KDDI HOMECorporate InformationInvestor RelationsIR DocumentsPresentationsFY 2019.3Performance Highlights and Q&A for the 3rd Quarter of the Fiscal Year Ending March 2019

Performance Highlights and Q&A for the 3rd Quarter of the Fiscal Year Ending March 2019

Date Thursday, Jannuary 1, 2019 5:00 pm-5:50 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)

Performance Highlights

The Presentation of the Financial Results

In the presentation of the financial results, President Takahashi described three points; "Highlights of Financial Results for 1-3Q", "Domestic Telecommunications Business", "New Fields of Growth".

1. Highlights of Financial Results for 1-3Q

In the third quarter of the fiscal year ending March 31, 2019, consolidated operating revenue increased 0.3% year on year, to ¥3,771.7 billion. Consolidated operating income was up 1.1% to ¥822.5 billion mainly due to the revenue increase of value-added APRA revenues and profit increase of the Business Services segment and Global Services segment, despite a decrease in mobile communications revenues.
Profit for the period attributable to owners of the parent rose 3.1% year on year, to ¥505.8 billion.
We are achieving sustainable growth in both revenue and profit.

2. Domestic Telecommunications Business

au ARPA and au ARPA revenues have declined in the third quarter due to the influence of the "au Pitatto Plan" and "au Flat Plan". However, with the moderation of the campaign effect surrounding introduction of the two plans as well as the expansion of large-volume data plans accompanying increased data usage and the rising smartphone penetration rate, a positive turnaround in au ARPA compared with the previous year is expected in the fourth quarter.
The au churn rate was down 0.06 points year on year to 0.72% due to various initiatives including the au Pitatto Plan, au Flat Plan and other rate plans as well as au STAR member benefits and bundling with Life Design services.

3. New Fields of Growth

The Life Design Business is progressing smoothly with the au Economic Zone Gross Merchandise Value total reaching \658 billion in the third quarter, the combined total for the first three quarters at \1.826 trillion and the full-year target at \2.46 trillion, a progress rate of 74%. In addition, the au Economic Zone Sales was \491 billion for the first three quarters, posting double-digit year on year growth of 23.7%.

The value-added ARPA was \720 (up 22% year on year). This growth was attributed to expansion of the revenue base in non-telecommunications fields such as processing fees and increased au Smart Pass Premium membership.

We are moving forward with the "Integration of Telecommunications and Life Design" as a business strategy. In the third quarter, we expanded the Life Design Business domain with the aim of creating new services and building partnerships in commerce, energy, finance, entertainment and education. Going forward, we aim to increase the touch points with the customer and improve retention by having customers use multiple non-telecommunications services with a high degree of affinity with telecommunications.

Toward "Expansion of the au Economic Zone", we plan to launch "au PAY", a QR code payment system, in April 2019. "au PAY" will be immediately available via the au WALLET app which is used monthly by 9 million of the current 20 million and more au WALLET users, and we anticipate potential use of "au PAY" at 1 million locations soon after launch through our partnership with Rakuten. At the present time, Points and Charge for au WALLET have a combined balance of over \100 billion. We will accelerate the circulation of this balance by enhancing user-friendliness through QR code payment, leading to expansion of the au Economic Zone.

In tandem with our promotion of migration to 5G and as an initiative geared toward the 5G era, in November 2018 we announced the termination of 3G services as of the end of March 2022. We will conscientiously support customers who currently use 3G services to switch to a 4G VoLTE compatible smartphone without worry. Furthermore, we will facilitate migration to smartphones by speeding up migration from 3G and push ahead with the switchover to simple network equipment while at the same time further strengthening our existing 4G network.

Next, in the area of IoT, in early January we announced that we will provide a connected environment for Toyota and Lexus vehicles starting with the 2020 models which will be sold throughout the US from autumn 2019, using the global communications platform that we have built in partnership with Toyota Motor Corporation. We plan to roll out the service in Japan and China as well as the US in 2019. Going forward in this new growth area, we are preparing for commercialization of "IoT Worldwide Architecture" in 2019 utilizing this global communications platform. As well as enabling direct connectivity with local carriers, in collaboration with KDDI group company SORACOM Inc. we plan to make connectivity available in over 120 countries and regions.

It is expected that 5G will play a role in solving social issues through new applications that leverage its unique characteristics. In December 2018, together with Obayashi Corporation and NEC Corporation, we successfully carried out a joint field trial to remotely control construction machinery, aimed at utilization of 5G to compensate for manpower shortages and to assist disaster countermeasures. We are also promoting the building of a "Smart Drone Platform" and we are launching initiatives with various partners and local governments. Going forward, we will promote new 5G services with partner companies with the goal of solving social issues ranging from regional revitalization and disaster countermeasures to manpower shortages and distribution.

Questioner 1

  • QWas the third quarter impacted by the underselling of devices, etc.? If so, to what extent? Also, how long do you think this impact will last? Will it continue into the next quarter?

    There are three factors behind the increased costs in the third quarter: (1) the increase in device sales commissions and points caused by intensified competition, (2) the posting of accelerated depreciation costs associated with the termination of 3G, and (3) the impact of increased expenses arising from the adoption of IFRS due to a rise in inventory as a result of sluggish sales of specific devices. To be honest, we don't really know what the outlook is. The market environment is currently much the same as in the third quarter, but we aim to implement cost control, including adjusting the composition ratio of our device line-up, so as to avoid excessive costs like in the third quarter.
    The figures indicate a decline in revenue of around ¥11.5 billion in the personal sector in the third quarter, but the main breakdown shows the combined impact of the increase in device-specific incentives and immediate points and the rise in inventory as a decline of ¥9.9 billion.

  • QWhat is your view of DoCoMo's announcement of price cuts and how will it impact performance in the coming term?

    While moving in the direction of a separation model, KDDI launched the au Pitatto Plan and Flat Plan in July 2017. This has had the effect of providing returns to customer of around ¥380 billion yen to date. DoCoMo recently announced reductions of around ¥400 billion. Simply put, that is a difference of about ¥20 billion. DoCoMo is expected to announce a separation plan round about April this year, but looking at the rate level, if the current au Pitatto Plan and Flat Plan are not enough based on the competitive market environment, then we think we will have to reduce our prices by that much. That does not mean simply ¥400 billion price reductions, the same as DoCoMo; we are thinking in terms of the difference based on the premise that we have already introduced ¥380 billion reductions. However, as we mentioned in the last financial results, we believe continuous growth is very important and we will respond to this competitive environment with muscular management.

Questioner 2

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