KDDI HOMECorporate InformationInvestor RelationsIR DocumentsPresentationsFY 2023.3Performance Highlights and Q&A for the Third Quarter of the Fiscal Year Ending March 2023

Performance Highlights and Q&A for the Third Quarter of the Fiscal Year Ending March 2023

Date February 2, 2023 (Thu), 3:30-4:00 PM (financial highlights), 5:15-6:15 PM (Q&A for analysts)
Location KDDI Hall (Otemachi, Chiyoda-ku, Tokyo)
Respondents [Financial highlights] Makoto Takahashi, President
[Q&A] Shinichi Muramoto, Executive Vice President; Keiichi Mori, Executive Vice President; Toshitake Amamiya, Executive Vice President; Kazuyuki Yoshimura, Senior Managing Executive Officer Director; Kenji Aketa, Executive Officer, General Manager, Corporate Management Division

Highlights of the Financial Results

The Presentation of the Financial Results

At the financial results briefing, President Takahashi presented "FY23.3 Q3 Consolidated Financial Results," "Progress Towards a Rebound in Communications ARPU Revenues," and "Sustainability Management and Focus Areas."

1. Consolidated Performance in Q3

Consolidated operating revenue for the cumulative Q3 totaled 4,182.9 billion yen, an increase of 169.1 billion yen year-on-year. Consolidated operating income was 843.4 billion yen, down 31.2 billion yen year-on-year. Factors contributing to the change in consolidated operating income included negative 71 billion yen in multi-brand communications ARPU revenue and negative 20 billion yen in Group MVNO and roaming revenue, positive 61.3 billion yen due to 3G closure-related cost saving and cost efficiency efforts, positive 29.7 billion yen in DX and financial businesses, and negative 7.4 billion yen in energy business. The impact of fuel price hikes and communication failure was negative 23.8 billion yen, resulting in a cumulative decrease of 31.2 billion yen for Q3. Excluding the impact of fuel price hikes and other factors, results were generally within expectations.
Next, progress in focus areas. The initial forecast for operating income in the focus area for this fiscal year was plus 50 billion yen year-on-year. In the cumulative results for Q3, the DX business segment posted an increase of 8.4 billion yen, excluding the effects of fuel price hikes and communication failure. We expect profit to increase in Q4 due to the projects we have accumulated. The financial business has been performing well, with an increase in income of 21.3 billion yen in the cumulative results for Q3. On the other hand, the cumulative results of the energy business for Q3 fell short of the initial forecast, with a decrease of 7.4 billion yen, and we will strive to stabilize business performance.
The full year outlook for the current fiscal year is favorable, including a smaller decline in roaming revenue and steady growth in multi-brand communications ARPU revenue. In contrast, the energy business is expected to be lower than initially forecasted, and we anticipate negative 20 billion yen due to fuel price hikes and negative 15 billion yen due to communication failure, which were not anticipated at the beginning of the fiscal year. We will continue to strive for consecutive profit increases.
In the next fiscal year and beyond, we expect the negative impact of fuel price hikes and other factors to ease although they will continue, as well as multi-brand communications ARPU revenue to increase and the energy business performance to stabilize.

2. Progress Towards a Rebound in Communications ARPU Revenues

In Q3, multi-brand communications ARPU revenue was in line with expectations and multi-brand total ARPU revenue grew steadily. Both multi-brand communications ARPU and multi-brand value-added ARPU were positive quarter-on-quarter.
The impact of price reduction is gradually fading towards multi-brand communications ARPU revenue turns around. Data usage growth is in full swing with 5G penetration. Multi-brand IDs have been gaining momentum, growing to 31.02 million by the end of December 2022, and performing well compared to our initial forecast. While UQ mobile is seeing an increase in new subscriptions, the migration rate from au to UQ mobile is also decreasing. Multi-brand total ARPU grew steadily both year-on-year and quarter-on-quarter, with multi-brand value-added ARPU driving the growth and a corresponding impact from electricity as well as from settlement, product supports and contents. Multi-brand communications ARPU was 3,990 yen, an increase of 10 yen over the previous quarter, excluding the impacts of fuel price hikes, etc.
As for the au situation, more than 60% of the au 5G handset sales have chosen the unlimited-use plan. The shift from Pitatto plans to unlimited-use plans continued, with unlimited use plans increasing by 20% year-on-year and Pitatto plans decreasing by 17% year-on-year as of December 31, 2022. Along with 5G penetration in au, the number of subscriptions to unlimited-use plans has been increasing.
UQ mobile has made its medium and large-capacity plans more attractive, aiming for a further increase in data usage. Monthly data usage was up 10.9% year-on- year, which is low compared to au, but showing signs of growth in the future. To make it easier for customers to subscribe to medium and large-capacity plans, we are offering volume increase Option II and UQ Parent-child discounts.

3. Sustainability Management and Focus Areas

We will develop the "power to connect" to create new value for society in our sustainability management. To promote innovation centered on telecommunications, we are driving the Digital Twin and Starlink initiatives. To achieve carbon neutrality, we are aiming to operationalize renewable energy generation. To realize a safe, secure and prosperous society, in addition to supporting backup lines for IoT, we plan to offer a Dual SIM service for smartphones from the end of March. This will enable the use of SoftBank's line in emergency situations when communication is unavailable due to a service outage and natural disasters. In addition, investments for resilient NW are on track.
Next are our focus areas. First, the results of the Business Services segment show a steady growth in the operating revenue of the NEXT Core business. In terms of operating income, the NEXT Core businesses led the way, with Corporate DX, Business DX and Business Infrastructure Services all increasing. The existing core telecommunications business also reported an increase in profit, with the impact of cancellations due to 3G termination being mitigated in Q3. We expect the accumulated projects to deliver earnings growth in Q4.
The number of IoT connections at business DX has grown steadily. As of December 2022, KDDI exceeded 30 million connections. In November, SORACOM also exceeded 5 million connections, and the combined total exceeded 35 million connections. We believe that IoT, in combination with 5G and AI, will expand the possibilities for various data collection and its analysis, and will be the foundation for co-creating new value. We will contribute to the business transformation and sustainable growth of our customers by combining the security and operational expertise that we have developed in the telecommunications industry with value-added solutions.
Next, we will present Digital Twin. Digital Twin converts physical activities into data, simulates this in cyber space, and feeds back the results to the physical space. Through this cycle, we aim to transform the physical world for the better. Our efforts with our partners are also making progress. GEOTRA and Tokyo Tatemono are working together to utilize human flow data in the Yaesu area for post-pandemic urban development. With East Japan Railway Company, we have begun verifying a data-linked robotic delivery service in urban areas. AI analyzes video data from inside the building, selects the best route, and gives instructions to the robot.
Then there is Starlink. In December 2022, we started using Starlink as a backhaul line for the au communications network on Hatsushima Island in Atami City. This enables us to provide highly convenient "anywhere, quickly, and over wide areas" services to corporate and municipal customers, in addition to general au customers, with high-speed communications that are groundbreaking for satellite communications. We have already received more than 500 requests for information. At the site of a landslide in Chichibu City, a communications environment has been secured using Starlink and a drone service is in place to deliver supplies to areas that are inaccessible by vehicle.
In the area of business infrastructure services, there is a growing need to outsource common operations, including call centers, in addition to the digitalization of customers' businesses. We aim for business integration of the BPO business between Relia, Inc. and KDDI Evolva in the spirit of equality in response to these changes in the environment. By combining the strengths of the Mitsui & Co. Group and the KDDI Group, we aim to help solve the real problems faced by our customers and to expand our digital BPO services both in Japan and overseas.
In the financial business, the customer base is expanding, with au Jibun Bank and au PAY. The number of deposit accounts at au Jibun Bank exceeded 5 million in December. The cumulative amount of home mortgage loans exceeded 2.5 trillion yen in November, the fastest among Internet-specialized banks. The number of au PAY members reached 39.9 million in December, including 8.3 million au PAY Card members, an increase of 1 million year-on-year, demonstrating continued expansion.
Lastly, we have the energy business. To achieve carbon neutrality, we newly established au Renewable Energy Planning and will promote environmental initiatives aimed at operationalizing renewable energy generation starting in FY24.3. We will consider direct supply to our own facilities such as base stations and data centers. In addition, as an environmentally advanced company, we have received CDP's "A-List for Climate Change" rating, the highest rating for responding to climate change. We will continue striving for consistent results.
For the current fiscal year, despite the impact of fuel price hikes and the energy business, etc., we aim to increase profits for the full year. In addition, we will continue to promote future initiatives such as Digital Twin.

Questioner 1

Questioner 2

  • QWhat are the prospects for a rebound in communications ARPU and communications ARPU revenues? What actions, if any, are being taken?

    We believe that ARPU will reverse organically as customers use 5G and subscriptions to MAX plans increase. However, it is important to accelerate this process and achieve it quickly. To this end, we are planning to implement a number of measures. We will also work on improving the quality of 5G so that customers can enjoy 5G comfortably.

  • QWhat is au's 5G ratio? And what target are you aiming to achieve in the next fiscal year?

    Although not disclosed, au is lower than the 49% 5G penetration rate based on multi-brands. More than 60% of new 5G subscriptions are for MAX plans. If this pace continues, we believe we will see figures improve in the next fiscal year.

  • QWhat is your view on achieving the medium-term EPS growth target, in light of recent unexpected events?

    This is the first year of the three-year plan and we recognize that it will not be easy to achieve due to unexpected events, as you have indicated. Initially, the company's three-year targets have included 100 billion yen of profit growth in focus areas, 100 billion yen of cost efficiency, and a rebound of communications ARPU revenue by promoting 5G. Among the focus areas, the company thinks that profit growth in the energy business will be particularly challenging. Although the company as a whole is looking at how to recover from this, we have no plans to change our targets at this stage, which we hope to achieve through the efficient use of growth investments and a front-loading of the rebound in communications ARPU revenue.

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  • KDDI Evolva merged with Relia, Inc. on September 1, 2023 to form Altius Link, Inc.
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