The Presentation of the Financial Results

At the financial results briefing, President Takahashi presented "progressing towards a resilient telecommunications infrastructure," "the consolidated financial results for the first half of FY23.3," and "the progress on the Mid-term Management Strategy," which is aiming for resilient telecommunications infrastructure.

1. Progressing Toward Resilient Telecommunications Infrastructure

KDDI has a cross-organizational structure in place to promote coordination between the Operation, Engineering/Construction, Customer Services/PR, and Sales departments to prevent the recurrence of communication failure. In September, company-wide training on communication failure was conducted in addition to the regular disaster drills. The training examined what happens when KDDI, which supports the infrastructure that underpins people's lives, faces a disaster and causes communication failure and how it should act.
At the Ministry of Internal Affairs and Communications' Verification Conference, discussions took place on improving public information and communication systems in the event of an accident and on formulating industry-wide rules. Based on these discussions, a report has been submitted from the six perspectives listed on the slide:

Discussions will continue in the Ministry of Internal Affairs and Communications' WG on (4) Improvement of PR content and methods and (5) Secure alternative means such as emergency calls.
Quality will also be improved through an additional medium-term investment of 50 billion yen, primarily in virtualization technology to meet customer expectations. As an advance on long-term investments, early migration to a virtualized infrastructure will lead to tighter congestion control and automation of operations. In addition, the operations upgrades will be promoted to accelerate abnormality detection and restoration response.

2. Consolidated Financial Results for the 1H FY23.3

The progress toward consolidated operating income was 50.8%. Although profit decreased in 1H due in part to the communication failure response and the impact of fuel price hikes, KPIs in the NEXT Core business and the financial business are on track, and performance is strong in our focus areas. The aim is to continue to increase consolidated earnings and expand focus areas.
As for changes in consolidated operating income, 1H saw a decrease of 14.8 billion yen due to the communication failure response and fuel price hikes. Excluding these impacts, multi-brand communications ARPU revenues were down 53.9 billion yen, group MVNO revenues and roaming revenues were down 6.9 billion yen, and focus areas were up 10.6 billion yen, and there was also cost savings related to 3G closure, resulting in a small rise in total revenues.
Although there was an increase in IDs, multi-brand communication ARPU revenues were down 53.9 billion yen year-on-year (YoY), excluding the impact of refunds, due to the brand mix. Value-added ARPU revenues were up 60.8 billion YoY, with growth in au Denki, settlement, content, and product support.
The number of multi-brand IDs grew to 30.93 million YoY as of the end of September. New subscriptions fell due to communication failures in July but have been on a recovery trend since August, primarily for UQ mobile. KDDI will continue to aim to achieve the target set at the beginning of the fiscal year.

3. Progress on the Mid-term Management Strategy

First is sustainability management. KDDI seeks to create a virtuous cycle to impact society for the better through our business, and leverage this new social value in our forthcoming business strategy. Among the sustainability targets, the number of regional disparities solved was 2.75 million, compared to the medium-term target of 15 million. As for human capital, employees are taking DX courses in earnest, and the cumulative number of IoT connections has grown to 28 million, primarily in mobility.
As part of the efforts to strengthen our management, KDDI has issued its first sustainability bond, totaling 100 billion yen. The funds will be used chiefly for 5G capital investment, the core of our satellite growth strategy, and will also be used to promote carbon neutrality. We are also supporting cutting-edge technology and developing green innovations by investing in startups. We have revised our human rights policy to articulate more specific initiatives in response to heightened global awareness of human rights.
The impact of the communication failure on various industries and life infrastructures has caused a shift in mindset within the company. As the core of our satellite growth strategy, we aim to provide solutions for improving society in addition to building resilient telecommunications networks. For corporate customers, we will conduct analyses and in-depth investigations into the impact on customers further down to their end users, aiming to build a foundation as a robust social infrastructure that will create new value.
Regarding our focus areas, DX, finance, and energy, Digital Divergence Holdings, au Financial Holdings, and au Energy Holdings will align themselves to maximize corporate value by leveraging synergies with KDDI's strengths in the telecommunications business.
In the business segment, NEXT Core business drove revenue growth. As for operating income, the NEXT Core business also drove the increase, with Corporate DX and Business DX making particularly significant contributions. In Business DX, we are building the foundation for industry-specific DX through development, products, and BCP to help customers achieve DX. The KDDI Digital Divergence Group aims to expand development projects by connecting operating companies with capabilities essential for DX promotion, including cloud and agile. KDDI is also working to expand our DX products through partnering, and is strengthening value-added offerings using AI, video data, and au location data. In regard to BCP, we will strengthen our BCP response menu by offering SORACOM SIM combinations in IoT and, in the future, by providing backup line solutions.
Here is an example of Business Co-Creation: KDDI Video Management Service is a platform that enables integrated management of video data from surveillance cameras at multiple locations in high-security cloud settings and, combined with AI video analytics, achieves advanced operations. We will continue strengthening our value-added offerings in this era of blended communications.
KDDI's financial business recorded a significant increase in profit in 1H, partly due to a temporary impact from the accounting change in 1Q. Key KPIs' Transaction Volume of Settlement/Loan and Loan Product's Balance increased steadily, and the balance of card loans exceeded 200 billion yen in September.
Regarding synergies with KDDI in the financial business, we have financial services that center on points. Ponta's membership base exceeds 100 million, and this collaboration enables members to use and save points. We also promote cooperation with other financial services through the points. We will continue to offer attractive financial services centered on our au customers and Ponta member base.
In addition to making the service more attractive, we have launched an initiative to expand its use with au PAY merchants. The au PAY Growth Pack can distribute coupons to au PAY members targeted at those members' interests to support sales promotion activities, responding to merchants' wishes to "attract new customers." We will aim to expand our membership base further, thereby also growing our highly profitable credit card business.
As for Digital Twin, we are working on expanding our lifestyle and economic spheres by creating a virtual world filled with dreams. This Virtual Halloween festival, in collaboration with the government and startups, was held for the third time. By collecting data from the real world and reconstructing urban spaces in three dimensions, we aim to create a data platform that can be used in various industries by enabling precise simulations. We also aim to achieve an exciting shopping experience in the apparel industry that combines a diversified purchasing experiences and sustainability with high-definition real-time XR.
Regarding regional co-creation, we will promote regional DX in partnership with the City of Tsukuba. For example, our drone initiative combines drones with automated delivery robots to validate logistics services. Our nationwide au stores also emphasizes community ties, and many customers have participated in smartphone classes and Mobile Phone Reactivation events.
As for leveraging "Starlink" satellite telecommunications, we have agreed to provide it to enterprises and local governments throughout Japan, in addition to using it for au base stations' backhaul lines. Because Japan, with its many mountains and islands, is prone to natural disasters, we aim to bridge digital disparities and create a society where people can live peacefully.
As a summary of 1H results, within our Mid-term Management Strategy, the Satellite Growth Strategy is making steady progress through its KPIs in the focus areas of DX and financial business, and the Center's telecommunications business will continue to focus on 5G, aiming to bottom out multi-brand communications ARPU revenues in FY23.3. We will promote initiatives that take lessons from communication failures, and aim to create new value that will improve society in addition to building resilient network infrastructure. These activities will be promoted with a medium-term view.

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KDDI Corporation published this content on 16 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2022 07:18:10 UTC.