KDDI Corporation (9433) Earnings Call Transcript & Summary

Thank you very much for waiting. We will now begin the financial results briefing of KDDI Corporation for the fiscal year ending March 2022.

Thank you very much for taking time out of your busy schedule to join us today. I am Hongou of Investor Relations Department and will be serving as the moderator today. This briefing will be broadcast live on the Internet with simultaneous Japanese to English interpretation. The presentation will be available on demand on our IR website at a later date. Thank you for your understanding in advance. Four financial results related materials, which are 2 presentation materials, Tanshin, quarterly report and detailed material and 5 TSE disclosure materials, a total of 9 documents are posted on our IR website. Please refer to the disclaimer in the material regarding statements made in these documents, performance targets and projected subscriber numbers, et cetera, explained in the Q&A session today. President Takahashi will first explain the financial results and midterm management strategy, followed by Q&A from 6:30 p.m. President Takahashi, please.

Thank you. Allow me to share with you the business results of the term ending in March 2022. Thank you so much for joining us out of your very busy schedules. Let me share with you the business results of the term ending in March 2022 and midterm business strategy. First, on the results ending in March 2022. Consolidated performance highlights of the term ending March 2022. Throughout the previous midterm, we achieved both sustainable income growth and enhancing shareholders' return. From the top, revenues of JPY 5.4467 trillion, up 2.3% CAGR from the March 2019 term. Operating income was JPY 1.0606 trillion. There was some impact from lowering prices, but CAGR was up 1.5%. In Life Design Domain, revenue was JPY 1.422 trillion with a significant growth of plus 14.6% CAGR. Business Services segment revenue was JPY 1.0426 trillion, exceeding the target JPY 1 trillion. CAGR was up 5.6%. The payout ratio was higher than 40%. EPS was JPY 300.03. CAGR was plus 5% growth. Next, on the multi-brand strategy from the left. The number of group ID was 31.84 million, exceeding 31.8 million forecast at the beginning of the term with a robust result. In the center, communications ARPU was JPY 4,200, exactly as we forecasted at the beginning of the term. The right shows value-added ARPU, JPY 1,740, up JPY 200 year-on-year, making up for a decline of the communications ARPU. As shown on the bottom, cumulative sales of 5G units are steadily increasing to over 8 million. Next, the results of Life Design Domain. Main services enjoyed significant growth. Operating income increased with a double-digit CAGR growth. The left, operating income was JPY 254 billion in March 2022 with plus 20.0% CAGR from March 2019. The right shows main indicators. The number of au PAY members was 37 million, of which au PAY card members was 7.6 million, up 1.1 million year-on-year. In addition, au Denki electricity and others was 3.38 million subscribers. Transaction volume of settlement and loan was JPY 11.7 trillion. Major services enjoyed steady growth. Next on Business Services segment results. Driven by the NEXT Core business, the operating income enjoyed a double-digit CAGR growth. The left shows operating income. In March 2022, it was JPY 186 billion, up 15.1% CAGR from March 2019. The right shows main indicators. The percentage of NEXT Core business, the [indiscernible] DX in the Business Services segment revenue was 31.9% in March 2022, surpassing the target 30%. In addition, the cumulative IoT connections was 24.5 million in March 2022, up 6.5 million year-on-year, showing a definitive growth as a top runner. Lastly, on termination of 3G. Thank you so much for using 3G service. We appreciate it. For about 10 years, various services have been utilized. In a difficult environment, we were able to end 3G without major troubles, which was a good result for the future. It was a system with high electricity consumption, hence, a good result for environment as well. And so much for the March 2022 business results. Next let me focus on the new midterm management strategy. Allow me to share with you the new midterm management strategy. There are so many pages it might take some time. I hope you can bear with me. First, major environmental changes. From the top, diversification of values and work style, creating new business through DX and increasing importance of sustainability and progress in beyond 5G, 6G research as well as next-generation technologies. Environment surrounding business is changing significantly. Responding to the business environment towards the future we want to be, we devised the KDDI Vision 2030. On the right, by 2030, we aim to be a platform supporting society to offer additive values in all industries and every life scene. So far, by the integration of telecommunications and life design, we've expanded growth domains in nontelecommunications, centering on smartphones. In the new midterm strategy, looking at 2030, we are promoting business transformation centered on 5G. Next on the positioning of the midterm management strategy. Looking -- right-hand side, looking at the long term, we formulated new materiality that comprehensively covers social issues and management and materiality of the KDDI Group important issues. Based on this, in the midterm management strategy, we put sustainability at the foundation and promote business strategies and bolstering management platform that supports them. To help you understand KDDI Vision 2030 we newly drafted, we prepared a concept movie. It's a 4-minute movie. Please enjoy. [Presentation]

At KDDI, our mission is to connect. Our mission is to keep connecting and protecting lives. For example, our resilient communications infrastructure has supported the communications that are for lifeline in times of disaster. Through the use of ICT to reduce the burden on the environment, we'll be able to contribute to saving our future earth. Our mission is to keep connecting day-to-day lives. For example, by bringing together new technologies and new partners, we have resolved problems facing urban and rural areas as well as problems facing developing countries. Our mission is to keep connecting hearts and minds. For example, initiatives aimed at the creation of a safe and affluent digital society are essential if we are to eliminate isolation in this age of diversity and to live healthy fulfilling lives. KDDI's power to make connections will help create the sustainable development of our world and to our future. People's values vary. Society offers more choices. Beyond these huge changes, we want to create a new world where people accept one another and where each of us can make our dreams a reality. For that to happen, we must overcome some hurdles, such as outdated conventional thinking preconceptions. If there are boundaries that keep us apart, let us eliminate them and connect. With communication increasingly integrated into our lives, our capabilities should dramatically increase. We have the technology. We have the mindset. We have the partners. Together, we can surely make it happen while enhancing the connecting line with the times, let's enjoy the thrill of creating things. Let's go forward together towards a more interesting future. The creation of the society in which anyone can make their dreams a reality by enhancing the power to connect. KDDI Vision 2030.

How did you like it? The creation of a society in which anyone can make the dreams a reality by enhancing the power to connect? We are promoting the midterm management strategy towards KDDI Vision 2030. First on sustainability management. By promoting business strategy and strengthening the management that support it, KDDI Group are working with partners to achieve sustainable growth and enhance corporate value. We are aiming to achieve a virtuous cycle where the growth of the society is utilized for the next business strategies and then returned to the society once again. Under the new midterm management strategy, our business strategy is positioned as satellite growth strategy. Place 5G that will be fully fledged in the center, evolve the telecommunications business and expand the focus areas with telecommunications at the core. As 5 focus areas: one, digital transformation; finance; energy; LX, life transformation; and regional cocreation, including CATV, those have been defined. And by having synergy with telecommunications as a core, we'll accelerate the growth of new domains. That's our business strategy. Let me explain our long-term outlook for the focus areas in the era of blending telecommunications, evolve businesses in each area by leveraging our strength in DX using KDDI assets to accelerate DX centering on 5G. We aim to create a virtuous cycle where people's lives will be transformed as a result. In finance, providing platform services to expand B2B2X businesses. In energy, leveraging data to expand businesses, including the VPP business. In life transformation, as a next stage of life design, we are keen on transforming lifestyles, revamping people's life experiences and the behavior through the prevalence of 5G and the technological evolution. And in regional co-creation, we promote the elimination of the digital divide. In areas we'll be utilizing 5G, which is KDDI's strength, and know-how and partnering we have built for many years. And 5G is the key to the growth. We are aiming to realize the year of new value creation with fiber partners where telecommunications will be blended in with every scene. Regarding constructing 5G areas that will be our base, from the left, it shows how we will be reinforcing customers lifeline, such as commercial districts, railroads and express rates so that more customers can comfortably use 5G. The right shows how we intend to expand the nationwide coverage by using -- partnering with SpaceX, contributing to government target and the vision for a digital garden city nation. With the full-scale 5G stand-alone, new value opportunities will expand. The left shows that with 5G stand-alone, stable communication will be possible by network slicing depending on the use case. With openness and virtualization, network operation will be evolved as well. The right shows how utilization has started in video streaming and the game industry. With Sony, we are co-creating entertainment experiences everywhere, including game streaming. We were behind other countries in 5G introduction, but we'll actively adopt the technology and utilization themes, looking at beyond 5G as well. The left shows that we aim to achieve 80% 5G penetration as the midterm target -- 5G subscribers penetration ratio. Now moving to the right, we are planning to increase communications ARPU in March 2025 versus March 2022. We also boost activities aiming faster ARPU rebound. You can see the arrow from the right-hand side. And to that end, we will try to maximize ARPU. Now we will expand services to provide unique 5G experiences through partnering, which is KDDI's strength. We are delivering services via the OTT partners, who are leaders in entertainment with data unlimited use without anxiety and high-definition videos and real-time service. Let me touch upon focus areas from now. First, concerns corporate business of DX, which is the center of growth. The left shows we are aiming to achieve a double-digit CAGR increase of the NEXT Core business revenue. The right shows that we intend to grow Business Services segment as the second pillar after communications with a double-digit increase of operating income CAGR aiming for about 20% of KDDI Group consolidated operating profit. Outlook of DX leveraging our strength. We are working on the further evolution of operational management know-how optimized for the era of blended communications. In the IoT connections, reliable operation and maintenance system cultivated with global partners for a long time is our strength. And the right shows how we are co-creating new values through 5G and DX with our partners, in addition to the sense of security provided by constant connection. A snapshot of what we aim for in DX in the future. At the moment, communications are used in IoT, blended in all sorts of things like cars, industry equipment and various meters. To create new added values, we will provide a platform for each industry while industries are diverse and accelerating customers DX. From the bottom, we have reached assets like ID management, settlement and data analysis. We cultivated in communications, operation and consumer business, which will be combined with the bandwidth guarantee by 5G network slicing, shown in the middle. For each partner company and each industry appropriate solutions will be packaged. We are accumulating examples of DX platforms for each industry. On the left, with JR-EAST, we are working on decentralized urban development to create work and lifestyles, not restricted by location or time, utilizing video transmission and other technologies. In the center, we are working with MITSUI & CO. on a system that uses human flow simulation to predict the future by analyzing data on people and cities with proprietary algorithms. On the right side -- and we think we can utilize this for the smart city in the future. And on the right, we are working with J-POWER on equipment inspection, automation and streamlining of wind power facility inspections with autoflight and AI analysis by utilizing drone inspections. Next is our DX development system. We will strengthen our systems and expand resources to create new value. Top right, with the establishment of DX Solution Engineering Division, we have put in place a structure that enables us to provide solutions in a single integrated manner through vertical integration of internal organizations. Bottom right, KDDI Digital Divergence Holdings was newly established. We will strengthen cooperation within the group and expand diverse DX human resources. We will promote Global DX on strength of our worldwide IoT infrastructure. As shown on the left side, we will set up a DX success model created with partners in Japan, based on sales structure that integrates domestic and overseas operations. And on the right side, we will expand the world's largest IoT world architecture, which has proven track record in connected cars to other industries and develop DX globally. The next area of focus is the financial business. We aim to achieve double-digit CAGR growth in operating revenue and income, along with expansion of key indicators. Left side, in the previous midterm, both operating revenue and income grew steadily. On the right, in the new medium term, we will continue to focus on expanding mortgage loan balance and credit card membership, which are growth drivers and aim to grow and scale each key indicator, including double-digit medium-term CAGR growth in net operating revenue and income. Financial cross-use will be important. We will accelerate collaboration across a wide range of functions and services within the financial group. From the bottom left side, we will promote cross-use of various financial services to customers who use telecommunication services to increase engagement. The right side is an example of the au collective interest rates of au Jibun Bank. By linking the bank with au PAY code payment and au PAY card, credit card, and au kabu.com securities, the bank offers a preferential interest rate of up to 0.2% per year on yen savings deposits, which has been well received by customers. Now here is a snapshot of the future of our financial business. Like DX, we aim to provide platform services. From the bottom, the au Financial Group owns Banking-as-a-Service, BaaS, delivery platform. We will expand our business domain by developing B2B2X services by providing that platform to nonfinancial businesses in the middle and beyond to their customers, employees and store owners. Like telecommunications, we aim to provide new added value by blending financial services. Next is our energy business. We aim for steady business growth by stabilizing earnings and expanding our customer base. On the left, in addition to aiming for double-digit operating revenue growth in the midterm, we will work to stabilize earnings by ensuring stable power supplies. On the right, in addition to collaborating with telecommunications and financial businesses to expand the customer base for the electric power retail business, we will promote the expansion of business alliances as a white label. We will enter into new carbon-neutral related businesses. On the left, in renewable energy generation, we will install solar panels on base stations and other locations and also expand initiatives with partners. On the right, we will enhance our ability to adjust supply and demand by promoting VPP business to counter the instability in the supply-demand balance due to the expansion of renewable energy. To this end, we will also promote necessary initiatives, such as the installation of storage batteries. The next focus area is life transformation, LX, where we will create future businesses that will revolutionize our life experiences and behaviors through the penetration of 5G and the evolution of technology. To that end, we will focus on LX technologies centered on consumer perspectives, such as networks, security, spatial recognition, image analysis and AI. Not product out, but consumer perspectives as advanced technologies in the beyond 5G and 6G era. The first value creation by LX is metaverse. As shown on the left, we will accelerate our initiatives aimed at the autonomous and decentralized Web 3.0 era, where users can directly own and share content with each other. On the right, in the metaverse, utilizing Web 3.0, we will create a space where anyone can express themselves. Specifically, we will promote initiatives, such as new interactive communication using avatars, a new digital economic zone comparable to the real economic zone and creator-led open creative environment. The second value creation is drones and satellite communications. As shown on the left, drones will provide services that vitalize regions and enrich people's lives, such as unmanned delivery and enhanced video experiences. On the right, in the area of satellite communications, we are partnering with SpaceX to provide urban level of telecommunications quality to every corner of the country, including mountain climbing, camping and remote islands, thereby contributing to the creation of new experiences. The last area of focus is regional co-creation. We will address the challenges faced by local communities and realize regional co-creation. Left side, we are working to eliminate a cumulative total of 15 million disparities in the medium term in order to realize regional co-creation. So elimination of 15 million digital divide. The upper right side, community mobility established with WILLER, we'll start providing mobi, a short ride service in more than 20 locations nationwide, offering a new mobility experience in cooperation with local residents. Now a summary of initiatives in the focus areas. Starting from the top row on left side, the DX business segment will become the second largest business after domestic telecommunications, aiming for about 20% of consolidated operating income. In addition, we aim for double-digit midterm CAGR growth in sales in DX. The middle box, in financial and energy business, we will accelerate business growth through expansion of customer base and new initiatives and aim for double-digit sales growth and midterm CAGR growth in sales. Bottom line, LX will create new businesses that will transform the living experience with an eye on future. Right side, regional co-creation, which applies to all areas, will contribute to solving social issues facing local communities. Through these business growth, we will raise the operating revenue in our focus areas to over 50% of consolidated operating revenue. From here, I will talk about our efforts to strengthen our management foundation, starting with transforming into a company that puts human resources first. We will evolve our unified 3-part reform initiatives into Phase 2: a new personnel system, internal DX and work style reforms. First, the new personnel system aims to promote KDDI version job style personnel system and achieve a diverse human resource vitalization and D&I. Second, internal DX aims to improve DX skills of all employees and develop professional human resource. Third, in the area of work style reforms, we aim to promote new work styles that allow employees to fully demonstrate their performance and enhance their engagement. In human resource development, we will maximize organizational strength to drive business strategy centered on DX. We will also shift essential personnel into focus areas by developing professional human resources through the use of KDDI DX University and improving the DX skills of all employees. Next is carbon neutrality. In February of this year, the KDDI Group obtained SBT certification from the international initiative, SBTi. As shown on the lower left, the target timing to achieve carbon neutrality is FY 2026 for data centers, FY 2030 for KDDI on a nonconsolidated basis, 20 years ahead of the previous target, and FY 2050 for KDDI Group. On the right, KDDI is working on efficient 5G area construction, AI-based base station control, equipment sharing and submerged liquid cooling for data centers as energy conservation efforts. Next is respect for human rights. This is crucial. All officers and employees of the KDDI Group will ensure respect for human rights in their business activities. As shown on the left, in compliance with the KDDI Group human rights policy, we promote human rights enlightenment activities for all officers and employees of the group. Right side, we will conduct human rights due diligence, including in our supply chain and global operations to ensure respect for human rights. Next is cost efficiency. On the technology front, as we accelerate the construction of 5G areas, we will promote infrastructure sharing and utilization of advanced technologies to appropriately control our investment levels. On the sales side, on the right, we will work on transforming our sales structure and improving the efficiency of sales channels. Including online, we aim to achieve cost efficiencies of JPY 100 billion in the midterm. The last part of strengthening the management foundation is group governance. As we promote our satellite growth strategy, the number of group companies will increase and their businesses will diversify. In this context, we will strengthen the group's risk management and information security systems. Next is our cash allocation policy. We will continue to strengthen investment in growth and shareholder returns for sustainable growth. Upper row, we will aim to generate operating cash flow, excluding financial business, of JPY 5 trillion in the midterm. Middle, we will prioritize the allocation of the generated operating cash flow to CapEx in 5G and focused areas as well as strategic business investment. The investment amount will be JPY 1.3 trillion and JPY 700 billion, respectively, a total of JPY 2 trillion in the midterm. And shareholder returns, at the bottom, will be JPY 1.5 trillion in the midterm through dividend and share repurchases. Next is the consolidated financial forecast for the first year of the new midterm management strategy, fiscal year ending March 2023. Upper right, operating revenue is projected to be JPY 5.560 billion, up by 2.1% year-on-year. Middle row, operating income is targeted at JPY 1.1 trillion, up by 3.7% year-on-year. On the left side, Business Services segment and the financial business, our focus areas will drive the increase in profit, with Business Service segment operating income target of JPY 206 billion, up by 10.7% year-on-year and financial business target of JPY 38 billion, up by 95.9% year-on-year. Financial business includes onetime accounting effects, but we are aiming for double-digit CAGR growth even excluding the onetime effects. And shareholder returns. Regarding dividends, we aim to achieve DPS growth for 21 consecutive fiscal years. We resolved to repurchase up to JPY 200 billion of our own shares. Next is DPS, dividend per share. We are focusing on DPS growth with sustainable growth. Dividend for the fiscal year ending March 2023 is JPY 135, and we are aiming for 21st consecutive DPS growth. The last slide is a summary of our midterm management strategy. Regarding sustainability, we are aiming for sustainable growth of the society and enhancement of corporate value with partners by promoting satellite growth strategy and strengthening management base to support it. Please note that the relevant indicators and midterm targets are also available in the data book. Regarding business growth, we aim to achieve sustainable growth by increasing ARPU revenue through 5G promotion, achieving profit growth of JPY 100 billion or more in focus areas, aiming for over 50% of consolidated operating revenue and improving cost efficiency by JPY 100 billion or more. Financial policy is to prioritize capital expenditures and strategic business investment in 5G and focus areas, payout ratio of over 40% and flexible share repurchases. We will continue to aim for EPS growth of 1.5x growth versus fiscal year ended March 2019. We will continue our efforts to transform our business despite a drastically changing business environment, including the unstable global situation. So I ask you for your support. Thank you very much for your kind attention. We will now start the Q&A session. We plan to end at 7 p.m. Let me introduce the participants today. First row, from the center to your left, President Takahashi; Muramoto, Executive Vice President and Executive Director of Corporate Sector. From the center to your right, Mori, Senior Managing Executive Officer and Executive Director of Solutions Business Sector; Amamiya, Managing Executive Officer and Executive Director of Personal Business sector. Second row to your right, Yoshimura, Managing Executive Officer and Executive Director of Technology Sector. Lastly, second row to your left, [ Akita ], Executive Officer and General Manager of Corporate Management Division.

[Operator Instructions] Nomura Securities, Masuno-san.

Nomura Securities, Masuno. There are many messages when I look at this midterm management strategy. I have 2 questions. First, about the profit target or income target. I understand the EPS, but your focal area is JPY 100 billion operating income and cost reduction JPY 100 billion. What surprised me was that in 2 years, you are going to actually make the rebound of ARPU. You made a declaration regarding consumers. If we think that the profit will come back and accumulating the past years and operating income, JPY 1.3 trillion or somewhere around that figure. So such profit level, is that what you envisage? And in 2 years, you made a declaration to achieve the ARPU rebound. What are the kind of preconditions, assumptions to achieve all these things? That's my first question.

Let me see. Internally, we have been doing this ambidexterous management, not just growing new businesses, but 5G, that's our core. And then it has to be on the growth trajectory as a business. Otherwise, we can't enjoy the sustainable growth. We had extensive discussions internally. And I don't know about other companies but I know about 5G ARPU, how best we can enjoy the recovery. We would like to really give a full commitment to this. In this term, somehow, we would like to hit the bottom and JPY 70 billion to JPY 80 billion is the level of the impact of the price cut. But on the following years, we would like to make it comparable to the previous year. And all of us are really working hard to achieve this. Having said that, no possibilities -- as we look at the United States, for instance, Verizon, AT&T with -- concerning 5G, there are something like OTT players. With the collaboration, there is a good track record to make achievement. If you look at them as a role model, I think there is still possibility and potential. Now Amamiya will give you -- about the details about this. About the growth areas, finance, energy and obviously, DX, centering on these 3, expanding those businesses, as we saw in the previous midterm strategy, we are now confident that we can enjoy the growth in those areas. Sustainable growth strategy is what we call this new strategy. And March 2025, in this term, JPY 1.3 trillion, that might be a kind of a stretched target, but at least EPS 1.5x, that's still our target. To be honest with you, in the third year, the CAGR increase is only 1.5%. So there's going to be perhaps 1 year delay to achieve this, but we would like to do it as soon as possible, and that's behind our passion in crafting the midterm strategy. About ARPU, I would like to invite Amamiya to give you some supplementary information about ARPU.

As facts, this is what we know, 4G to 5G, when there's movement, what triggered customers to move to 5G? The traffic increase is one and unlimited MAX plan, the ratio of that unlimited plan goes up, that much we know for sure. Now currently, regarding customers' plan breakdown in 4G, the capital ratio and UQ is planned ratio. There are certain level of users, so by promoting migration to 5G, there's still room for increased ARPU, especially with those Pitatto S plan people. Those customers if we don't really use them, it's true, but for such people, such customers, making good communication to them about the advantage and convenience of smartphones by conveying that to such people so that they can enjoy smartphones better. That's what we intend to do. With povo, communication with customers, something we have been doing. And that know-how, I think, will be useful. In povo, we kept communicating to customers and then customers use them. And then the know-how we have acquired from that experience, I think that can be utilized in au and UQ as well. Those numbers are not easy targets, but it is not at all impossible.

My second question also is about the midterm management strategy, capital allocation. JPY 1.5 trillion, that's the shareholder return. If I do the calculation, at least it might -- every year, 10-year increase and every year with JPY 200 billion that buyback still, you may not be able to achieve this JPY 1.5 trillion. So that might really be the minimum line based on my calculation. Now is my interpretation correct? So dividend and the balance between the dividend payment and the share buyback and JPY 700 billion, the one before the last, there was a budget for the JPY 500 billion. What was the validation? I think there was that question, but -- so based on that JPY 700 billion, how do you look at the JPY 700 billion? If you do all of them, JPY 1 trillion, I mean, you have used JPY 4 trillion, you still have the JPY 5 trillion free cash flow, there's going to be still JPY 1 trillion. What are you going to do about this remain JPY 1 trillion? So a question on the capital allocation, please.

Thank you for your question. First of all, about shareholder returns. Masuno-san, you shared with us your view. Roughly speaking, it is all right. Basically, 40% -- more than 40% payout ratio that we have been doing, obviously, there's going to be -- you can look at the growth number, you can make the calculation. The rest is buyback. That's the kind of image we have. About M&A, I will defer to Takahashi-san. But the JPY 5 trillion, you did the subtraction and you said there's a remainder JPY 1 trillion. So JPY 5 trillion level, to be more precise, a little less than JPY 5 trillion, JPY 4.7 trillion or so. As for the rest, IFRS 16-related lease repayment, in 3 years, several hundred billions of yen, that's also included. So I hope you will interpret it this way. About JPY 700 billion for growth investment. Last year, the JPY 500 billion was shared more like a budget. That's why it was not received warmly. We have no intention to budget it. Capital allocation, JPY 700 billion. We would like to use it for growth areas for M&A. And in terms of the domains, DX, finance and energy that I shared with you in addition to that, what we call LX, life transformation, into that new area, we would like to really put focus on. To achieve budget, the voice for investment is not something we do. So if there are good cases within the -- this JPY 700 billion framework, we would like to make an investment.

Thank you. We will take the next question, SMBC Nikko Securities, Kikuchi-san, please.

Yes. This is SMBC Nikko Securities. Kikuchi speaking. So this is a follow-up to Masuno-san's question. ARPU, in the short time, ARPU may turn around. Is that the reason you have this plan? I think in the fourth quarter -- compared to the second and third quarter, fourth quarter ARPU seemed to have declined. So compared to the fourth quarter, the new year's ARPU may not decline that much. If there are some specific unique movements with ARPU, I would like to know. And the ARPU in the new year, on the quarterly basis, what will the trend look like? If you could give me the breakdown? That's my first question.

Thank you. Amamiya-san?

So one unique factor of the first quarter is the access charge settlement. So the decline may seem a little bigger than usual. Other than that, it is a normal number. This fiscal year, ARPU trend, our priority, our focus is to stop the decline. In the first quarter, it will not be a decline, we will start turning flat. And by the end of this fiscal year, we want to turn this upward. That is our aspiration.

It seems like -- I wonder how -- what combination leads to this result? I don't think we are still in alignment here. So the brand is shifting to the lower price. And last spring, there was a price reduction, and that impact will deepen until [ iPhone ] this fall, I think. And there are positive factors, I understand that. But the balance among these factors, so the impact of the lower telecom charges, the lower price reduction and others. Could you give us the breakdown?

I cannot quantify and give you specific numbers, but multi-brand ARPU is shown to you. So ARPU by brand has not changed much. The price reduction impact is reflected more strongly here. The migration among brands. But now this migration among brands is settling down, calming down. So I think the decline will stop. Now as I mentioned earlier, by moving from 4G to 5G, this ARPU by brand can stop declining. So that is how we want to stop the decline of ARPU and turn this around, turn it upward.

My second question. Page 35 of the slide, cost efficiency. So JPY 100 billion cost reduction is aimed for. But CapEx is a slight increase this year. And I think there are different contents in this, infrastructure sharing, the optimal control of the investment, appropriate control of investment. So you will reduce through appropriate control. And your competitor, SoftBank, said they will drastically recut these CapEx because the 5G investment will run its course. So based on the plan of reducing the investment, your infrastructure cost is planned to be declining? So my second question is your CapEx plan.

So CapEx, we do not have a plan of reducing CapEx. We plan to keep it flat. Now the cost efficiency of JPY 100 billion, around half is the 3G migration, 3G suspension, end of 3G. So about half is the cost reduction there. And the sales cost reduction will be a little less than half -- the other half. The sales cost, obviously, the structural reform and business structure, the common cost reduction, there are many ways to cut costs here. So it's not that we will reduce the CapEx. It will be 3G suspension and the reduction in the sales cost. So that is JPY 100 billion.

So 3G suspension, this JPY 80 billion, that is separate outside of this JPY 100 billion?

It's included.

I see. So you can achieve plus JPY 20 billion?

So of this JPY 100 billion, half is 3G suspension-related. So part of the JPY 80 billion is included here.

Understood. Just a follow-up. So it's JPY 100 billion comparing 3 years later, the third year. And JPY 50 billion is, as Mr. Takashi just said, this is the JPY 50 billion that will be reduced from 3G suspension and sales cost?

Sales expense, 3G related, we used JPY 30 billion last year. And when we look at the midterm period, other competitors will face the 3G suspension, and they will use aggressive sales promotion cost. We may use aggressive sales promotion cost. So we are not reducing the amount. There are other structural reform measures that will build this number up.

Last question. So this roaming revenue from Rakuten, this will be a decline -- included as decline next year, right?

Yes, it's included. This year, JPY 50 billion negative. It will not be 0 right away. It will be in a step-wise manner, around tens of billions in a step-wise phased manner.

Next question, please. Do we have a question? Please raise your hand. Morgan Stanley Securities, Mr. Tanaka?

Morgan Stanley Securities. My name is Tanaka. First, I would like you to give me more explanation about focus areas. First, about finance. Currently, in terms of profitability compared with the existing communications, it's not so high, but I assume that starting from this term, it might increase. Perhaps it's related to loans. What are the structural changes in terms of profitability and mortgage loans, market size, what is your presence? And about LX, again, it's difficult for me to have an image of this, especially metaverse. It's a buzz word, and I think it's likely to enjoy some growth. But as on the part of KDDI, how you're planning to actually make profit? What's your vision in this regard?

About finance. Amamiya-san, would you like to address that?

About finance. Since last year, regarding mortgage loans and credit card business, without -- they're likely to enjoy growth. Going forward, they are likely to be the center. But in the case of finance, we have a bank and that is significant. Au PAY code settlement. Let me see. A significant number of customers are using this, this being the gateway or entry. And from the bank accounts or cards, you can charge things. And then between the securities and the bank collaboration between the 2 entities, and other services to other kinds of financial services, we would like to see the expansion. So by this expansion, well, regarding cards and loans, the profitability just merely from those, that's what we enjoyed. But in the periphery, we could also see the other types of profits. And we believe that in finance, the profitability can be accelerated.

Excuse me. About PayPay, they are enjoying significant growth with sales promotion and not much profitability because of that promotion. But regarding au PAY, are you making a lot of profit? What about the marketing cost? So versus PayPay -- compared with PayPay, what is your positioning? I mean you have Jibun Bank so you are doing fine? Or -- some more information, please.

About au Pay, with au PAY alone, it's not that we are seeing a great profitability. But compared with PayPay, operation is not something that we suffer from huge losses. What's the biggest difference? In au, UQ, to KDDI customers, these advantageous promotional activities. By doing so, it's not a huge amount of promotion cost. Effective promotion cost is what we spend and without spending so much in cost, we are trying to seek higher efficiency. That's the kind of operation we are doing. About LX, to be honest with you, or not but it's still a kind of an image but life design's next chapter. Moving to the next step. That's why we call this life transformation. It's called Web 3, the network. After Web 2.0, from centralized to decentralized one. Whether we can really move on to that, we don't know for certain, but we would like to be a pioneer. So as a structure Web 3, and there is work on NFT and metaverse work so that NFT can be utilized. Concerning this, we don't know the actual profitability at the moment, but we would like to be a pioneer. That's how we would like to do it in the midterm management strategy. It's life transformation other than that, work on drones, SpaceX initiatives, to transform lifestyles, those can be applied as well. What would be the level of profitability in this midterm strategy? It's not really covered in a significant way, but this is an exciting area, and this is the declaration we're going to do this. I think -- I hope you all interpret it in this way. Thank you.

So for the time being, you would like to take up many challenges. So even if you have to spend cost within making investment, even if you have to suffer a little bit of losses, you're doing this?

Regarding LX? Yes.

That's fine. My second question, IoT -- Mr. Mori, IoT cumulative connections, in this year, I think in the detailed material, it says that your plan is the robust increase. But automotive sales units, given that, I think this can be doable. But in terms of profitability increase, unlike in the past, is it going to be accelerated? Can we expect to see good changes? Or it's not making -- you are not making much profit? Any additional information, please?

First of all, about the number, admittedly, there are various issues, semiconductor issue is one. Centering on automotive, in terms of the number of production units, sales and number of sales units, those are several factors that may have an influence on what we do. Having said that, not just vehicles, not just cars, yes, the number is on the significant increase with regard to infrastructure. The area is expanding with more IoTs added. So I hope you will understand in this way, about the profitability. As I shared with you the last time, now we are seeing profits being generated. Of course, we are making investment for the future as well, but a certain level, not so bad. Profitability can be enjoyed now. So -- regarding DX, IoT will become kind of a basis. That's what we see.

So next, is Credit Suisse Securities, Eguchi-san, please?

This is Eguchi of Credit Suisse speaking. Yes, just 1 question. So about the slide that shows the analysis ARPU decline and the new area of profit contribution, I understand. But 30 to 40 on far right, others, what are included there in the operating income? And another question. In the fourth quarter, Life Design Domain sales grew strongly. Was there any extraordinary factors in the fourth quarter? And is it sustainable in the new year, this year?

Thank you. I will answer the first part. This year, others, right? Number for this year, others -- yes. So on a year-on-year basis, marketing costs will be lower than last year. But the detail is, last year, au PAY-related cost was used in various -- for various customers -- to promote the usage of various customers. So that was one cost item. And in this busy sales season, in order to sell the device at an affordable cost -- affordable price, we used cost, especially in March, but we were able to increase ID as a result of that. So this year, we can save or suppress this part. So that is our view on cost.

So the second question was on life design. Fourth quarter sales grew strongly, fourth quarter last year. Was there any extraordinary factor?

No special factor. But the biggest growth was in Denki electricity. Because of seasonality, the fourth quarter electricity sales tend to grow. So that was a big contributor.

Since it's time, with this, we would like to conclude the KDDI meeting on the new -- the business results ending in March 2022. Thank you so much for your kind participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]