KDDI HOMECorporate InformationInvestor RelationsIR DocumentsPresentationsFY 2022.3Performance Highlights and Q&A for the Financial Results for the First Half of the Fiscal Year Ending March 2022

Performance Highlights and Q&A for the Financial Results for the First Half of the Fiscal Year Ending March 2022

Date October 29, 2021 (Fri), 5:30 - 6:30 PM
Location KDDI Hall (Otemachi, Chiyoda District, Tokyo)
Respondents Makoto Takahashi, President; Takashi Shoji, Executive Vice President; Shinichi Muramoto, Executive Vice President; Keiichi Mori, Senior Managing Executive Officer Director; Kazuyuki Yoshimura, Managing Executive Officer Director; Nanae Saishouji, Executive Officer, General Manager, Corporate Management Division; Ikuko Hongou, General Manager, Investor Relations Department (MC)

Highlights of the Financial Results

The Presentation of the Financial Results

At the financial results meeting, President Takahashi described four points: "Consolidated performance in the first half of the year," "Multi-brand strategies," "Growth fields," and "Non-financial initiatives."

1. Consolidated performance in the first half of the year

Consolidated sales for the first half were 2.6252 trillion yen with a progress rate of 49.1%, and consolidated operating profit was 573.1 billion yen, with a progress rate of 54.6%. The first half saw increased revenue and decreased profit, but we are making steady progress with respect to the annual forecast.
Consolidated operating profit for the first half dropped by 15.7 billion yen year on year. Multi-Brand communications ARPU revenues dropped by 30.4 billion yen, as the impact of lowered prices stayed within the predicted range. Also, thanks to the group MVNO revenues and roaming revenues, mobile communications revenues saw an increase of 11.7 billion yen. The growth fields of the Life Design Domain and the Business Services segment saw an increase of 11.8 billion yen, contributing to increased profits. Meanwhile, we have undertaken operations in consideration of the future, and 3G-related expenses and sales promotion costs have resulted in decreased profit.

2. Multi-brand strategies

We started offering 5G across all brands, including UQ mobile and povo. With the slogan "Zutto, Motto, Tsunagu Zo, au (Connecting more and always with au) ,"we are introducing 5G to more areas where people are likely to go to on a daily basis, as well as offering diverse experiences and value, including virtual cities.
We will launch the au 5G network in areas where people are likely to go to on a daily basis, including railways and commercial districts, aiming to cover the key zones of 21 railway lines in Kanto and 5 lines in Kansai by the end of March 2022, including those of JR and the private sector. As for communication quality we have been cutting the rate of un-connectivity in connected areas and set base station parameters to maximize the connected areas to improve connectivity.
The total number of 4G LTE and 5G subscriptions grew to 29.78 million by the end of September. The total number of 5G unit sales also reached 4.7 million by the end of September. We will aim to reach 8 million by the end of the fiscal year ending in March 2022.
For au, mobile data traffic per person for 5G is more than 2.5 times that of 4G LTE. We will advance the full lineup of services to enable customers to use 5G comfortably, such as unlimited data offers, full-fledged set plans, and discounted devices.
For UQ mobile, we will offer simple, affordable services with secure support. In the second quarter, we launched Home Set Discount, which saves even more money when combined with the set discount with an electricity plan, which also provides a discount for home Internet that is used by many households. These services allow users to enjoy secure support and full services equivalent to those available from au.
povo2.0 is a service that looks to innovate by setting the basic usage charge to 0 yen, enabling users to top up on services that fit their lifestyles. Able to respond to the new usages anticipated in the eSIM and SIM-free days ahead, povo2.0 will respond to the needs of highly active, digital-native customers.
As for the experience and metaverse unique to 5G, we will develop virtual spaces that are connected to physical cities, creating various events and economic zones. To make 5G even more appealing, we will apply the most advanced technologies and deliver diverse experiences and value with our partners.
We have also signed an operational partnership with SpaceX's Starlink, which provides high-speed, low-latency satellite broadband Internet for use as au's backhaul lines. We will provide steady communication services to our customers by using Starlink for mountainous areas and remote islands, where providing service has been difficult, as well as to address natural disasters.

3. Growth fields

The growth fields are progressing steadily toward the annual forecast. Operating profit of the Life Design Domain was 120 billion yen, up 10 billion yen year on year, of which the financial business saw an increase of 4.9 billion yen, driving profits. The operating profit had a progress rate of 48.0%, but thanks to the effects of the energy business from the last term, it is progressing as expected because profits are expected to increase in the second half. The operating profit of the Business Services segment was 92.3 billion yen, seeing increased profit in both core businesses and next core businesses, with the progress rate steady at 50.1% against the annual forecast. This year being the final year of the medium-term management plan, we will look to achieve sales of 1.5 trillion yen in the Life Design Domain and 1 trillion yen in the Business Services segment, which are top line targets in these growth fields, as well as double-digit CAGR profit growth.
In the Life Design Domain's financial businesses, we are enhancing coordination among financial services. We have linked banks and credit cards through au PAY and are thinking about further linking them to financial businesses beyond that. We are also rolling out efforts based on KDDI's unique strengths, such as enhancing the links between financial services, including au Jibun Bank, allowing users to enjoy interest rates that are up to 200 times better. Thanks to such linkage, the number of au PAY members grew by 4.3 million year on year, and au PAY Card members to 7 million, up 1.2 million year on year. The main services have also grown significantly, and we are seeing steady growth of our customer base and our assets, including the number of au Jibun Bank's deposit accounts growing to 4.48 million, and the Loan product balance to 1.7 trillion yen.
In the Business Services segment, sales of the growth-driving next core businesses grew by double digits, 17% year on year. In the next core businesses, we will create synergy in both, Japan and overseas, centered on growth-leading IoT by making the most of KDDI's prowess in communication and the strength of our global base. In addition to use in globally launched connected cars, we are seeing a rapid increase of our lines being used in social infrastructure such as those for smart electricity and gas meters, and we are looking to 30 million lines by the fiscal year ending March 2023. Beyond IoT, we will look to further advance our services with 5G and to create new businesses together with customers. Based on the IoT lines and peripheral services we are providing at present, we will support customers in a wide range of industries in developing recurring businesses. In September 2021, we launched "KDDI ID Manager," a customer ID management service that supports customers' recurring businesses, and started communication tests in commercial environments to create business use cases for the forthcoming 5G SA era.

4. Non-financial initiatives

For our conservation efforts for the global environment, toward carbon neutrality, we will reduce our own emissions by 50% by fiscal 2030 compared to emissions in fiscal 2019. We will forecast electricity consumption up to fiscal 2030, devise an execution plan, and advance our efforts by iterating the PDCA cycle, making sure that actual emissions decrease. The termination of 3G we are working this year to achieve is an important factor in reducing carbon emissions as it is a step toward shifting to more power-efficient networks. In November 2021, we will establish the "KDDI Green Partners Fund" to work on solving social issues through partnerships by capitalizing on our strengths in bringing about innovation with startups.
We will further develop DX personnel to transform into a personnel-first corporation, enhancing our growth fields such as the Life Design Domain and the Business Services segment while contributing to solving social issues through our businesses. We will increase the number of DX personnel from across the entire group to 4,000 people by the fiscal year ending March 2024, accelerating our efforts and potentially launching initiatives ahead of schedule.

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Questioner 2

  • QWhat is the trend regarding the number of IDs for UQ mobile and au? What was the churn rate in the second quarter, what has the churn rate been recently? Also, it seems you have implemented various promotions, but which ones have succeeded?

    I think that the churn rate could be a bit lower. In the second quarter, it was 0.74%, which requires us to make a bit more effort. Meanwhile, customers are staying with au more than expected. I thought that more customers would switch to UQ mobile and povo, but customers are staying with au more than we imagined, thanks partly to sales promotions, including those for older iPhone models. Meanwhile, UQ mobile now has a full range of offers, such as a set plan with UQ Electricity and set plans with Internet, which can be signed up for at any au shop today. Some say we are following in the footsteps of SoftBank, but we learn from our mistakes to iterate a better cycle and it is working well so far. As you can see, the number of models sold has significantly grown year on year, and even though the churn rate has also gone up, this means the market is heating up and driving model sales.
    As for promotions, au's summer TV advertisements received particularly complimentary reviews, contributing to au's momentum. The mysterious utterance "UQUEEN" in the new UQ mobile TV ad has also attracted attention. I have great expectations for these promotions as they are doing well for the first time in quite a while. We quickly established sales channels for UQ mobile, which is now offered at all au shops and au Style. So, as you can see, we have focused our efforts into various sales promotion measures.

  • QThe step-line graph on page 4 of the presentation document indicates that the impact of lowering the price fell within the expected range, but how did that impact progress up to the second quarter? Tell us how you think the impact will look in the second half of the year, given the current situation.

    At the beginning of this fiscal year, we expected the impact of lowering the price to be around 60 to 70 billion yen per year. It is 30.4 billion yen after the first half of the year, which is within the expected range, so the impact will probably stay within the initial annual forecast. Given the overall structure, the impact of lowering the price is 30.4 billion yen, but we hit back with roaming income, and used a bit of the surplus to terminate 3G early, ending 3G earlier than other companies and recording the depreciation early this year, and we have also made strategic investments for the coming term and still we are at this point. A decrease in profit during the second quarter had already been predicted internally and was included in our disclosure of 1.05 trillion yen (annual operating income forecast). So, we will control the impact within the manageable range.

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