We will now begin KDDI Corporation's March 2027 first quarter earnings briefing and Q&A session. Thank you very much for taking the time to join and view our briefing today. My name is Miyakawa from the IR department, and I will be serving as today's moderator. This briefing is live-streamed with simultaneous English, Japanese translation. Today's contents will also be available on demand at a later date on our IR website. Now, let me introduce today's attendees. CFO, Executive Director of Corporate Sector, Nanae Saishoji. CSO and CDO and Executive Director of Corporate Strategy Division, Tomohiko Katsuki. Executive Director of Business Solutions Core Sector, Hiroaki Hosoi. Executive Director of Personal Core Business Sector, Masami Sasaki. General Manager of Corporate Management Division, Kenji Aketa. Today, we have posted five documents on our IR website, three earnings-related materials, and two TSE disclosure documents.
Regarding the content of the materials as well as the performance and subscription targets that will be discussed in today's Q&A, please refer to the disclaimers in each document. First, Saishoji will explain the FY 2027 March first quarter earnings summary, followed by a Q&A. Executive Vice President Saishoji, please go ahead.
[Non-English content] Thank you for taking time out of your busy schedule today to join us for our FY 2027 March Q1 earnings presentation. I will focus on the key points for our investors and analysts in my presentation. Quarter one saw growth in both our revenue and profit, marking a strong start to the fiscal year relative to our full-year forecast. On the left, operating revenue was up 5.1% year-on-year, and the progress rate against the full-year forecast was 23.2%. In the middle, adjusted operating income was up with a progress of 26%. It was up 21%. On the right, adjusted net income was up 21.6%, progress rate 26.5% respectively. Here are the operating revenue figures for each segment. For the first time, we are disclosing revenue for the new segments and sub-segments for the first time, reflecting our confidence and determination to steadily expand each area.
You can see, operating revenue increased across all segments, and our core businesses, including mobile communications revenue, are growing steadily. This shows the factors affecting the change in adjusted operating income. In Q1, mobile communication revenue drove the increase in profit. Growth areas also made a steady progress toward double digit growth for the full year. For the full year, as shown on the right, we are firmly aiming for our initial forecast of JPY 1,210 billion. Key KPIs are improving thanks to our lifetime value LTV-focused initiatives. From the left, the number of active smartphones in Q1 was 33.3 million, an increase of 390,000 year-on-year. Additionally, the churn rate was 1.17%, a significant improvement of 0.06 percentage points year-on-year. On the right, mobile ARPU in Q1 was JPY 4,400, year-on-year increase of JPY +160, a substantial 3.8% growth.
The number of subscribers on top-tier plans across all brands is expanding steadily, laying the foundation for profit growth in the second half of the fiscal year. Next, here's an overview of our growth areas for FY 2027 March. On the left, Personal Growth. First quarter operating income for Personal Growth grew 9.3% year-on-year, with all five sub-segments performing well. On the right, which is Business Growth, operating income grew 21.6% year-on-year with all five sub-segments reporting increases in both revenue and profit. Following this, I will explain the key points for each business segment. First, regarding the financial business. au Financial Holdings operating income for Q1 was down JPY 3.7 billion year-on-year, this was in line with our expectations.
In addition to the challenge of increasing deposits, a key issue for our bank, we had factored in the impact of mark-to-market losses due to rising interest rates into our forecasts at the start of the fiscal year. Excluding these factors, our core credit card and banking businesses are growing steadily, and we are moving forward with measures to further strengthen them. Next, I will discuss our devices business and Lawson Ponta Pass. On the left r evenue from device-related services and Ponta Pass is growing, and active user rates are also improving. On the right, we are making progress in creating value in partnership with Lawson. Next is AI integration. Combined AI integration and cybersecurity. Q1 revenue grew at a solid 19.2% year- on- year. A secure cloud environment is a prerequisite for AI implementation, and we leverage the group's strength to accelerate implementation support.
At present, we are focusing on expanding our cloud infrastructure with Q1 revenue growing by more than 30% year- on- year. Connectivity data center is capturing AI inference needs with Q1 operating revenue growing a solid 20.6% year- on- year. EBITDA also grew similarly year- on- year, with the EBITDA margin exceeding 40%. We will continue to capture growth opportunities accompanying the spread of AI. In relation to inappropriate transaction on the progress of our group governance strengthening and recurrence prevention measures. At the top, by June of this year, we completed comprehensive inspections of the 110 target companies and have been developing new rules and structures. We are now operating and monitoring the new rules under the new structure. In the middle, to build relationships of mutual trust, the top management visited major strategic subsidiaries and held dialogue sessions with the top executives of group companies.
At the bottom, in terms of AI and system utilization, we have introduced an AI system for credit screening and an anomaly detection tool using financial data. Going forward, we will begin using these under the new rules and continue development for the comprehensive use of AI in systems. Regarding the recent unauthorized access incident affecting the email system provided to ISP operators, we take the administrative guidance seriously and will do our utmost to prevent recurrence. We will work to improve and raise awareness of security standards across the industry. In light of the issues brought to light, to strengthen security, we are using Frontier AI to conduct vulnerability diagnostics, among other measures. I will also report on progress in improving management quality, which is one of the important themes of this midterm period.
On the left, core free cash flow, the source of funding for growth investments, and its margin have remained stable. The operating cash flow margin also stands at 21.6%, further strengthening the fundamentals for growth investment. In addition, we are strengthening our review structure for growth investments and expanding our pipeline. On the right, so far this fiscal year, we have decided on 11 divestments, which is generating approximately JPY 150 billion in cash. We will continue to review investment efficiency and strategic rationale. We will proceed with the review of our business portfolio. Today's summary is presented here as shown. As an opportunity to further deepen your understanding of our strategy and businesses, we are also considering holding an IR day in mid-September. We will provide the details once they are finalized. We will continue to drive our initiatives forward to achieve our full year forecast.
Thank you very much for your attention.
[Non-English content] Ms. Saishoji, thank you very much for the presentation. At this moment, we would like to take questions from the audience. Those of you with questions, please use the hand raise icon of Zoom or the hand raise button within a reaction. If you're called, please announce your affiliation and name and tap the mute release to ask questions. In order to take as many questions as possible, we would like to limit the number of questions to two per person at a time. If you have two questions, please ask questions one at a time. We may not be able to take questions if you're not stating your affiliation or name. We will take questions until the scheduled time. Tokunaga from Daiwa Securities, please unmute and start your questions.
Can you hear me? Tokunaga from Daiwa Securities. I have two questions. Question number one is about Rakuten roaming. I think it's because of the press conference, but each media is saying that roaming service will end at the end of September. However, for some rural areas, the service will continue, while some media also report that it's still under negotiation. What are the facts, if you could summarize them? If a decision is almost made, what would be the impact on your revenue? Would it bring down your revenue? Talking about rural areas, to what extent are you providing your roaming service outside of rural areas? If you could please share these parts. That's my first question.
Thank you for your question. Our contract on Rakuten roaming, what will happen to that? As changes are made, what would be the impact on our revenue and/or financial performance? I understood the questions to be those. First, regarding our contract with Rakuten, what we're saying is that we have already played a certain role for Rakuten already. That's our understanding. To Rakuten Mobile, in order to supplement population coverage for seven years, we have been providing roaming services. Rakuten's service coverage is expanding. Based on that, we believe that we have already played a major role for them. For the current agreement, at the end of September, it will be terminated. Why are we doing this? We have our own customers at KDDI. We want to maintain the quality for our own customers. For au, UQ mobile, and povo, our users' telecom quality must be protected firmly.
Depending on the situation, we would like to take a firm attitude in order to protect the quality. The current agreement with Rakuten will be brought to a close. The way in which compete and collaborate will continue to be considered. Limiting to some of the rural areas for a certain period, we will cooperate with Rakuten so that they can maintain their infrastructure. That was what was agreed upon with them. For the limited rural areas, within a certain timeline, Rakuten will be building their own infrastructure. That is what we have negotiated with Rakuten. That is where we are currently. What will happen to roaming revenue then? The impact on Q1 year-on-year will be about JPY 800 million. In terms of our full year guidance, conservatively, we have not factored in the agreement after September.
We're not factoring in that service in our performance September and onward to be conservative. As was mentioned, for some rural areas, we will continue to provide roaming service for Rakuten. In the second half, there will be some revenue generated from that. However, I'm sorry, but I will have to refrain from giving you a specific number regarding that. That would be all.
Thank you. Just one point of follow-up. In order to protect the traffic of your own users, you said. After September end, how much quality improvement can be expected for users' traffic? May I expect the quality will increase also in urban areas?
Yes. Naturally, we're going to prioritize our own users, and quality will be improved. Quantitatively, how much improvement? It's hard to say. I shall refrain from making quantitative comments at this moment.
Thank you. My second question is as follows. It's about your peers in the industry. Your price revisions went very well, and for this particular quarter, it contributed to increase the ARPU, increase the revenue and profit, as well as reduction in churning rate. SoftBank has decided for price revisions, and DOCOMO are also continuing to consider a price increase. You have changed your prices once. Once that round is over, are you considering second round of price hike? To what extent are you considering about that? The feel that I have is that compared to your peers, you have relatively cheaper plans, so there may be a potential room for price hike further. What is your thought?
Thank you for your question. Price hikes, price increases. Would there be a second round of price hike? Was your question regarding that? I would like to turn to Sasaki for an answer, who's responsible.
Thank you very much for the question. Last year, we led a price change. We increased our prices. It's been accepted by our customers, and our peers in this industry are making the same move. They're changing their plans to appeal quality over quantity. au's price has changed. That was back in August. It's almost a year since. What's going to be our next set of measures? In the plans we introduced, au Value Link Plan, we also had a campaign, Komi-Komi Value. The prices for these plans are penetrating quite well. There's been good progress made with that. It's not just the impact from price revisions, but with improvement in plan makeup, communication revenue is up. By increasing the penetration of these plans, we would like to continuously raise revenue from communications. That is what we will continue to do.
For the next round of price hike, there's nothing that we have decided at this moment. However, from our perspective, we would like to focus on value. How can we translate value into the price that customers pay? We would like to continue to be the trend setter. We are always considering that aspect. By looking for opportunity, by taking action if necessary, if we can change the price again, we would like to return part of that to our partners, and that cycle shall continue. There's nothing decided specifically with respect to the next round of price hike.
Thank you very much. May I ask a follow-up question? In this particular quarter, organically, mobile communication, how much is it increasing? I'm sure you're considering second round of price hike. As you do so, what are the terms and conditions that you are most focusing on, if you can disclose them? Just to share a thought on that as well.
Thank you for your question. Telecom revenue this quarter has gone up. Of course, a large part of that is because of the price hike. au Value Link Plan penetrating more. Komi-Komi Plan Value is also making good inroads from UQ mobile to au cell up or migration. Compared to last year, it has been up substantially. Such effects are also included. I cannot give you a specific breakdown of such effects. They are making progress above what we initially expected in our plan.
What about the conditions for the second round of price hike? I am sure there are lots.
Going forward, what prices will we consider? In the financial business area, which we are competing harshly with our peers. Quality of telecommunication services, we would like to continue to create value centering on those aspects. We will continue such efforts.
Thank you very much. Well understood. [Non-English content]
Mr. Tokunaga, thank you. Next question is from Mr. [Masuno] from Nomura Securities. Please unmute.
[Masuno] from Nomura Securities. I have two questions. First question, as you have discussed, you are now shifting gears to value-added management. As a result, as in the first half in terms of prices and in terms of plan mix, I think you are able to become sufficiently profitable. You will make a progress in the second half. As you say, you need to accelerate the growth area. As you say in page 15, you have Business Growth and Personal Growth. You have the four: AI Division, connectivity data center, financial business, Lawson. How much can you accelerate these businesses in the second half? You have the first half good results. You have the basis improving to become a cash card. What is your interest in terms of the acceleration of the growth?
Thank you very much for the question. In terms of the first half, let me speak about the first quarter. In terms of performance, it is trending extremely well, I think it's finishing off quite nicely. With regards to the situation, as Mr. Sasaki said, we naturally believe that this will continue in the second half as well. We will leverage improving value, increasing value, to make it more positive. However, business and personal, how much can we grow when we combine the two? It's difficult to say specifically, but in principle, the business performance will achieve the current projection that we have disclosed. The plan is to expect a certain level of growth with some level of cost, and make sure that we will be able to achieve the basic target.
Putting aside the numbers on page 15, what sort of initiatives do you plan to engage in in the second half?
Thank you. Let me talk about the specific initiatives. In terms of personal, as Mr. Sasaki said. Well, let me ask Mr. Sasaki to speak about that.
In terms of Personal Growth, we are slightly behind the plan We are progressing nearly in line with the plan. In terms of the good performance right now, this is driven by device businesses with device warranty and Ponta Pass and Lawson business. These are the drivers. In terms of the device business, because of the foreign exchange impact and the material component cost is increasing as well, there's a lot of needs for repair of the devices and needs for warranty. Therefore, I think we are now developing a plan in order to improve in this is a great opportunity for us. In terms of Ponta Pass, Lawson, we had the conventional Ponta Pass Light. We are trying to migrate the members to Ponta Pass. We're in the process of that procedure.
With that, we will be able to build the customer base furthermore, and we will be able to collaborate more with Lawson to promote Ponta Pass, and therefore, we will be able to see some upside on this as well. With regards to financial business, this is at this point in times a decrease in profit, but this is already included in the plan. It's expected, therefore, we will control deposit and loan balance as well. But in terms of the payment centering on credit, we're seeing a nice progress in the growth of this business. We have pay to bank strategy. We will have the customers sign up for a credit card, open a bank account, and then we will be able to increase sticky bank accounts. The key here is the gold card.
With regards to the gold card, in May, we have been able to achieve two million contracts. UQ has Komi-Komi Value Otoku Discount Plan , which we started last month. If they can actually continue to sign up with gold card of one year later, they will be able to continue with the current tariff plan. This is a campaign that we're implementing. As a result of this effect, we have seen a higher issuance. We will grow gold card issuance, and we will be able to realize growth in the financial business, including Jibun Bank as well. We are in line with our plan. Very steady.
With regards to the Business Growth, Hosoi will answer that question.
Thank you very much for the question. With regards to business, in terms of the second half, we have AI integration, cloud, security, BPO. These are the things that we can expect. With regards to AI integration, from April, we have new KDDI iret, and we are able to capture a very aggressive demand, and we have threefold in terms of the new projects. Received quite well by the customers. We will leverage that to make sure that we will be able to proceed with these different projects on AI. There's a strong demand for cloud as well. Conventionally, it was primarily centered on AWS, but now we're expanding to Google, Oracle, and most recently to Microsoft. We will see acceleration in expansion of cloud infrastructure. With regards to security, what's been talked about in the world is PaaS, so we are ready as well.
In the second half, we have a new assessment evaluation system for supply chain. We will use this as an opportunity to offer new services to position ourselves well. With regards to BPO, we have bottomed out last fiscal year, and we're now turning around to quite positive. It was a very challenging time, but we worked very hard. Now, we are now seeing better trends, upward trend. Going forward, as we see increased demand, especially in BPO market, we will make sure that we capture that demand, and that will be our theme for the second half.
Thank you very much. The second question. On page seven, as you had explained in the second half, you are planning to spend strategic cost for growth, and I think that's necessary for next year and two years down the road. With regards to AI, you do need to make a certain level of investment, otherwise there will be no return. Strategic cost investment, how much and what's the scale and what areas are you planning to spend? Would you be able to explain, give more color on this?
Thank you very much. This is strategic investment in mid to long term. Would that answer your question?
Yes, please.
Katsuki will answer this question for you.
Thank you very much for your question. With regards to AI investment, I need to break it down into two. First is organic CapEx. AI integration, iret, these are things that would be AI implementation in the conventional CapEx and also cybersecurity area as well, like PaaS. This will be basically within the CapEx to sales 12%, within that range. Meanwhile, in our midterm strategy, we're planning to invest JPY 1 trillion for growth in three years. We have that framework in place. We talked about core free cash flow earlier, we are now seeing solid track record, and we're also doing well with divestment as well. The cash that's generated from there will be spent for AI investment, and we'd like to do so more proactively as well.
The contents of that is being discussed among the management. With regards to AI growth investment, you have physical AI and other different types of cloud businesses, investment into applications. These are all included. With regards to this, as you can see from capital allocation based on return, we want to be very disciplined in our investment and invest in high credibility projects. We will keep ROIC in mind to determine the growth areas for investment. In particular, I'm getting long, in terms of AI DC in Sakai, there are many clients, corporates that have already adopted this. There are companies that do self-driving. There are different use cases there. We would like to select investment opportunities with these things in view as well. Hope that answers your question.
Thank you. In terms of the JPY 150 billion in divestment, you will see gains in investment as well, right? You would probably be able to absorb some of the investment cost, but you're not really depending on that much. Is that the case?
In terms of the sales gain, of course, that will be something that we could use for investment as well.
Thank you very much. [Non-English content]
[Masuno], thank you very much. Let's go on to the next question. SBI Securities. Housui, please unmute and start your questions.
Thank you. From SBI Securities. My name is Housui. I have two questions regarding divestments. You explained that there will be progress made in divestments going forward. In terms of the review of the portfolio, how much of that is complete? What percentage of completion? You may not be able to share specific numbers, in which areas are you considering divestments? How many transactions? In terms of capital allocation, although there may be overlap with earlier questions, if more cash is generated from divestments, could surplus be returned to shareholders or will it continue to be reserved as your funding source for investment? These are my questions.
Thank you for your questions. I would like to turn to Katsuki again for answers.
Thank you for your questions. Earlier, toward the end of the presentation that was made, as is mentioned there, in Q1, the decisions made are as on the right-hand side. In total, there were 11 such projects or transactions we determined. Excluding seven that are a release of policy holdings, the four that remain, we have stated the specifics of the four divestments. At this moment, we cannot necessarily say what the percentage of completion in terms of portfolio review is. We would like to continue to increase investment efficiency and rationale behind divestments. As we determine them going forward, we will be able to see how much of the review is completed. We have already developed a structure for this and the time schedule as well. Under what's been determined, we would like to continue to steadily proceed with these divestment projects. I hope I answered your question.
Well, thank you. If your divestments are made with prices that are higher than you expected, would you return the surplus for shareholder return, or will it continue to use it for your growth investment?
For that question as well, in our presentation of our mid-term management plan, we already explained, but we would like to generate core free cash flow through divestments. We would like to increase our capacity for future investments and by generating cash from that perspective, as [Masuno] said. Growth investment for AI and others. We will look at that pipeline steadily. While doing so, based on return, we will make capital allocations. Of course, as part of that, some funding will be allocated to M&A and other growth investments. Within the pipeline, there could be cases where there may be no potential investment we should consider, and in that case, we will consider returning the fund to shareholders. At this moment, we're not able to make that decision. We would like to steadily continue to solidify and increase the pipeline for growth investments going forward.
Thank you. The second question, I'm sure it's difficult to make specific comments, but in May, you have indicated your intention for the sale of Kakaku.com. There has been counter proposals. As you proceed with divestments from the viewpoint of maximizing shareholder return, would you try to maximize the sales price, or strategically, or in terms of the possibility of the sale, would you consider the deal more comprehensively? That's my second question.
Thank you again for the second question. Katsuki will answer your question. Thank you.
Thank you for your question. Regarding Kakaku.com, TOB offers are being made from both sides. Inclusive of Kakaku.com's special committee, very careful discussions are ongoing. Kakaku.com's existing shareholders, of course, and KDDI shareholders, for them as well. The benefit and the interest of such shareholders must be considered first and foremost as we proceed with these transactions. That's how we should treat this. It's not the special, unique circumstances of ours that will determine this. We would like to make decisions based on economic rationale and the economics of this. That would be the case.
Thank you very much for your answers. That's all for my questions. [Non-English content]
Thank you, [Housui]. Next question is from Mr. [Kikuchi] from SMBC Nikko Securities. Please unmute.
My name is [Kikuchi]. Hello. Thank you. On page seven, related to [Masuno] question, I am a bit persistent about this, but in Q1, you had the Myanmar provision, and you are revising that. If you had incorporated this, you could've done this in the previous year. Maybe there has been some upside to this. Also, if you look at the details in terms of financial businesses, I think there may be a downward factor because of the higher interest rate. But because there was an upside, I think maybe that was the reason. Also, same thing with the device prices as well. You have the upside. It seems as though you don't want to make an upward revision. Is that the reason why you are making a strategic cost or strategic investment in the second half?
If there's an upside, can I expect it to be an upside, or would that be different? In terms of divestment, if it's included in Q1, where is it included? That's my first question.
Thank you. With regards to the revision in Myanmar, this is the revision of provision rate for Myanmar's lease receivables. We implement this every year based on the track record. In this time, in calculating the future default risk, among which we have made a provision for before, we deem that some of the cost will not be occurring. Because of the dollar on overall has declined, therefore we felt that default rate or loss risk had deteriorated. Therefore, we have reversed the provisions, and that is why we see revisions in lease receivable provision rate. This is something that we were able to foresee from the planning, we had already included this in our initial guidance. In terms of the assumption and the track record of this provision going forward, we will make sure that we revise it accordingly in the future.
Others, in terms of the overall business performance, Q1, whether there's an upside against the internal plan?
Yes. It performed better than our internal plan. We want to maintain this upside of outperformance of the plan. I have been saying from before, we have future cost or cost spending investment for the future as well. On the full year basis, we have not made any revisions to the outlook. That is all. Does that answer your question?
Yes. Thank you. The second question. I think you are performing well overall basis. I want to do a little bit of a deep dive into your business area. In increasing profit of the Business Growth, the factor for that? The increase in profit is in the data center page. EBITDA is growing, but operating income, because data center has a lot of write-offs, it doesn't clearly say that there's a growth in operating income. Because there's a lot of depreciation, amortizations, I'm speculating that there's not much operating income here. If that's the case, where does this increase in profit come from? That's what I'd like to know. Thank you.
Thank you for that question. Hosoi will answer this question.
Thank you for the question. Thank you. In terms of profit, from this fiscal year, the way we actually book depreciation amortization has changed. The standard has changed, that is why profitability has changed slightly. We will continue to follow the same standard going forward. There are increase in data centers, both increase in floor space and increase in new builds. There's consistently new data centers. I think we will continue to see cash outs. We do not believe that this will change significantly. That is our view.
Let me supplement from IR. With regards to data center, in the disclosure data book, we do have information on adjusted operating income in terms of the track record. For Q1, it was JPY 6.9 billion. Year-on-year, this is a JPY 700 million increase. Please refer to that as well.
Thank you very much. If that's the case, the area there's an increase in profit is you have explained different parts of the business where there's been increase in profit, and that's where it is, right? It comes from different areas, and that momentum will continue. Is that the case?
Yes. That's the right understanding.
Thank you very much. That is all from me. [Non-English content]
Thank you very much. The time to close is fast approaching. We would like to have the last person ask questions. [Tanaka] from BofA Securities, please unmute and state your questions.
BofA, [Tanaka]. Thank you very much. I have two questions. Question number one, page seven. Telecom Core increase in profit outside of mobile communication revenue, JPY 14.7 billion, or rather JPY 16.4 billion. A larger item in this is increase in revenue from devices. If my understanding is not correct, please correct me. What is the largest factor?
Thank you for the question. I would like to turn to Sasaki for answer.
Thank you for your question. Outside of communication revenue and profit, what has contributed to profit? The large one is promotional expense. Suppression or reduction in promotional expense is a large factor behind this. Since last year, consistently, we have said that we're focusing on lifetime value, LTV, as we try to acquire new customers. Customers who have contract over a short term, we are reducing expenses for them so that we can allocate more expenses and costs to customers who are on a longer contract. By so doing, we are controlling promotional expenses. That has increased efficiencies, which is having an impact. At the end of last year, we reviewed accounting standards for the historical cost for short-term contracts.
That's been amortized, therefore that also contributed to reduction in cost. A reduction overall in promotional expenses from those sources, that accounts for a large part of increase in profit from a communication business.
How much would that be in terms of the impact?
Promotional cost for contributing to the profit, that's about 2/3 outside of communication revenue.
Year-on-year, if that's the case, do you think that this will continue into Q2 and the second half?
Yes, I think that understanding is correct because our policy remains the same.
Okay, thank you. My second question. Reduction in profit in financial business. You talked about valuation losses. What would be the amount of that? Secondly, housing loans and credit card loans, they are growing steadily. Credit cards as well. Yet you're talking about reduction in profit. I wonder why. Will this continue for some time to come? Will this be prolonged? I would like to know.
That's about financial business. Thank you very much. Katsuki will answer your question.
Thank you for your question. First, mark-to-market losses or valuation losses. This has to do with increase in long-term interest rates. Because that happened, fixed-rate housing loan asset, we're applying mark- to- market with increase in long-term rates. For the increase in the rate in terms of calculation, roughly JPY 2.4 billion of mark-to-market losses were posted, and that's factored in in the initial plan. This is something that we have said before, our loan-to-deposit ratio is over 100%. There is very robust demand for housing loans, we have been providing loans quite actively, therefore loan assets have increased quite substantially. We're applying BS control, or in order to control liquidity more this term, we have suppressed providing housing loans. As a result, there was negative impact from mark-to-market losses as a result. However, it's compensated for by a robust revenue from the bank business and credit card issuance.
Therefore, YoY in Q1, JPY -3.7 billion. We would like to continue with control of liquidity. We would like to restore liquidity so that we can further grow next year onward. We're in a transition period doing so, if you could understand so.
Thank you. Seen from the outside, housing loan balance is increasing steadily, but you are trying to change the makeup and the revenue from housing loan commissions are down, therefore negative. Is that correct?
Yes.
Do you think you will be able to eliminate this problem by the end of this fiscal year? What will be the timeline for balance sheet control, and by when will you be able to resolve this so that you can grow again?
We would like to continue to work on this problem this year so that we can grow next year. The balance of deposits, which is the source of funding for housing loans, we will have to gather deposits. As was presented earlier, the balance of deposits has increased 1.3 x YoY. I'm talking about retail deposits. I believe that we can expect quite a good recovery and growth again. Loan balance. Housing loans have a low margin. Not only that, we also have consumer finance and card loans where margins are higher. Per loan, the amount, the ticket size is smaller, but margins are higher. By moving more toward such products, we would like to make sure to improve the margin and create a favorable cycle of funding for the bank.
That is something that we would like to work on this year so that we can grow again, start growing again next fiscal year and onward.
Thank you for your answers.
Tanaka, thank you. Now that time is up. With that, we would like to conclude the earnings briefing for Q1 of the fiscal year ending March 2027. Thank you very much for your attendance once again. That concludes our briefing. Thank you.