Thank you very much for waiting. We will now begin the financial results briefing of KDDI Corporation for the third quarter of fiscal year ending March 2023. Thank you very much for taking time out of your busy schedule to join us today. I am Hongou of Investor Relations Department and will serve as the moderator today. 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. Thank you for your understanding in advance. Let me introduce the participants today. Muramoto, Executive Vice President and Executive Director of Corporate Sector. Mori, Executive Vice President and Executive Director of Solution Business Sector . Amamiya, Executive Vice President and Executive Director of Personal Business Sector . Yoshimura, Senior Managing Executive Officer and Executive Director of Technology Sector.
Lastly, Aketa, Executive Officer and General Manager of Corporate Management Division. Three financial results related materials, one presentation material, [Tanshin] quarterly report, and detailed material 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, et cetera, explained in the Q&A session today. Executive Vice President Muramoto will first explain the financial results, followed by Q&A. Mr. Muramoto, please.
Thank you for joining us in the meeting on KDDI business results out of your busy schedules. Before the questions and answers session, let me share with you the summary of the business results of the third quarter of the fiscal year ending in March 2023, and forecast for this fiscal year, next fiscal year, and beyond. First of all, the summary of the third quarter business results. Despite the impacts of fuel price hikes on energy business, we are aiming to increase profit for full year and promote digital twin and other future initiatives. First, on consolidated financial results. Q3 cumulative results were generally in line with expectations, excluding the impact of fuel price hikes, et cetera. Aim to increase profit for full year by promoting focus areas and cost efficiency in the fourth quarter.
Negative impacts of fuel price hikes, et cetera, is expected to ease in the next fiscal year and beyond. Next, on progress towards a rebound in communications ARPU revenues, gradually easing the impacts of price reduction, and data usage growth gains momentum with 5G penetration. We are aiming further to increase data usage by making medium and large capacity plans more attractive. Lastly, on sustainability management and focus areas. Business Services segment and financial business performed steadily. Digital twin, Starlink, renewable energy generation, promoting future initiatives that provide new values to society. Next concerns forecast for this fiscal year ending in March 2023 and beyond. There are major positive and negative factors. The left shows a strong performance with a small reduction of roaming revenues against the initial forecast. Communications ARPU revenue has been steady.
Moving to the left, regarding negative factors for this term, energy business was lower than the initial forecast. As for the unexpected, minus JPY 20 billion for the impact of fuel price hikes and minus JPY 15 billion for communication failure are factored in. As for the forecast concerning the next term and beyond, moving to the right for the positive factors for the next term and beyond, communications ARPU revenue and energy business performance stabilization is reflected. Regarding the negative factors, while the impact of the fuel cost hikes continues, the adverse impact is likely to ease. So much for the summary. Thank you again for joining us today.
We would like to take questions. To receive as many questions as possible, we would like to limit the number of questions to two per person. Please ask the first question, followed by the response, and then your second question, please. We will first take questions from those of you who are pre-registered and are connected to the system. Let me explain the process. If you have questions, please click the raise hand icon in the Zoom app on your device. When you are appointed, after the emcee announces the company name and your name, you will see a pop-up on your screen saying, "The host is asking you to unmute." Please click the unmute button and ask the question. We will take questions until the scheduled time. Please raise your hand if you have a question. The first person, Daiwa Securities, Ando-san, please.
Daiwa Securities, Ando speaking. Can you hear me?
Yes, we can hear you.
Two questions. March 2023 and March 2024 forecasts. Page seven, please. March 2024 and beyond, the turning point. Multi-brand communications ARPU revenues increase was mentioned. First, I would like to clarify. The second quarter was a bit sluggish about the net addition of subscribers. Are you confident about the recovery? Also, in terms of ARPU, concerning the sustainability, what about the support discount impact or decrease of the downgrade? What about the impact of upgrade? In the third quarter, I think some factors are manifested. Going forward, what is your outlook? Concerning ARPU, what is the possibility of the increase? If you could share with us your overview, please.
Ando-san, thank you for your question. Communications ARPU revenues and ID and ARPU, currently and also going forward, your question was concerning the outlook. Amamiya-san from personal business, please.
IDs and ARPUs, two questions have been raised. First of all, about the IDs. As you understood, concerning the second quarter, slightly sluggish, but in the third quarter, where momentum is recovering, especially concerning the IDs, UQ mobile is enjoying a pretty good momentum. It is likely to continue, we believe, and we do have some expectations. We have multi-brands. Other than this, we have povo. We are targeting Z generation, and it has been also stable. Concerning au, how to reduce this negative amount, that is the issue. More recently, from au to UQ, the migration is decreasing. We believe that there is going to be a favorable movement going forward. Concerning ARPU, based on 5G, we will be promoting this. Traffic has been going up steadily.
In the case of au, or in the case of KDDI, the ratio of max plan still has room for more growth. The ARPU increase is something we really would like to focus on. In the first half of the next fiscal year, communications ARPU, the revenues should be stabilized.
Ando-san, did we answer your question? Ando-san? We can't hear you, Ando-san. Please, if you see the unmute please dialog box, could you unmute yourself? When the connection is recovered, we would like to discuss this. We would like to move on to the next one. Nomura Securities, Masuno-san.
Please ask your question. Please type the message and unmute yourself.
Can you hear me?
Yes.
Thank you. I have two questions. First is about communications ARPU revenue. I think we have a clear direction. In the capital markets, they may not be believing this yet. You mentioned that by the middle of next year, the telecommunications ARPU will rebound. On a natural course, if max plan increases or the support discount impact goes away, will this be viable? I'm sure there are many measures going forward. New measures, effective measures are in mind. If you could share with us your plan, please. Thank you very much.
Amamiya would like to respond.
Yes, about the rebound of ARPU, as I mentioned earlier, our customers will use 5G, and the plan will shift to max plan. Organically, we are moving in the direction of the rebound of ARPU. We want to accelerate this and achieve this as early as possible.
There are various measures we have in our plan. We want our customers to use the smartphone without stress and with comfort, and enjoy 5G. It's not just about ARPU increase measures, but also the improvement of the quality of 5G.
Thank you very much. Yes, a follow-up question. The 5G ratio was 49% at the end of December. This includes UQ and povo. What is the au 5G ratio?
I think that will be the basis of max.
What do you plan au 5G ratio to be next year?
It is not a disclosed number. I cannot quantify, but three brand, 49%. Of course, au will be lower ratio. Currently, new subscribers, 60% more or plus is already max. At this pace, we can have a clear view of next year's level.
Thank you very much.
My second question is about your midterm EPS target. From the capital markets, the consensus EPS is lower than your plan, and there is quite a gap. That is the capital market's view. On the EPS basis, you had the communication failure and the fuel cost hike, all these unexpected events. In two years, on that basis, in order to achieve the midterm EPS target, what pace at the operating profit and buyback do you think you need to conduct and proceed?
Let me answer that question. It is our first year still, but as you rightly mentioned, there were some unexpected events. Things are not easy. Things are difficult. Our medium-term plan is a rolling plan, and we are continuing our discussions.
Originally, our medium-term strategy, the third-year level target was JPY 100 billion increase in profit and cost enhancement of JPY 100 billion, and ARPU revenue increase at the same level as last year or above. Among the three focus areas, energy business was unexpected. The profit growth is a bit difficult. How to recover this area is our focus now in our plan, the rolling plan as the entire company. We are not thinking of changing the target yet. The growth investment that we have mentioned will be utilized effectively. If possible, ARPU revenue, we want to increase in a front-loaded fashion as soon as possible to come close to the target.
Another follow-up question. The medium-term EPS target will remain unchanged, I understand. In energy, deviation, it is maybe JPY 10 billion profit difference. I do not think it is a big impact.
Other than energy, in the next two years, how much core operating profit, core operating income, excluding business investment, what kind of growth pace are you anticipating in the core operating income?
To repeat myself, in the focus area, a profit growth of over JPY 100 billion is anticipated. Energy is a bit weak and may fall slightly short. In other areas, we will catch up.
Yes, understood.
We would like to entertain the next question. SMBC Nikko Securities, Kikuchi-san. Please go ahead.
Kikuchi speaking. Thank you. I have three questions. First, about KPI churn rate. Year-on-year, it is still high. QoQ, it is still going up. You do not have a net addition, momentum is recovering. For acquisition, perhaps you need some cost, as I understand. The larger scale discount is continuing according to some people. Contract cost on your business performance, I do not have to worry about the possible impact on the business performance? The current competition environment, and towards March, April, what is going to be the competitive landscape, and what kind of cost will be incurred? If you could give us any comment, I would appreciate it. Thank you.
About mobile competitive landscape and the cost that is incurred, and the future outlook. Amamiya-san, please.
First of all, churn rate. If you look at the numbers year-on-year and QoQ, there's a slight increase. Concerning this, so far, MIC, the Ministry, has been making efforts lowering the switching cost, and that's penetrating in the market. The fluidity, I think, has increased for that part. But that doesn't mean the trend has changed from before. Spend the acquisition cost and increase the number of IDs. That's the kind of management we would like to do. Regarding the contract cost, balance is going up. But at a certain level, the write-off and making them as assets, we would like to strike a good balance. Again, looking at the entire profitability and earnings, we would like to exercise control. Thank you.
Thank you. My second question, focus areas. I have two questions. First, Business Services segment. Profit is increasing steadily. Both revenues and profits increased. Regarding the factors, the third quarter, I would like you to teach us again.
Mori-san, please.
Thank you for your question. First of all, next core. Core, next core. Let me approach this question in these ways. In the presentation, as we touched upon, next core business. The right-hand side, Corporate DX business, DX business infrastructure, these three. In terms of revenues and in the operating income, the double-digit growth has been enjoyed. So these are major drivers. Together, as you can see on the left-hand side, this is the top line of the revenues, 17.4% year-on-year increase. So these three areas, if we move on to the right-hand side, as I said, double-digit growth has been enjoyed. Regarding the factors, first, what we call Corporate DX. Smart work, the way you work, this is utilized for such purposes. It started during the COVID-19, smart work and security.
And we call this managed services. On the part of companies, the remote environment that's typically used in the smart work. The infrastructure management or the operation, that's something that we can provide as a service, and that has enjoyed increase. Business DX, there are various variety of services, IoT and other new areas. We have been very active, and I hope you come up with high expectations in this regard. Additionally, about the core business. Communications are the revenues in the case of mobile. Not such a high growth like next core, but we have been able to increase it somewhat. And just as we try to increase our number of IDs on top of communications using smartphone, there are various services, and they are also enjoying growth. And needs for fixed service, it's not decreasing. It's been increasing steadily. Thank you.
Which means you are focused on those areas, and they are all enjoying growth, and that trend is likely to continue. You didn't have any temporary incidents. Am I correct?
Well, no temporary incidents or factors. Put differently, three years ago, when the COVID started, there was a temporary increase for some, but now it has come back to almost normal times. So including the new smart work, the demand has been brisk, and capitalizing on that and enjoying growth. That's what it is.
Thank you. My third question about finance. As Masuno-san asked, towards the midterm objective, Business Services segment finance, they have room for growth, and you need to focus on improving there. But for us, it's rather difficult to see the structure for earnings.
Page six, please, in the appendix. Page six in the details materials. Banking business and other businesses, operating the earnings and costs, if I do the subtraction, I might be able to see this, but I like to check this once again. This term, banking business, the recurring good profit. Second quarter, it increased, Third quarter, it's lower than that in the second quarter, compared with last year, compared with the first quarter, it's up. Cost also or expenses increased as well.
What are the events behind this?
Housing loans have seen some changes. The latest interest hike.
You have Jibun Bank. What's the impact on Jibun Bank?
Likely impact on Jibun Bank regarding the latest rate hike. Other businesses, they are also enjoying good growth, cost has also increased. Ordinary expenses also increased. Credit card, au PAY, they are enjoying growth.
What's the impact on the numbers?
What about the revenues and expenses? What kind of curve, how are you going to increase the profit? How is it going to contribute to the EPS of your company? If I could see that, the next business term and beyond that, I think there'll be higher expectations for your profits. Thank you.
About the detailed explanation might be rather difficult for us to provide you with them, to give you a kind of overview about housing loans, credit, the profit growth going forward. Amamiya-san, could you touch upon that, please?
Third quarter profit didn't enjoy much growth. I think you mentioned that. Interest rate had some impact. Let me explain. Housing loans, fixed rate loans, there are some of those fixed interest rate loans.
The fixed rate loans and the reviewing of the future values has been conducted, there is a slight negative part, that has a negative result, that had an impact to a certain extent. Regarding Jibun Bank, as an overall business, fixed rate mortgage loans are about 5% of the total. Unlikely to have a major impact. Going forward, interest rates, if they go up, it will likely to have a positive effect on the total. Financial business as a total, regarding the bulk of the profits, the bank, credit card, they are the drivers of the profitability. We are trying to expand the scope of the business. In terms of cost, yes, the cost has been incurred.
In terms of profit growth at this moment may not seem so big, as the scope of the business expands, in two years or three years' time, we would like to increase the profits. About the detailed numbers, we don't have them, that's the overview.
Thank you.
About the bank, there is an impact. I think mainly they are housing loans.
What about the other businesses in the finance? The difference between the recurring profit and the recurring expenses in the next term and beyond, is it going to go up, meaning that you will not be enjoying higher profit? Are you going to enjoy better profit?
Of course, we are going to increase profits.
The rate of increase compared with the current one or two years, three years and four years' time, that's likely to be wider. Thank you.
We will take the next question. JPMorgan Securities, Chiba-san, please. Please tap the unmute button.
Thank you very much. This is Chiba from JPMorgan Securities. I have two questions. First is about numbers. Page six, you talk about DX in our focus areas and the progress of profit. In the earlier Q&A, I understood that it is growing steadily. Now to achieve this year's target, four quarter DX, I think is expected to grow significantly. Is my understanding correct? Along with the pipeline, if you could elaborate, please. Thank you.
Mori-san, please.
Yes, as you rightly mentioned, in the fourth quarter, we plan to grow significantly. The pipeline, the business to achieve that, we have the KPI. The status up to the third quarter is exceeding the plan. By keeping this pace, it is a high goal, but we plan to achieve this full year target.
Understood. Thank you very much. Just a follow-up. In Q4, do you have any particularly large projects or deals, businesses?
It's the year-end, there are businesses that have higher sales towards the end of the year. Our original core business continues continuously. In the next core business, of course, there are businesses that continue. On the other hand, there are businesses where we build and charge the fee for that. The businesses we build will come into us, will be paid as one-time payment.
This will continue into next year, and the payment will come on top of that.
Thank you. Another medium-to-long-term question. Page 23 of the material says renewable. You said that you are thinking of the direct supply. With the fuel cost hike, by taking this measure, what is the cost impact in the medium-to-long-term? Can this expect cost efficiency? What is your thinking behind this? Thank you.
As we made a release in January, we will start this business in April. The first primary purpose is the contribution to zero carbon. On a non-consolidated basis, we are aiming for zero carbon in 2030. The electricity we use in-house is large, switching to renewable energy is now accelerated. For the own use, the renewable energy generation will be accelerated.
Cost, in the medium term, depends on the cost level around the world. We think we can procure at a relatively low cost. We will have this medium-to-long-term perspective and enjoy the cost benefit along with the carbon neutrality.
Yes, I understand. Thank you.
Next question, please. Mitsubishi UFJ Morgan Stanley Securities, Tanaka-san, unmute yourself and raise your questions, please.
Tanaka speaking. Can you hear me?
Yes, we can hear you.
Thank you. Two questions, one by one. First, Business Services segment profits. I've heard that they have been steady for three months. The third quarter rate of increased profit, 4%, and the margin seems to be deteriorating year on year. Because the revenue increase rate was higher, margin is deteriorating, I think. What are the factors behind this? In relation to this, unexpected the impact from the higher fuel cost, JPY 20 billion. Now, Personal and Business Services segment, what about the movement in the quarter? I think that it might be relevant. If I may add, fourth quarter and beyond, you are talking about accumulating projects or undertakings existing business, core business, is the bulky part.
There was a cost due to the communication failure. My impression is the hurdle is high. What do you think?
Mori, please.
First, about income profitability. You mentioned the growth in the previous year. For each term, quarter-on-quarter, versus previous year, first quarter, second quarter, third quarter, it's been going up. Concerning the third quarter, revenues 8.9%, income 8.4%. In terms of profit, there was this communication failure, and excluding communication failure and fuel cost hikes. By doing this sequentially, we can improve this further. Regarding the fourth quarter targets, hurdle has been raised. As for the accumulation, the monthly, what we have in KDDI is what we can acquire monthly, and that's higher than the plan. By continuing this pace, the target as a kind of an area, we would like to achieve the plan.
The target has been raised, currently, what we are doing is higher than the plan, especially the new areas in the next core, they are enjoying good growth. Rather than QoQ, it's a simple thing. October to December, three months, the rate of increase in terms of profitability, that's 4%.
In the first half, there is a communication failure cost and the 3G closure had an impact. The growth rate is not so brisk. I think there is perhaps impact from the fuel cost hikes. Am I correct in assuming those?
Yes. Excluding those, as I said before, 8.4% increase in profits. This term, on the full year, JPY 20 billion impact from fuel cost hikes.
The personal business, how much was that? In Q3, what was it like? That would really clarify my questions.
Let me see. Muramoto speaking. Cumulatively, until the third quarter, communication failure, the fuel cost hikes excluded, JPY 150.9 billion. That's for the Business Services segment year-on-year, JPY +8.4 billion, 5.9% growth, until the third quarter cumulatively. Now, third quarter, single quarter, YoY, year-on-year, as Mori mentioned, a little more than 8% growth has been achieved. Profitability, excluding the fuel cost hikes, cumulatively into the third quarter, almost comparable to the previous year, 18.7%.
Understood. Thank you. My second question, value-added ARPU.
Page 12, please. Page 12.
Thank you so much for this information. Electricity ARPU, Denki ARPU, thank you for giving us this information.
Value-added ARPU increased by JPY 37 billion, and Denki, JPY 32 billion, and plus JPY 5 billion. Of course, it's in the positive territory, which is good.
What's the breakdown? I would like to know the breakdown, and about the payment or settlement.
The amount of settlement or the transaction volume in terms of growth rate, it's losing momentum. What about the outlook going forward, please?
Amamiya-san, please.
Value-added ARPU. As you pointed out, concerning commerce, slight decrease, other than that, they enjoyed growth. It's kind of a universal growth. First, product support Apple. Apple fee increased, and also other support. We are doing many things. They increased revenues on finance and the settlement, the revenues increased. Also, Smart Pass Premium members increased. They all have a positive impact, and we enjoy this much growth. Going forward as well, we would like to increase them steadily. Thank you. In terms of momentum, settlements.
In terms of momentum, what about the content and settlements?
It's not that which is strong. Universally, they are enjoying growth.
Understood. Thank you.
We will take the next question. BofA Securities, Kinoshita-san, please unmute yourself and ask the question.
Hello, this is Kinoshita speaking.
Yes, we can hear you.
I have two questions. For this fiscal year, you are aiming for increased profit, higher profit. With the communications failure and energy, these unexpected events, to absorb these events and achieve the target may seem a bit difficult. It is not that you are aiming to achieve the company's plan. Could you elaborate on the message? You may reach the target or not. What is your feeling? That is my first question.
A very straightforward question. In Q2, we sent out a similar message. The negative factors for the full year was specified, about JPY 20 billion of fuel cost hike, negative impact. This is a very big impact and difficult to recover. As of Q2, energy business towards Q3 and Q4, we thought we can make a recovery. We thought in Q2, but now it seems more difficult. Energy business is now facing a downside. This difficult factor has added on. For over 20 years, we have been increasing our profit YoY, we want to continue this track record.
Thank you. Second question, this is not relevant to the financial performance, in 5G network slicing, you are starting to operate network slicing, corporate demand can go up one step in your business. Do you have a specific timing internally? If so, we want to know by when this can become a business, when you can launch this business.
This is corporate business, Mori-san.
5G SA standalone using network slicing. We are starting to launch a few. We are developing with our customers, we need to increase this. To do that, 5G SA, the area where we can offer 5G SA need to be expanded. These two need to go in parallel. The big demand will come next fiscal year, around the middle of next fiscal year. By then, until then, we are preparing and announcing some, we need to follow through and deploy horizontally. That is the order we are thinking of.
Thank you. Follow-up question. Overall, when you slice, you have to make sure it will not disadvantage the general users. With MIC, the Ministry, I hear that you are coordinating with MIC. Is there any issue there?
No, not so far. Going forward, I want the technology side to also add some comments.
Right now, by slicing, no issue so far, but as Mori-san just said, when we slice the prioritized control, we have to avoid the impact, we need to control the area. That's another point that we need to address.
Thank you very much.
Next, Daiwa Securities, Ando-san. If you have the follow-up question, please tap the unmute button. Daiwa Securities, Ando.
Can you hear me?
Yes.
Zoom froze. Sorry about that. My additional question, about CapEx. Outlook for your CapEx. Materials cost increased, I think that's one factor. In the next fiscal year, there are projects that you must do, and you perhaps manage those that are not urgent. All in all, around the next fiscal year, together with the environmental changes, what is your understanding for your CapEx? Thank you.
It's related to CapEx. Yoshimura-san, please.
Towards the next fiscal term, currently centering on the 5G, yes, we are making investment. In the next fiscal term, regarding the CapEx, last time, we had to respond to the communication failure, this is about JPY 50 billion, including the CapEx. Including that. The policy for the next term, CapEx sales 12%, no changes from the previous ones. In the mid to long term, we would like to control them. Thank you.
Next question, SBI Securities, Shinji-san, please unmute yourself.
Yes, this is Shinji from SBI Securities. I have a question on page seven, the profit forecast. Once again, negative factor, this is unexpected, a few tens of billions of yen. In energy business, it is not mentioned here because the amount is not that large? How much is that? Please.
Right. We are not specific about that. It is not something we can disclose, but not as big.
You are right. Roaming revenue, it will be at a shortfall of JPY 11 billion, with telecommunications, you will absorb, and the other areas, offset with cost reduction?
Yes. You can guess. This roaming revenue, from third quarter, the negative is becoming bigger.
Will this pace become full scale? What do you project as the future direction?
In Q3, JPY 20 billion. The reduction decreases JPY 20 billion.
Initially, we expected JPY 50 billion, but it is at this level. Fourth quarter, the trend will continue at this pace. Compared to Q1, Q2, the third quarter negative is bigger. Well, yes, naturally, of course. Because the roaming area will decrease. Shrink.
Understood. Next, page 11, multi-brand ID. UQ mobile, new subscription au ratio is now declining. On the other hand, you said switching cost is lower, the mobility is now rising. Until now, au shifted to UQ, but now going to other carriers, and UQ is recovering that, and that is why the ratio is lowering. Can you see it that way? The decline internally, but it went outside, and the shortfall was regained by UQ, and that is why the ratio is lower? What is the reason the ratio is lower now? Is it because the volume zone has shifted? If you could elaborate, please.
Shift from au to UQ is slowing down. How we see the background, the reasons for that. With the rise in churn, this is happening, I thought that that can be one interpretation. If the ones that move have already moved, Yes, Amamiya-san.
What you just said is a difficult part. We do not know how much people who were supposed to go outside are captured by UQ, or the ones who were not planning to go to other carriers are shifting to UQ. How we see this is very difficult. Looking at the overall balance, from au, the outflow from au is not that large, and shift to UQ is declining. We are looking at various indicators to judge, but we are trying to reduce the churn and also reducing the outflow to other carriers. We think we are successfully doing that.
The churn is rising now. Is it because of au or because of UQ? Which churn is rising?
That is not disclosed, but I cannot have the number at hand. Both are about the same.
I see. Not that different. On the other hand, the positive factors, UQ to au, is now becoming more prominent, or how do you see this movement?
It is increasing. In Q3, this trend became more conspicuous. From au to UQ and UQ to au, the gap is now becoming smaller.
Page 11, this line graph. This is a reverse correlation?
Yes. Yes.
Thank you very much.
Thank you for your questions. It's about time. There was no person who wanted to raise a question. With this, we would like to conclude this meeting on the business results of the third quarter of the fiscal year ending March 2023 of KDDI Corporation. Thank you so much for your participation today.