KDDI : Posted Performance Highlights and Q&A of the Financial Results for the Third Quarter of the Fiscal Year Ending March 2021

The Presentation of the Financial Results

At the financial results meeting, Executive Vice President Muramoto described four points: 'Highlights of the 1-3Q Financial Results,' 'Personal Segment,' 'Engagements in Growth Fields,' and 'Non-Financial Engagements.'

1. Highlights of the 1-3Q Financial Results

Consolidated sales for the third quarter were 3,923.8 billion yen, up 0.5% year-on-year. Operating profit was 871 billion yen, up 3.2% year-on-year, showing growth in both sales and operating profit.
This growth was due in large part to the Life Design Domain (excluding the Energy Business) and the Business Services Segments, both growth fields, which together grew by 40 billion yen. The Energy Business's total sales for the third quarter grew by 11 billion yen, but this was partly affected by the higher wholesale electricity market price that began last December. The impact continued into January, but consolidated performance was able to cover the impact, achieving the beginning-of-term target.
Meanwhile, negative factors include decreased income from mobile communication fees and an increase in strategic costs for promoting 5G and smartphone payment transactions. However, the growth fields have pulled up the performance.
Regarding the growth fields, sales in the Life Design Domain were 940 billion yen in total for 3Q, up 72.9%, and 722 billion yen in the Business Services Domain, up 76.0%, both showing steady growth with respect to the beginning-of-term targets and the medium-term management plan targets.

2. Personal Services Segment

au total ARPA revenue was 1,721.5 billion yen in total for 3Q, up 75.5%, and for UQ mobile and MVNO, which merged in October, revenue was 70.2 billion yen, up 78.0%. They are growing steadily with respect to the beginning-of-term targets.
On January 13, we announced new pricing plans under the slogan of 'Bring 5G to all customers'. We eliminated complicated terms for discounts and aimed to offer simple, affordable plans fit for both families and individual users in order to accommodate diverse needs.
'au' is a worry-free unlimited plan which provides the value of a full range of services, from unlimited data to support and family discounts. au's new online-only brand 'povo' offers 20GB a month for 2,480 yen, which customers can customize to meet their needs by choosing additional services.
'UQ mobile' offers affordable plans for individual users with low to medium data usage and offers in-store support, in addition to permitting data carryover. We will continue these efforts, seeing things from users' perspectives and delivering exciting 5G for everyone.
'povo' is based on the idea of simple, basic fees. Customers can add the features they need like toppings on ice cream. For example, customers can add an up-to-5-minute unlimited calls option for 500 yen a month, and 24-hour unlimited data usage for an additional 200 yen. The brand will incorporate more 'topping' services and offer a new customer experience in which customers can omit what they do not need as well as add and subtract services as they wish.
Going forward, we will emphasize each brand's character and pricing plan while actively promoting 5G to gain momentum. au will offer worry-free unlimited usage and set plans that will drive 5G adoption. povo will aim to acquire new subscribers by differentiating its toppings and achieve high NPS through the new customer experience, while UQ mobile will aim to acquire new subscribers and higher data usage by offering attractive data-carryover plans. More subscribers in UQ mobile and povo will mean decreased mixed-communication ARPU, but we will aim for sustainable growth by acquiring more subscribers and more data usage as well as by enhancing each brand's life design service offers.

Regarding 5G, in December we rolled out 5G to all prefectures. By March 2021, we will have around 10,000 stations, and by this spring, we plan to have rolled out 5G to the areas around all Yamanote Line and Osaka Loop Line Stations. By March 2022, we plan to have launched 50,000 stations, which will cover 90% of the nation's population.
In December, we launched services using the existing 3.5GHz frequency. Service using the 700MHz frequency will start this spring. By using the existing frequencies, we will develop seamless 5G networks and expand 5G service areas.
Our 5G mobile device sales reached 1.2 million devices last December. Sales of the new iPhone that launched last October are also doing well. We will promote sales to meet the beginning-of-term targets. As for services, au 5G Experience automatically improves video to high quality by evaluating the user's unlimited plan usage status and whether the user is in a 5G area. We also offer unlimited data plans packaged with other deals through partnerships with various businesses, including Netflix and Amazon.
We will announce new pricing for the set plans in March.

3. Engagements in Growth Fields

First, we would like to touch on the Business Services Segment. The total number of IoT lines, which serves as the segment's KPI, rose to more than 16 million in December, against the 15 million mark set at the beginning of the term. The KPI is increasing faster than predicted at the beginning of the term.
Regarding the growing total number of IoT lines in connected cars, we have rolled out a global communication platform through a partnership with Toyota. The platform is now available in China, North America, Europe, and Australia. We are also promoting partnerships with Mazda and Subaru, and the platform is being implemented in their new models.
Our smart meters now cover not just electricity but gas and water as well. Our partnership with Toyo Keiki has made progress over the past two years. We are also working on measures against infectious disease with Ecomott, jointly developing various services.
With respect to expanding our Business Services Segment's business areas, we signed a basic agreement with JR East in December to launch a joint business that merges public transport with communication. We will jointly work on the Shinagawa Development Project with Shinagawa as the core city, and evaluate plans for developing satellite cities and mobility services to boost the business. We will also join hands with partners at home and abroad to create new businesses and advance KDDI Accelerate 5.0. KDDI DIGITAL GATE, a 5G and IoT business development site, our corporate sales division to support clients' digital transformation, and the new KDDI Research Atelier will work together as the 'Toranomon Triangle' and function as an arena for open innovation.
Next, the Life Design Domain. Financial payments and transactions, which are the domain's KPI, grew significantly by 1.4-fold year-on-year to 6.5 trillion yen. au PAY Card (credit card) is also growing steadily, with 6.1 million cards issued.
Our 'Cashless Payment via Smartphone', which is an important customer contact point, had been introduced to over 3.55 million stores as of last December, nearly doubling year-on year as the number of stores surges. We are also promoting a partnership between au PAY and Ponta, and au PAY was introduced to Digital Ponta Card last December. These services are more customer-friendly because they enable customers to pay without opening the au PAY app. This month, au PAY will also be introduced to the Lawson App. Through these efforts, we will continue to offer customer-friendly services.
To direct these smartphone-payment-enhanced customer contact points towards our financial services, we will launch on March 1 'Mortgage 'au' mobile preferential discount', the first service in Japan to discount mortgage rates when the borrower signs up with an au phone. We have also ramped up the special offers for au PAY Gold Card, whereby users can obtain more Ponta points by using au communication services and other au-related services. Also last September, au Kabucom Securities launched a 'point-based investment' service under which users can buy investment funds with Ponta points. We will continue our efforts to encourage higher usage by obtaining more au PAY users and offering various appealing financial services.

4. Non-Financial Engagements

KDDI is working to transform into a Human Resources First Company; last July, we introduced a new human resource system to implement a work-style that helps workers achieve results without being confined by time or location. We are simultaneously driving the Declaration of KDDI New Work Styles,KDDI Version Job Style Personnel System, and Internal DX.
Last December, we reduced the number of head office seats by 40% (to the number of head office employees) to optimize office space. We also aim to create a 'hybrid' workplace where half of employees telework, providing all employees with a PC based on the zero-trust concept.
With respect to revitalizing regional areas, we aim to develop sustainable business models through our regional-revitalization project 'Te to Te' based on partnerships with regional areas to train personnel, drive digital transformation, and utilize funds. In 3Q, we worked with regional municipalities, educational institutions, organizations, and businesses from across Japan, especially on 5G-based regional revitalization/art/culture projects.