KDDI Corporation (9433) Earnings Call Transcript & Summary

Thank you very much for bearing with us. I would like to start the briefing and a question-and-answer session on the financial results for fiscal year ending March 2023 of KDDI Corporation. Thank you very much for participating in this session despite your busy schedule today. I'll be serving as a moderator today. I am Miyakawa from Investor Relations Department. And this session will be live streamed over the Internet with a simultaneous interpretation from Japanese to English. And this briefing will be made available on on-demand basis on the IR section of our company's website. I'd like to ask for your kind understanding. Let me introduce the people present here today. From the left-hand side, from the center of the front -- center of the front row, President and Representative Director, CEO, Makoto Takahashi. And from the right-hand side center of the front row, Executive Vice President, Director, Executive Director, Personal Business and Global Consumer Business Sector, Toshitake Amamiya; and Senior Managing Executive Officer, Director, CTO, Executive Director, Technology Sector; Kazuyuki Yoshimura; Managing Executive Officer, Executive Director, Solutions Business Sector, Yasuaki Kuwahara. And on the left-hand side, left of the front row, Managing Executive Officer, CFO, Executive Director, Corporate Sector; Nanae Saishoji. And on the right-hand side, in the back row, Executive Officer, Deputy Executive Director, Personal Business Sector, Hiromichi Matsuda. And on the left-hand side in the back row, Executive Officer, Executive Director, Corporate Management Division, Corporate Sector, Kenji Aketa. And there are 3 pieces of earnings-related documents and 2 pieces of TSE disclosure documents, total 5 are posted on the website in the IR section. And as for the descriptions in the materials and the financial results and contract target numbers, that will be mentioned in the Q&A. As for those, please refer to the disclaimer in each of the materials. And let me first ask President Takahashi to give you the financial results summary and then entertain questions. Over to you, President Takahashi.

Thank you very much for participating in the earnings briefing of KDDI Corp. despite your busy schedule today. Before starting to take questions, please allow me to give you the summary of the financial results of the fiscal year ending March 2023 and our forecast for March 2024. For March 2023 fiscal year, we managed to absorb the impacts from fuel price hikes, among others, and posted record-high profits. On the left, the consolidated operating revenue was JPY 5,671.8 billion, up 4.1% year-on-year. Operating income reached JPY 1, 075.7 billion, up 1.4% year-on-year. On the right, the focus areas, including Business Services segment and the financial business showed steady growth. Let me go over factors for changes in operating income. From the left, multi-brand communications ARPU revenues had a negative impact of JPY 85.3 billion; group MVNO revenues and roaming revenue had negative impact of JPY 27.8 billion; cost savings related to 3G closure had a positive impact of JPY 80.3 billion; DX/financial business, a possible impact of JPY 28.9 billion; and others, including cost efficiency, had a positive impact of JPY 64.1 billion; energy business, a negative JPY 8.8 billion. Impact of fuel price hikes was worth negative JPY 36.3 billion, which together, brought us a full year increase of JPY 15.2 billion. The impacts of price reductions and fuel price hikes were more than offset by strength in focus areas and efforts to enhance cost efficiency, which resulted in the growth in profits. Next on highlights of the forecast for the consolidated performance for fiscal year ending March 2024. The rebound in communications ARPU revenue and growth in focus areas are expected to offset the decline in roaming revenue. On the right, as positive factors for operating income, we anticipate multi-brand communications ARPU revenues and growth in focus areas, including DX and finance business. Negative factors are likely to be a decrease in roaming revenue and fiscal year March 2023 temporary accounting effects in financial business. But roaming revenue decrease is expected to ease from fiscal year ending March 2025. Lastly, let me give you the summary. As for the performance, we posted record-high profits in fiscal year ending March 2023, despite temporary impact of fuel price hikes, et cetera. In fiscal year March 2024, we aim to increase in revenue and profit augmented by a rebound in communications ARPU revenues and growth in focus areas. In terms of sustainability management, we will promote sustainability management and enhancing the power to collect. The 5G communications will promote initiatives for ARPU revenue rebound. In focus areas, we will work to demonstrate competitive advantage through synergies with telecommunications. We'll also promote initiatives, including HR, to strengthen management to support sustainable growth. With regard to shareholder returns, DPS for fiscal year March 2024 is expected to increase by JPY 5 to JPY 140, thus aiming for 22nd consecutive DPS growth. We have such share repurchase parameters of JPY 300 billion. We'll continue to aim for sustainable growth. And thank you for your attention.

Now we would like to move on to Q&A session. [Operator Instructions]

My name is Masuno from Nomura Securities. I have 2 questions. For the March '24 business plan assumptions, the first question, so the roaming minus JPY 60 billion and other, the profit increase of JPY 20 billion, reflecting cost cut, I believe. I'm wondering if roaming revenue will go down so much as to cost reduction. According to the midterm plan, I think there are -- there could be more cost reduction. As to ARPU revenue, JPY 20 billion revenue will increase, including upward trend. Could you please talk about the assumptions, I mean the significant reduction in the revenue and how much actually the other cost will be reduced? Could you please talk about the background?

So I would like to explain about the roaming and Amamiya-san will take me over. As to JPY 60 billion decrease in roaming revenue, I think that you are thinking that it is very big. So we are concluding roaming contracts agreement in operation. We have been talking with Rakuten about it. As you know, for this the fiscal year, by the end of the year, that they are going to turn it around, the telecommunication business. And for that, they have to narrow down the roaming area rather significantly. And the -- in terms of number figures, JPY 60 billion reduction in our roaming revenue, reflecting the reduced roaming area. But since then, our discussion continued. And today, with the Rakuten, we issued the press release. So they are going to invest both in 5G and 4G, and that is very tough. So they would like to focus more on investment in 5G. So the cash, rather than using cash for 4G investment, they thought that they will be better for them to extend the period for the roaming services or rather to reduce the range of reduction in roaming services. And for us also, we would like to invest more on the 5G, and it will be more effective to have to provide roaming services to Rakuten. And we announced what we announced today. From our perspective, we would like to reduce the revenue slightly. And so for this fiscal year, JPY 60 billion reduction, we will be mitigated to some extent because of this new agreement with Rakuten. I think that we can achieve over JPY 10 billion. And so the reduction will be the better that we announced JPY 80 billion, but -- today, but there will be some add-ons to JPY 80 billion. That is our current forecast. I cannot talk about details about this agreement, but that is the big picture. So from next year on, the reduction will be mitigated. As to other, Amamiya-san takes me over.

As to other area, so there are positive and negative included here. Other, including energy stats here. As to energy, next year -- next fiscal year, we are aiming at a stable revenue flow, JPY 10 billion plus, the profit increase is expected. And also, the technology, the cost, the restructuring and about JPY 20 billion, the positive number is expected. And why the total is JPY 20 billion? Well, because there are some costs involved especially today, ARPU increase that should be worked on, that we have been working on since last year. And that is the biggest challenge for us. So we need to make au more attractive. That's very important. And for that purpose, we are going to use more -- spend more for marketing so there is some cost. So plus/minus the calculated, this is the number, JPY 20 billion as it's shown here.

As to ARPU revenue, the ARPU revenue, the increase is expected. And I think I asked about ARPU itself. May I?

As to ARPU, in the first half, we are going to have a rebound of the communication ARPU revenue. At this moment, the numbers are quite good. And within the first half, we'd like to see a rebound. To begin with, our thought is as follows. We would like to have our customers use as much as possible in a comfortable manner, and that will lead to the increase in revenue and unlimited, the plan usage increases and number increases. But as to the traffic usage part, it is statically increasing in terms of au every month, close to 30% increase year-on-year. And for UQ mobile, the 20%, about 20% increase year-on-year in terms of traffic. So the customers are using more. And with that, the au max plan and UQ mobiles, the mid-to-large, the capacity plan, like [ M&L ], those plans are increasing, contributing to ARPU increase. So our scenario is working very nicely. Thank you.

So for ARPU is expected to the rebound within the first half of this fiscal year?

ARPU revenue is going to rebound, but the ARPU itself well, within this fiscal year, we would like to see the rebound, but as to revenue, we would like to make the positive.

Second question, the EPS target. So the JPY 300 billion, the share buyback, JPY 5, the DPS, the increase. Is this because of the -- you're targeting at midterm, the EPS, and you would like to control the number of shares? Is that the background? Could you please talk about your thinking behind those numbers?

This question, I think, is a very important question. Last fiscal year and this fiscal year, the business environment has been very tough. And because of the significant price reduction and the fuel price hikes and communication failures happened, the Rakuten roaming that was -- that started very nicely, but the revenue is coming down, which is offset by the upper revenue rebound and the cost of reduction and the growth in the focus areas and what's the other, last year's situation. And for this fiscal year, JPY 60 billion the roaming, the revenue reduction, we would like to reduce the range of reduction. And so the communication failures and the fuel price hikes had an impact of JPY 35 billion, but we did not reach the externally published, the numbers, but the actual number ended up with JPY 25 billion instead of JPY 35 billion. So for this fiscal year, JPY 60 billion reduction in roaming revenue, and we have been doing some workout so that we can mitigate the reduction in roaming revenue. And from this fiscal year and onwards, we will not see many -- the negative elements, except the revenue reduction in Rakuten roaming, but the fuel price hikes, so the communication failures and the other price down that we are going to see rebound in the price to see as well. So not so many negative elements. So from next year and onwards, the picture we believe that will be much better. And the 5.5x EPS target was announced 3 years ago, I think, or 4 years ago. And back then, we did not expect the big impact from the price down or communication failures. So it seems that the current status is 1 year or so behind the plan. But we are not going to give up this 5.5x -- 1.5x EPS. And for that, business growth and the shareholders' return, such hybrid approach is necessary. So for the -- for 1 to 2 years, the business growth was not so big. So we would like to show clearly that we are committed to shareholders' return. So JPY 5, the increase this year, DPS and the JPY 300 billion share buyback, those are the numbers that are showing our commitment. So although we are going to make effort to grow more this year and year after next as well.

[Operator Instructions] Yes, the second row in A at the back, please.

Mitsubishi UFJ Morgan Stanley Securities, I am Tanaka. I have 2 questions. But for that, Mr. Masuno's question, JPY 60 billion in decline for the roaming, but you said that more than JPY 10 billion increase. So it's not minus JPY 60 billion, but it could be as little as JPY 50 billion. Is that what you mean? Well, we are looking at a bit better than that with more than JPY 10 billion. Okay. So for the data book in ARPU actual results, communications ARPU, JPY 3,870 in the quarter -- the fourth quarter and JPY 180 decline. So this is more than I had expected for the single month in the second half, you were expecting a rebound. That's what you said. So JPY 180 decline in ARPU in the fourth quarter, can you explain more about this?

Amamiya-san, please.

Well, the biggest factor is the connection fee, and the retrospective billing will be included in March always. And in March 2022, March and March 2023, comparing these 2, March 2023 was bigger. And that was the biggest reason why the ARPU didn't stop falling. And for the other factors, most are in line with our expectations. And as I said in April, the things have been going as we had expected, mostly. So if you just look at the fourth quarter, that may be the impression that you may have. But for this fiscal year, we believe that things will go as we had assumed.

So of the JPY 180, the settlement of connection fee, how much is represented by that?

Well, that is not disclosed. I'm sorry for that. Several tens of yen, well, most -- well, if you say several tens of yen, JPY 50 would be the one that you could have as an idea. Well, it's just -- au ARPU is on the positive side, but brand composition review is something that is ongoing and also access charge retrospective billing is also included. So in any case, as we went into April, year-on-year multi-brand communication ARPU revenue, mostly on par with the previous year. So in the first half of this fiscal year, if you multiply ARPU and ID, the multi-brand communication ARPU revenue should be reaching the rebound within the first half. That's our target.

For the second question, as for multi-brand IDs, 31.2 million as of the end of March. So how much is UQ and povo of this? And then what would be the number of IDs in the new fiscal year? And what would be the composition that you're expecting?

Amamiya-san, please?

Well, first of all, the composition of IDs breakdown, slightly more than 70% is, say, U. And as for UQ mobile, the things have been going well continuously, and it is almost reaching 8 million. And povo1.0 and 2.0 together have reached more than 1.5 million, so you can understand what is the composition of the brands.

And as for au composition ratio share. How to maintain that share of au is the biggest challenge for us. And compared to last year, this year, the #4 is declining. So the share of au, the decline in the share of au has been reduced. So for this fiscal year, we don't expect as much decline as in the last fiscal year. And the migration from au to UQ was more, but that has been slowing down. And from UQ to au, the migration of this customers that are doing this migration is increasing in number. So for this composition breakdown, the decline in au is expected to slow down in this fiscal year.

Well, the multi-brand ID, the total number of IDs in the end of March 2024, what would be your expectation?

Well, as for the forecast for this next fiscal year, 31 million because we have reviewed the definition. The number of povo subscribers has been counted even if they have not used the povo, but the number of users that have been built is a new definition. So 31.23 million is the number of IDs, but 30.88 million is under new definition. And then that will be 31 million as of the end of March 2024. So when you look at the press conference by SoftBank, they are talking about net growth in smartphones. And 1 million is a big number that they said, but we also counted the number in our company, and we are reaching a similar level. So we would like to also review how to disclose these numbers. The number of smartphones is important, so we would like to also share that information with you going forward. Thank you.

And 30.88 million to 31 million, I think that is quite small, isn't it?

Well, it's the number of IDs. So from the feature phones, well, this is just about the right number. Well, this may sound a bit weak. But if you look at the current moment, there was also an issue of so-called JPY 1 handset and there was some restriction that is being applied. So in that sense, it may seem a bit weak. Thank you.

[Operator Instructions] One front row, please.