to this incident, we had fictitious circular transactions. In relation to these transactions, advertising agency business has been highlighted. Regardless of the business, we need to have more discerning eyes. The fact that we were not able to detect such misconduct. The explanation provided by the individual was that this had been common practice in this business.
To me, such an explanation is an insult to people who are serious and sincere about their business in this industry. As a group, we needed to do more to verify these transactions. As for ensuring soundness, this is not limited to the internet advertising. For us, we are in the business of providing smartphones and the other products so that customers may feel convenience. Perhaps with convenience, a sense of anxiety or the issues of cybersecurity also come. They are two sides of the same coin. Of course, in driving these businesses, we also need to address the negative aspect. Perhaps there may be the issue with the soundness of internet advertising and also smartphone addiction.
We have been working on research on smartphone addiction. While we deliver convenience to customers, we also need to properly address the negative aspects of that as well.
Thank you. If you have a question, please raise your hand.
Block G, the person in the fifth row, close to the entrance.
Freelance journalist, I am Kato. My first question. What triggered the discovery was February 19, 2025, the business was growing rapidly, so concern was expressed about the compliance issue as you see in page 64 of the material. KDDI president, there are 30, 20, 30 internal audit members, but Chairman. Do they have the high level of compliance knowledge to pick up the sign? Thank you.
Once every six months, our master plan is deliberated on. Business divisions and management engage in an intense discussion. At that time, ad agency business was growing way faster than the telecom business, so the current chairperson pointed out what he did. Based upon that, auditors in internal audit dug deeper. In 2018 and 2022, audit was conducted on Biglobe. What you said is right.
Thank you. My second question. Biglobe's auditor steps down and G-Plan and Biglobe has two auditors, I believe. But the standing permanent auditor is stepping down and G-Plan is a company with a board of auditors, but the other auditor, the person is not going to receive disciplinary action or no, the person is not resigning. The G-Plan's auditor, the same person is the auditor of G-Plan, so the person is resigning. So G-Plan has one auditor or two? So sorry, Biglobe has two auditors or one?
Just one statutory auditor, and from first of April, it will have two auditors.
Okay. Thank you.
Okay, please raise your hand if you have questions. Block D, row three.
My name is Ota. I would like to ask about the substance of a criminal litigation that you are considering. What charges and who are the targets? This might be a different question. Person A, Person B, could they be the targets of such litigations?
Thank you for your question. The charges, we are now talking to the Metropolitan Police. We're consulting with them. At this moment, we cannot say any further than that. Did that answer your question?
Any further questions? Block D, row two.
Koyama, freelancer. The person A who started this scheme of fictitious circular transactions, how did he come about with this idea? Was it his own idea, or was there someone who was the mastermind or anyone who gave this idea to him?
We were keenly interested in understanding that, so we asked them meticulous questions, and the conclusion was that it was Person A who came up with this very idea.
Thank you. My second question. While listening to your explanations, I think, the substance of the transactions was rather sloppy. They could have been revealed quite easily. If an ordinary company provided oversight to such transactions, perhaps the company could have noticed that they were fictitious. Was that the case, or was this an anomaly, a special case?
When you say if it's an ordinary company, it's hard to answer that question. In a nutshell, it was quite cleverly crafted. Looking back, in hindsight, we could have spotted it easier. If we checked with the advertiser directly, it would have been revealed right away that it was fictitious.
If you checked whether there were actual deliverables, ads, then you would have known that these transactions were fictitious. In that regard, you could perhaps s ay that it was sloppy, but as I said in my explanation and gave you an example, internally as well as externally, so that it was not revealed by the way Person A provided a detailed explanation, and it was taken at face value, easily trusted.
In that regard, there were issues with respect to control and management. That is the understanding. Thank you.
Thank you. If you have questions, please raise your hand. I will take a question from online participant. Mr. Kenta Yamaguchi, please unmute and ask your question.
I am Yamaguchi, a freelancer. Regarding G-Plan G-Point business, earlier, Mr. Matsuda said that it is important not to inconvenience our customers. What will happen to G-Points? I think many people are interested in the points. Do I understand correctly that this point program has nothing to do with the fictitious circular transactions? Is it okay to assume that this point scheme will be made available going forward?
Yes. Thank you for the question. For the G-Point business, this is a completely separate business department from the advertising agency business that is in question. The G-Point business is being utilized by customers as we speak, so we plan to continue the program.
I see. Thank you.
Any more question? Mr. Yamaguchi?
Yes. That's all from me. Thank you.
Thank you. I suppose you have had chances to ask questions, so maybe we could take one last question. Block C, row 4, the person close to moderator.
Kaneko from Nikkei BP. I have one question to Mr. Matsuda. Slide 14, regarding philosophy. Mr. Inamori left this philosophy, so philosophy, three philosophy brothers. Philosophy to embed philosophy, continuous efforts are being made. That's my understanding. In this situation, regarding embedding philosophy in the organization, if there was anything that's insufficient, what was it? If philosophy had been fully adopted in the group companies, then what would have happened and how would what happened have been prevented? My question is about how the philosophy is positioned.
Thank you for your question. Regarding enhancement of group governance, as mentioned, all along we have been continuing discussion.
This year, as part of philosophy, especially, we make decision based on what is right and, nurturing of sense of ethics, that's what we have to focus on in embedding into the group companies. I believe there was a lack of sense of speed. Philosophy is indispensable as something to come back to as we conduct business. Principles are laid out. The purpose of our business to be clarified. The sense of fairness, spirit of fair play, what does it mean? How should we generate profit? Deterrence will be created by our philosophy. The challenge that we identified was, we didn't have the atmosphere to help such philosophy take root in the organization, so we have something, more to be done.
The philosophy training, I believe, is conducted regularly, several times a year. The substance has been lost, so Mr. Inamori has already passed away. What's the background and why has it become difficult to help philosophy take root? That's not the case. For me, that's exactly our philosophy is our core competence, so it's being passed down. Group company and the parent company, with our philosophy was embraced as personal matter. There seems to have been a challenge there. Thank you.
With this, we are ending Q&A.
With that, we would like to bring this press conference to a close. Thank you very much once again for your attendance.