Performance Highlights and Q&A for the First Quarter of the Fiscal Year Ending March 2019
|Date||Wednesday, August 1, 2018 5:00 pm-5:45 pm|
|Location||Conference Room, Garden Air Tower|
|Respondents||Makoto Takahashi, President; Yuzo Ishikawa, Executive Vice President; Yoshiaki Uchida, Executive Vice President; Takashi Shoji, Senior Vice President; Shinichi Muramoto, Senior Vice President; Keiichi Mori, Associate Senior Vice President; Kei Morita, Associate Senior Vice President; Nanae Saishouji, General Manager, Corporate Management Division; Keita Horii, General Manager, Investor Relations Department (MC)|
The Presentation of the Financial Results
In the presentation of the financial results, President Takahashi described two points; "Integration of telecommunications and life design" and "Highlights of Financial Results for the 1st Quarter".
1. Integration of telecommunications and life design
At KDDI, based on our core business of telecommunication, we feel that our mission is to deliver new "Experience Value" by providing life design services such as commerce, finance, energy, entertainment, and education to individual customers and services using technologies such as IoT and 5G, which will be launched full-scale in coming years, to corporate customers.
First, for our individual customers, we offer a cost-saving "au Flat Plan 25 Netflix Pack" bundle that resolves the issue of content fees and communication data charges, which have been an impediment to joining subscription-based video streaming services. This plan does more than simply offer a product and price plan, but it is the result of the core values of both KDDI and Netflix, who are committed to providing an even better experience value from the customer perspective.
For our corporate customers, we are using IoT to contribute to the business of our customers.
For example, in the "KDDI IoT Cloud: Factory Package," which is scheduled for launch this month, we provide a one-stop solution from sensor installation to alert notification and fault prediction detection using data collection and analysis for contributing to higher productivity and reduced costs for companies.
Through our collaboration with global partners such as TOYOTA and HITACHI, we are using the KDDI "IoT Worldwide Architecture" to build an environment for consolidated operation from device management to data analysis so that companies expanding their businesses globally are not dependent on line connections. In addition, KDDI is elaborating with SORACOM to enable usage in more than 100 countries and regions around the world. Through those initiatives KDDI will expand coverage to automobiles and a wide range of IoT devices in coming years.
Finally, KDDI is conducting innovative proof-of-concept experiments as a part of its initiatives for the 5G era, such as telexistence, where a remote robot binds with your body, unmanned automatic driving vehicle, drones for disaster relief and other scenarios, and more. KDDI is striving to be a company that continues to deliver exciting proposals in a wide range of scenarios in customers' everyday life and businesses by using new technology to build a world where all the devices around us are connected by communication.
2. Highlights of Financial Results for the 1st Quarter
Consolidated sales for the first quarter of the fiscal year ending March 2019 increased by 1.9% YoY to 1,221.7 billion yen.
For consolidated operating income, even though mobile communications revenue fell by 11.2 billion yen due to a temporary drop in revenue as a result of new price plans, increased value-added ARPA revenues and the Business and Global Services segments, resulting in 288.9 billion yen (+7.4 billion yen YoY, 2.6% increase). For the consolidated operating income in the annual plan, this represents strong progress at 28.3% of the target.
In the domestic telecom business, the number of subscribers has increased significantly for both KDDI's "au Pitatto Plan," which enables customers with low data usage to have rates with great value, and the "au Flat Plan," which is exceeded for customers who use large amounts of data, and total subscribers passed 8 million on May 31. Also, the au price plan satisfaction* for the one year since the launch of the new rate plans has continued to improve. Looking ahead, with our "au Flat Plan 25 Netflix Pack" as a start, KDDI will continue to offer new experience value that exceeds customer expectations and that goes beyond simple price plans.
With the result of these initiatives also having a positive effect, the au churn rate for the first quarter was 0.71% (0.2 percentage point drop YoY).
- Survey of au smartphone and feature phone users (KDDI survey. Approx. 2,300 responses per month)
In life design businesses, the au Economic Zone gross merchandise value was 561.0 billion yen (32.8% increase YoY), au Economic Zone sales were 144.0 billion yen (21.0% increase YoY), value-added ARPA was 660 yen (17.9% increase YoY), and so these indicators all showed two-digit growth compared to the same period last year.
This operation data is being led by continued strong growth in the number of au Smart Pass Premium members (5 million as of the end of June 2018) and number of valid issued au WALLET credit cards (3.6 million as of the end of June 2018).
- What is the expected negative impact of the new price plan campaigns after July of this fiscal year?
Although mobile communications revenues fell in 1Q, customers have expressed satisfaction with the new price plans (au Pitatto Plan, au Flat Plan), and we think that customers feel that these rates are appealing. Moving forward, we expect that the impact of the campaigns will be reduced, and we are anticipating higher au ARPA. As au Pitatto Plan contributes to increase au ARPA revenues as data usage increases, we think that the promoting of content services will result in stronger mobile communications revenues through higher data ARPU in the Pitatto Plan and shifting to the au Flat Plan by extension, and shifting of more subscribers to content-bundled plans such as the Netflix Plan. Furthermore, please note that, for subscribers using the new price plan, the campaigns apply only to new customers and customers who have changed their model.
- Other company is offering a 50GB plan and bigger data capacities (Y!mobile). As more and more users feel that data capacities are a selling point, how do you feel about offering a high-capacity plan such as a 50GB plan in the future?
The recently-announced Netflix plan is our first plan bundling content and communication, and the data volume will be 25GB. However, as you pointed out, some customers prefer high data plans, and we are considering offering high data plans while observing international trends.
Also, regarding the increase in data capacity by Y!mobile, its concept is different from the au Pitatto Plan, and we are not planning to immediately follow this move. The Y!mobile price plan was made with an eye on UQ mobile, but KDDI is not in a position to comment on the UQ mobile price plan.
- What is your feeling on the medium-term scale of the IoT business and its prospects for growth?
We would like sales to reach 100 billion yen within several years, which is two or three times the current level.
- The churn rate has dropped dramatically, and the number of mobile IDs has also increased in tandem. However, what is the 1Q competitive environment and the factors for the increase in the number of mobile IDs?
For 1Q, we are aware that the au Pitatto Plan has contributed to our competitive advantage. The competitive environment for the overall market is calm, and the continued steady acquisition of new au subscriptions and higher customer satisfaction in follow-up and other services are considered to be the factors in low churn rates and the growing number of mobile IDs. Also, MVNOs are acquiring subscriptions at a strong pace, and competition by MNOs has cooled down.
- What are the factors for YoY doubling of the 1Q operating income in the Global Services segment, and what are the trends for future higher income?
In addition to higher income, including the change in the accounting period for Myanmar businesses, data center businesses and Mongol businesses also contributed to higher income. Looking ahead, although we will not have a rate of growth like 1Q, which was affected by the temporary impact of the change in the accounting period, we expect income to grow steadily.
- The Life Design Services segment is showing strong growth, but can you tell me specifically which services are doing well within the au Economic Zone gross merchandise value?
The 1Q results for the au Economic Zone gross merchandise value were 561 billion yen (YoY +38.5%) for a current year forecast of 2,460 billion yen and a progress rate of 22.6%. The au Economic Zone gross merchandise value includes services effective in sales and retention such as EC and electric power and services that contribute to income such as au Smart Pass and au Carrier Billing, and our company stance is naturally to use both of these services as drivers of growth.
Specifically, au Smart Pass is contributing to value-added ARPA revenues and operating income. Particularly, the number of au Smart Pass Premium members continues to grow and reached 5 million as of the end of June 2018. Also, au Smart Pass Premium members have risen to 32% of all au Smart Pass members, and this is driving higher value-added ARPA revenue. In addition, the EC services Wowma! and au Denki (electric power service) are also proceeding as planned and showing steady growth.
- The au churn rate has improved to its best level yet over the last several years, and so is our understanding correct that the noticeable drop in au churn rates is due to bundling with life design services?
That's right. The electric power, commerce, and credit card services that are driving the au Economic zone gross merchandise value have been effective at reducing cancellations. We have been reminded that it is extremely important to combine communication and life design into a bundle in this way for expanding the au Economic Zone gross merchandise value and reducing the au churn rate.
- M&A have been made over the last several years, and this has been effective at retention for au, but for the companies acquired by M&A, what synergies are there?
For J:COM, fixed line and mobile lines are bundled in the au Smart Value package for reducing the churn rate and contributing to more subscribers for both sides. We think that we should provide an opportunity for companies acquired by M&A in the current medium-term plan to explain their resulting synergies.
- Even though the au Smart Pass Premium is 127 yen more expensive per month than the regular au Smart Pass, why does it continue to gain more members?
The au Smart Pass Premium has two major features. The first is "au Everyday," offering discounts on a wide range of online and offline services every day. The other feature is enhanced safety services such as security measures for smartphones. We think that these are the factors in users selecting this package.
- Reorganization of businesses with low profitability in the Global Services segment refers to specifically what businesses, and what is the effect on the results?
One case is the shrinkage of the MVNO business in the United States. Another case is the streamlining of the voice wholesale business overseas due to the drop in legacy voice system demand. The size of their sales was significant, but they had almost no impact on income.
- What are the variable factors for the "Other" category in sales cash flow? Also, what are the factors absorbing the increase in accounts receivable in future cash flow?
In 1Q of the previous term, the primary factor was sales returns due to expiring reward points, which resulted in booking of losses for the sales cash flow and had an effect on accounts payable. Our outlook going forward is that the growth range for installments receivable is expected to be stable, and no other temporary effects or large fluctuations are expected.
- What are the factors for the YoY drop in the "Other" category for operating revenue in the Life Design Services segment?
This was because the group company changed sales from gross accounting to net accounting, and this was incorporated into the forecast for the entire year.
- Management Policy
- Corporate Governance
- IR Documents
- Financial Data
- Stock & Ratings
- IR News
- IR Calendar
- The Japanese Market and KDDI