KDDI Corp

TSE:9433

Q4-2025 Earnings Call

[Unknown Executive]

We will now begin the financial results briefing of KDDI Corporation for the fiscal year ended March 2025. I am [ Hiraoka ] of Public Relations Department and will serve as the moderator today. This briefing will be held in this venue and also broadcast live on YouTube and other media.

3 financial results-related materials and 4 TSE disclosure material are posted on our IR website. For the attendees in the venue, please check your handout.

Let me introduce the 4 participants today. Hiromichi Matsuda, President, Representative Director and CEO; Nanae Saishoji, Managing Executive Officer, Director, CFO; Tomohiko Katsuki, Managing Executive Officer, CSO and CDO; Kenji Aketa, Executive Officer and Executive Director of Corporate Management Division.

President, Matsuda, please.

[Hiromichi Matsuda, executive]

Let me share with you the results of the fiscal year ended March 2025. Today, I would like to focus on the 4 points on the slide.

First, as KDDI, what we aspire to and our commitment to growth, and I'd like to share with you KDDI's aspiration. Under the current midterm management strategy, we have promoted a satellite growth strategy aiming for growth centered on the telecommunications business while integrating with adjacent businesses. On the other hand, KDDI Vision 2030 is the creation of a society in which anyone can make their dreams a reality by enhancing the power to connect.

Regarding the steps to realize this, we need to accelerate transformation through integration of 5G that's in the center, digital data and AI to advance to the next stage of growth. We believe that is important.

Towards the next growth, I would like to make the following 2 commitments: First, enhancing the power to connect shown on the bottom. We will establish underlying communications network as KDDI's strong competitive foundation. The second is creating new value with digital data and AI as shown on the top. We will enhance the portfolio by applying them to each business domain.

With these 2, we will upgrade the power to connect to a new stage. First, enhancing the power to connect is the core of our satellite growth strategy, our business foundation. So far, KDDI has pursued how to realize better communications. In particular, we have been focusing on the quality of communications. One of our achievement is ranked the world #1 connected experience by Opensignal shown on the left.

In addition, as you can see on top, we have over 50,000 sub-6 millimeter wave-based stations, the highest number in Japan. 5G base stations, the number is more than 100,000. And top right, we are the first in Japan to indicate 5G plus to visualize sub-6 millimeter wave communications with highest number of base stations. And we'll be gradually addressing this.

The 5G communications is so important. Regarding those devices, we have High Power Use Equipment, HPUE function on 5G devices. And we are gradually rolling out this feature on 5G devices. Sony Xperia was announced yesterday, Mark-7 will be launched in June and the 5G HPUE is available on this device. And down right, shows au 5G Fast Lane, which we announced as a new value in communications. For au 5G Fast Lane customers, relatively more radio resources are allocated.

With this technology, we provide more comfortable connection even during congestion. With these, we maintain KDDI's superiority and develop high-quality 5G network and coverage area, which is our competitive edge. We would like to keep taking up challenges for enhanced quality. And KDDI will accelerate communications capabilities. We provide direct satellite and smartphone communication service enabled by au Starlink Direct, connecting the unconnected wherever you can see the sky not only to au, but to customers of all carriers.

We are glad to announce that we are having many applications from UQ Mobile and users of other carriers. During the Golden Week holiday season, it was used by about 40,000 people per day. And starting from yesterday, it's compatible with iPhone 13. In June, more than 8 million compatible smartphones will be there. To live up to customers' expectations and trust, we pledge to commit to communications, our core business, refining communications, which is a basis of our service.

On top of the high-quality network, we are adding new communications values advancing our multi-brand strategy. Connecting more and always with au is the foundation common to multi-brand, high-quality network. On top of that, with au together with partners, we aim to fully realize new experience values as the main brand values of being reliable, stress-free and put. And with UQ Mobile, we deliver simple and affordable values. And povo is dedicated to online with toppings as you like. And in this way, we would like to build our brand. So we'll be building these 3 multi-brands. On top of that, particularly the key is AI. With the enhancement of AI, we intend to create new values.

In the communications foundation that have been built, digital data is accumulated being generated from daily business. As you can see on the bottom, KDDI owns not only online touch points such as communications and services, but also offline channels like au Shop or Lawson. The data generated from the AI will be communicated by what we have. We call this hyper-personalization. So for individual customers for each and every one, providing life support and for corporate customers, transformation of the operating models for each company.

We believe we can offer such solutions. This is what we call AI market. We made an announcement. In the early phase of smartphones, the customers probably wondered what they could possibly do. So the selected applications were offered. We launched what we call the au Smart Pass in the early phase of smartphones, allowing users to take applications. And for those customers who wanted to look for and test applications they wanted to use, we created such a place for them to choose apps.

We have shared revenues with content providers contributing to apps penetration. And that was a win-win. We want to do something similar in AI. What's great about AI? Customers may be wondering, so collecting such applications and partners who gather in this place, we want them to grow as well, and that's the kind of environment we want to build.

Now the other day, we made an announcement about RCS. This is a messaging service. So AI chatbot utilizing RCS, we would like to release this in the near future and making AI something familiar and easier to use. This is for corporate customers. KDDI has touch points with about 400,000 corporate customers and have accumulated a wealth of knowledge for each industry and utilizing those, as you can see in retail, logistics, BPO, starting from those retail operation, labor reduction, customers shopping experience update, we would like to keep refining them.

We are steadily building infrastructure to provide AI services. In April, we signed an acquisition contract for the Sharp Sakai Plant land and building, and we aim to bring the Osaka Sakai AI Data Center into full operation within this fiscal year. So the orders have already been placed. We will be planning to start the operation -- test the operation from the middle of the month. And we'll be providing Google Gemini on GPU in Sakai Data Center.

For those who are used to development environment for Google Cloud Gemini by using the secure infrastructure offered by KDDI, they can retain data within Japan and utilize AI. In other words, we would like to enable sovereign AI provision. As I shared with you, based on the initiatives I have shared with you, we will advance the satellite growth strategy aiming to grow business and maximizing the enterprise value.

By enhancing the power to connect, as shown on the bottom, we will strive to offer better communications value, which is our core as well as strength. And in particular, cutting-edge technology or new business creation, they will be supervised by the President, by me. I will be extensively involved in this. You can see the time line on the X-axis, and we would like to keep working towards next midterm period.

So these are the challenges. To succeed in these challenges, we aspire to be a company that inspires passionate challenges. We would like the employees to take up challenges from within, not just employees, but together with passionate partners. We would like to take the challenge of creating future, look forward to KDDI's growth going forward.

Next, let me focus on the performance of the fiscal year ended March 2025. Consolidated results for the year ended in March 2025 enjoyed increased revenue and income, a steady progress towards the final year of the midterm management strategy. The left shows operating revenue, which was JPY 5,918 billion, up 2.8% year-on-year. The center shows operating income, which was JPY 1,118.7 billion, up 16.3% year-on-year. The right is profit for the period attributable owners of the parent, which was JPY 685.7 billion, up 7.5% year-on-year.

Next shows factors for change for consolidated operating income. Communications ARPU revenues and focus areas grew steadily. Also, Lawson's performance was strong, resulting in increased income. From the left, Group MVNO revenue and Rakuten roaming revenue were minus JPY 13.2 billion year-on-year. Multi-brand communications ARPU revenue were up JPY 6 billion. Financial Business and Energy business combined were plus JPY 17.7 billion. Lawson's equity method income was up JPY 19.4 billion. DX Business Services segment were up JPY 15.4 billion. Others included increase in technology cost. And excluding temporary impacts such as provision for the Myanmar Telecom business in March 2024 period, income increased by JPY 38.1 billion.

So this is the review of the fiscal year. As you can see on the left, ARPU revenue continued the trend of revenue growth in Financial Energy business, the Lawson, the Ponta Pass synergy was manifested. DX, centering on the growth areas, year-on-year double-digit revenue increase drove the growth. Right-hand side shows the shareholder returns, where we carried out flexible share buybacks with total acquisition amount of JPY 400 billion in fiscal year ended March 2025.

Next, let me focus on the forecast for fiscal year ending March 2026. In this term, we will continue to promote satellite growth strategy, aiming to further increase revenue and profit. The left shows operating revenue at JPY 6,330 billion, up 7.0% year-on-year. The middle shows operating income at JPY 1,178 billion, up 5.3% year-on-year. The right is profit for the year at JPY 748 billion, up 9.1% increase year-on-year. These are the targets.

Next is operating income key points in FY March '26. We will aim for business growth centering on increased mobile revenues and DX growth. The main factors of increase were increase in mobile revenues through value-added enhancement, including communications, growth of finance, energy and Lawson and DX growth centered on growth areas as well as the result of technological restructuring.

The main factors of decrease were decrease in Rakuten roaming revenue, which we already incorporated in our plan and return to partners, including partner agencies and construction companies as an initiative for the future in order to create a virtuous economic cycle. In Personal Services segment, we aim to enhance the value of connected experience toward business growth by improving lifetime value. On the left, connected experience world's #1 rated communication, and KDDI's unique services will be combined to create new value. On the right, we will maximize revenues by enhancing the value of connected experience and improve churn rate by connecting with customers present and future to further grow communications and value added.

Next, I will explain the new definition of mobile revenues starting from FY March '26. With the recent service revision, various values, including Ponta Pass, has been incorporated into the plans. Accordingly, we have changed to mobile revenues, which includes added value that has become inseparable from communications revenue. On the left, mobile revenues increased to JPY 1,850.1 billion in FY March '25 and is expected to grow further in FY March '26 through value provision by integrating communication and value-added.

With the service revision, we will redesign our multi-brand strategy and develop attractive plans for each brand that meet customer needs. In addition to improving churn rates by making au more attractive, we aim to enhance our competitiveness through unique value propositions offered by KDDI, such as balanced transition between au and UQ Mobile. au offers reliable and stress-free unlimited data with simple plans where you can choose from freely.

The main plans are on the 2 on the left, the new au Value Link Plan and the renewed Unlimited Data MAX+. Our plans include unlimited data usage and other worry-free benefits where you're out of reception range or overseas. As you can see, if you also want the great value of Ponta Pass and visit Lawson frequently, we recommend the Value Link Plan as the difference is only JPY 220. Based on these 2, we offer au Money Activity for those who use au's finance and payment services. And for those who want to enjoy entertainment, we offer plans that combine both contents.

UQ Mobile has consolidated its plans into 2 simple and affordable plans. On the left, Komikomi plan value offers an additional 5 gigabyte of data and Ponta Pass with a maximum data capacity of 35 gigabytes. On the right, the popular automatic discount plan, Tokutoku Plan 2 adds 15 gigabytes of data with a total data capacity of maximum 30 gigabytes. In addition, both plans come with access to au Starlink Direct at a discount. We also plan to revise our existing plans, and we'll provide you with more information at a later date.

Ponta Pass is one of the values. On the left, the net increase in Ponta Pass since the release in October has been strong at 210,000 members. In particular, the collaboration with Lawson has been a success with the number of users redeeming benefits reaching a total of 25 million, which is a great success. We will further accelerate this momentum and aim to achieve a net increase of 1 million in FY March '26. On the right, we will strengthen the collaboration between Telecom and Lawson.

Now Lawson is celebrating its 50th anniversary this year and has been performing well. So collaboration measures with KDDI is contributing to this. On the right, the new management policy, Lawson Group Challenge 2030 sets ambitious goals of increasing daily sales in domestic convenience stores by 30%, reducing store operations by 30% and doubling franchise profit per owner. To help Lawson achieve its next stage of growth, KDDI is committed to further strengthening its partnership and providing support, including technology.

In Financial business, we aim to expand our customer base by strengthening collaboration with communications to achieve further growth. On the left, operating income for FY March '25 was JPY 40.6 billion, an increase of over 20%. We grew mainly through au Jibun Bank and credit card businesses using the Money Active Plan+ on the right as a lever where number of subscribers exceeded 1.5 million. We want to further accelerate our growth with the new plans we have just announced.

Next, Business Services segment. We will shift our resources to the growth areas based on profitable and robust communication infrastructure, including the high-growth digital infrastructure area in the IT market and aim for high growth. On the left, we will provide ample added value in the growth area, creating a virtuous cycle that improves the lifetime value of communications, which is our base area. On the right, sales in the growth area increased by 17% year-on-year in FY March '25, a growth rate that exceeded the market growth of the digital infrastructure area, which was 8%.

We will accelerate even further in FY March '26 by capturing market demand. We aim to achieve double-digit sales growth in FY March '26 by expanding the value proposition in the growth area. High profit margin IoT-related services and data center will lead the growth with a combined revenue increase of approximately JPY 50 billion, a new revenue base such as security, facilities, Starlink, drones and others are receiving strong inquiries, thanks to robust digital demand with a total increase in revenue of approximately JPY 90 billion. Revenue in the base area that supports these will increase through mobile value enhancement. By capturing these demands steadily, we aim to achieve our target of higher profits for FY March '26.

IoT and Data Centers will expand globally. On the left, in IoT-related services, we leveraged our strength in operation and monitoring unique to telecom companies to exceed 50 million IoT connections in FY March ' 25 and aim to expand to 57.5 million in FY March '26. In addition, connecting compatible PCs with built-in communication capabilities were released in January of this year and are already on sale from 5 manufacturers. Customers can use the service without being aware of monthly communication charges. We have high expectation of the market growth going forward. We will continue increasing the PC going forward.

On the right, connectivity data centers are expanding steadily in each region. In addition, to being #1 in connectivity in Europe, we also became #1 in Thailand just 2 years after opening. We will continue to strengthen our foundation with the aim of achieving revenue of JPY 200 billion.

We will and then establish a new business foundation to support the AI era and accelerate our business growth. On the left, regarding security. Following the acquisition of LAC as a wholly owned subsidiary last year, we began considering collaboration with NEC to develop the largest scale cybersecurity business in Japan. Together with NEC, we will combine our strength to jointly build a purely domestic cybersecurity foundation.

On the right, we are implementing advanced technologies to solve social issues using drones and Starlink. We will continue to expand into various use cases, including construction, vessel and disaster prevention and contribute to revenue expansion in FY March '26.

Next is shareholder returns. In addition to EPS growth, KDDI is also committed to dividend payout ratios and continuous dividend increases. In line with sustained profit growth, DPS has also steadily increased. We aim for DPS for FY March '26 to be JPY 80, up 10.3% year-on-year and 24 consecutive DPS growth. In addition, we resolved to cancel treasury shares over 5% of the total number of issued shares. In addition, the company also resolved to acquire treasury stock totaling JPY 400 billion as upper limit and to make a tender offer for its own shares up to a total amount of JPY 350 billion.

Based on what I have explained so far, let me talk about EPS, which is an important target in our current midterm management strategy. FY March '26 is the final year of the current midterm plan, and we have an unwavering determination to continue our target of achieving 50% EPS growth vis-a-vis FY March '19 under the new management structure. By achieving both business growth and shareholder returns, we aim for EPS of JPY 194.38 through 50% growth. These efforts will also result in improved capital efficiency. And we aim for ROE, excluding the Financial business to be in the 14% range for FY March '26.

Finally, let me talk about our initiatives for the future. Toward the future, we envision it is essential that we take steps to grow together with our stakeholders. We aim to create a virtuous cycle where we continue to create and provide value that is unique to KDDI, which will lead to fair price, which can then return to our shareholders, stakeholders and reinvest in the future.

For example, we want to increase Japan's presence in the future by engaging in fair transactions and fair price transfers with business partners and providing operational support to agencies who support telecommunication services. Through investments for this purpose, such as investments in advanced telecom, the evolution of AI and environmentally friendly energy technologies, we will contribute to the realization of a sustainable future.

In Expo 2025 Osaka, Kansai that opened in April this year, we will provide opportunities for children, the future generation, to think about the future and take actions themselves in collaboration with Hitachi. We will continue to actively support start-ups. To date, we have supported many start-ups through our corporate venture capital KOIF. From now on, we will pursue scale in addition to quantity and do everything we can to promote the creation of unicorn companies originating from Japan.

To do so, in addition to the KOIF we have been providing, we will invest in promising overseas venture funds and ATAC, which has strength in industry academia collaboration in our efforts to grow start-ups.

Next, let me explain about the co-creation in our new HQ Takanawa, which we are relocating to this year. The concept of KDDI's new headquarters, which will open this fiscal year is Connectable City that enhances the power to connect and continues to inspire an exciting future. We aim to become a place where not only KDDI Group, but also our customers and partners can come together, exchange new ideas, engage in trial in the era and continue to communicate.

Takanawa Gateway City is truly a sandbox for the future, where we will create innovation together with start-ups and other partners and roll out the best practices. For example, we will accumulate examples such as next-generation convenience stores where the first real and tech convenience store will open at our new Takanawa headquarters and the Smart City project we are working on with JR East and develop solutions that contribute to solving social issues as [ WAKONX ].

Another focus at the new Takanawa headquarters is investment in human resources. As part of our transformation into human resource-first company, we will use the relocation of our HQ as an opportunity to create an environment where employees can take on challenges for success. We aspire to be a company that inspires passionate challenges through work style update by strengthening internal and external collaboration and shifting to well-balanced work style and KDDI job style personnel system.

Finally, today's summary. We aspire to be a company that inspires passionate challenges by committing to enhancing the power to connect and creating new values by digital data and AI. And the consolidated financial performance and the shareholder return was explained earlier. As we look to the future, we will continue our initiatives to grow together with all of our stakeholders, and I ask you for your continuous support. Thank you for your attention.

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