KDDI Corp
TSE:9433
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KDDI Corp
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Thank you very much for the introduction. Let me explain about the Financial Results of the Fiscal Year Ending March 2023. I will discuss those five items shown on the slide today, first, on the consolidated financial results of the fiscal year ending March 2023.
In fiscal year March 2023, we absorbed the impact of fuel price hikes, among others and posted record high profits. On the left, the consolidated operating revenue was JPY 5,671.8 billion, up 4.1% year-on-year. Operating income reached JPY 1,075.7 billion, up 1.4% year-on-year. On the right, focus areas, including Business Services segment and financial business showed steady growth.
Next, let me go over factors for change in operating income. From the left, Multi-Brand Communications ARPU revenues had a negative impact of JPY 85.3 billion, Group MVNO annual revenues plus roaming revenue, a negative impact of JPY 27.8 billion. Cost savings related to 3G closure had a positive impact of JPY 80.3 billion, DX/Financial Business, a positive impact of JPY 28.9 billion, Others, including cost efficiency and positive impact of JPY 64.1 billion, Energy Business, a negative impact of JPY 8.8 billion.
Impact of fuel price hikes had a negative impact of JPY 36.3 billion, which together bought us a full year increase of JPY 15.2 billion. Impacts of price reductions and fuel price hikes were more than offset by strength in focus areas and efforts to enhance cost efficiency, which resulted in the growth in profits.
Next, I will talk about Enhancing the Power to Connect and Sustainability Management. In May last year, in addition to mid-term management strategy, we put together an announced KDDI Vision 2030, 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 connecting and enhancing lives, day-to-day lives and hearts and minds. We will contribute to creation of a society in which anyone can make their dreams a reality.
In order to realize KDDI Vision 2030, we'll press ahead with Sustainability Management by promoting satellite growth strategy designed for business growth and strengthening management. Together with partners, we will aim to achieve sustainable growth of society and corporate value improvement. The core of sustainability management is the Power to Connect. In the middle of the slide, supporting this Power to Connect is high-quality and resilient 4G and 5G network. By making additional JPY 50 billion investment over the mid-term, we will work to provide the network of even higher quality.
On the left is IoT connections, which reached a combined total of 37 million for those in and outside of Japan, and I expect it to expand to all industries. On the right, with the technical expansion of Starlink in the era of increasingly integrated communications, we will strengthen telecom infrastructure. These initiatives will be further expanded through partnering, so that we can contribute to sustainable growth of society.
Next on the Enhancing Power to Connect, as shown in the middle, we will promote satellite growth strategy to provide new values. From the left up, examples include drone supplies delivery at landside aftermath, smart fisheries using IoT, sub-circuit services to prepare for outages and disasters and Tokyo Marathon program production utilizing 5G SA. We will continue to enhance Power to Connect so as to contribute to the sustainable growth of society through business.
Now I'll turn to each of the businesses under a satellite growth strategy. First, on the center of the strategy, 5G communications, we will seek to carry out initiatives designed for rebound in communications ARPU revenues. The first one is 5G area construction. We'll strengthen the network along customers' life lines while expanding nationwide coverage.
As shown on the left, we will build areas along customers' life lines. Based on our own survey, we turn out to be number one in terms of the area coverage along railroads and in commercial districts. As of the end of April 2023, our connected areas expanded to include 47 railroad routes and 323 commercial districts. On the right, in terms of the nationwide coverage, we have exceeded 90% in population coverage and expect to increase 5G stations to total about 90,000 at the end of March 2024.
Moving on to the Communications ARPU and ID, on the left, you can see Multi-Brand Communications ARPU for fiscal year March 2023 was JPY 3,960 with the number of IDs totaling 31.23 million at the end of March. As indicated on the right, in Communications ARPU and Unlimited Use Plan subscriptions increased while there was a rise in UQ mobile composition ratio. As for IDs, there was a strong momentum, especially in UQ mobile, resulting in a number ahead of the forecast made in the beginning of the fiscal year. In addition, customers migrating from UQ mobile to au jumped by about 1.6 times year-on-year.
Now on the Communications ARPU revenue, on the left, Communications ARPU on a Multi-Brand basis, so a steady shrink in the year-on-year decline, which would hopefully lead to a rebound in revenue by the end of the first half of fiscal year March 2024. The keys to the rebound in the Communications APRU revenue are to cultivate rise in data demand and promote au attractiveness and data usage.
Next on initiatives for au, au monthly data usage grew by 26% year-on-year as customers enjoyed various contents using 5G. Accordingly, unlimited usage plan subscribers have also been on the rise. We will continue to promote attractiveness of 5G and unlimited usage plan to aim for further ARPU growth. We will further promote data usage by offering proposals tailored to customer needs.
On the left, UQ mobile is also seeing significant growth in data usage. We aim to further increase data usage by offering attractive medium and large capacity plans. On the right, povo's strengths, is its ability to offer customers the right toppings at the right time. For Generation Z, we proposed unlimited use of SNS data. And for sporting events, we proposed toppings of data and video content.
In focus areas of DX, Finance and LX, we will leverage synergies with telecommunications to gain a competitive advantage. First, let's look at the Business Services segment results. On the left-hand side, NEXT Core led the growth in revenue with 17.6% year-on-year and achieved double-digit year-on-year growth in each area. On the right, operating income has steadily expanded at a CAGR of plus 13% over the last five years.
Here are the growth strategies of our Business Services segment. Customer needs vary over time. First, we will propose digital transformation on the right-hand side based on customer needs in the existing telecom business. We will support the short-term challenge of improving business process efficiency with corporate DX such as managed DX.
In addition, for outsourcing needs such as call centers, at the bottom, we will support them with business infrastructure services in the lower part of the page. By utilizing the data obtained through data services, we contribute to the transformation of our customers' business models through Digital Twin and other business DX services. In this way, we will promote the NEXT Core and contribute to solving our customers' issues.
The effects of promoting the NEXT Core, on the left-hand side, promoting the NEXT Core will lead to the expansion of business domains and IDs based on the telecommunications business customer base. On the right, Japanese manufacturer company A, outsources managed operations in addition to using multiple services through various value propositions based on telecommunications.
As a result, from 2010 to 2022, the monthly usage fee increased by about 4.5 times. We will continue to deepen our understanding of our customers and provide communication plus alpha value. Leveraging our strengths, we are expanding our business domain and IDs globally. On the left, the number of IoT lines installed in connected cars exceeded 18 million at the end of March 2023, approximately 6.6 times the number three years ago.
We have expanded our offerings to major Japanese auto manufacturers and are developing our business in seven regions around the world. On the right-hand side, we are also aggressively expanding our data centers, leveraging the connectivity as a key strength. The successful data centers in London and Paris have been expanded, and the new data center is scheduled to open in Bangkok this May.
In the Data Center business, high value-added connectivity data centers are driving growth. On the left, revenue exceeded JPY 100 billion in the fiscal year ended March 2023, and the operating profit margin is high at more than 20%. On the right-hand side, the source of this high profit margin is high connectivity. By becoming a hub for content and networks, we are building a strong ecosystem that attracts even more users.
Next is the Digital Twin. This is to strengthen the value creation function by leveraging data. On the left, combining human flow data with 3D urban models enables a variety of simulations contributing to Tokyo's urban development. On the right, to strengthen our data-driven capabilities, we have made FLYWHEEL, which specializes in data engineering, a consolidated subsidiary. The company's abundant human resources and technology will be utilized to solve data analysis issues through high-speed PDCA cycles.
Next is the Financial Business. We aim to maximize the KDDI Group's corporate value through the growth of the Financial Business. On the left, by embedding finance and making it available to au customers, we will maximize synergies with au such as value-added ARPU expansion and promotion of long-term use. On the right, au Financial Group will expand its economic zone by offering competitive products, including mortgage loans based on the trust of au brand customers.
The operating income and the customer base of the au Financial Group are expanding in tandem with synergies with au. On the left, finance-related value-added ARPU revenue has grown 17.7% year-on-year. On the right-hand side, in addition to the growth in operating income, the customer base is steadily expanding with the settlement and the financial transaction volume at JPY 14.3 trillion, the number of au PAY card members at 8.6 million and the balance of au Jibun Bank loan products at JPY 2.3 trillion.
In LX Life Transformation, we will create a prosperous future society by transforming the value of experience through new technologies. On the left-hand side, Starlink and drones provide a convenient living experience by providing a communication environment in various locations. On the right, alpha U will provide all round Web3 domains such as live streaming, virtual shopping, et cetera, centered on the metaverse.
The satellite growth strategy described so far will be further accelerated by using data-driven technology. The first-party data accumulated through 5G communications will be used for marketing. For individual customers, we will expand au economic zone by improving marketing sophistication. For corporate customers, we will expand the DX business by creating new value with partners.
Next, I will explain our efforts for the strengthening of management. First, we will achieve carbon neutrality. On the left, au renewable energy launched its business in April, through a capital and business alliance with Kyocera, we will accelerate the commercialization of renewable energy power generation. On the right, we will promote our own energy savings measures and switch to renewable energy, aiming to achieve carbon neutrality by FY 2030.
Next, we will transform ourselves into a Human Resources First Company. We - are promoting a three-part reform of the new human resource system, internal DX and work-style reforms. These efforts have steadily borne fruit with the group receiving the highest award from an external evaluation organization in the field of human resources, 6,000 employees completing basic DX skills, training and an improvement in the engagement score. We will continue to promote the three-part reform as a human resources strategy to support the group's sustainable growth.
Finally, our consolidated financial forecast for fiscal year ending March 2024, on the left, for FY ending in March 2024, consolidated operating revenue is projected at JPY 5,800 billion, an increase of 2.3% year-on-year. In the middle, consolidated operating income is targeting at JPY 1,080 billion or up 0.4% year-on-year. On the right, the Business Services segment will drive growth, aiming for operating income of JPY 220 billion, up 15.3% year-on-year or more than 20% of consolidated operating income.
The following are the highlights of the consolidated financial forecast for the fiscal year ending March 2024. The decline in roaming revenue will be offset by a rebound of Communications ARPU revenue and growth in focus areas. On the right, positive factors for operating income include Multi-Brand Communications ARPU revenue and the growth in DX and financial businesses, which are our focus areas.
Negative factors include a decrease in roaming revenue and impact of the temporary accounting effect in the financial business in the fiscal year ended March 2023, but the impact of the decline in roaming revenue is expected to ease from the fiscal year ending March 2025.
Next is the dividend per share. We focus on DPS growth with sustainable growth. We aim at increasing dividend for the 22nd consecutive year with DPS of JPY 140 for the year ending in March 2024.
Finally, here is today's summary. In FY ending in March 2023, we achieved record high profit absorbing the impact of fuel price hikes, et cetera. In fiscal year ending in March 2024, we aim to increase both revenue and profit by rebounding communications ARPU revenue and the growing focus areas. About sustainability management, we promote sustainability management and in-house power to connect.
In 5G telecommunications, we will promote initiatives to rebound communications ARPU revenues. In focus areas, we will leverage synergies with silicon business to gain a competitive advantage. We will also promote initiatives, including HR, to strengthen management to support sustainable growth.
With respect to shareholders' return, we aim at increasing dividend for the 22nd consecutive year with DPS of JPY 140 or JPY 5 increase in the fiscal year ending March 2024. We have earmarked JPY 300 billion for share buyback. We will continue to aim for sustainable growth of society and enhancement of corporate value. Thank you.
Thank you very much for bearing with us. I would like to start the briefing and question-and-answer session on the financial results for fiscal year ending March 2023 of KDDI Corporation. Thank you very much for participating in this session despite your busy schedule today. I'll be serving as a moderator today.
I am Ikuko from Investor Relations Department. And this session will be live streamed over the Internet with a simultaneous interpretation from Japanese to English. And this briefing will be made available on on-demand basis on the IR section of our company's website. I'd like to ask for your kind understanding.
Let me introduce the people present here today. From the left hand side, from the center of the front - center of the front row, President and Representative Director, CEO, Makoto Takahashi. And from the right hand side center of the front row, Executive Vice President, Director, Executive Director, Personal Business and Global Consumer Business Sector, Toshitake Amamiya; and Senior Managing Executive Officer, Director, CTO, Executive Director, Technology Sector; Kazuyuki Yoshimura; Managing Executive Officer, Executive Director, Solutions Business Sector, Yasuaki Kuwahara.
And on the left-hand side, left of the front row, Managing Executive Officer, CFO, Executive Director, Corporate Sector; Nanae Saishoji. And on the right-hand side, in the back row, Executive Officer, Deputy Executive Director, Personal Business Sector, Hiromichi Matsuda. And on the left-hand side in the back row, Executive Officer, Executive Director, Corporate Management Division, Corporate Sector, Kenji Aketa.
And there are three pieces of earnings-related documents and two pieces of TSE disclosure documents, total five are posted on the website in the IR section. And as for the descriptions in the materials and the financial results and contract target numbers, that will be mentioned in the Q&A. As for those, please refer to the disclaimer in each of the materials.
And let me first ask President Takahashi to give you the financial results summary and then entertain questions, over to you, President Takahashi.
Thank you very much for participating in the earnings briefing of KDDI Corp. despite your busy schedule today. Before starting to take questions, please allow me to give you the summary of the financial results of the fiscal year ending March 2023 and our forecast for March 2024. For March 2023 fiscal year, we managed to absorb impacts from fuel price hikes, among others, and posted record-high profits.
On the left, the consolidated operating revenue was JPY 5,671.8 billion, up 4.1% year-on-year. Operating income reached JPY 1,075.7 billion, up 1.4% year-on-year. On the right, the focus areas, including Business Services segment and the financial business showed steady growth.
Let me go over factors for changes in operating income. From the left, Multi-Brand Communications ARPU revenues had a negative impact of JPY 85.3 billion; group MVNO revenues and roaming revenue had negative impact of JPY 27.8 billion; cost savings related to 3G closure had a positive impact of JPY 80.3 billion; DX/Financial Business, a possible impact of JPY 28.9 billion; and Others, including cost efficiency, had a positive impact of JPY 64.1 billion; Energy Business, a negative JPY 8.8 billion.
Impact of fuel price hikes was negative JPY 36.3 billion, which together, brought us a full year increase of JPY 15.2 billion. The impacts of price reductions and fuel price hikes were more than offset by strength in focus areas and efforts to enhance cost efficiency, which resulted in the growth in profits.
Next on highlights of the forecast for the consolidated performance for fiscal year ending March 2024, the rebound in communications ARPU revenue and growth in focus areas are expected to offset the decline in roaming revenue. On the right, as positive factors for operating income, we anticipate Multi-Brand Communications ARPU revenues and growth in focus areas, including DX and Finance Business.
Negative factors are likely to be a decrease in roaming revenue and fiscal year March 2023 temporary accounting effects in financial business. But roaming revenue decrease is expected to ease from fiscal year ending March 2025.
Lastly, let me give you the summary. As for the performance, we posted record high profits in fiscal year ending March 2023, despite temporary impact of fuel price hikes, et cetera. In fiscal year March 2024, we aim to increase in revenue and profit augmented by a rebound in Communications ARPU revenues and growth in focus areas.
In terms of Sustainability Management, we will promote Sustainability Management and Enhancing the Power to Connect. The 5G communications will promote initiatives for ARPU revenue rebound. In focus areas, we will work to demonstrate competitive advantage through synergies with telecommunications. We'll also promote initiatives, including HR, to strengthen management to support sustainable growth.
With regard to shareholder returns, DPS for fiscal year March 2024 is expected to increase by JPY 5 to JPY 140, thus aiming for 22nd consecutive DPS growth. We have set share repurchases parameters of JPY 300 billion. We'll continue to aim for sustainable growth.
And thank you for your attention.
Mr. Takahashi, thank you. Now, we would like to move on to Q&A session. [Operator Instructions]
My name is Masuno from Nomura Securities. I have two questions. For the March '24 business plan assumptions, the first question, so the roaming minus JPY 60 billion and other, the profit increase of JPY 20 billion, the reflecting cost cut, I believe. I'm wondering if roaming revenue will go down so much as to cost reduction. According to the mid-term plan, I think there - could be more cost reduction.
As to ARPU revenue, JPY 20 billion revenue will increase, including upward trend. Could you please talk about the assumptions, I mean the significant reduction in the revenue and how much actually the other cost will be reduced? Could you please talk about the background?
So I would like to explain about the roaming and Amamiya-san will take me over. As to JPY 60 billion decrease in roaming revenue, I think that you are thinking that it is - as very big. So, we are concluding roaming contracts agreement in operation. We have been talking with Rakuten about it as you know for this - the fiscal year, by the end of the year that they are going to turn it around, the telecommunication business.
And for that, they have to narrow down the roaming area rather significantly. And - in terms of number figures, JPY 60 billion reduction in our roaming revenue, reflecting the reduced roaming area. But since then, our discussion continued. And today, with the Rakuten, we issued the press release. So they are going to invest both in 5G and 4G, and that is very tough. So they would like to focus more on investment in 5G.
So the cash, rather than using cash for 4G investment, they thought that yes they will be better for them to extend the period for the roaming services or rather to reduce the range of reduction in roaming services. And for us also, we would like to invest more on the 5G, and it will be more effective to have to provide roaming services to Rakuten. And we announced what we announced today.
From our perspective, we would like to reduce the revenue slightly. And so for this fiscal year, JPY 60 billion reduction, we will be mitigated to some extent, because of this new agreement with Rakuten. I think that we can achieve over JPY 10 billion. And so, the reduction will be better that we announced JPY 80 billion, but - today, but there will be some add-ons to JPY 80 billion.
That is our current forecast. I cannot talk about details about this agreement, but that is the big picture. So from next year on, the reduction will be mitigated. As to other, Amamiya-san takes me over.
As to other area, so there are positive and negative included here, the other includes energy excess. As to energy, next year - next fiscal year, we are aiming at a stable revenue flow, JPY 10 billion plus, the profit increase is expected. And also, the technology, the cost, the restructuring and about JPY 20 billion, the positive number is expected. And why the total is JPY 20 billion? Well, because there are some costs involved especially today, ARPU increase - that should be worked on, that we have been working on since last year.
And that is the biggest challenge for us. So we need to make au more attractive, that's very important. And for that purpose, we are going to use more - spend more for marketing so, there is some cost. So plus/minus the calculated, this is the number, JPY 20 billion as it's shown here.
Thank you. As to ARPU revenue, the ARPU revenue, the increase is expected. And I think I asked about ARPU itself, may I?
As to ARPU, in the first half, we are going to have a rebound of the - communication ARPU revenue. At this moment, the numbers are quite good. And within the first half, we'd like to see a rebound. To begin with, our thought is as follows. We would like to have our customers use as much as possible in a comfortable manner, and that will lead to the increase in revenue and unlimited, the plan usage increases and number increases.
But as to the traffic usage part, it is statically increasing in terms of au every month, close to 30% increase year-on-year. And for UQ mobile, the 20%, about 20% increase year-on-year in terms of traffic. So our customers are using more. And with that, other au's max plan and UQ mobiles, the mid-to-large, data capacity plan like M&L [ph], those plans are increasing, contributing to ARPU increase. So our scenario is working very nicely. Thank you.
So for ARPU is expected to - rebound within the first half of this fiscal year?
ARPU revenue is going to rebound, but the ARPU itself well, within this fiscal year, we would like to see a rebound, but as to ARPU revenue, we would like to make the positive.
And second question, the EPS target, so the JPY 300 billion - the share buyback, JPY 5, the DPS, the increase. Is this because of the - you're targeting at mid-term, the EPS, and you would like to control the number of shares? Is that the background? Could you please talk about your thinking behind those numbers?
This question, I think, is a very important question. Last fiscal year and this fiscal year, the business environment has been very tough. And because of the significant price reduction and the fuel price hikes and the communication failures happened, the Rakuten roaming that was - that started very nicely, but the revenue is coming down, which is offset by the ARPU revenue rebound and the cost of reduction and the growth in the focus areas and what's - the last year's situation.
And for this fiscal year, JPY 60 billion are the roaming, are the revenue reduction, we would like to reduce this - the range of reduction. For the fiscal year ended in March 2023, there was shortfall of about JPY 25 billion to reach externally probably sized at a forecast, but we felt about JPY 35 billion impact coming from fuel price hikes and communication failures. The week, have had about JPY 10 billion of other positive number.
So for this - the fiscal JPY 60 billion reduction in roaming revenue and we have been doing some workouts so that we can mitigate the reduction in roaming revenue. And from this fiscal year an onwards we would not see many - the negative elements except the revenue reduction in Rakuten roaming. But the other fuel price hikes so the communication failures and the other price down, that we are going to see rebound in the price this year as well.
So not so many negative elements so from next year and onwards, the picture we believe that will be much better. And the 5.5 times EPS target was announced three years ago, I think, or four years ago. And back then, we did not expect the big impact from the price down or communication failures. So it seems that the current status is one year or so behind the plan. But we are not going to give up this 5.5 times - 1.5 times EPS.
And for that, business growth and the shareholders' return, such hybrid approach is necessary. So for the - for one to two years, the business growth was not so big. So we would like to show clearly that we are committed to shareholders' return. So JPY 5, the increase this year, DPS and the JPY 300 billion share buyback, those are the numbers that are showing our commitment so, although we are going to make effort to grow more this year and year after next as well.
Thank you.
Thank you very much. [Operator Instructions] Yes, the second row in A at the back, please.
Mitsubishi UFJ Morgan Stanley Securities, I am Tanaka. I have two questions. But before that, Mr. Masuno's question, JPY 60 billion in decline for the roaming, but you said that more than JPY 10 billion increase. So it's not minus JPY 60 billion, but it could be as - little as JPY 50 billion is that what you mean? Well, we are looking at a bit better than that with more than JPY 10 billion?
Okay. So for the data book in ARPU actual results, communications ARPU, JPY 3,870 in the quarter - the fourth quarter and JPY 180 decline. So this is - more than I have expected for the single month in the second half, you were expecting a rebound. That's what you said. So JPY 180 decline in ARPU in the fourth quarter, can you explain more about this?
Amamiya-san, please.
Well, the biggest factor is the connection fee, and the retrospective billing will be included in March always. And in March 2022, March and March 2023, comparing these two, the March 2023 was bigger. And that was the biggest reason why the ARPU didn't stop falling. And for the other factors, most are in line with our expectations.
And as I said in April, the things have been going as we had expected, mostly. So, if you just look at the fourth quarter that may be the impression that you may have. But for this fiscal year, we believe that things will go as we had assumed.
So of the JPY 180, the settlement of connection fee, how much is represented by that?
Well, that is not disclosed. I'm sorry for that. Several tens of yen, well, most - well, if you say several tens of yen, JPY 50 would be the one that you could have as an idea. Well it's just – well au ARPU is on the positive side, but brand composition review is something that is ongoing and also access charge retrospective billing is also included.
So in any case, as we went into April year-on-year multi-brand communication ARPU revenue, mostly on par with the previous year so in the first half of this fiscal year, if you multiply ARPU and ID, the multi-brand communication ARPU revenue should be reaching the rebound within the first half. That's our target.
Thank you. For the second question, as for multi-brand IDs, 31.2 million as of the end of March. So how much is UQ and povo of this? And then what would be the number of IDs in the new fiscal year and what would be the composition that you're expecting?
Amamiya-san, please?
Well, first of all, for the composition of IDs breakdown, slightly more than 70% of is au. And as for UQ mobile, the things have been going well continuously, and it is almost reaching 8 million. And povo 1.0 and 2.0 together have reached more than 1.5 million. So you can understand, what is the composition of the brands? And as for au composition ratio share, how to maintain that share of au is the biggest challenge for us.
And compared to last year, this year, the number four is declining. So, the share of au, the decline in the share of au has been reduced, being reduced. So for this fiscal year, we don't expect as much decline as in the last fiscal year. And the migration from au, to UQ was more, but that has been slowing down.
And from UQ to au, the migration of this, customers that are doing this migration is increasing in number. So for this composition breakdown, the decline in au is expected to slowdown in this fiscal year.
Well, the multi-brand ID, the total number of IDs in - at the end of March 2024, what would be your expectation?
Well, as for the forecast for this next fiscal year, 31 million, because we have reviewed the definition. The number of povo subscribers has been counted even if they have not used the povo, but the number of users that have been built is a new definition. So 31.23 million is the number of IDs, but 30.88 million is under new definition. And then that will be 31 million as of the end of March 2024.
So when you look at the press conference by SoftBank, they are talking about net growth in smartphones. And 1 million is a big number that they said, but we also counted the number in our company, and we are reaching at a similar level. So, we would like to also review how to disclose these numbers. The number of smartphones is important, so we would like to also share that information with you going forward.
Thank you. And 30.88 million to 31 million, I think that is quite small, isn't it?
Well, it's the number of IDs. So from the feature phones, well, this is just about the right number. Well, this may sound a bit weak. But if you look at the current moment, there was also an issue of so called JPY 1 handset and there was some restriction that is being applied. So in that sense, it may seem a bit weak.
Thank you.
Thank you. [Operator Instructions] One front row, please.
My name is Ando from Daiwa. I have two questions. First question about consumer, this year, marketing budget will increase, year-on-year or decrease. The churn rate is rather high. What is your attitude toward marketing? Could you please elaborate on that?
Thank you for the question. Amamiya-san, please.
As I mentioned earlier - how to make au attractive, more attractive is very important. And for that, we would like to spend firmly for marketing. It's not that we have not done it before, but we would like to do more of the data so that more efficient marketing will be exercised against the money that we spend, how much effect is there, and we'd like to verify that constantly.
I cannot talk about specific numbers. For example, last year - sorry, for March '23, in the fourth quarter, the marketing cost was reduced slightly so compared to this year, this fiscal year, marketing cost will rise compared to that?
For clarification, marketing cost, Amamiya-san, is the contract - it's the cost to obtain contract for the agent-related the cost.
I'm talking about - the sales and the promotion cost. So what about the - agent fees?
As I mentioned earlier, we are going to use more data to be more efficient. As to the overall amount, it's on a downward trend. The unit basis, it's not so different. But we'd like to find a way, more efficient way to do marketing.
Second question, it's about the Business Services segment. Business Services segment is becoming larger in terms of - the profit contribution. For the investment, the other Business Services segment, where the IT services companies are listed, many of them. How is it different from you the business, the services segment? I think you are coming into that phase to make that distinction?
As to next core business, compared to IT services companies, I think there are overlapping parts, but what is the nuance - what is the strength vis-a-vis IT services companies? What is, the opportunities for growth? What is the earnings structure, could you please explain in differentiating yourselves from - those players?
So the next core is the other non-communication part. It's related to FI mainly, and also the core communication part. Our growth potential is for next core DX FI areas. So what is the difference from FI's? The biggest difference is as follows. We are based on communication business. So there are many contacts with communication business and there are many customers. And as to IoT, though we can differentiate ourselves in the area of IoT, that is the biggest part.
So from the telecommunication part, what we call DX such as managed DX, we have been expanding from the areas which are closer to telecommunications. And using IoT, we can utilize data, and using data, we provide next services and solutions. That's the picture. So the negative difference with FI's buys in these areas. Have I answered your question?
Yes, thank you. What about the profitability? So recurring revenue includes the communication revenue and then your profitability will be very different from that of FI's. Am I right to understand it that way? Thank you.
Yes. So the model is - the base model is recurring model. So the lump sum, the front - the revenue, followed by recurring revenue is the other picture. The 17% to 18% is the current level, the similar the profitability is factored in our model. In our presentation, on Page 20 or 21, we talked about such flow from the existing customers to MIC and how the profitability is enhanced and what is the difference with the FI. So going forward, we would like to give more detailed explanation in the future. Thank you. Mr. Ando, did I answer your question?
Yes.
Are there any other questions? The second row in the B at the back, please.
I am Okumura from Okasan Securities. The first one is multi-brand ID number from the upgrade from UQ to au is increasing. That's what you said earlier. At the moment, downgrading from au to UQ and upgrading from UQ to au. What is the balance between these two? And within this fiscal year, is there any equilibrium that you can reach and there could be some upside or upgrading? Is it something that we can see as a conservative number?
Well, we have not disclosed the absolute number, so I cannot be specific on that. But we're not reaching the equilibrium yet. And from au to UQ, that migration is larger still, but it is declining. And the migration from UQ to au, the rate of this migration is increasing. And compared to last year, well, compared to March 2022, in March 2023, we cannot - well, this has been an increase of several folds, not like in percentage.
So, we have to reach the equilibrium. But in order to do that, how we can encourage customers to use more au, by increasing the attractiveness and that's how we are going to hit the balance. I'm sorry we cannot be so specific, sorry.
Thank you. Then the second question is going back to where we are. I would like to ask more about roaming. From June, there is going to be a new contract as according to the recent - based on the release, you talked about the areas to be covered, including the cities. And also it is reported that the price is going to be reduced. Has there been any reduction in price?
And if there is, then as far as possible, if you can share with us how much reduction was there?
Well, as for the contract terms - we have reached agreement with Rakuten that we will not disclose this. So it's very difficult for us to share that with you. But what has been reported as great reduction in price that is just a speculation. And for us, the period of leasing the network is going to be extended, and the rate of decline is going to be milder, which is beneficial for us. And for Rakuten, their investment in 4G can be compensated for by roaming.
So whether you spend the cash on capital investment or spending cash in roaming, that's the choice. And so, in terms of areas, the '23 award of Tokyo would be included in - exchange for that - there will be some period of change. So there's not - it's not that there is a simple reduction in prices. So there was some modulation in negotiation.
Thank you. And when you explained about roaming, the roaming revenue in the previous fiscal year was slightly less than JPY 100 billion. So if the reduction is not JPY 60 billion, but JPY 50 billion, but is it conservative or is it really this much reduction in the roaming revenue decrease?
Well, actually, JPY 60 billion decline was expected in our plan. But because of this new contract, it is going to be more than JPY 10 billion improvement. So, we cannot disclose the total amount. So please forgive us for not showing that.
Thank you very much.
Thank you. [Operator Instructions] C, second row.
Moriyuki from SBI Securities. As to market liquidity, so the churn rate, not just to you, but the churn rate in January is increasing. Why all the players have been focused on MNP, and maybe that is impacting it. But the churn rate is on the other upward trend, how should I think about it?
There are factors to raise it and factors to decrease it. I think most of them exist, the fourth quarter, the handsets were - so cheap and such plans were sold at JPY 1, the reseller was a problem and the result of the investigation by the FTC that came out, and it showed some guideline. And so, there are some control and constraints. So the churn rate went up, because of the first factor.
And the second thing that I said actually decreased churn rate. As of the end of May, there will be one stop, the other services. So that - will increase churn rate. In our case, I think other companies are doing it. But in our case, we have been promoting service bundling historically, it started with communication and handset and - fixed line and the other telecommunication and the telecommunication and financing.
And with that, the liquidity in the market will go down. So there are both factors. So the higher market liquidity is not a bad news. The migration to 5G will bring more traffic and more ARPU. So it's not just only negative things. But to see churn rate go up more, that will not be good for us, and we are going to control it firmly.
Yes. Are you interested in how the things will go? The second question, there were some questions about the number of IDs to make au more attractive, you said. About your marketing strategy up until last year, MNP are the new - the subscribers, was the focus. But now maybe you are moving towards the changes of the old data upgrades of the handsets, additional MNP or the additional IDs?
Rather than that, ID times ARPU. In other words, revenue increased, top line increase are, more important - the business people that I have been emphasizing on the importance of that, the thinking. From this fiscal year, are you saying that the marketing strategy will change?
As we have been saying at the very beginning of this fiscal year, the target was the rebound in the communications ARPU revenue within the first half of this fiscal year. And for that, we need to raise ARPU. That is a very strong focus. And for that, we need to increase 5G handsets and then the other - the net increase in smartphone is very important.
And SoftBank, 1 million, the smartphone, the users - SoftBank is talking about that, and we are going to do the similar things. So ARPU is the other focus. Our focus is on the top line increase. It's not only the telecommunication, but the value-added portion is very important. And including all that, we are aiming at increasing the top line.
Thank you.
Thank you very much [Operator Instructions] So the first row, in D, please.
Mizuho Securities, Hori, I have one question. As for the shareholder returns, once again, I'd like to ask a question. You said hybrid strategy, and it was understandable. But of the JPY 1.5 trillion, JPY 500 billion per year and there is additional JPY 100 billion seems to be quite large and generous. And if you increase by JPY 50 billion, then that is more understandable, but JPY 100 billion seems to be quite large and generous?
So, we tend to consider the next fiscal year onward. And you're talking about finance business and the expanding portfolio and also maybe you want to do more M&As. But that's what we thought, but JPY 100 billion in shareholder returns will be done in this fiscal year, because there was a good performance in the last fiscal year. But you want to do M&As, but there's no good opportunities?
And if there is, any good opportunities in the next fiscal year, you could reduce the shareholder return and go for more of M&As. Is that what you're going to do or M&As, there is not - it's not must for M&As? So how to spend your cash, is there any M&A that you have as a perspective to change the balance?
Well, in the mid-term, the JPY 700 billion is going to be spent for growth strategy. That's what we said. But because of COVID-19 and others, in terms of opportunities, there is no good potential deals that we were able to find a revolver and reliant integration. What we wanted to do was actually - has been realized without spending additional cash. But after the pandemic is over, there is actually more of those deals, and there are deals that we're considering that is increasing.
So in the areas of DX and global deals and finance and Web3 deals, those are all on the table for discussion, and we would like to capture one at a time. And the JPY 300 billion in dividend increase and shareholder - share purchase, this JPY 300 billion in parameters, because we haven't been able to grow too much in last year and fiscal - this year. So, we would like to demonstrate our commitment to shareholder return.
But actually, there are a smaller number of negative factors, and we - once we have this idea that we can reach 1.5 times more in EPS then we may review the shareholder return policy. But we have been increasing the dividend consecutively and 22nd, 22 terms. So, I hope that you will be stay tuned for the next fiscal year onward.
Thank you.
It seems that the other. I do not see any other hands raised. And with that, we would like to close the financial results briefing for the KDDI Corporation for the fiscal year ending March 2023. Thank you.