Q1 2025 Rakuten Group Inc Earnings Call
If we provide comprehensive products and services tailored to the needs of specific industries from April 2025, we added wrapped in communications products to our lineup our product portfolio includes 72 solution services and we plan to add more than 10 additional services within fiscal 'twenty 'twenty five.
Next I will provide an update on racked and symphony.
In this quarter, we signed contracts with 13, new companies and established partnerships with nine companies. This has further accelerated the deployment of our solutions moving forward. We will continue to focus on developing solutions that meet market needs.
Finally regarding the impact of reciprocal tariffs on the mobile segment. We currently assess that there is no direct effect on procurement or supply. However, we continue to monitor potential risks related to U S policies carefully that concludes my presentation.
Next CFO Hirose will provide an overview of the financials. Thank you very much for your attention.
Thank you.
As he rose and I will explain our financial strategy. The current macroeconomic environment is becoming increasingly uncertain.
We have determined that there is no need to change our financial targets or policy.
Our financial policy is to enhance corporate value through the establishment of a stable financial base and appropriate capital allocation and.
And by continuously improving our credit standing we aim to maintain financial soundness over the medium term.
On the business front, we are working on a continuous profit growth of our core businesses companywide efficiency improvements and cost reductions and the reduction of working capital.
On the financial front, we are reducing interest bearing debt and proactively managing our bond redemption schedule.
Our specific financial targets, so to achieve the ratio of net interest bearing debt to non-GAAP EBITDA for non fintech businesses of under five times and our consolidated equity ratio of 10% next.
Next I will explain our bond management.
In order to flexibly respond to increasing market volatility.
Our company is working to maintain stable financial operations through a variety of funding methods.
Regarding interest bearing debt maturing in 2025.
<unk> already secured funds for all bonds and have completed measures, including the replacement of hybrid bonds.
For interest bearing debt maturing in 2026 and beyond we plan to respond flexibly by selecting from multiple funding options.
Into account market conditions and economic efficiency. Additionally.
Additionally for the U S dollar denominated perpetual subordinated bonds with the first call date in April 2026, we will conduct an early redemption at the first call date.
As I mentioned earlier, although global economic uncertainty is increasing at present, let me first discuss the interest rate environment. Please look at the graph on the left the Red line represents the yield on Japanese government bonds and the yellow line represents the yield on our company's domestic unsecured bonds.
As you can see as our creditworthiness has improved the credit spread has been narrowing.
This is a very important point.
Even if the base interest rate, which is the government bond yield.
Raises.
The narrowing of the credit spread offsets the impact of rising interest rates.
So our effective funding cost is on a downward trend.
Next regarding the foreign exchange environment, please refer to the table on the right.
This is a list of our foreign bonds and for all U S dollar and Euro denominated bonds issued between 2021 and 2024, we have already entered into currency swaps. Therefore, even if exchange rates fluctuate.
Both principal and interest payments of fixed in yen.
And there is no impact on our cash flow regarding.
Financial income and expenses.
Though it has significantly worsened compared to the same period last year and the financial statements.
The majority of this $33 8 billion yen is due to hedging loss with stronger yen related to perpetual subordinated bonds.
This is because from an accounting perspective.
Perpetual subordinated bonds are treated as equity.
And hedge accounting is not applied.
So this does not involve any cash outflow.
And has no substantial impact on our finances.
On the other hand, we will continue to closely monitor the impact on the balance sheet via the foreign currency translation adjustment account.
In any case, we believe that we are able to maintain financial stability, even in a highly uncertain macro or market environment and we will continue to do so going forward.
Regarding our AI initiatives, our chief data Officer Ting will provide an explanation. Thank you.
Hello, everyone. My name is Tim Si and I'm, the Chief AI and data officer for rocket 10 group today I will let my avatar share our latest updates with you I'm excited to share the progress, we're making on AI innovation, our effort to infuse AI into everything we do for customers partners and <unk>.
Our vision is to augment human creativity with the power of AI since rolling out our vision and strategy at the optimism conference in August 2024, we have made solid progress, but we see much more potential to further leverage our unique data ubiquitous channels and accelerate our growth flywheel we continue.
To strengthen our deep learning foundation invest in our own large language models and enhance our services for consumers and businesses.
In Q1, we delivered many new features new innovations and new products across the <unk> ecosystem. The list on this slide is just a sample of what is happening across Rocco 10 group overall, we are focused on delivering tangible results for customers and partners.
One of the key applications of our deep learning Foundation is semantic search which uses embedding as to understand what customers mean, not just what they say or type, helping them find more products and services since rolling out semantic search on each of our in Q1 2024, we have made several key improvements that are accelerating growth for example.
We released hybrid search, which combines the precision of keywords, such with semantic search for better relevance and recall this quarters double digit growth year over year is a testament to the power of AI search when customers can find what they need and want more quickly. They are more likely to buy moving forward, we will expand our deep learning applications.
Not only using embedding to find relevant content, but also ranking it more intelligently based on factors like how popular it is and how well it matches each user's preferences, we see opportunities to further leverage deep learning and contextual ranking and we will have more to share on this soon another area, where AI is making an impact is ads.
In Q1, 2025, we updated the algorithm for keyword and bidding recommendation and made it easier for advertisers to onboard we also improve the search ads relevance algorithm by including additional signals. The proof is in the numbers. The search ads request click through rate in AD revenue per request are both up significantly in Q1 two.
Twenty-five inside.
Inside Raki 10, we have been using a tool called Raki 10, AI for Rocco Tinian to enable everyone at Rocco tend to be more creative and more productive <unk> have created over 16000 custom AI tools and templates across a range of tasks from creating more compelling marketing content to administrative task.
Like managing email and recapping meetings the impact on software development is particularly impressive by using AI driven software through the development cycle from requirement gathering to product definition prototyping testing and operations. The Rocco 10, AI for <unk> engineering team was able to reduce the time to release up to eight.
3%.
As a global company born in Japan, and we believe we have an obligation to empower everyone in Japan to build and succeed with AI. That's why I'm proud to share that our next generation of language models rocket 10, AI 2.0, our first mixture of experts Lodge language model and rocket 10, AI 2.0, many our first small language model.
Are now available for general use as open models on our hugging face repository. Both models were built on cutting edge technology are highly efficient and cost effective and delivered best in class Japanese language performance at launch. They were also extensively trained on Japanese data to capture Japan's unique linguistic and cultural nuances and to be full.
<unk> compliant with Japanese laws and regulations.
Speaker Change: We continue to advance the rocker 10, AI assistant, which empowers customers to engage with the Rocco 10 ecosystem in a highly personalized multimodal way this quarter, we introduced a new snap and asked feature which makes AI powered visual search accessible to everyone now instead of talking or typing customers can simply snap a picture and discover.
Speaker Change: A world of information and actions that make it easier for people to experience life in new places through shopping dining and cultural events, even if they aren't familiar with the language I'll open beta is ongoing and we will have more to share about an official launch soon.
Speaker Change: The Rocco 10, AI assistant is an important first step into the emerging world of <unk>, AI, which we believe has tremendous potential to evolve into an always on digital collaborator that proactively assist across your personal and professional life. Raki 10 group is uniquely positioned to take advantage of this technological advance and create new value for our customers.
Speaker Change: And for Society first we believe that agents will change how consumers and businesses engage with the web across search browsing and advertising agents will help humans to have a more enjoyable and productive life second we see the opportunities to continue to build specialized AI like how Japanese language models and specialized models for each domain or even for.
Speaker Change: Every individual finally, we will continue to innovate with speed and scale to create more value for everyone. In the Rocco 10 ecosystem and beyond I'm proud of what we've accomplished this quarter to bring AI and Ization to life and I'm excited to see you all again in a few months to share more.
Speaker Change: Thank you for joining us today.
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