KDDI Corporation (9433) Earnings Call Transcript & Summary

Thank you for waiting. We would like to start the questions and answers session for the financial results of the first quarter of the fiscal year ending March 2023 of KDDI. Thank you for joining us via Internet out of your busy schedules. I'm your emcee today. My name is Hongou of IR Department. Please be advised that the Q&A session will be made available for on-demand distribution on our IR website later. Let me introduce today's participants: Executive Vice President, Representative Director, Muramoto; Executive Vice President, Director, Mori; Executive Vice President, Director, Amamiya; Senior Managing Executive Officer, Director, Yoshimura; Executive Officer, General Manager of Corporate Management Division, Corporate Sector, Aketa. Today, business results-related materials of 3 items: presentation times change, detailed materials; 2 items for TSE-related disclosure; 5 items are made available on the IR website. Regarding what's covered in the materials and the performance, we will share in the Q&A and subscriber targets. Please check the disclaimer of each material.

Now we would like to entertain your questions. [Operator Instructions] As you have already been informed, among those of you who are connected after the registration, we would like to entertain your questions one-by-one. [Operator Instructions] We are planning to conclude the Q&A session at 7:00 p.m. We will entertain questions until 7:00 p.m. The first question, Daiwa Securities, Ando-san.

Daiwa, Ando is my name. I have 2 questions. First, net addition, 3G termination. If you could make adjustment to 200,000, that's the net addition. I think churn rate is 0.92%. Can you hear me?

Yes, we can hear you. That's 0.92%.

So comparing these numbers, you were able to get a good performance in net as a result. I suppose there are various factors behind. Your competitors changed their pricing. In addition to that, UQ had a strong performance on the devices -- prices of those devices. I think there are various factors, but which factor contributed to the net addition? If you could sort of share with us the orders of the influence, please let us know. And then what would be the outlook for those factors going forward?

Ando-san, thank you. First quarter, IDs-related questions. As you said, minus 50,000 net decrease. But 3G churn was about 250,000. So Q-on-Q, 0.2 million net addition. What are the factors of these good results? I think that was your question. Amamiya is in charge of personal business. Amamiya-san, please?

Well, you've already pointed them out. First, UQ was pretty strong. There was a discount price like a support discount. So on UQ, we are competitive in the market and MNP. And for the new ones, they made a good contribution. On the other hand, other companies, they created a JPY 0 plan. And concerning those, since that timing, the tide was changed to MNP. The number has been pretty brisk. Concerning others, MNP has been doing well. And it's not just Rakuten, DOCOMO, SoftBank. Against these carriers, our numbers have been relatively well. Good. Now going forward, with this communication failure, we did have a business stumbling block in July, but we will be trying to hard to recover trust, and we would like to recover the business. That's what we want to do.

My second question. Energy business -- in relation to energy business. There was a waterfall graph in the focus areas, JPY 15.2 billion and business finance, when subtracting that minus JPY 3.8 billion versus previous year. So whether this is 100% energy or not, I don't really know, but it looks likely. Am I correct in my guess? In addition to that, second quarter and onwards, concerning energy, fewer adjustments. What -- is it going to increase? Or how much is it going to increase? What will be the general image? And your company's forecast, you haven't changed the forecast by your company. So are there any factors for change or consistency? Would you like to elaborate on that, please?

Slide 5. Energy business. First quarter, as you said, year-on-year, the income decreased. Regarding the detailed numbers, I would like to refrain from touching upon them. But as Ando-san mentioned, those are the numbers. Your numbers are not far away from what actually happened. As it says, compared with the previous term, the -- we increased the private power procurement. Compared with the previous year in terms of the unit, there have been changes. And in the first quarter, the income decreased. The fuel prices are now soaring. And the fuel adjustment cost, it might actually hit that ceiling. So regarding what's likely to happen going forward, I think that's what you asked. Amamiya is in charge of personal business. Pass the microphone to Amamiya.

First, on the first quarter, as you heard from Muramoto, you see we are trying to ensure business -- the energy from private producer. We reflected what happened. We wanted to lower the volatility. So we had more bilateral contracts, private part business. First quarter, we are controlling them appropriately. It's in the negative territory compared with the previous year, but the effect is limited, we believe. On the fuel adjustment cost. From the second quarter, it's increasing. We anticipated that, that [ energies ], among others, utilizing [ energies ], we would like to do this business. We would like to closely monitor what's going to happen. On a consolidated basis, we would like to control it. On our holdings from July 1, it started its operation, and we are trying to come up with creative ideas. And overall, we would like to have a firm control over the businesses. Thank you.

We will take the next question. Nomura Securities, Masuno-san, please.

This is Masuno from Nomura Securities. So one by one, when is ARPU -- so this time, support discount impact is my question. In revenue or in ARPU or the cumulative subscriber, how much was the impact? And after -- there are some who finished the 6-month discount period. Are you -- are they staying in au? Or are they in the natural churn? I think you have a good view on June and July. So if you could elaborate on this, please?

Yes. au support discount, 6-month discount campaign. So customers joined with this campaign. So your question is what the impact is on our ARPU currently and in the future. So Amamiya-san, please.

Yes. This support discount just ended in May. So it's not that we are seeing a big impact at this present in July and August. And in the second half, we will probably see a bigger impact. Regarding ARPU, in the first quarter, JPY 3,970, so this is in line with our projection. For the first quarter, UQ and povo, [ IDZone ] was big, ID increase was big. So telecommunications is being secured. It made ARPU may seem a little low, but overall, we think we are moving forward steadily.

So if we look at the support discount alone for ARPU, how much? Or a few hundreds of millions of yen or billions of yen? What was the result in April, June quarter?

On a year-on-year basis, a few dozens of yen. So that is the impact of support discount on ARPU in the first quarter.

So this is the peak in second quarter? And third quarter year-on-year will be down gradually? Is that the right assumption?

Yes. Yes. You're right.

Understood. My second question is in the communication failure briefing, this was touched upon. So regarding the failure, the corporate customer, I think you are still holding back on sales for the corporate customers. But your proposals or the deals that are under negotiation, you will add BCP measures to continue your negotiation with corporate customers, I think. So as you normalize, how long will it take for you to normalize your sales activities? In the earlier briefing, you talked about network mesh. You said you will revisit, review the network mesh, which means you need a CapEx other than building capacity. Or will this be covered with software? So the impact when you change from the mesh structure.

So thank you for the 2 questions related to communication failures. So first is for Mori-san, in charge of corporate clients.

Let me first talk about the corporate client sales activities normalization. So right after the failure occurred, about 1 week, we mainly visited corporate clients, apologizing what happened. And this is continuing, but gradually, we are making new proposals, including BCPs. So this is increasing. We are visiting more customers than usual and finding new things. There are new discoveries. So we hope to continue this, so in terms of normalization of our sales activities. So including our apologies, we are working hard to visit and do sales activity that is close to a normal level. So regarding our capital expenditure policy, Yoshimura-san, please?

So first of all, revisiting the mesh structure. It does not mean we immediately need the capacity building. So software can address this. But for the entire capital expenditure, we will work with a validation committee where external experts serve as a member. So the -- this will be discussed in the committee to decide on the final CapEx. But as mentioned, just because we review mesh does not mean that we need to add capacity or add facility.

So I talked -- asked about the normalization of the individual side, users?

So yes, there was a big impact at the time of failure. And the users who visited au shops gave us some very strong words. We take them seriously to first establish solid measures to prevent the recurrence. So the visit, declined at one point but now it's settled. It seems like we're in a gradual decline. And my number card application started at the end of this month. So we want to give momentum to the market. We just had a briefing on communication failure today and also submitted a report to MIC. So from next week, we will bring our activity back to normal. We think we can do this rather quickly.

We would like to entertain the next question. SMBC Nikko Securities, Kikuchi-san.

Kikuchi speaking. Two questions, please. Regarding the corporate. Could you elaborate on that, please? Regarding individual, the impact by this failure was not that significant like on corporate. I think there are different views, positive factors, negative factors -- positive factors, various countermeasures. Because no matter which carrier you use, it will be the same so you will -- it's possible that you will have more opportunities to utilize what you have. On the negative side, by using -- user using other carriers, are you going to suffer decreased revenues? Or are there other options? Do you see some specific pros and cons, negative factors and positive factors?

Thank you for your questions. Mori-san is in charge of corporate business.

Well, positive and negative factors. Regarding positive factors, positive signs. From the viewpoint of BCP, for instance, multi-carriers having redundancy, trying to have redundancy or even before that, cellular network and non-cellular, for instance, OTT voice service, for instance, LINE or Cisco, Webex calling by Cisco, those are available services. On fixed line, at mobile, combining them both once again, and with one same number receiving calls, I think that's going to increase as well. So with these, even more than before, combining many things, different things, we could make proposals. That's the positive side. Negative side, we make sure that the negative side would not become significant, and we would like to keep making efforts. But with the other side of the coin, those customers who are just using our network with this multi-carrier, it is positive that we'll be okay. But switching to some other carriers for some of the usage, I think that could also happen. But we would like to minimize the impact from those. And OTT and other options included, the having redundancy in the BCP and making proposals to that direction is what we should really focus on.

Second question, financial business. Some questions for clarification. Significant increase, one of the factors. This effective accounting process effect. Other than that accounting effect, I think you still enjoy increasing income. What contributed to that increase in income? Financial group -- in addition to that, financial group, regarding profit, ordinary income, IFRS operating income has difference from them. From the last -- first quarter, I think it has -- the difference widened. In the first quarter, what's the difference? That's my second question.

Thank you. This time -- show the slide, please. Different slide. Home mortgage loan, the fee income. Accounting-wise, it was treated differently from the previous year. The fee income last year -- for 13 years, it was deferred. Before, it's listed as income. But in the past 2 years, the liquidation of the receivables, we have accumulated experience. And this is listed on block. So the past ones, about JPY 17 billion in wealth. For the past, that's listed as the temporary income. IFRS and JGAAP difference. Aketa-san, would you like to address this?

Right. Compared with JGAAP and IFRS, especially in the first quarter, there is a significant difference. As Muramoto explained to you, that's significant. Based on the JGAAP, it's onetime home mortgage loans. When it's done, then fee income was listed. But under the IFRS, it's deferred. The deferred portion, including the past ones, just like JGAAP, when loan was disposed, it's recognized as revenue. But this time, the past portions were done, handled, and that's significantly reflected.

Right. So accounting effect, that contributed to the increase in income. In your policy, I think this is the focus area. Excluding accounting effects, where can you expect to see the growth in the second quarter and onwards? What's your outlook?

If I could just give you some additional information. Excluding temporary effects, first quarter financial business is concerned year-on-year based on IFRS, slight decrease. Slight decrease but almost the same as before. In terms of the actual operation indicators, especially the Jibun Bank loan, the outstanding balance, Y-o-Y increase of 15%. It's a very brisk business. Now concerning credit cards, 1.2 million increase Y-o-Y. That's the membership increase of credit cards. So in terms of operation, do we believe that there is momentum? There's good growth. In the first quarter, slightly -- the income was not that robust. But interest rate cost for mortgage loans and also from sales promotion costs, those have some impact. But overall, these are the drivers -- 2 of the drivers, and we believe that we can enjoy good growth.

Time is almost up. So I would like to take the last question. Mitsubishi UFJ Morgan Stanley Securities, Tanaka-san.

This is Tanaka speaking. I have one question. So multi-brand value-added ARPU, growth is stronger than I thought. Could you give us the breakdown here? And the sustainability going forward?

Thank you. Value-added ARPU, so personal. Amamiya-san, please.

Yes. Value-added ARPU is growing. In general, the financial settlement, au PAY and credit card is growing. And in content, Netflix -- we have bundled content with Netflix, and that is growing. In others, power is also growing. And also, the compensation is also growing -- repair and compensation.

What is the ARPU for electricity?

That is not disclosed. I'm sorry. I see -- just for clarification in finance, au Financial, so this is loan. And so other revenue is included. So it's not included.

Thank you very much. We will now close the financial results briefing for the first quarter fiscal year ending March 2023. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]