Performance Highlights and Q&A for the First Quarter of the Fiscal Year Ending March 2025

Regarding cash allocation, the Q1 just ended and there is no change in policy. We had told you that there is a possibility of future implementation after the share repurchase we are currently conducting, and there is no change in policy on this matter either.

The Q1 is making progress as planned. There is no change in the situation that there is a possibility of implementation.

Multi-brand Communications ARPU in the Q1 was 3,930 yen, almost levelled off in YOY. By brand, ARPU for au and UQ mobile grew by 3% YOY and 8% YOY, respectively. Although the brand mix impacts ARPU, compared to last year the migration from UQ to au has more than doubled in YOY, so ARPU is generally in line with the initial plan.

We will implement various measures to maintain this level of ARPU growth and au subscriptions. In addition, since the yield of the au subscription composition ratios is a significant factor, responding to this is an urgent challenge. However, the rate of decrease in the au subscription composition ratio is becoming slighter, and we will take this one step further.

Lawson's deal is progressing with plans to close by the end of September, but I cannot provide details of these efforts at this time. In terms of strengthening coordination, about 10 people from KDDI have been seconded to Lawson since July, and more than 10 working groups are currently discussing how to contribute to the business side. We will soon be able to provide details of our efforts, so please stay tuned.

In the Business Services segment, there was an increase in revenue and income. In the Growth area, the IoT-related services, data centers, and Digital BPO businesses are all performing well. In addition to the positive effect of M&A, the DX needs of our clients are making very steady progress, and we are aware that we have successfully captured these needs, which contributed to the increase in revenue and income in the Growth area.

Regarding the three growth segments, IoT connections are expanding, reaching 44 million in Q1, and the expectation is for growth of about 8 million connections for the fiscal year. In the data center business, the effect of the M&A of a data center in Canada is one factor, but our more than 45 data centers are performing well, and the addition of data centers in Europe and the construction of a new data center in Thailand are also contributing to growth. Digital BPO is shifting into a value-added area with efficiency gains from digitization in the future.
Base plans to increase in revenue and income in full year; one of the reasons for the decrease in revenue is that Q1 was negative due to a decrease in IDs for au Denki for corporate customers.
As for Digital BPO, since Altius Link was launched in September 2023, sales and income from the integration of Relia Communications were included in Q1.

The 2.2 fold increase in YOY in terms of the number of transfers is generally in line with expectations. However, since the brand mix has a very large impact on communications ARPU, I believe that providing value to customers and increasing the number of au subscriptions by adopting measures to migrate to au will have an effect on communications ARPU, so we will work hard to achieve this.

In the Q1 of this fiscal year, we are making very good progress against our internal plans. Our ultimate target is to achieve the EPS target for the next fiscal year. We will ensure that the current progress is positive and allocate it to growth for the next fiscal year. In the area of investments, investments in AI data centers will increase, and as I gave an overview of our Mid-Term Management Strategy, we will invest 100 billion yen over several years. Since it will not take a large amount of money in a single year, we will achieve the EPS target as planned in the next fiscal year.

Our policy is to improve the efficiency of existing capital expenditure and make investments in cutting-edge technologies. Sharing of base stations and virtualization of new technologies will make it very easy to utilize AI. From such a point of view, we believe that operating cost efficiency will increase. The idea is to use AI's technology to upgrade existing facilities and allocate them to future investments in advanced technology.

As you understand it, we are building data centers, including networks, for the AI era. 100 billion yen includes data centers and building computing infrastructure.

While we are promoting data-driven measures to let customers who experienced UQ mobile return to au, per capita data traffic as of the end of June is up for both au and UQ mobile. This has affected migration to au, which offers unlimited usage plans, due to the need for unlimited usage without worrying about data.

If customers contract and purchase a handset at the same time, they will be able to fully use the functions of the handsets and traffic will increase. Customers enjoy various contents provided by au, and this helps to stay them contracted.

The net increase in smartphone subscriptions, which is the basis of ARPU revenue, is steadily expanding, and although we are not optimistic about the competitive environment, there is no significant churn to other companies. We are currently focusing on the increase of contracting and purchasing a handset at the same time since this brings positive affect to revenue by IDs multiplied by ARPU. As for Rakuten, it is true that it is gaining momentum a bit, but we believe that the number of subscribers may be surging a little too rapidly. We believe that we need to increase net increase in handsets, area coverage, network quality, etc., as differentiating factors to increase our competitiveness.

AI data centers require very high power and advanced cooling systems for the calculation infrastructure such as GPUs and CPUs. The site of the former Sharp plant in Sakai is a suitable location and is very large, so we are in the process of discussing how to use it. In any case, there is no change in our plan to invest 100 billion yen over the medium to long term, and we expect to receive about 10 billion yen in government subsidies, so we would like to work on building a solid network.

We are currently preparing to make some form of announcement with Lawson and Mitsubishi Corp. after the closing.

I believe that shareholder returns will mainly consist of share repurchases. We cannot say when we will be able to make an announcement because we will implement them in a flexible manner. We are aware that it is important to expand profits in the business and the share repurchase is another method to achieve the EPS target. And we know that the earlier the share repurchase be done, the more effect on EPS we could obtain. I would like to keep this point in mind as well.