We will now start the Q&A session. Thank you very much for your attendance. I am Miyakawa from IR department. Thank you very much. This briefing will be broadcast live on the internet with simultaneous Japanese to English interpretation. The presentation will be available on demand on our IR website at a later date. Let me introduce the participants today. Matsuda, President and CEO. CFO and Executive Director of Corporate Sector, Saishoji. CSO, CDO, and Executive Director of Corporate Strategy Planning Division, Katsuki. Executive Director of Business Solution Core Sector, Hosoi. Executive Director of Personal Core Business Sector, Sasaki. Aketa, General Manager of Corporate Management Division. Today, three financial results-related material and one TSE disclosure material, a total of four materials are posted on our IR website.
Please refer to the disclaimer in the material regarding statements made in these documents, performance targets, and projected subscriber numbers explained in the Q&A session today. President Matsuda will first explain the financial results summary, followed by Q&A. President Matsuda, please.
I am Matsuda from KDDI. Despite the late hour, thank you very much for your attendance. Thank you for those of you online as well. We have just announced our Q2 earnings in the briefing earlier, but I would like to highlight the sections that I would like the investors to pay attention to among what I have already discussed. Highlights of consolidated performance in the first half, as you can see, both operating revenue and profit exceeded our initial plan, making a strong start following Q1. This fiscal year continues to be marked by a solid start under our new midterm management plan. Next, regarding revenue by segment, which we began to disclose from this fiscal year. Disclosure by segment, including the growth areas, is a reflection of our determination to steadily grow every area.
As you can see, revenues of all segments grew on top of mobile communication, which is a component of Telecom Core. Growth areas such as finance, AI integration, and data centers are expanding robustly. These are factors of change behind our adjusted operating profit. The details will be given later. Telecom Core grew 16.7% year-on-year, with mobile communication up by JPY 28 billion and others increasing by JPY 34.3 billion. As a result of mobile growth and cost structure transformation exhibiting favorable signs that profit increase will likely continue into the second half. Personal Growth secured growth despite transient impacts from finance and energy. Business Growth was up 18.8% year-on-year, with profit increases in all areas showing steady growth. In total, adjusted operating profit increased by JPY 77.4 billion, up 13.9% year-on-year.
We have prepared this slide to talk about growth structure becoming more stable. In Telecom Core, sustainable growth of mobile business that we have pioneered in the industry and cost structure transformation are bearing fruit. Over half of this is because of organic growth. In the second half, we will further expand this. As is on the right, business other than mobile communication increased by JPY 34.3 billion, largely due to cost structure transformation. Since last fiscal year, we have been controlling our costs rigorously in order to achieve a winning strategy. Changes in accounting treatment for sales promotion costs also contributed. All indicators are improving across the board. I just wanted to highlight how our growth structure is becoming more stable. Next on IDs and churn rate. Smartphone subscriptions totaled 33.34 million, up by 420,000 year-on-year.
Churn rate was 1.18%, improving by 0.03% year-on-year. As I said, we have controlled costs rigorously, suppressing sales promotion costs, and churn rate is down. As is on the right, you can see that short-term churn rates under one year for au and UQ mobile declined. This is deliberate. Regarding povo, our third brand, its churn rate is also declining, as you can see. Mobile ARPU is also brisk, up by JPY 70, 1.6% year-on-year. There are two main factors. The first is brand migration between au and UQ. There are more migrating toward au. Net increase in migration to au is continuing monthly. On the right, this is about penetration of au and UQ mobile's higher-tier plans. The number of subscribers of both combined has exceeded 4 million. What supports this is our capabilities at the front line.
Migrations to higher-tier plans, real physical shops are three times greater. Our staff at shops are bringing out more of their capabilities, utilizing AI, gaining expertise in service templates, on top of which they add hu man warmth. The results of these initiatives are steadily manifesting in 2,000 au shops. Of growth area, let me explain the performance of Personal Growth. Device-related business led profit increase despite drops in profits, and finance and energy major KPIs were strong. Finance is expected to see a declining profit trend because of our effort to normalize loan-to-deposit balance, which is an issue for us. But the positive effect of interest rate revisions for mortgage we have already announced will start to become apparent, turning profit to an increase in Q4. Regarding energy was affected by cooler summer.
The summer was cooler than expected, and it was also impacted by timing differences, but it is expected to turn to increased profit in Q3 when timing differences are eliminated.
Now, data center strategy in the AI era. Our commitment is not to pursue scale in terms of megawatt, but to layer value on top of facilities, land, and building. There are two models. One is Connectivity Model, which was cultivated at Telehouse. We will establish a value-layering AI factory model at Osaka Sakai with low latency. By layering the value of number one connectivity among telecom carriers in demand areas close to urban centers, we achieve high profitability per megawatt and low churn rate. Next is Factory Model. We hold GPU and data and power. The facility will be converted into intelligence with computing resource, and that is why we call this factory model. We will layer value and sell to our customers. This is Sakai, Osaka, which is our demand area and the place for implementation.
We will promote social implementation as a launch base for AI implementation. In addition to GPU computing resource, Rubin will also be introduced as the leading group in Japan. In social implementation, we established a new company, ELYZA Robotics, to promote the physical AI business. Our target is R&D investment of JPY 30 billion, over 300 physical AI specialists, and introduction of over 1,000 robots. From mobility perspective, we signed a capital alliance agreement with newmo, the largest taxi company in Osaka, operating 1,900 taxis centering in Osaka for social implementation of autonomous driving taxi. We will realize and operate in Sakai, learn in Sakai loop, where operational data is fed into AI learning and the learning results are fed back to the field. We will operate this virtuous cycle.
This is because our past investment is now bearing fruit, and so we want to invest in the next cycle and generate value and be paid for that in a steady fashion. What is important here is our technology discernment, partnering, and our commitment to deliver on our promises. This is how we want to generate and lead the next virtuous cycle. Finally, based on what I've explained, the slide summarizes the progress of FY March 2027 in the midterm. Left side. In the first half, we achieved double-digit growth centered on Telecom Core and Business Growth, with KPIs also progressing steadily. As you see in number two, revenue related to Rakuten roaming that was not included in the initial forecast will materialize from the second half onwards, and we are confident of achieving this fiscal year's operating income target.
We understand that profit for the period is below consensus, partly due to the defense tax increase and higher interest expenses. We will remain focused on driving stronger growth in profit for the period as well. Please note that the difference between IFRS accounting figures and adjusted profit is primarily non-cash, and our future cash generation capability is growing steadily. We will elaborate on this point later. Right side. For the second half, we will effectively utilize the profits and cash generated to achieve 5% + ɑ organic growth in the medium term. You can see three points here. In Telecom Core, to stabilize the revenue structure, we will firmly adhere to our policy of not engaging in excessive sales promotion competition that leads to short-term churns, encourage long-term usage through model changes, and strengthen channels to expand customer touchpoints. As you can see, these initiatives are progressing steadily.
We revamped the review structure for growth investments and strengthened deal origination and execution capabilities, while also making steady progress in strengthening group governance and cybersecurity measures. The interim dividend is JPY 42, up 5% year-on-year. We are increasingly confident in the stability of our earnings and business structure. After carefully addressing the changes in the business environment, we will reassess the situation again at fiscal year-end. That is all from me. Thank you for your attention.
[Foreign language]
Mr. Matsuda, thank you very much. Before we start the questions and answers, I would like to turn to Aketa-san to discuss the gap between adjusted profit and accounting profit.
If you could please look at the right-hand side screen. Today, in the Q2 performance earnings announcement that we made, IFRS accounting-based profit versus adjusted profit, there is a large difference between the two. So once again, the background to introducing adjusted profit and the definition thereof. On top of that, what we have adjusted for in Q2, I would like to explain those items. This slide, in May this year, when we announced full-year earnings, we discussed our accounting policy for the fiscal year, and this slide was used. Next year, IFRS 18 will be introduced and applied ahead of that on our part.
This fiscal year, which is the first year of the new midterm management plan, we have introduced adjusted profit. On the left, there is a definition. There are two points, mainly. Number one, non-recurring and significant costs are excluded. Specifically, strategic facility renewal or upgrades or business structural reforms. So they will be covered as part of exclusion. Second, with portfolio review, gains and losses on sale of shares or goodwill impairment, these are temporary gains and losses. These are excluded as well. Next. This fiscal year, if you could please have a look at this slide that we announced. Can we show it on the screen, please? Yes, this is what I am talking about. In the October BOD meeting, for fiscal year 2026, we have passed a resolution to review our portfolio.
Based on that resolution, production, sales, and businesses that are to be withdrawn from, we have made decisions on that. As we said before, ROI as well as business viability and profit, based on those two, we made such decisions at the October BOD meeting. As a result, in our Q2 earnings announcement, as you can see, AEON, menu, Kakaku, remeasurement gain, these are adjusted in our earnings results regarding operating profit. The total of adjustments came to JPY 73.8 billion. So, IFRS number of JPY 559.3 billion, and we have added JPY 73.8 billion to that. On the right-hand side, net profit, Kakaku measurement gain, JPY 34.9 billion. It was reflected in IFRS, but we removed it later. So, we have adjusted for that again as part of the exercise to arrive at adjusted profit of JPY 390 billion. Thank you.
We would like to start questions and answers. Those of you who would like to ask questions, please state your name and affiliation before asking questions, and limit the questions to two so that we can take as many questions as possible. I see a hand, please.
Thank you. Tokunaga from Daiwa Securities. I have two questions. I have both questions about numbers. First is about profit progress rate in the first half, compared to the full-year plan, in Telecom Core already, profit has exceeded plan by JPY 34 billion. Business and Personal Growth, about half. Personal Growth may be somewhat weak, and the other areas, positive increases. So after six months, compared to full-year forecast, it seems that some areas are up, some are down. How much overachievement do you think you have been able to achieve compared to your initial plan? If there are any ups and downs, depending on the segment, I would also like to hear explanation on that.
Thank you. Allow me to explain. Originally, this fiscal year, of the profit plan that we had, JPY +40 billion in the first half and JPY 20 billion in the second half. That's the image that we had in our minds. As we announced today, in the first half, over JPY 30 billion of overachievement was achieved. That's because of technological costs being delayed from the first half to second half, and that amounts to about JPY 10 billion, so that needs to be considered. Into the second half, our plan is to see decline in profit. So JPY 10 billion delay and JPY 30 billion will be allocated to growth over the midterm, as well as to respond to changes in the external environment.
Can we see page 12 once again? So JPY 30 billion investment is being considered in total. In the first half, there was an excess of JPY 30 billion, and that will be invested in the second half. Rakuten Roaming is outside of this.
Thank you. The excess over the plan, that was led by a Telecom Core cost reduction, and in roaming as well, there must have been some profit exceeding the plan. Are you going to invest that in the second half growth?
Yes. Can we see the graph once again? Revenue from mobile communication. Rate revisions are running their course, but other than that, over half of JPY 28 billion comes from organic growth, brand mix, and improved churn rate have contributed. On this slide, or the one before, yes, mobile communication growth has happened, and over half of JPY 33 billion came from cost control. Even with adept control of sales promotion cost, we were able to control churn rate, and I think that had a large positive impact.
Second is a detailed question regarding Kakaku.com on page 32. Suppose if Kakaku.com sale goes well, what would be the impact on your performance? Perhaps you are already factoring this in, but if it's realized, how would that impact profit and loss and cash?
I would like to turn to Katsuki-san to discuss the current status of Kakaku.com and others.
Thank you for the question. If you could bear with me for a moment. I'm sorry. If you could please wait. Yes. First of all, in May this year, we have come up with a policy to sell Kakaku.com. We have passed a resolution at the board of directors meeting. After the LINE, Yahoo, and Bain Capital, we have entered into a bid competition.
It's being prolonged. In the meantime, we have already made a decision to sell. So in the first half, we eliminated capital equity relationship, and therefore, we have captured a valuation gain, and it's reflected in the first half performance. According to the TOB price that's indicated at the present, inclusive of tax effects, cash-in effect is likely to be JPY 110 billion or so. For this, once TOB is complete, a squeeze-out procedure is over, we will apply for share buyback and sell through that. So, the remainder is, how much was it? I'm sorry, we have to ascertain the actual amount, but tax effect in the second half will start to show, and there will be a profit to be posted in the second half. I would like to check the number and get back to you later.
Thank you very much. Understood.
[Foreign language]
So next question, E1, please.
Thank you. Nomura Securities, Masuno. I have two questions. First is on core, Telecom Core. Core profit is being generated. The base is large, so for the medium term, this is a solid, reliable base, I understand. In your company plan, the adjusted operating income in the second half is around JPY 34 billion down year-on-year. In the press conference, Roaming is JPY 10 billion in the second half, you said. So if you achieved JPY 10 billion, you're still down by JPY 24 billion. You said JPY 10 billion is a timing difference, but that said, compared to one year ago, your revenue sales is up. So unless you had to use so much expense to have this kind of profit decline. You mentioned growth investment of JPY 30 billion. What is your plan here?
Is this to respond to the external environmental changes? If you have discipline, this seems to be included in the growth investment already. So I don't think that is the scenario. That is my question. In the medium term, 3% a year, core operating income is to improve by 3%. You have no price revision impact next year. So not just mobile phone, but au Hikari Plus or Hikari or J:COM, these fixed line. Fixed line is now enjoying profit increase in povo and UQ, the new keitai, the mobile, and ARPU, the decline in the ARPU cost increase. With that, I think you can increase your profit by 3%, but the base is JPY 800 billion. It's big. So 3% is already to JPY 20 billion. Can you really achieve that? Your forecast and the strategy, your next-year forecast for core, please.
Thank you for the question. I will talk about this year, and next year will be explained by Personal Sasaki-san. Earlier, we talked about the decline in the profit for the second half, how we will use it. Telecom Core, the profit structure need to be more stabilized. So we want the existing customers to use our service for a long time. So the model upgrade strategy, not just MNP, but we want measures that are friendly for the existing users too, and povo is our strength, and au Hikari Plus. We want to do good, strong promotion for that too. So we want to focus on the channel with the customer touchpoint. That is the stabilization part I'm talking about. The second is the Personal Growth, the enhancement of the growth. Ponta Pass and Gold Card.
We want to improve the attractiveness to increase the cardholders and promote the usage. As you see on this slide, on the right side, the second point, that is the second point. The third point is security measures and the increase in the prices and the energy cost increase. The environmental changes. Those three combined will be JPY 30 billion, we think. If you could understand like that. Sasaki-san, could you talk about next year?
Yes, let me add some more information. From last year, LTV-focused restructuring has been pursued. As part of that, in FY 2026, second half, as President Matsuda just said, we are continuing on with this measure. FY 2027, this trend will continue.
We will keep the momentum and encourage new users and not spend money for the short-term churners, and the freed-up cost will be used for the existing users who will use in large volume and for a long time. We want to return as much as possible to the existing users. We want to have discipline in the entry point for the new users and also have higher engagement with the existing users. [Foreign language] We want to raise the base for the ID and offer the opportunity for the model upgrade, device upgrade, and upsell, and also have good brand mix from UQ mobile to au. We still have room to grow by the UQ-au migration, and the communication traffic is growing by 20% year-on-year.
Komi-Komi Plan Value and au Value Link Plan needs, the proposal at the shops, as mentioned today, if we explain well, the subscription can still grow. In this price plan, we can still grow organically. Along with that, we will also pursue cost efficiency and continue our cost control measures from this year.
[Foreign language] . 3% profit increase year-on-year is within sight, this JPY 20 billion?
Yes, that is right.
Next question is growth. Many elements are now accumulating, and as a result, you are enjoying the increase. I understand that. What you are doing now will bear fruit in the form of profit in the next medium-term plan period. In the JPY 300 billion infrastructure investment, this is land, right? JPY 47 billion, 50 MW, and the building will be further down the road. I think this will contribute to the next medium-term plan period.
Japan, 20%-30%, so JPY 60 billion-JPY 90 billion. Rubin investment in Sakai, additional investment. My question is, this JPY 300 billion, the big part of JPY 300 billion will be the sales and profit increase in the next medium-term plan period. How much revenue and profit, when it will emerge? It depends on each term, but as a block of revenue and profit, how much contribution are you expecting from this JPY 300 billion investment? I am starting to have a concrete picture, but I think you have more visibility. This is about next year and onward, if you could comment, please.
Thank you for the question. Of the JPY 300 billion overseas connectivity, I talked about the two types earlier. Connectivity type data center investment is, as you rightly said, it starts from land, and then building, and then invite the tenants.
In the year ending March 28, the sixth building will be completed. This is where we are plowing seeds, we are preparing already, and this will be emerging this year and the next medium-term plan period, and we need to plow the seeds now. Infrastructure-related have longer term, so we need to repeat this winning formula. Another point is Japan, the AI factory-type data center. This is more shorter term, and if you could put up the slide once again, AI computing resource. By next year, Rubin will come on board, and Blackwell is now operating. By selling this to our customers, this will materialize in the current existing medium-term plan period.
Do you have numbers to that? Physical AI, ELYZA, robotics will be FY 2030, so this will be beyond the current medium-term plan period. Maybe different projects, I am sure, are ongoing. It is JPY 30 billion, so I think there are more projects further down the road in Japan. What about them?
When AI started, we said we will invest JPY 100 billion in four years, and now preparing our computing resource. It is difficult to say because the business model is different, including ROI. It depends on which case we look at. But by creating value, we said total JPY 300 billion, but JPY 100 billion for Japan. When this will generate value or generate return, by FY 2030, we think we will start seeing numbers. Aside from that, ELYZA, physical AI is not just about the current medium-term plan period. For the 2030s, we will have more opportunities, one after another. At least until 2030, we need to have R&D investment of JPY 30 billion at least. Thank you.
[Foreign language]
Thank you.
Next, second row in section D.
Yoneshima from Citigroup Securities. I have two questions as well. Question number one, this may overlap with earlier ones, but what was positive in the first half? Telecom Core was good. In your presentation earlier, you said that cost efficiency enhancement played a great role. Within Telecom Core, top line, ARPU, the number of subscribers, churn rate, what was better than your initial plan specifically, and what was bad? Perhaps energy and Personal Growth was about the only one that was worse than your initial plan. So were there other businesses that were worse than your initial plan?
Thank you for the question. I will hand it over to Sasaki-san for details, but as far as the numbers are concerned, numbers are better than our initial plan. If I may comment one more, capabilities on the ground, capabilities at the front line were very powerful. Because those capabilities were brought to bear, we were able to see these numbers. While containing promotional costs and competing with our peers, and at the same time, increasing the number of IDs and containing a churn rate. I think that this is owing entirely to the capabilities that we have on the ground. For further details, I would like to turn to Sasaki-san.
In the first half, as was explained today, while containing cost, year-on-year, we were able to bring the churn rate down as well. This is something that we have been doing, addressing since last fiscal year. At the entry point to customers, the price plans and the services that are bundled, how can we have our customers understand them so that they would use our plans? That is what we focus on. As a result, as was presented, short-term churn went down, and we emphasized that very much in our effort. Among the new customers who have become new subscribers compared to last fiscal year, I think there are more customers who use data more. There is marked increase in such customers, and that is because of the accumulated efforts and initiatives that we have implemented, as was explained.
With respect to the churn rate, there is some mismatch with the price plan. Using our systems at the front line in the shop, we are able to identify customers where there is a mismatch with the price plan. For such customers, we would propose optimized price plans. Sometimes, it is better for the customer to migrate from UQ mobile to au. We will not miss such opportunities. We will upsell from UQ mobile to au, and that pushed up migrations from UQ mobile to au substantially.
What was unexpected in the first half, another factor is our multi-brand povo. povo's growth was greater than what we expected. It has been growing more. The proportion of users who use povo mainly has increased, and toppings have increased in volume, and toppings are continuously being used as such indicators are improving. These will continue to be positive effects into the second half as well.
Thank you. That means that you have a target, and in view of the target, you reduced a cost while attaining the target, and you were able to overachieve?
Yes. We were not just after numbers. We looked at the cost and revenue from customers, as well as the number of IDs. We look at all three numbers. We have implemented initiatives to balance the three out to make progress, and I think the result of that is reflected in our performance.
Thank you. My second question has to do with data centers. You talked about AI factory-type data centers, in particular, Sakai's data center. ROE and business models are different, so it may be different from connectivity-type data centers. AI factory-type data centers, in principle, because GPUs are installed, profitability is higher than that of connectivity-type data centers. That is my take, but is that correct? Going forward, aside from Sakai, are you planning to increase such data centers here in Japan as well as overseas?
Yes, thank you for the question. AI factory-type data centers. First, we would like to establish one in Japan, first and foremost. What is different from connectivity type is we prepare our own GPUs, and the evolution of GPUs is very fast. They cannot be used over 10 years or 20 years. On the other hand, with the progress of GPUs, how can we distribute AI capabilities? We have to think about that. Not everything will be done in one location. We are going to distribute. In which location would lightweight GPUs be suitable or not? That is where connectivity comes into play. Considering that, GPUs two generations ago may be used in some areas. Inclusive of that, what kind of AI capabilities are we going to offer and allocate? That is what we are aiming. Connectivity versus AI type, those are the differences.
Not just Sakai, we would like to increase the number of locations of data centers, especially locations that are close to customers, to gauge what kind of computing capability will be required.
Thank you.
[Foreign language]
It is almost time, so we'd like to take the last question. B1, please.
SMBC Nikko Securities, Kikuchi is my name. Thank you very much. I have two questions, similar questions, but page 24, growth investment, structural reinforcement. M&A is not progressing, so I think you are revisiting your structure. Could you give us more color on the background? I think you have a great, capable mobile operator, and you have on-site capabilities, and from our perspective, you are controlling in a very reliable, trustworthy way. On the other hand, you had the goodwill impairment. In your past M&A deals, there are few that you've succeeded. I cannot think of many successful M&As you did in the past, so maybe you are not suited to M&A deals.
After you purchase a company, maybe you are not leveraging the company well. It's not good to push yourself too much to be too aggressive on M&A, but will you do this by all means or just purchase good ones? You seem to want to have to do this, so I'm concerned.
Thank you. We pursue sustainable growth. Right now, Telecom Core is growing steadily, and growth is also growing, but we need to create new source of growth. Will it be next or next-next medium-term plan? To prepare for the next medium plans, we are allocating JPY 1 trillion for the growth investment. On that basis, we have to be trusted in building the pipeline, the reliable pipeline. That is why we made this slide this time.
The environment will change going forward, but we need to have the discerning eyes to pursue our M&A deals to gain trust. We have things we can do, so this time, we are trying to restructure ourselves, the M&A specialized department in the after.
As Mr. Matsuda just said, at the beginning of the year, we announced the new management midterm management strategy. We are focusing on this point, on the growth investment and capital allocation policy. We need to allocate based on return, so we will not overly push ourselves to reach JPY 1 trillion by all means, no matter what. No, that's not the case. We will just be selective to just choose the good ones, promising ones. What we cherish in the capital allocation is divestment. As Aketa-san said at the outset, in our board meeting, we will conduct portfolio management.
With the capital efficiency in mind, we will invest and then divest and use cash that we get by divesting to invest in more promising deals. That is our mindset. Please rest assured.
Thank you. My second question is related. Your executive structure and your M&A synergy too, your human resource, you have many capable talents, but maybe you do not have enough manpower in terms of volume. I am looking at ID services, so capacity growth to achieve both quality and quantitative growth, company can grow, ID solution, and AI as well. Rather than M&A, maybe acquiring human talents should be the focus. Other players are also focusing on capturing, hiring talents, so maybe you can put more focus on that side.
I am sure you are working on it, but if you could show us numbers, hiring 100, for example, or how many headcount increase on the headquarter side or the group side. If you do not have such KPI, maybe setting up a new KPI is one way to go. What do you think?
Yes, regarding HR, our management think of this as extremely important element. In the medium-term plan, AI and security, HR, 3,000 and 2,000 each is the target. We have that grand KPI, but we also need more concrete, how people can be fully established and play a big important role in their respective tasks. We are changing the HR system from outside and from inside. We want to have good compensation for those who play big important roles and bear results. We are preparing the system in place.
One is the headcount, and the other is quality. We want to think of those two as the two wheels of a car.
Thank you very much. That is all.
[Foreign language]. Thank you very much. It is time to conclude. With that, KDDI FY 2027 Earnings Briefing will be closed. Thank you very much for attending.