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FY 2025.3
Performance Highlights and Q&A for the Third Quarter of the Fiscal Year Ending March 2025

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

Date	February 5, 2025 (Wed), 4:00-4:30 PM (Financial highlights) 6:15-7:00 PM (Q&A for analysts and investors)
Location	Online streaming from KDDI Hall
Respondents	[Presentation] Makoto Takahashi, President, Representative Director, CEO [Q&A] Yasuaki Kuwahara, Executive Vice President, Representative Director, Executive Director, Business Solution Sector Hiromichi Matsuda, Managing Executive Officer, Director, CDO, Executive Director, Advancing Business Technology Sector Nanae Saishoji, Managing Executive Officer, Director, CFO, Executive Director, Corporate Sector Hiroshi Takezawa, Managing Executive Officer, Director, Executive Director, Personal Business Sector Kenji Aketa, Executive Officer, Corporate Management Division, Corporate Sector

Date

February 5, 2025 (Wed),

4:00-4:30 PM (Financial highlights)
6:15-7:00 PM (Q&A for analysts and investors)

Location

Online streaming from KDDI Hall

Respondents

[Presentation]
Makoto Takahashi, President, Representative Director, CEO

[Q&A]
Yasuaki Kuwahara, Executive Vice President, Representative Director, Executive Director, Business Solution Sector
Hiromichi Matsuda, Managing Executive Officer, Director, CDO, Executive Director, Advancing Business Technology Sector
Nanae Saishoji, Managing Executive Officer, Director, CFO, Executive Director, Corporate Sector
Hiroshi Takezawa, Managing Executive Officer, Director, Executive Director, Personal Business Sector
Kenji Aketa, Executive Officer, Corporate Management Division, Corporate Sector

Highlights of the Financial Results

The Presentation of the Financial Results

In the presentation, President Takahashi explained the consolidated Financial Results for FY25-03 Q3.

1. Consolidated Financial Results for FY25-03 Q3

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Income increased by steady growth in major businesses and strong performance in Lawson. In line with full-year forecasts.
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Operating revenue was 4,364.2 billion yen, up 2.3% from the previous year, 75.6% of the full-year forecast.
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Operating income was 864.6 billion yen, up 2.0% from the previous year, 77.9% of the full-year forecast.
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Profit for the period attributable to owners of the parent was 536.5 billion yen, 77.8% of the full-year forecast, up 0.6% from the previous year excluding temporary impacts from the reorganization of subsidiaries and affiliates, etc.

2. Personal Services Segment

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Total ARPU revenues increased. Both communications/value-added ARPU revenue grew steadily.
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The number of smartphone subscriptions, which contributes to ARPU revenue growth, continues to increase steadily. au churn rate maintained low.
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New pricing plans were introduced, and the momentum has recovered in Nov. 2024.
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Both communications/value-added ARPU maintain increasing trends. Communications ARPU by brands keep growing.
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Generate synergy between communications and financial services by offering attractive bundled plans. Expand communication customer base and accelerate further growth of both KDDI and au Financial Group.
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Promote collaborative initiatives to achieve growth for both KDDI and Lawson.
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Committed to No.1 in communication quality, promote initiatives for quality enhancement and area expansion.

3. Business Services Segment

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Steady growth driven by the expansion of the growth area, which was up 19.9% in Q1-3 operating revenue from the previous year, IoT-related services expanded steadily.
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For WAKONX, leveraging strengths to promote scaling of industrial DX solutions and AI utilization.
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Enhancing the strengths of "Products & services + Communication" and "Security + Communication", support customers' digitalization in the era where communications and AI are integrated.
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Progress in developing AI infrastructure and AI services for WAKONX.

4. Enhancing the Power to Connect

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Focus on development of future talent towards "a society in which anyone can make their dreams a reality."
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Provide visitors with experience of creating future at "Future City" pavilion in EXPO 2025 Osaka, Kansai.
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In MWC Barcelona 2025 which will be held in March 2025, introduce AI, retail-tech, mobility, and other topics, also giving a keynote speech.
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Towards a high-value-added economic circulation, contribute to realization of sustainable future society in collaboration with partners, centered on stable and high-quality communication and AI services.

Questioner 1

I would like to know about your initiatives in the AI era. The absolute amount of investment in AI seems to be less than the other two carriers. I would like to know whether you plan to accelerate for the AI era, or you will continue to invest efficiently rather than focusing investment amount as you have done in the past.

We have announced that we will be investing 100 billion yen to build a large-scale computing infrastructure. It is certain that we will use AI, including in our operations, as part of our future vision for AI. Our initial thoughts on how much we will invest have not changed, and we will continue to invest while monitoring technological advancements. We will first work on building AI data centers.
I would like to know the focus areas of Life Design under the new management structure. I would also like to know the investing balance between AI and Life Design area.

First of all, in order to complete the current Mid-Term Management Strategy, we will focus on Orbit 1 (Finance, DX, Energy) without making any major policy changes. We will then consider and develop the next Mid-Term Management Strategy under the new structure.

Questioner 2

Lawson's profits are growing. What is KDDI's view on this? Also, please tell us about the outlook for costs such as sales promotion expenses in Q4, including special factors.

I have the impression that Lawson is performing strongly. At the recent financial results announcement by Lawson, there was a comment that the company was making very good progress. In relation to this, the sales promotion costs for the Ponta Pass, which is one of collaborative initiatives with Lawson, are increasing. However, it is contributing to the increase in the number of customer referrals to Lawson and the improvement in daily sales. In addition, in Q3, mobile competition has intensified, promotional expenses were recorded due to the launch of UQ mobile's "KomiKomi+" and au's "au Money Activity Plan+". In Q4, we will incur costs to maintain a certain level of momentum, but we will control this while avoiding excessive cost as much as possible.
Regarding the revision of the Telecom Business Law, is it safe to assume that there will be no impact on business performance in Q3 and Q4 and beyond?

Regarding the trial discount, no company are currently taking action. We will continue to monitor the situation of each company and consider whether to implement it. Additionally, as companies are conducting campaigns for the fiscal year-end sales battle, we will steadily carry out measures to give back to certain customer segments.
KDDI has been managing its business in a balanced manner so far, and recently you have been actively promoting shareholder returns. What are your thoughts on future growth investments and shareholder returns?

We think it is important to incorporate seeds of future new business into our very strong business divisions and scale them up. We think it is important to make careful judgments there, and while it may be seen as cautious, we will also firmly engage in new initiatives and manage the business while maintaining a good balance.

Questioner 3

If you look back the past five years, operating revenue has increased by 500 billion yen. I think that a company cannot grow unless revenue increase, but I don't think it's easy to increase revenue by 500 billion yen. What sort of expansion are you imagining in terms of scale, including technological, business, and financial aspects?

At present, we want to steadily increase our top line. Where that area is, however, looking back the past, I think there have been some areas that have changed significantly due to technology and trends. I think increasing ARPU through smartphones is one of facts. We will do our best to incorporate this while watching the trends.
Of course, we will think by ourselves about how to find the next step for growth, but I think that talking with people outside the company will help us to see our objective strengths. For example, the increase in touchpoints through collaboration with Lawson and the vast amount of data generated provide significant potential for the full utilization of generative AI. By combining new technologies such as AI, we aim to commercialize them and link them to growth, including the top line.
Regarding corporate business, data center operating revenue was flat QOQ, and digital BPO operating revenue decreased YOY. What is the background to this situation? Also, please tell us what recovery measures you are implementing.

It is true that growth in Q3 was weak. However, the DX and lump-sum payment markets are not shrinking, and the number of projects has increased YOY 1.7 times, and the amount has increased YOY 1.3 times. One thing we misread was that there is a huge demand for the building facility solutions we have been focusing on this quarter. The number of projects and their amounts have increased, but one of the major factors is that, because buildings are involved, the delivery period has been extended, and the operation has been taking longer than expected.
Regarding digital BPO, when we made our plans, we did not anticipate the growth of AI to this extent. The speed at which chatbots and automation are progressing is fast. Although existing customers' profits are decreasing due to digitalization, we expected to expand by acquiring new customers. However, sales are progressing more slowly than expected. In addition, the outsourcing of corporate business areas other than call centers is not progressing smoothly, which is a negative factor. About data centers, we receive fuel costs from customers as part of the sales price. Last year, the fuel costs, which had been rising, returned to normal levels, and this had an impact on sales. Going forward, to avoid the impact of fuel costs, we have changed to billing separately for electricity costs, which has resulted in weaker sales growth. Additionally, we invested heavily in expanding floor space, which slightly weakened profit growth.
We don't think the situation is that bad, as the number of projects is increasing, and we think we can make up for it in Q4. Every Q4 is always a crucial time of year, so we want to make a strong push towards it. We also have new business models such as security and ConnectIN, so we want to make sure we get them off the ground for the next fiscal year.
Considering the increase in the number of projects, does that mean that there is no need to make any changes to KDDI's initiatives or its service lineup, especially for the next fiscal year?

Regarding digital BPO, we are behind on the Altius ONE service, but if we can catch up properly, we think it will be possible to lift it for next term.

Questioner 4

I want to check the shareholder return policy based on the trends of major shareholders.

When Kyocera announced its financial results in October 2024, Kyocera explained that they would sell one third of our shares over the next five years and continue to reduce its holdings. However, at the latest financial results announcement, Kyocera changed its plans, bringing forward the period for selling shares to two years and continuing to reduce its holdings from the FY28-03 onwards. We would like our founding shareholders to continue to hold our shares, but we also understand shareholders' situation. Regarding our response, we believe that we can absorb this within the scope of our total return ratio of 100%, without changing our cash allocation policy for FY26-03. For FY27-03 and beyond, we are currently formulating our next Mid-Term Management Strategy, and we will consider our response based on our next cash allocation policy and announce our policy at the appropriate time.
Do you think the balance between shareholder returns and growth investments for this and next fiscal year, and the policy on EPS growth, are appropriate?

We intend to steadily advance our current EPS growth and cash allocation policy towards the next fiscal year. At this point, we want to firmly adhere to this approach and aim to achieve 1.5 times EPS in the final year of the current Mid-Term Management Strategy.

Questioner 5

Regarding the impact of the new plan, you mentioned that the momentum of the multi-brand ID has recovered. Which plan contributed to this, and will this trend continue? Also, the point redemption has been strengthened with the Money Activity Plan+. How will this change communications ARPU revenue?

Competition in the mid-capacity range has become fierce. We have started offering the Komikomi Plan+ with UQ mobile as a countermeasure, and this has increased our earning power and competitive strength, and is having a positive effect. Regarding the point redemption for the Money Activity Plan+, we think that having customers use it at various places, including Lawson, through payment will be positive for our entire economic zone. The number of upgrades from UQ mobile to au is also increasing, so we want to steadily increase our revenue towards Q4.