KDDI Corp

TSE:9433

Earnings Call Transcript 2023-Q3

[Unknown Executive]

We will now begin the financial results briefing of KDDI Corporation for the third quarter of fiscal year ending March 2023. I am [indiscernible] of Public Relations Department and will serve as the moderator today. This briefing will be held in this venue and also broadcast live on the Internet. Three financial results related materials, and one news release are posted on our IR website. For the attendees in the venue, please check your handout.

Let me introduce the 4 participants today. Makoto Takahashi, President and Representative Director; Shinichi Muramoto, Executive Vice President and Executive Director of Corporate Sector; Kenji Aketa, Executive Officer and General Manager of Corporate Management Division; Shigeru Ezoe, General Manager of Accounting Department. President Takahashi, please.

[Makoto Takahashi, executive]

Thank you. Let me share with you the business results of the third quarter of the fiscal year ending in March 2023. Allow me to explain the following 3 points today. First, consolidated financial results. Next, Progress Towards Rebound in Communications ARPU Revenues, lastly Sustainability Management and Focus Areas in this quarter. First, consolidated financial results. The third quarter cumulative income decreased year-on-year due to the impact of fuel price hikes and down JPY 31.2 billion. Regarding focus areas, NEXT Core Business and the Financial Business performed steadily. In the fourth quarter, we aim to increase the profit for the full year by promoting focus areas and cost efficiency.

Next, let me explain factors for change in the operating income. From the left, Multi-brand Communications ARPU was minus JPY 71 billion, Group MVNO revenues and Roaming revenues were minus JPY 20 billion. Cost savings related to 3G closure and cost efficiency were plus JPY 61.3 billion, DX and Financial business were plus JPY 29.7 billion. Energy business was minus JPY 7.4 billion, impact of fuel price hikes and the communication failure was minus JPY 23.8 billion. Cumulatively, the third quarter income was down JPY 31.2 billion. Excluding fuel price hikes, et cetera, it was largely in line with expectations.

Next, on the progress of focus areas. DX Financial business performed steadily. In Energy business, we aim for stable performance. In the middle, in a red square, concerning focus areas operating income, the initial forecast was plus JPY 50 billion year-on-year. In the bottom row, Q1 through Q3 results are shown from the left. In the DX business segment, excluding impact of fuel price hikes and communication failure, it was up JPY 8.4 billion. In the fourth quarter, we anticipate a profit growth of the buildup undertaking. So Financial business has performed well, up JPY 21.3 billion. On the other hand, Energy business was minus JPY 7.4 billion lower than the initial forecast. We aim for stable performance.

Next concern is forecast for the fiscal year ending in March 2023 and beyond, these are major positive and negative factors. The left shows a strong performance with a smaller reduction of roaming revenues. Communications ARPU revenue has been strong.

Moving down to the left. Regarding negative factors for this term. Energy business was lower than the initial forecast. As for the unexpected from the beginning of the term, minus JPY 20 billion for the impact of fuel price hikes and minus JPY 15 billion for communication failure are factored in.

Moving to the right. For the positive factors for the next term and beyond, Communications ARPU revenue and Energy business performance stabilization is reflected. And regarding the negative factors, while the impact of the fuel cost hikes continues, the adverse impact is likely to ease. March 2023 and the next term are shown here. Progress towards a Rebound in Communications ARPU revenues. The third quarter results were within expectations. The left shows a steady growth of total ARPU revenues. Both communications ARPU and value-added revenues increased quarter-on-quarter.

The right shows the extent of year-on-year decrease of Communications ARPU. Since it hit the bottom in the fourth quarter ending in March 2022, it has become milder and improving. We'll continue to aim for growth in Communications ARPU revenues towards the medium term.

Next, towards Communications ARPU revenues rebound, the impact of price reductions is gradually easing. Data usage growth gains momentum with 5G penetration. Going to the left, the first point, net adds of IDs performed well. The second point, Communications ARPU increased quarter-on-quarter. au unlimited use plan subscriptions increased and negative impact of discounts reduced. So quarter-on-quarter, we enjoyed increase.

Moving to the right towards medium-term growth. We are promoting data usage by making medium and large capacity plans more attractive for au and UQ Mobile.

Next concerns, Multi-brand IDs. Look at the left, please. Currently, the momentum is recovering. It has grown to 31.02 million as of the end of December, performing well against the initial forecast. Moving to the right. UQ mobile enjoys an increase in new subscriptions. And the migration ratio from au to UQ mobile has been declining gradually.

Next, shows Multi-brand total ARPU. Value-added ARPU drove total ARPU growth. Electricity or Denki had some impact. Settlement product support content enjoyed strong growth both year-on-year and quarter-on-quarter. Communications ARPU was JPY 3,990, up JPY 10 quarter-on-quarter.

On the left, on Multi-brand base 5G subscription penetration rate reached 49%. The right side shows the status of au. Over 60% of au 5G handset sales chose unlimited use plan. The shift from Pitatto plan to unlimited use plan is progressing and as of the end of December, unlimited use plan increased by 20% year-on-year, while Pitatto plan decreased by 17% year-on-year.

In au, the number of unlimited use plan subscriptions is growing along with 5G penetration. Next, UQ mobile is offering more attractive medium and large capacity plans to further increase data usage. On the left, monthly data usage increased by 10.9% year-on-year, which is lower than net of au, but shows signs of growth in the future. On the right, we are offering volume increase option 2 and UQ parent-child discount to make it easier for our customers to subscribe to medium and large capacity plans.

Lastly, Sustainability Management and Focus Areas. In our sustainability management, we will provide new value to society by enhancing the power to connect. Upper right, we are promoting Digital Twin and Starlink initiatives to promote innovation centered on telecommunications. To promote carbon neutrality, we aim to operationalize renewable energy. Lower right, to realize safe, secure and prosperous society in addition to supporting standby lines for IoT, we plan to launch dual SIM service for smartphones after late March that enable the usage of SoftBank's line in case of emergency when communication is not available due to service outage and natural disasters. This service is currently under discussion with other companies as well. In addition, investments for resilient network is implemented as planned.

Let me now explain the Business Services segment performance. Left side, sales of NEXT Core Business are growing steadily. Right side, NEXT Core Business drove operating income and Corporate DX, Business DX and Business Infrastructure Services all increased their profit. The existing telecommunications business also posted a profit increase and the impact of contract terminations due to 3G termination is mitigated in Q3. In Q4, we expect profit growth from the projects we have accumulated.

Next is Business DX. Left side, the number of IoT connections is steadily growing. In December, KDDI's IoT connections reached 30 million. And in November, SORACOM hit 5 million totaling 35 million lines. Right side, IoT, combined with 5G and AI, will expand the possibilities of collecting and analyzing various data and is considered to be the foundation for new value co-creation. By combining our security and operational know-how cultivated in telecommunications with value-added solutions, we will contribute to the transformation and sustainable growth of our customers' businesses.

Digital Twin is a symbolic approach to creating new value. In Digital Twin, physical activities are converted into data simulated in cyberspace and the results are fed back to the physical space. Through this cycle, we aim to transform the physical world into a better one. We are also making progress with our partners. In the middle, GEOTRA and TOKYO TATEMONO are utilizing human flow data in the AI's area for post-pandemic urban development. On the right, we began the verification of robot delivery service linked with data in urban areas with JR EAST. AI analyzes video data inside the building, selects the best route and instructs the robot to follow it.

Next is Starlink. On the left, we started using Starlink as a backhaul line for the au communication network in Hatsushima, Atami City in December last year. This made it possible for us to provide highly convenient services such as anywhere, quickly and over wide area to corporate and municipal customers in addition to general au customers with a breakthrough high-speed satellite communications. We have already received many inquiries, over 500 inquiries. Lower right at the site of landslides in Chichibu City, we secured the communications environment with Starlink and launched a service to deliver supplies to areas that are difficult to access by vehicle using smart drones.

Next is Business Infrastructure Services. On the left, along with digitalization of customers' businesses, we see increasing need for outsourcing of common operations such as call centers. On the right, in response to these changes in the environment, we aim to integrate the BPO business of Relia Communications and KDDI Evolva based on spirit of equality by combining the strength of Mitsui & Company Group and KDDI Group, we aim to contribute to solving customers' real problems and develop digital BPO expanding domestically and internationally.

Next is Financial business. Our customer base is expanding centered on au Jibun Bank and au PAY. On the left, the number of au Jibun Bank deposit accounts exceeded 5 million in December. And the cumulative amount of home mortgage loans exceeded JPY 2.5 trillion in November, the fastest in Internet-specialized banks. In the middle, the number of au PAY members reached 39.9 million in December. And on the right, the number of au PAY Card members reached 8.3 million, up by 1 million year-on-year showing a steady expansion.

Next, to realize carbon neutrality we will promote efforts to address environmental issues by operationalizing renewable energy generation. Left side, operationalization of renewable energy generation, au renewable energy planning was newly established with the aim of launching the business in FY 2023. We will consider direct supply to our own facilities, such as base stations and data centers. On the right side, as an environmentally advanced company, we were certified as an A-List in climate change, the highest rating in CDP's climate change response. We will continue to aim for steady results.

Summary. Despite the impact of fuel price hikes in Energy business, we aim to increase profit for the full year. We will also promote Digital Twin and other future initiatives. For consolidated financial results, Q3 cumulative results were generally in line with the expectations, excluding the impact of fuel price hikes, et cetera. In Q4, we aim to increase profit for full year by promoting focus areas and cost efficiency. Negative impacts of fuel price hikes is expected to ease in the next fiscal year and after. In progress toward a Rebound in Communications ARPU revenues, the impact of price reduction is gradually easing and data usage growth is gaining momentum with 5G penetration. We aim to further increase data usage by making medium and large capacity plans more attractive. In sustainability management and focus areas, the Business Services segment and financial business performed steadily. We will promote future initiatives that provide new value to society, including Digital Twin, Starlink, renewable energy generation, et cetera. Thank you very much for your kind attention.

[Statements in English on this transcript were Spoken by an interpreter present on the live call.]