KDDI : Posted Performance Highlights and Q&A of the Financial Results for the First Quarter of the Fiscal Year Ending March 2022

The Presentation of the Financial Results

At the financial results meeting, Executive Vice President Muramoto described six points: 'Consolidated performance in the first quarter,' 'Toward sustainable growth,' 'Multi-Brand strategies,' 'Life Design Domain,' 'Business Services segment,' and 'KDDI Sustainable Action.'

1. Consolidated performance in the first quarter

The first quarter saw steady progress toward the annual forecast, recording consolidated sales of 1.3003 trillion yen with a progress rate of 24.3%, and consolidated operating profit of 299.2 billion yen, with a progress rate of 28.5%. We will continue to achieve the annual forecast through measures such as expanding growth fields.
Consolidated operating profit for the first quarter was 8.5 billion yen, up year on year. While the Multi-Brand communications ARPU revenues dropped by 11.7 billion yen, the Life Design Domain and Business Services segment, which are growth fields, recorded 7.5 billion yen more profit, contributing to the final increase in profit. Operating profit in the Business Services segment was down 1.5 billion yen year on year, but actually increased when you consider the temporary impact on profits in the last first quarter, thus growing steadily toward the annual forecast.
We are focusing on giving value back to customers and driving 5G, as key issues for our communication business. Regarding revenue from communication charges, when we look at the loss from the return to customers through means such as revised plans, the gain from increased data usage and other factors, we expect to lose around 60 to 70 billion yen in revenue. Meanwhile, we will drive structural reforms for sustainable growth, with medium-term goals and measures such as further expanding growth fields, saving costs, and terminating 3G.

2. Toward sustainable growth

The fiscal year ending March 2022 is going to be a very important year, in that it is the year to complete the current medium-term management plan and build a foundation for sustainable growth. Our growth strategies are to continue to save costs and develop growth fields, centered on Multi-Brandstrategies and existing communication businesses, including 5G. The foundation for sustainable growth is to enhance customer engagement, which is our top priority.
To improve customer engagement, we will enhance customer touchpoints and higher-value proposals. For individual customers, we will propose convenient and pleasant services according to their use of the au Economic Zone. For corporate customers, we will explore issues together with the customers at their job sites and propose DX to transform their business models so that they will continue to choose us and we can build with them strong relationships based on trust. This year, we reinforced our organizational structure to drive these efforts. The Personal Business Sector established the Marketing Division to drive the communication and life design business together, based on strategic marketing. The Solution Business Sector established the Business Design Division to strengthen business design capabilities to contribute to customers and the Business Exploration & Development Division for cross-organizational innovation. Under the new structure, we will respond to the voices of customers more closely than ever before and offer value-added proposals.

3. Multi-Brandstrategies

UQ mobile is looking to become a brand that stays closer to customers' lives. We have launched the Denki Set Discount that will offer continued discount for families and single households alike. We will propose to UQ mobile customers the au Economic Zone services that have been extremely popular among au customers. We will offer them at all au shops and au Style shops. We have also substantially expanded the smartphone portfolio. As customer needs have been diversifying, we will try to become a closer partner to customers by responding to their expectations and needs.
With the slogan 'Zutto, Motto, Tsunagu Zo, au (Connecting more and always with au)' we are introducing the 5G network to areas based on where people are likely to go on a daily basis, so that it can be incorporated more into people's lives. In June, we launched 5G services on the platforms of all 30 Yamanote-Line stations and all 19 Osaka Loop Line Stations. Furthermore, we announced au 'Rail Line 5G Conversion' to cover railway stations and their routes with 5G. By the end of fiscal 2021, we will look to cover the platforms, station concourses and routes in the key zones of 21 railway lines in Kanto and 5 lines in Kansai including JR and private sector into 5G.
With regards to initiatives to improve the value of the 5G experience, we extended a virtual space in Shibuya through the Shibuya 5G Entertainment Project and started offering a new Harajuku area. We also projected 3D contents with cutting-age art AR, including contents from Aomori Nebuta Festival, hosting events jointly with JR East for people in Tokyo to experience Tohoku. We will continue to drive collaborations with our partners so that people can enjoy the most advanced technologies and 5G areas.
Regarding smartphone subscriptions, the number of smartphone subscribers for 4GLTE and 5G combined had steadily grown to 29.27 million phones by the end of March. The total number of 5G units sold exceeded 3.4 million by the end of June. With over a million more phones subscribed in three months, it has been growing steadily.

4. Life Design Domain

With regard to Life Design Domain's KPI, various core services have continued to grow steadily. We have 2.96 million au Denki,etc. subscriptions, 6.7 million au PAY Card subscribers, and 15.57 million au Smart Pass subscribers, of whom 11.64 million are au Smart Pass Premium members, and the services are taking root steadily.
In the Finance Business, which is the key driver of growth for the Life Design Domain, the amount of payments and transactions increased to 2.5 trillion yen, or by 1.3 times year on year, growing steadily. au Jibun Bank mortgage also reached the 1.5 trillion-yen mark in June, growing significantly. Its growth is accelerating, growing by 1.5 times in the last 9 months, thanks partly to measures such as the au mobile preferential discount launched in March.
For expanding the au Economic Zone, the number of members for au PAY, a smartphone payment service that serves as a customer touchpoint, reached over 33 million. To offer additional value, we also introduced food delivery services and healthcare services, expanding the portfolio of the au Economic Zone. Thanks to the au PAY campaign launched in July, users can score Ponta points more efficiently, and as its collaboration with the 'menu' app and financial services has been strengthened, and we will further promote the point scoring scheme. We also signed a capital partnership with menu in June to make food delivery services more accessible. For healthcare services, we enhanced the features of the 'au Wellness' total healthcare app in June. Looking toward further measures such as expanding to online medication guidance services, we will offer comprehensive support to consumers, from their day to day health management to medical treatment, driving digital transformation in the health and medical care domains. Going forward, we will continue to strengthen customer touchpoints and service areas to expand the au Economic Zone and make it even more attractive, along with the point scoring scheme.

5. Business Services segment

In the Business Services segment, sales from growth-driving NEXT cores significantly grew by 18% year on year. Corporate DX, Business DX and Business infrastructure services are all steadily expanding their business fields. We will continue to promote the NEXT cores and aim to grow the entire Business Services segment through synergies with core businesses, such as attracting more IDs and improving customer engagement.
Our strengths in the Business Services segment are, in addition to our extensive IoT track record and experience, the ability to offer various value outside of cloud and data analysis as a one-stop shop, and the ability to collaborate with customers to create businesses on a global basis. With the 5G era ahead of us, we are able to respond to the world that urges further connectivity and support our customers as they progress their DX.
The KDDI IoT World Architecture, which supports customers' global DX/IoT, combines localization and global standards in an optimal manner to support not just connected cars, but further beyond this, customers' DX at their overseas locations, offering platforms to a wide range of industries. To offer platforms to a wider range of industries, we launched Global IoT Access in June. It merges international carrier relations, which is one of KDDI's strength, with SORACOM's IoT technologies including on SIM management, being offered at low prices in many locations worldwide. We aim to roll it out to over 200 countries and regions by the end of the fiscal year to offer one of the largest coverages around the world.
We are also accumulating a track record of supporting customers' DX and IoT environments. The same applies for the automobile industry. With connected cars becoming more advanced, we signed a partnership with SUBARU for communication-based safe and secure car manufacturing. For DX cases for customers' overseas locations, we have supported Sekisui Chemical's local Chinese subsidiary's plant become a smart factory and transforming its operations, adopting our DX and IoT to improve production and maintain facilities systematically.
For new collaborations toward a mobile society, we entered an operational partnership agreement in June with Swift. We are aiming to create new markets and businesses by actively applying technologies, such as those associated with drones and self-driving cars, with the goal of launching commercial services by the spring of 2022.

6. KDDI Sustainable Action

For our conservation efforts for the global environment, we have updated the KDDI GREEN PLAN. Toward zero CO2 emissions by 2050, we will reduce our own emissions by 50% by fiscal 2030 compared to emissions in fiscal 2019.
In au Denki services, we are collaborating with the subsidiary ENERES to launch a new eco Plan. Its practical renewable energy rate is 100% and 2% of electricity charges will be donated to conservation efforts for the global environment.
To enhance initiatives to reduce CO2 emissions, we will drive initiatives to reduce power usage at our stations and data centers that use large amounts of power. We have signed an agreement with Nokia to conduct an experiment to apply AI control for the first time in Japan to reduce the stations' power usage by up to 50%. Furthermore, together with Mitsubishi Heavy Industries and NEC Networks & System Integration, we have started an experiment to realize a small data center with containerized immersion coolers. We will enhance our collaborations with partners ahead of the 5G era.