Performance Highlights and Q&A for the Financial Results for the Fiscal Year Ended March 2024

I believe that the achievement of the EPS target is a significant point in this briefing. The increase in income for FY25-03 will be +14.0 billion yen in Communications ARPU revenues, and +33.0 billion yen in DX, finance, and energy, the focus areas, taking all these into consideration, for a total of just under +50.0 billion yen. We will continue this trend in the next term.
In addition, Rakuten roaming revenues will decrease in revenue by about 17 billion yen this term but will only decrease a few billion yen in the next term, improving a little over 10 billion yen in YOY.
Also, we would like to make numbers with what we are preparing in LX as Orbit2 and get it to the 10 billion yen scale.
As for LAWSON's profit on intake, we had originally planned to take in about 10 billion yen in profits after the squeeze-out in the current fiscal year. However, with the early completion of the TOB and a 41.1% shareholding ratio, the company will be able to take in profits as equity method from Q1, so we are now able to take in profits as equity method from 1Q, with the expectation that profits will be about 8 billion yen higher than planned.
Another point is that the company will retire about 18 billion yen of 4G facilities every year for three years starting from the previous fiscal year as a structure reform for technology cost, which will work for OPEX. We expect the effect to be about half of the retirement cost, or about 20 billion yen in FY26-03. The fact that FY25-03's operating income is about 30 billion yen lower than expected should be reasonably understandable, given the cost of structure reform for technology and the increase in LAWSON's profit.

We expect drones, Starlink, etc. Drones in particular are trending on track and we believe we can build on that. In the toB business, which the company has been involved in since its early days, it has received many inquiries for drones, Starlink, Metaverse, etc., and this is expected to be a factor in expanding the top line FY25-03 and a factor in contributing to profit FY26-03.

The total value of the project is 10 billion yen, which is a combination of several projects, and drones are positioned as one of them.

A total of 60 billion yen is planned for the three years starting from FY24-03. Approximately 20 billion yen is expected each year for the FY24-03, this term (FY25-03), and FY26-03, with FY25-03's portion included in the plan. We expect that about half of the impact of this retirement will take effect in OPEX, with an approximately 20 billion yen cost reduction in FY26-03 due to the two-year effect, and a cost reduction of several billion yen in FY25-03, partly affected by the timing of the implementation being closer to the end of FY25-03.

We assume 300 billion yen for share buybacks for both FY25-03 and FY26-03, but we plan to complete the 300 billion yen for FY25-03 by the end of October 2024, and we believe there will be a grace period after that. We would like to respond to the company's total return ratio of up to 100%, including flexible share buybacks, in order to achieve the 1.5 times EPS we aim for.

Not expected at this time, basically 100% is the upper limit. We plan to repurchase shares in response TOYOTA MOTOR's offer during FY25-03. After the share repurchase is executed, TOYOTA MOTOR's shareholding ratio in the Company will be 10%, and it is expected that TOYOTA MOTOR's will continue to hold its shares in the Company afterwards. Ongoing meetings are held with TOYOTA MOTOR and KYOCERA, the major shareholders, regarding their holdings. We have a particularly strong connection with TOYOTA MOTOR in terms of connected services, and we hope for continued holding in the future.

It may be an option, but we are not considering it at this time. In order to increase net income to achieve the EPS target, there are options such as M&A and increasing the ratio of shares currently held, and we are considering various options internally.

First, IDs cleared the target and reached 31.15 million IDs in FY24-03, which was initially expected to be 31 million IDs. As a result, ARPU revenue rebounded with an increase of 5 billion yen. However, the unit price decreased by about 20 yen YoY. Communications ARPU revenues must continue to grow in the future.
First of all, with regard to ID acquisition, there was steady activity mainly at UQ Mobile, but this is having an effect on the decline in ARPU per unit. However, the ratio of au's MAX data plans is strong. In addition, while the overall churn rate is rising, the churn rate for au is trending at around 0.8%, and the settling down of au churn will contribute to ARPU changes in the brand mix. Due to ID, UQ Mobile's acquisition will not be held back, but UQ Mobile has also increased its newly acquired medium- and large-capacity data plan composition from around 40% to around 70%. This combination will raise overall Communications ARPU revenues and unit price.

It is expected that this can be done by continuing and operating the current elements as they are.

Value-added ARPU is driven by high-margin finance and settlement and product support services. For the finance and settlement, mortgages loans and credit card settlements are strong, while for the product support services, the usage support is strong. Synergies with LAWSON will be achieved by rebranding au Smart Pass as Ponta Pass and offering it to customers together with LAWSON. If we were to increase the number of members from 15 million to 20 million, how many years would it take to achieve an increase of 5 million, but we would like to assemble a service that would allow customers to subscribe as much as possible as front-loading. If we can achieve this, the number of members with a unit price of 500 yen will increase by 5 million, which is a calculation of about 75 billion yen over 5 years. To achieve this, we would like to strengthen coordination with LAWSON, Mitsubishi Corporation, and Loyalty Marketing.

We can afford to go that far. We have announced that a 300 billion yen share buyback this fiscal year will be completed by October 2024, and we would like to consider this depending on the situation at that time.

Investments will be mainly in Business Exploration & Development Division, which has been incorporated into the Business Services segment in this instance. There may also be some finance business related.

While each company's financial results seem to indicate that churn rates are rising and competition is intense, au's churn rate is apparently falling, due in part to the effects of the MAX Plan and the au Money Activity Plan. The churn rate is rising at UQ Mobile, with the SIM stand-alone contract being a particularly worsening factor. Since a SIM stand-alone without a bundled handset is also counted as the number of smartphone contracts, the unit cost will increase if a commission is invested, but it will flow with short-term cancellations, leading to a worsening of the churn rate. We believe that we have to stick to ID multiplied by ARPU, and we will stick to sales of sets with handsets. The daily MNP activity has calmed down in May, and we do not feel that competition is that intense.

As you say, we were quite distressed at the stage when one of the three companies was finally gone, but it would have taken a very long time to reconfigure the scheme again from there, and after all, it is synergies in this instance. There is significant potential in working on DX, value-added convenience stores, and expanding the Ponta economic sphere with Mitsubishi Corporation. There is little overlap in strengths and business areas with Mitsubishi Corporation, and when we pursued a sense of speed, we decided that it was well worth it to enter into a 50:50 management relationship. In terms of investment efficiency, profits for FY25-03 will start at about 5%, but Lawson's plan is expected to be about 7% in 2027, and we are considering a hurdle rate of about 6.5%, which is sufficient to recover the investment without synergies.
In addition, we believe that the investment is well worth it, as the introduction of DX will allow LAWSON to front-load its plans, and we can expect synergies such as increased profits from Ponta Pass and other services. The company expects to take in about 18 billion yen in profit FY25-03 and about 20 billion yen FY26-03, which will also directly contribute to EPS growth.

Currently, LAWSON BANK's profitability is not that good yet, and the number of bank accounts is not very large, so we would like to discuss this after the completion of the TOB, but we do not expect it to generate significant synergies at this stage.