KDDI HOMECorporate InformationInvestor RelationsIR DocumentsPresentationsFY 2023.3Performance Highlights and Q&A for the Financial Results for the Fiscal Year Ended March 2023

Performance Highlights and Q&A for the Financial Results for the Fiscal Year Ended March 2023

Date May 11, 2023 (Thu), 3:30-4:00 PM (financial highlights), 5:15-6:15 PM (Q&A for analysts and investors)
Location KDDI Hall (Otemachi, Chiyoda-ku, Tokyo)
Respondents Makoto Takahashi, President, Representative Director, CEO
Toshitake Amamiya, Executive Vice President, Director, Executive Director, Personal Business Sector
Kazuyuki Yoshimura, Senior Managing Executive Officer, Director, CTO Executive Director, Technology Sector
Yasuaki Kuwahara, Managing Executive Officer Executive Director, Solution Business Sector
Nanae Saishoji, Managing Executive Officer, CFO Executive Director, Corporate Sector
Hiromichi Matsuda, Executive Officer, Deputy Executive Director, Personal Business Sector
Kenji Aketa, Executive Officer, Executive Director, Corporate Management Division, Corporate Sector

Highlights of the Financial Results

The Presentation of the Financial Results

At the presentation, President Takahashi gave an overview of the consolidated financial results for the fiscal year ended March 31, 2023, and the consolidated financial forecast for the fiscal year ending March 31, 2024.

1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2023

Consolidated operating revenue for the fiscal year ended March 31, 2023, was 5,671.8 billion yen, up 4.1% YOY, and operating income was 1,075.7 billion yen, up 1.4% YOY. In addition, the Business Services segment of the focus area and the financial business had steady growth. As for the factors behind the change in operating income, Multi-Brand Communications ARPU revenues was -85.3 billion yen, Group MVNO and Roaming revenue was -27.8 billion yen, cost savings related to 3G closure was +80.3 billion yen, DX/Financial business was +28.9 billion yen, others including cost efficiency was +64.1 billion yen, and the Energy business was -8.8 billion yen. The impact of fuel price hikes, etc. was a -36.3 billion yen, resulting in an increase of 15.2 billion yen for the full year. The increase was mainly due to focus areas and promotion of cost efficiency, despite the impact of price reductions and fuel price hikes.

2. The Power to Connect and Sustainability Management

Last May, in addition to our Mid-term Management Strategy, we formulated and announced KDDI VISION 2030 and "The creation of a society in which anyone can make their dreams a reality, by enhancing the power to connect." KDDI's mission is to connect. By enhancing the power to connect, we will connect and protect lives, connect day-to-day lives, connect hearts and minds, and contribute to the creation of a society in which anyone can make their dreams a reality. At the heart of sustainability management is the power to connect. We will also invest an additional 50 billion yen over the medium term in the high-quality, resilient 4G/5G networks that support Connect. And by expanding our IoT connections, which now total 37 million at home and abroad, across all industries, and by extending Starlink and other technological expansions, we will strengthen our telecom infrastructure in an era where communications are increasingly integrated into everything. Through partnering, we will build on these efforts to contribute to the sustainable growth of society.

3. Satellite Growth Strategy and Strengthening of Management

■Business Strategy

As for 5G communications, which is at the heart of the Satellite Growth Strategy, we will promote initiatives for ARPU revenues rebound. First, in the construction of 5G areas, we will promote the strengthening and expansion of nationwide coverage along the customer life line. By the end of April 2023, the number of railroads has increased to 47 routes and the number of commercial districts to 323 areas. In terms of nationwide coverage, the population coverage rate exceeds 90%, and the number of 5G stations is expected to increase to approximately 90,000 by the end of the fiscal year ending March 2024.

In terms of Communications ARPU/IDs, Multi-Brand Communications ARPU for the fiscal year ended March 31, 2023 was 3,960 yen, and IDs as of March 31, 2023 were 31.23 million. As for Communications ARPU, the composition ratio of UQ mobile rose, while that of au unlimited usage plan subscriptions increased. ID exceeded the initial forecast due to strong momentum, especially for UQ mobile. In addition, the number of customers migrating from UQ mobile to au increased significantly by a factor of about 1.6 YOY. Regarding Communications ARPU revenues, the YOY revenue decline has been steadily decreasing and we aim to rebound in the first half of the fiscal year ending March 2024. We will capture the growing demand for data and promote the attractiveness of au and data usage as a key point for a rebound in Communications ARPU revenues. Data usage in au further grew by 26% YOY, driven by the enjoyment of a wide range of content on 5G, with a corresponding increase in the number of unlimited usage plan subscriptions. We will continue to promote the attractiveness of 5G and unlimited usage plan, aiming for further ARPU growth. By offering solutions tailored to customer needs, we will further promote the use of data. UQ mobile has also seen significant growth in data usage, and we aim to further increase data usage by making medium and large usage plans more attractive. Povo's strength lies in its ability to offer customers the optimal toppings at the optimal timing. For Generation Z, we proposed the unlimited use of social media data, and for sporting events, we proposed topping up data and video content.

■Focus Areas

In the focus areas of DX, Finance and LX, we are using synergies with telecommunications to gain a competitive advantage.

[1] DX

In terms of Business Services segment performance, NEXT Core led operating revenue growth with an increase of 17.6% YOY, each category achieved double-digit YOY growth and operating income grew steadily with a CAGR of plus 13% over the last five years.
As part of our business growth strategy, we will promote customer proposals in line with the time axis. Initially, we will propose DX based on the needs of existing telecom service customers. We support short-term issues such as business process efficiency with Managed and other Corporate DX. We also support call centers and other outsourcing needs with our Business Infrastructure Services. By utilizing the data obtained through these services, Business DX contributes to the transformation of customers' business models through Digital Twin and other means. In this way, we will promote NEXT Core and help solve our customers' problems.
The propulsive effect of promoting NEXT Core is to expand business areas and IDs based on the telecom business customer base. In the case of Japan-based manufacturer A, the monthly usage fee increased by a factor of approximately 4.5 from 2010 to 2022 as a result of outsourcing operations using Managed in addition to using multiple services through various value propositions based on telecommunications. We will continue to deepen our understanding of our customers and deliver Communication plus additional value.
In addition, our business areas and IDs are expanding globally by leveraging our strengths. The number of IoT lines in connected cars exceeded 18 million at the end of March 2023, about 6.6 times more than three years ago. We have expanded our offerings to major automakers in Japan and operate in seven regions globally. Data centers are also being aggressively developed on the basis of connectivity. We have expanded our facilities in London and Paris, where we have had success, and will open another in Bangkok this May. In the data center business, high value-added connectivity data centers are driving growth, with revenues exceeding 100 billion yen in the fiscal year ended March 2023 and a high operating margin of more than 20%. The source of this high profitability is high connectivity. By becoming a hub for content and networking, we are building a robust ecosystem that will attract even more users.
The Digital Twin will strengthen the value creation functions by using data. By combining human flow data with 3D urban models, a variety of simulations are possible, contributing to urban planning in Tokyo. To strengthen our data-driven capabilities, we have made FLYWHEEL, who specializes in data engineering, a consolidated subsidiary. The company's wealth of human resources and technology is used to solve data analysis problems through a fast PDCA cycle.

[2] Financial Business

In the financial business, we aim to maximize the corporate value of the KDDI Group by the growth of our financial business. By embedding finance and making it available to au customers, we will maximize synergies with au, such as increasing value-added ARPU and promoting long-term usage. The au Financial Group will expand its economic zone by offering competitive products, including mortgages, based on customer trust in au brand. Along with the synergies with au, the operating income and customer base of the au Financial Group are expanding. Finance-related value-added ARPU revenues grew steadily by 17.7% YOY, and in addition to the growth in operating income, the customer base is steadily expanding with 14.3 trillion yen in transaction volume of settlement/loan, 8.6 million au PAY Card members, and 2.3 trillion yen in balance of au Jibun Bank loan products.

[3] LX

As for LX (Life Transformation), we will mold a prosperous future society by transforming the value of experiences through new technologies. Our Starlink and drones will provide a convenient living experience by creating a communication environment in various locations. αU (Alpha U) will offer all the dimensions of Web3, including live streaming and virtual shopping, with a focus on the metaverse.

■Strengthening of Management

We will also continue our efforts to strengthen our management. Firstly, to achieve carbon neutrality, au Renewable Energy, Inc started business in April. Through the capital and business alliance with Kyocera Corporation, we will accelerate the commercialization of renewable energy power generation. We will also promote our own energy-saving measures and switch to renewable energy sources, with the aim of achieving carbon neutrality by fiscal 2030.
Next, as part of our transformation into a Human Resources First Company, we are promoting a three-part reform: a new personnel system, internal DX, and work-style reforms. These efforts have steadily borne fruit, with the company receiving the highest award from an external evaluation organization in the HR area, 6,000 employees completing the DX Basic Skills training, and engagement scores improving. We will continue to promote the three-part reform as a human resources strategy to support the Group's sustainable growth.

4. Consolidated Financial Forecast for Fiscal Year Ending March 2024

For the fiscal year ending March 2024, operating revenue is expected to be 5,800 billion yen, an increase of 2.3% YOY. Operating income is targeted at 1,080 billion yen, an increase of 0.4% YOY. The Business Services segment will drive growth, aiming for operating income targeted at 220 billion yen, up 15.3% YOY, and more than 20% of consolidated operating income. In order to achieve these targets, we aim to offset the decline in roaming revenue by rebounding Communications ARPU revenues and growing focus areas. Positive factors for the operating income are expected to be Multi-Brand Communications ARPU revenues and growth in the focus areas of DX and financial business. Negative factors include a decline in roaming revenue and the impact of the temporary accounting effects in the financial business in the fiscal year ended March 31, 2023, but the impact of the decline in roaming revenue is expected to ease from the fiscal year ending March 31, 2025 onward.

In terms of shareholder returns, we focus on DPS growth with sustainable growth. We aim to pay a dividend of 140 yen per share for the fiscal year ending March 2024, the 22nd consecutive year of dividend increases. The company has set a parameter of 300 billion yen for share repurchases.

Questioner 1

Questioner 2

  • QThe 4Q Communications ARPU of 3,870 yen seems lower than expected. I would like to know what factors led to the 180 yen decrease from the previous year.

    The biggest factor was the adjustment of connection fees. The range of decrease was greater in March of the fiscal year ended March 2023 than in March of the fiscal year ended March 2022. This was the main reason why ARPU had not stopped declining.

  • QHow many of the 3,120 Multi-Brand IDs are UQ mobile/povo? What is the expected number and composition ratio of IDs for the new fiscal year?

    In terms of ID composition, more than 70% of the IDs are from au. UQ mobile's IDs are at a level reaching 8 million. Povo's ID is over 1.5 million. Maintaining the ID composition ratio of au is a major challenge. We do not expect the composition ratio of au IDs to fall as much this year as it did last year. In addition, the number of downgrades from au to UQ mobile, which used to be many, has decreased and the number of upgrades from UQ mobile to au has been increasing. We expect a moderate decline in the au composition ratio.

  • QWhat are the plans for Multi-Brand ID this fiscal year?

    We expect the number of IDs to reach 31 million. We have reviewed the definition of the ID. Specifically, the povo ID definition has been changed to be based on the number of billing users. With this new definition, the number of IDs will be 30.88 million at the end of the fiscal year ended March 2023 and is expected to reach 31 million in the fiscal year ending March 2024. Disclosure will be made on this basis going forward.
    Yesterday Softbank announced at their earnings presentation that they had a net increase of 1 million smartphones. KDDI is at about the same level. KDDI will consider disclosing this information in the future, as the number of smartphones is important.

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