Performance Highlights and Q&A for the First Quarter of the Fiscal Year Ending March 2025 PDF Free Download
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Performance Highlights and Q&A for the First Quarter of the
Fiscal Year Ending March 2025
Date August 2, 2024 (Fri), 3:30-4:30 PM (Financial highlights)
5:15-6:00 PM (Q&A for analysts and investors)
Location Online streaming from KDDI Hall
Respondents Makoto Takahashi, President, Representative Director, CEO
Yasuaki Kuwahara, Executive Vice President, Representative Director,
Executive Director, Business Solution Sector
Hiromichi Matsuda, Managing Executive Officer, Director, CDO, Executive
Director, Advancing Business Technology Sector
Nanae Saishoji, Managing Executive Officer, Director, CFO, Executive
Director, Corporate Sector
Hiroshi Takezawa, Managing Executive Officer, Director, Executive
Director, Personal Business Sector
Kenji Aketa, Executive Officer, Corporate Management Division, Corporate
Sector
Highlights of the Financial Results
The Presentation of the Financial Results
In the presentation, President Takahashi explained the consolidated Financial Results for FY25-
03 Q1.
1. Consolidated Financial Results for FY25-03 Q1
●Both revenue and income increased in FY25-03 Q1. Steady progress against the full-year
forecasts.
●Operating revenue was 1,389.1 billion yen, up 4.2% from the previous year, 24.1% of the full-
year forecast.
●Operating income was 277.0 billion yen, up 3.9% from the previous year, 25.0% of the full-year
forecast.
●Profit for the period was 176.9 billion yen, up 0% from the previous year, 25.6% of the full-year
forecast.
●Communications ARPU revenues increased. Focus areas such as Growth area drove the growth.
2. Satellite Growth Strategy
●5G: Deployed the industry's No. 1 number of Sub6 base stations. Effective use of dominant
frequency allocations to further improve quality.
●Generative AI: Facilitate companies' use of generative AI and business transformation by
leveraging partnerships in the three areas of large-scale computation infrastructure development,
LLM development, and solution provision.
3. Personal Services segment
●Smartphone subscriptions, which is foundation of growth, increased. au churn rate remained
low.
●ARPU by brand grew due to the increase of data usage. UQ mobile to au conversion also on
the rise, the number increased by 2.2 X from the previous year.
●au Money Activity Plan exceeded 1 million contracts in July 2024. Synergies for communication
business were improvement of churn rate, increase of communications ARPU. Synergy for
financial business was expansion of bank's business base through the increase in financial services
usage.
4. Business Services segment
●By promoting Communication + Value-added strategy, the growth area grows steadily.
-Operating revenue was 333.4 billion yen, up 16.3% from the previous year.
-Cumulative number of IoT connections reached 44.16 million, CAGR 29.8%.
●Accelerate customers' DX with "WAKONX (WAKON-CROSS)", business platform for AI era.
●Logistics DX: Working with partners to create solutions for industry challenges.
●Digital BPO: Leveraging data and AI to solve customer needs and improve customer experience.
Q&A
Questioner 1
Q. You said that the 300 billion yen of share repurchase for this fiscal year would be completed
by the end of October, and that there will be some room after that; is there any update?
A. Regarding cash allocation, the Q1 just ended and there is no change in policy. We had told you
that there is a possibility of future implementation after the share repurchase we are currently
conducting, and there is no change in policy on this matter either.
Q. Has the situation with the room also not changed?
A. The Q1 is making progress as planned. There is no change in the situation that there is a
possibility of implementation.
Q. I am concerned about the fact that ARPU has not increased year-on-year comparison. Is this
in line with the company's plan? Furthermore, I think there will be some impact of access charge
through Q4, can you offset the impact and increase the ARPU?
A. Multi-brand Communications ARPU in the Q1 was 3,930 yen, almost levelled off in YOY. By
brand, ARPU for au and UQ mobile grew by 3% YOY and 8% YOY, respectively. Although the brand
mix impacts ARPU, compared to last year the migration from UQ to au has more than doubled in
YOY, so ARPU is generally in line with the initial plan.
Q. Will the level of ARPU growth of +3% YOY for au and +8% YOY for UQ mobile continue
throughout the current term?
A. We will implement various measures to maintain this level of ARPU growth and au subscriptions.
In addition, since the yield of the au subscription composition ratios is a significant factor,
responding to this is an urgent challenge. However, the rate of decrease in the au subscription
composition ratio is becoming slighter, and we will take this one step further.
Questioner 2
Q. What new initiatives, if any, have been launched regarding Lawson that are expected to
contribute to business performance?
A. Lawson's deal is progressing with plans to close by the end of September, but I cannot provide
details of these efforts at this time. In terms of strengthening coordination, about 10 people from
KDDI have been seconded to Lawson since July, and more than 10 working groups are currently
discussing how to contribute to the business side. We will soon be able to provide details of our
efforts, so please stay tuned.
Q. I believe the increase in income in the Business Services segment is mainly due to the
acquisition of data centers and the integration of the BPO subsidiary, could you provide
information that will lead to further growth such as new movements or specific numbers?
A. In the Business Services segment, there was an increase in revenue and income. In the Growth
area, the IoT-related services, data centers, and Digital BPO businesses are all performing well.
In addition to the positive effect of M&A, the DX needs of our clients are making very steady
progress, and we are aware that we have successfully captured these needs, which contributed
to the increase in revenue and income in the Growth area.
Questioner 3
Q. Could you explain more clearly the increase in income in the Business Services segment?
Immediately after the establishment of new data centers, amortization increases and profits do
not follow, and Digital BPO is not a very profitable area as it is labor-intensive, although I think
there is an effect of new consolidation. In addition, base sales decreased in revenue slightly. What
is the effect of the increase in income in relation to the increase and decrease in growth area
and base sales?
A. Regarding the three growth segments, IoT connections are expanding, reaching 44 million in
Q1, and the expectation is for growth of about 8 million connections for the fiscal year. In the
data center business, the effect of the M&A of a data center in Canada is one factor, but our
more than 45 data centers are performing well, and the addition of data centers in Europe and
the construction of a new data center in Thailand are also contributing to growth. Digital BPO is
shifting into a value-added area with efficiency gains from digitization in the future.
Base plans to increase in revenue and income in full year; one of the reasons for the decrease in
revenue is that Q1 was negative due to a decrease in IDs for au Denki for corporate customers.
As for Digital BPO, since Altius Link was launched in September 2023, sales and income from the
integration of Relia Communications were included in Q1.
Q. Related to Communications ARPU in the Personal Services segment, you mentioned that the
number of au subscribers migrating from UQ mobile was 2.2 times the number in YOY. How do
you evaluate this progress against your plan? Migration requires some costs such as campaigns,
but after a certain period of time, I think it will have a significant positive effect.
A. The 2.2 fold increase in YOY in terms of the number of transfers is generally in line with
expectations. However, since the brand mix has a very large impact on communications ARPU, I
believe that providing value to customers and increasing the number of au subscriptions by
adopting measures to migrate to au will have an effect on communications ARPU, so we will work
hard to achieve this.
Questioner 4
Q. Regarding the overall picture of profits, is it correct to say that each division is steadily
expanding? I believe the EPS target for the next fiscal year is final goal. Although 20 billion yen
cost reductions is expected in the next fiscal year, are you able to cover the investments in data
centers and AI?
A. In the Q1 of this fiscal year, we are making very good progress against our internal plans. Our
ultimate target is to achieve the EPS target for the next fiscal year. We will ensure that the
current progress is positive and allocate it to growth for the next fiscal year. In the area of
investments, investments in AI data centers will increase, and as I gave an overview of our Mid-
Term Management Strategy, we will invest 100 billion yen over several years. Since it will not take
a large amount of money in a single year, we will achieve the EPS target as planned in the next
fiscal year.
Our policy is to improve the efficiency of existing capital expenditure and make investments in
cutting-edge technologies. Sharing of base stations and virtualization of new technologies will
make it very easy to utilize AI. From such a point of view, we believe that operating cost efficiency
will increase. The idea is to use AI's technology to upgrade existing facilities and allocate them to
future investments in advanced technology.
Q. Is the investment of 100 billion yen, including the Sakai data center(Former Sakai Plant) and
the new Tama data centers, sufficient?
A. As you understand it, we are building data centers, including networks, for the AI era. 100 billion
yen includes data centers and building computing infrastructure.
Q. Could you tell us about the background and reasons for the growth of au sales?
A. While we are promoting data-driven measures to let customers who experienced UQ mobile
return to au, per capita data traffic as of the end of June is up for both au and UQ mobile. This
has affected migration to au, which offers unlimited usage plans, due to the need for unlimited
usage without worrying about data.
Q. Is it correct to think that you are able to retain customers with unlimited data usage?
A. If customers contract and purchase a handset at the same time, they will be able to fully use
the functions of the handsets and traffic will increase. Customers enjoy various contents provided
by au, and this helps to stay them contracted.
Questioner 5
Q. Could you give us your assessment of the net increase of subscriptions and the status of
Mobile Number Portability with Rakuten?
A. The net increase in smartphone subscriptions, which is the basis of ARPU revenue, is steadily
expanding, and although we are not optimistic about the competitive environment, there is no
significant churn to other companies. We are currently focusing on the increase of contracting
and purchasing a handset at the same time since this brings positive affect to revenue by IDs
multiplied by ARPU. As for Rakuten, it is true that it is gaining momentum a bit, but we believe
that the number of subscribers may be surging a little too rapidly. We believe that we need to
increase net increase in handsets, area coverage, network quality, etc., as differentiating factors
to increase our competitiveness.
Q. Regarding the 100 billion yen investment in generative AI, any update on the construction of
AI data centers at the former Sakai Plant site? How much do you expect on grant by government
out of 100 billion yen investment?
A. AI data centers require very high power and advanced cooling systems for the calculation
infrastructure such as GPUs and CPUs. The site of the former Sharp plant in Sakai is a suitable
location and is very large, so we are in the process of discussing how to use it. In any case, there
is no change in our plan to invest 100 billion yen over the medium to long term, and we expect to
receive about 10 billion yen in government subsidies, so we would like to work on building a solid
network.
Questioner 6
Q. With regard to Lawson, do you plan to give an overview of new strategies and synergies after
the closing?
A. We are currently preparing to make some form of announcement with Lawson and Mitsubishi
Corp. after the closing.
Q. Will we be able to hear about your approach to shareholder returns in second half and beyond
in the Q2 financial results briefing?
A. I believe that shareholder returns will mainly consist of share repurchases. We cannot say when
we will be able to make an announcement because we will implement them in a flexible manner.
We are aware that it is important to expand profits in the business and the share repurchase is
another method to achieve the EPS target. And we know that the earlier the share repurchase
be done, the more effect on EPS we could obtain. I would like to keep this point in mind as well.
