Q1 2027 KDDI Corp Earnings Call

August 7, 2026

Speaker #1: それでは、ただいまよりKDDI株式会社。

Speaker #2: We will now begin the KDDI Corporation FY2027 March 1st Quarter Earnings Briefing. My name is Hida Oka from KDDI's Public Relations Department, and I will be serving as your moderator today.

[Company Representative] (KDDI): We will now begin the KDDI Corporation FY 2027 March First Quarter Earnings briefing. My name is Hira Oka from KDDI's Public Relations Department, and I will be serving as your moderator today. Thank you for joining us. Today's earnings briefing will be held at this venue and through streaming, including YouTube. Today's earnings-related materials are posted on the KDDI website. We kindly ask that you refer to them. For those of you joining on the venue, please review the materials provided at your seats. Let me introduce our speakers. President and Representative Director and CEO, Hiromichi Matsuda. Senior Managing Executive Officer and Director, CFO, Nanae Saishoji. Managing Executive Officer, Director, CSO, and CDO, Tomohiko Katsuki. Executive Officer, Deputy General Manager, Corporate Sector, Kenji Aketa. These are the four speakers. I will now hand it over to our President, Matsuda.

[Company Representative] (KDDI): We will now begin the KDDI Corporation FY 2027 March First Quarter Earnings Briefing. My name is Hira Oka from KDDI's Public Relations Department, and I will be serving as your moderator today. Thank you for joining us. Today's earnings briefing will be held at this venue and through streaming, including YouTube. Today's earnings-related materials are posted on the KDDI website. We kindly ask that you refer to them. For those of you joining on the venue, please review the materials provided at your seats. Let me introduce our speakers. President and Representative Director and CEO, Hiromichi Matsuda. Senior Managing Executive Officer and Director, CFO, Nanae Saishoji. Managing Executive Officer, Director, CSO, and CDO, Tomohiko Katsuki. Executive Officer, Deputy General Manager, Corporate Sector, Kenji Aketa. These are the four speakers. I will now hand it over to our President, Matsuda.

Speaker #2: Thank you for joining us. Today's earnings briefing will be held at this venue and streamed online, including via YouTube. Today's earnings-related materials are posted on the KDDI website.

Speaker #2: We kindly ask that you refer to them. For those of you joining at the venue, please refer to the materials provided at your seats.

Speaker #2: Let me introduce the speakers: President and Representative Director and CEO, Hiromichi Matsuda; Senior Managing Executive Officer and CFO, Nanae Saishoji; and Managing Executive Officer, Director, CFO, and CDO, Tomohiko Katsuki.

Speaker #2: Executive Officer, Deputy General Manager, Corporate Sector, Kenji Aketa. These are the four speakers. I will now hand it over to our President, Hiromichi Matsuda.

Speaker #2: Ladies and gentlemen, thank you very much for attending the earnings briefing despite your busy schedules. I would like to brief you on the financial results of the first quarter of the fiscal year ending March 2027.

Hiromichi Matsuda: Ladies and gentlemen, thank you very much for attending the earnings briefing despite your busy schedules. I would like to brief you on the financial results of Q1 of fiscal year ending March 2027. First and foremost, I would like to express my most heartfelt and deepest sympathy to all those affected by the 2026 Kumamoto earthquake and their families. We will leverage the lessons learned from past disasters in our effort to restore the telecom services in the areas affected. We have restored the base stations using Starlink as backup lines, utilizing mobile base stations and portable power generations, and restore services as of 30 July. To support the areas affected, we have been providing water services from vehicle-type pay-use shops, responding to customers' problems with respect to communications and devices, and have also aided in recharging services with all four carriers.

Speaker #2: First and foremost, I would like to express my most heartfelt and deepest sympathy to all those affected by the 2026 Kumamoto earthquake and their families.

Speaker #2: We will leverage the lessons learned from past disasters in our effort to restore telecom services in the affected areas. We have restored the base stations using Starlink as backhaul lines, utilizing mobile base stations and portable power generators, and restored services as of July 30.

Speaker #2: To support the areas affected, we have been providing water services from vehicle-type AU shops, responding to customers' problems with respect to communications and devices, and have also aided in recharging services with all four carriers. We are also performing drone inspections in areas that are inaccessible.

Hiromichi Matsuda: We are also performing drone inspections in areas that are inaccessible. KDDI will continue to listen to the voices of those in the affected areas and work across the group to do our utmost to support the recovery effort. These are the key highlights for today's presentation. First, I will explain the financial results of Q1 of this fiscal year ending March 2027 and the key areas of focus for achieving our full-year targets. Following that, I will discuss our efforts to strengthen corporate governance in response to inappropriate cases and incidents of unauthorized access. Finally, I will provide an update on the progress of our mid-term management plan, Strategy, Power-to-Connect 2028. First one, the consolidated financial results for Q1 of this fiscal year ending March 2027. Q1 revenue and profit both increased, marking a strong start to the fiscal year relative to our full-year forecast.

Speaker #2: KDDI will continue to listen to the voices of those in the affected areas and work across the group to do our utmost to support the recovery effort.

Speaker #2: These are the key highlights for today's presentation. First, I will explain the financial results of Q1 of this fiscal year, ending March 2027, and the key areas of focus for achieving our full-year targets.

Speaker #2: Following that, I will discuss our efforts to strengthen corporate governance in response to inappropriate cases and incidents of unauthorized access. Finally, I will provide an update on the progress of our midterm management strategy, "Power to Connect 2028."

Speaker #2: First, on the consolidated financial results for Q1 of this fiscal year ending March 2027. First quarter revenue and profit both increased, marking a strong start to the fiscal year relative to our full-year forecast.

Speaker #2: On the left, operating revenue was $1 trillion 487.3 billion yen, up 5.1% year-on-year. Representing a progress of 23.2% of the full-year plan. In the middle, adjusted operating income was $314.3 billion yen, up 21.1%, representing progress of 26%.

Hiromichi Matsuda: On the left, operating revenue was JPY 1,487.3 billion, up 5.1% year-on-year, representing a progress of 23.2% of the full-year plan. In the middle, adjusted operating income was JPY 314.3 billion, up 21.1%, representing progress of 26%. On the right, adjusted profit for the period was JPY 193.4 billion, up 21.6%, representing 26.5% of the full-year plan. As you can see, in Q1, we were up 21%, building a strong momentum. We're off to a solid start under our mid-term management strategy. Next, operating revenue by segment. For the first time, we are disclosing revenue for the new segments as well as sub-segments. This reflects our determination to drive steady growth across all areas, including our top line. As you can see, operating revenue increased across all segments. Mobile communications, which constitutes telecom core and key growth areas such as finance and data centers, are also growing steadily.

Speaker #2: On the right, adjusted profit for the period was ¥193.4 billion, up 21.6%, representing 26.5% of the full-year plan. As you can see, in Q1 we were up 21%, building strong momentum.

Speaker #2: We're off to a solid start under our midterm management strategy. Next, operating revenue by segment. For the first time, we are disclosing revenue for the new segments, as well as sub-segments.

Speaker #2: This reflects our determination to drive steady growth across all areas, including our top line. As you can see, operating revenue increased across all segments.

Speaker #2: Mobile communications, which constitute the telecom core, and key growth areas such as finance and data centers are also growing steadily. These are factors contributing to changes in adjusted operating income.

Hiromichi Matsuda: These are factors for change in adjusted operating income. Mobile communications revenue drove the increase in profit. Growth areas also made steady progress toward double-digit growth for the full year. From the left, telecom core posted a year-on-year increase of JPY 34.4 billion, of which mobile communications revenue accounted for a year-on-year increase of JPY 18 billion. With price revisions, KPIs for respective brands all improved. We are seeing this as an encouraging sign for continued increase in profit into the H2. Personal growth posted an increase of JPY 4.7 billion, up 9.3%. Business growth saw an increase of JPY 3.3 billion, up 21.6%. In total, an increase in the adjusted operating income of JPY 54.8 billion. We will spend cost of investment for strategy, and we will continue to make effort to achieve our full-year earnings forecast of JPY 1,210 billion.

Speaker #2: Mobile communications revenue drove the increase in profit. Growth areas also made steady progress toward double-digit growth for the full year. From the left, telecom core posted a year-on-year increase of ¥34.4 billion, of which mobile communications revenue accounted for a year-on-year increase of ¥18 billion.

Speaker #2: With price revisions, KPIs for respective brands all improved, and we're seeing this as an encouraging sign for continued increases in profit into the second half.

Speaker #2: Personal growth posted an increase of ¥4.7 billion, up 9.3%. Business growth saw an increase of ¥3.3 billion, up 21.6%. In total, there was an increase in the adjusted operating income of ¥54.8 billion.

Speaker #2: We will spend the cost of investment for strategy, and we will continue to make efforts to achieve our full-year earnings forecast of ¥1 trillion 210 billion.

Speaker #2: Next is on the progress we have been making in mobile structural transformation since last fiscal year. Our LTV-focused initiatives, which we implemented ahead of our competitors, have paid off, and key KPIs are improving.

Hiromichi Matsuda: Next is on progress we have been making in mobile structural transformation since last fiscal year. Our LTV-focused initiatives, which we implemented ahead of our competitors, have paid off. Key KPIs are improving. Please look at the left-hand side regarding smartphone IDs and churn rate. The number of active smartphones in Q1 was 33.3 million, an increase of 390,000 year-on-year, and churn rate improved significantly to 1.17%, a decrease of 0.06 percentage points year over year. As I said, the number of active smartphones in Q1 was 33.3 million, an increase of 390,000 year-on-year, increase quarter-on-quarter as well. Breaking away from promotion expense based competition is not as easy to practice as it said, but we implemented such major structural transformation tenaciously at the front line of sales.

Speaker #2: Please look at the left-hand side. Regarding smartphone IDs and churn rate, the number of active smartphones in Q1 was 33.3 million, an increase of 390,000 year-on-year, and the churn rate improved significantly to 1.17%, a decrease of 0.06 percentage points year over year.

Speaker #2: So as I said, the number of active smartphones in Q1 was 33.3 million, an increase of 390,000 year-on-year, increase well. Breaking away from promotional expense based on rather breaking away from promotion expense-based competition is not as easy to practice as I said, but we implemented such major structural transformation tenaciously at the front line of sales and as a result, commendably, the front line enabled us to reduce churn rate by 0.06% and increase users by 390,000 at the same time.

Hiromichi Matsuda: As a result, commendably, the front line enabled us to reduce churn rate by 0.06% and increase users by 390,000 at the same time. On the right, regarding mobile ARPU, it reached JPY 4,400 in Q1, a year-on-year increase of JPY 160, up substantially by 3.8%. The strong performance is driven not only by service revisions, but also by steady expansion of subscriber numbers for the top-tier plans with the au and UQ mobile brands respectively, laying the foundation for increased profits in the H2. We remain committed to value competition to further strengthen our competition advantage. The diagram illustrates the approach we have been promoting since last fiscal year. We have focused on driving ARPU growth through value creation at the time of subscription and after, as well as reducing churn rates by extending contract duration, thereby maximizing LTV.

Speaker #2: And on the right, regarding mobile ARPU, it reached ¥4,400 in Q1, a year-on-year increase of ¥160, up substantially by 3.8%. The strong performance is driven not only by service revisions but also by steady expansion of subscriber numbers for the top-tier plans with the au and UQ mobile brands, respectively, laying the foundation for increased profits in the second half of the year.

Speaker #2: We remain committed to value competition to further strengthen our competitive advantage. The diagram illustrates the approach we have been promoting since the last fiscal year.

Speaker #2: We have focused on driving our growth through value creation at the time of subscription and afterward, as well as reducing churn rates by extending contract duration, thereby maximizing LTV.

Speaker #2: We have three brands altogether. So, later, for each of the brands, I would like to explain the AU. AU aims to be an attractive flagship brand that continues to be customers' first choice by delivering reliable connectivity anywhere, on the left.

Hiromichi Matsuda: We have three brands altogether. Later, for each of the brands, I would like to explain the status. First, our main brand, au. au aims to be an attractive flagship brand that continues to be customers' first choice by delivering reliable connectivity anywhere. On the left, as more customers recognize these values, we are seeing progress in switches to au. That's one of our KPIs. UQ to au to UQ, this is the migration KPI. Those who stay on au and those moving from au to UQ, there were increases in such customers. This resulted in customers migrating from UQ mobile, increasing approximately 170,000 year-on-year. On the right, the foundation for these achievements is reliable connectivity. While there are now significant differences in network quality and coverage among telecom carriers, au's network quality stands out.

Speaker #2: As more customers recognize these values, we are seeing progress in switches to au. That's one of our KPIs—so UQ to au, au to UQ.

Speaker #2: This is the migration KPI. Those who stay on au and those moving from au to UQ, there were increases in such customers. So this resulted in customers migrating from UQ mobile increasing approximately 170,000 year-on-year.

Speaker #2: On the right, the foundation for these achievements is reliable connectivity. While there are now significant differences in network quality and coverage among telecom carriers, au's network quality stands out.

Speaker #2: Our 5G SA population coverage rate exceeds 90%, and the number of users of au 5G Fast Lane, which allows customers to experience this quality firsthand, has surpassed 3.1 million.

Hiromichi Matsuda: Our 5G SA population coverage rate exceeds 90%, and the number of users of au 5G Fast Lane, which allows customers to experience this quality firsthand, has surpassed 3.1 million. Furthermore, au Starlink Direct, which we launched ahead of our competitors, has begun offering international roaming and has established a system capable of responding to SOS calls from areas outside our coverage. Our next step is UQ mobile. This brand is a critical one as both the entry point for new subscriptions and the gateway for migrating from au. We have strengthened our product appeal by bundling financial services with mid-range data plans, which are in high demand among customers. UQ Komikomi Plan Value. With this, we are offering simplicity and value by adding financial benefits of a gold card to our offerings.

Speaker #2: Furthermore, au Starlink Direct, which we launched ahead of our competitors, has begun offering international roaming and has established a system capable of responding to SOS calls.

Speaker #2: From areas outside our coverage, next up is UQ mobile. This brand is a critical one, serving as both the entry point for new subscriptions and the gateway for migrating.

Speaker #2: From AU, we have strengthened our product appeal by bundling financial services with mid-range data plans, which are in high demand among customers. With the UQ Komi Komi Plan value, we are offering simplicity and value by adding the financial benefits of a gold card to our offerings.

Hiromichi Matsuda: Since launch this June, it has proven effective, leading to a roughly 2.1 fold increase in the number of customers choosing this top tier plan, Komikomi Plan Value, and a roughly 1.6 fold increase in gold card selection rate at the time of card issuance. Next is povo. povo's strength lies in its flexible approach to value-based competition built on high-quality au networks. povo services can be chosen and mixed to meet customer needs, allowing us to reach a wide range of customers that au and UQ mobile cannot reach. To respond to requests from customers wanting to use unlimited data or to easily purchase additional gigabytes, we began offering services like toppings, as shown on the right.

Speaker #2: Since launch this June, it has been proven effective, leading to a roughly 2.1-fold increase in the number of customers choosing this top-tier plan, Komi Komi Plan Value, and a roughly 1.6-fold increase in Gold Card selection rate at the time of card issuance.

Speaker #2: Next is Popo. Popo's strength lies in its flexible approach to value-based competition built on high-quality au networks. Popo services can be chosen and mixed to meet customer needs, allowing us to reach a wide range of customers that au and UQ mobile cannot reach.

Speaker #2: To respond to requests from customers wanting to use unlimited data, or to easily purchase additional gigabytes, we began offering services like Toppings, as shown on the right.

Speaker #2: As a result, the number of customers switching from other carriers has increased 4.4-fold since launch, and the number of Gigacharge cards sold at Bolson has grown approximately 4.3-fold year over year.

Hiromichi Matsuda: As a result, the number of customers switching from other carriers has increased 4.44 since launch, and the number of Giga Charge cards sold at Lawson has grown approximately 4.3 fold year over year. This is demonstrating effective synergy with Lawson. Next, I will explain our key priorities for FY 2027 March in the growth areas where we have demonstrated our commitment to growth as part of our midterm management strategy. First, I will provide an overview of our initiatives aimed at achieving our full year forecast for FY 2027 March fiscal year. On the left, personal growth. First, our quarter operating income grew 9.3% year-on-year, with all five areas performing well. On the right-hand side, business growth grew by 21.6% year-on-year, with all five areas posting increases in both revenue as well as profit. After this, I would like to explain about our key priorities for the full year.

Speaker #2: This is demonstrating effective synergy with Lawson. Next, I will explain our key priorities for FY27 March in the growth areas where we have demonstrated our commitment to growth as part of our mid-term management strategy.

Speaker #2: First, I will provide an overview of our initiatives aimed at achieving our four-year forecast for the fiscal year ending March 27. On the left, personal growth.

Speaker #2: First-quarter operating income grew 9.3% year-on-year, with all five areas performing well. On the right-hand side, business growth grew by 21.6% year-on-year, with all five areas posting increases.

Speaker #2: In both revenue as well as profit. After this, I would like to explain our key priorities for the full year. First, regarding the financial business within Personal Growth.

Hiromichi Matsuda: First, regarding financial business within personal growth. In Q1, au Financial Holdings operating income was down JPY 3.7 billion year-on-year. This was in line with expectation because in addition to increasing deposits for the bank, we had already factored in the impact of mark-to-market losses resulting from rising interest rates at the start of the fiscal year. Excluding these factors, our main businesses are growing steadily. The number of gold card members in Q1 reached 2.07 million, an increase of 460,000 year-on-year. au Jibun Bank's deposit balance grew 1.2 times year-on-year. To further expand the base, we will strengthen collaboration on plans with UQ mobile, as explained earlier, and offer instant credit card issuance from au PAY app. In July for the first time, the number of credit card issuance increased by 1.2 times, and the use of auto charge went up by 20% as well.

Speaker #2: In Q1, AU Financial Holdings' operating income was down ¥3.7 billion year-on-year. But this was in line with expectations, because in addition to increasing deposits for the bank, we had already factored in the impact of mark-to-market losses resulting from rising interest rates at the start of the fiscal year.

Speaker #2: Excluding these factors, our main businesses are growing steadily. The number of Gold Card members in Q1 reached 2.07 million, an increase of 460,000 year-on-year. AU Jibun Bank's deposit balance grew 1.2 times year-on-year.

Speaker #2: To further expand the base, we will strengthen collaboration on plans with UQ mobile, as explained earlier, and offer instant credit card issuance from au PAY app in July for the first time.

Speaker #2: The number of credit card issuances increased by 1.2 times, and the use of auto charge went up by 20% as well. Next, we would like to take a look at devices.

Hiromichi Matsuda: We would like to take a look at devices, Lawson Ponta Pass. As business is essential for maximizing LTV, device-related revenue and Ponta Pass revenue are growing, and active user rate of Ponta Pass is also improving. As smartphone prices continue to rise due to soaring memory costs, the customer's cost burden for replacing devices is rising. We must make devices durable with repairs and warranties so that they can be used longer, and also expand the option of used devices.

Speaker #2: Lawson Ponta Pass: As businesses, it is essential for maximizing LTV. Device-related revenue and Ponta Pass revenue are both growing, and the active user rate of Ponta Pass is also improving.

Speaker #2: As smartphone prices continue to rise due to increasing memory costs, the customers' cost burden for replacing devices is rising. We must make devices more durable with repairs and warranties so that they can be used longer, and also expand the option of used devices through that.

Speaker #2: There is still room for growth in device-related revenue. On the right, we are continuing collaboration with Lawson. This July marked the first anniversary of the opening of our Takanoa pilot store.

Hiromichi Matsuda: There is still room for growth in device-related revenue. On the right, we are continuing collaboration with Lawson. This July marked the first anniversary of the opening of our Takanawa pilot store. Based on the insights and data learned through the past year, we will leverage our first mover's advantage to create value for the next generation CV stores ahead of our peers. I will discuss AI integration in the business growth domain. AI adoption is now the top priority for every business leader. However, at many companies, the proprietary data they want to use for AI remains dormant on on-premise systems. Moving this to the cloud and establishing a secure environment presents a major business opportunity. Our group company, KDDI iret, has a track record of cloud implementation at 2,500 plus companies and holds 8,000 plus AWS Google Cloud certifications, giving it top-class technical capabilities domestically.

Speaker #2: So, based on the insights and data learned through the past year, we will leverage our first-mover's advantage to create value for the next generation, keeping CV stores ahead of our peers.

Speaker #2: Next, I will discuss AI integration in the business growth domain. AI adoption is now the top priority for every business leader. However, at many companies, the proprietary data they want to use for AI remains dormant on on-premise systems.

Speaker #2: Moving to the cloud and establishing a secure environment presents a major business opportunity. Our group company, KDDI IRET, has a track record of cloud implementation at over 2,500 companies and holds more than 8,000 AWS and Google Cloud certifications, giving it top-class technical capabilities domestically.

Speaker #2: By combining this with KDDI's corporate customer base of 400,000 companies, we will further expand the cloud infrastructure that underpins AI adoption. This business got off to a solid start this fiscal year, with Q1 infrastructure sales growing by 30% year-on-year.

Hiromichi Matsuda: By combining this with KDDI's corporate customer base of 400,000 companies, we will further expand the cloud infrastructure that underpins AI adoption. This business got off to a solid start this fiscal year with Q1 infrastructure sales growing by 30% year on year. On top of that, we will cross-sell integration, maintenance, and operations to build an even stronger revenue structure. Furthermore, combined with building a sovereign environment at Sakai AI Data Center, we aim to provide end-to-end solutions spanning the Digital Belt through AI-Enhanced lifestyle and AI-Powered Productivity. On connectivity data center. Both operating revenue and EBITDA grew year on year with the EBITDA margin exceeding 40%. This is the characteristic of connectivity data center. Behind this is the need for AI inference. Companies that use AI need to process data at high speed close to their users.

Speaker #2: On top of that, we will cross-sell integration, maintenance, and operations to build an even stronger revenue structure. Furthermore, combined with building a sovereign environment at the Sakai AI data center, we aim to provide end-to-end solutions spanning the digital belt through AI-enhanced lifestyle and AI-powered productivity.

Speaker #2: Next, on Connectivity Data Center, both operating revenue and EBITDA grew year-on-year, with the EBITDA margin exceeding 40%. This is characteristic of the Connectivity Data Center business.

Speaker #2: Behind this is the need for AI inference. Companies that use AI need to process data at high speed, close to their users. Our data centers are located near cities where customers are concentrated, allowing us to provide a low-latency environment.

Hiromichi Matsuda: Our data centers are located near cities where customers are concentrated, allowing us to provide a low latency environment. As this aligns with such needs, we secured orders in Q1 in multiple regions, including France and Canada. In France, a key area of focus, we have announced a strategic partnership with one of France's leading sovereign cloud operators. By combining our number one connectivity position in France with our partner sovereign cloud infrastructure, we will strengthen our ability to meet the growing demand in Europe for secure AI inference environments. From here, I will explain our initiatives for strengthening governance. First, in relations to the inappropriate transactions, I will explain the progress on our efforts to strengthen group governance structure and recurrence prevention measures.

Speaker #2: As this aligns with such needs, we secured orders in Q1 in multiple regions, including France and Canada. In France, a key area of focus, we have announced a strategic partnership with one of France's leading sovereign cloud operators. By combining our number one connectivity position in France with our partner’s sovereign cloud infrastructure, we will strengthen our ability to meet the growing demand in Europe for secure AI inference environments.

Speaker #2: So from here, I will explain our initiatives for strengthening governance. First, in relation to the inappropriate transactions, I will explain the progress on our efforts to strengthen the group governance structure and recurrence prevention measures.

Hiromichi Matsuda: At the top, by June of this year, we have completed comprehensive inspections of the 110 target companies and have been developing new rules and structures. We are now operating and monitoring the new rules under the new structure. We are thoroughly implementing this. In the middle, regarding building close trust-based relationships between the group companies, we have conducted visits by top management. We had the management visit 14 major strategic subsidiaries and held dialogue sessions with 93 top executives from group companies. Below, you will see in terms of AI and system utilization, we have introduced an AI system for credit screening and an anomaly detection tool using financial data. Going forward, we will begin using these under the new rules and continue development for comprehensive use of AI in systems.

Speaker #2: At the top, by June of this year, we will have completed comprehensive inspections of the 110 target companies and have been developing new rules and structures.

Speaker #2: We are now operating and monitoring the new rules under the new structure, so we have thoroughly implemented this. In the meantime, regarding building close, trust-based relationships between the group companies, we have conducted visits by top management.

Speaker #2: We had management visit 14 major strategic subsidiaries and held dialogue sessions with 93 top executives from group companies. Below, you will see that in terms of AI and system utilization, we have introduced an AI system for credit screening and an anomaly detection tool using financial data.

Speaker #2: Going forward, we will begin using these under the new rules and continue development toward systems. Regarding the recent unauthorized access incident involving the email system provided to our ISP business partners, we take the administrative guidance seriously and are putting our full effort into preventing reoccurrence. We will work to improve and raise security standards across the industry as a whole.

Hiromichi Matsuda: Regarding the recent unauthorized access incident involving the email system provided to our ISP business partners, we take the administrative guidance seriously and are putting our full effort into preventing recurrence. We will work to improve and raise security standards across the industry as a whole. The left side shows an overview of an unauthorized access incident. We have email address and some passwords that have been accessed illegally or in unauthorized manner. The first issue was that there was an unknown vulnerability that was exploited in a software product that was not even known to the vendors. We don't want to look at this just as an unknown vulnerability, but we will utilize AI as the power and speed of AI-driven attacks will also increase going forward so that we can implement tools to proactively check for potential issues, even the unknown ones.

Speaker #2: The left side shows an overview of an unauthorized access incident. We have email addresses and some passwords that have been accessed illegally or in an unauthorized manner.

Speaker #2: The first issue was that there was an unknown vulnerability that was exploited in a software product, which was not even known to the vendors.

Speaker #2: So, we don't want to look at this just as an unknown vulnerability, but we will utilize AI, as the power and speed of AI-driven attacks will also increase going forward, so that we can implement tools to proactively check for potential issues, even the unknown ones. The second issue was that, on top of the exploited vulnerability, the email system had a mix of legacy communication protocols.

Hiromichi Matsuda: The second issue was that on top of the exploited vulnerability, the email system had a mix of legacy communication protocols. This was another reason for the incident revealing multiple security issues. We will work with our ISP partners to migrate early to protocols with higher security strength. Not limited to the system that was subject to an unauthorized access this time, we are conducting vulnerability assessments across our entire system portfolio, prioritizing it accordingly. We are moving at an accelerated pace with milestones, depending on the priority, but set for end of September or by the end of the year. Lastly, I will explain the progress of our midterm management strategy, Power-to-Connect 2028. In our midterm management plan, we declared our aim to become a frontrunner leading the social implementation of AI-Powered Productivity and AI-Enhanced Lifestyles with the customers as our starting point.

Speaker #2: So, this was another reason for the incident, revealing multiple security issues. We will work with our ISP partners to migrate early to protocols with higher security strength.

Speaker #2: Not limited to the system that was subject to unauthorized access this time, we are conducting vulnerability assessments across our entire system portfolio, prioritizing accordingly.

Speaker #2: We are moving at an accelerated pace, with milestones depending on the priority, but set for the end of September or by the end of the year.

Speaker #2: Lastly, I will explain the progress of our midterm management strategy, "Power to Connect 2028." In our midterm management plan, we declared our aim to become a front-runner, leading the social implementation of AI-powered productivity and AI-enhanced lifestyles, with the customer as our starting point.

Hiromichi Matsuda: In AI-Powered Productivity, we contribute to our customers' business growth, while AI-Enhanced Lifestyles transforms customers' daily lives and experiences. The Digital Belt Initiative supports both of these. Today, I will report on three points regarding the progress of our midterm strategy. First, as an example of AI-Powered Productivity, let me introduce au sales support AI case. Personally, this is a solution that I think is superior. Our carrier shops provide a wide range of services daily to customers' daily lives. On the other hand, the difficulty of mastering such a broad range of information is a factor that makes staff retention quite difficult. This is a challenge common across the industry. To address this, we introduced an AI agent starting in July that answers inquiries from store staff deployed across approximately 2,000 au shops nationwide.

Speaker #2: In AI-powered productivity, we contribute to our customers' business growth, while AI-enhanced lifestyle transforms customers' daily lives and experiences. The digital belt supports both of these.

Speaker #2: Today, I will report on three points regarding the progress of our midterm strategy. First, as an example of AI-powered productivity, let me introduce the AU sales support AI case.

Speaker #2: Personally, I think this is a barrier. Our carrier shops provide a wide range of services tailored to customers' daily lives.

Speaker #2: On the other hand, the difficulty in mastering such a broad range of information is a factor that makes staff retention quite difficult, and this is a challenge common across the industry.

Speaker #2: To address this, we introduced an AI agent starting in July that answers inquiries from store staff deployed across approximately 2,000 au shops nationwide. For example, for inquiries that are hard to judge just by flipping through a manual—such as wanting to change the family name on an account and replace the phone on the same day.

Hiromichi Matsuda: For example, for inquiries that are hard to judge just by flipping through a manual, such as, "I want to change the family name on account and replace the phone on the same day." This is a very complex scenario. By using this AI, we will be able to cut response time quite significantly for these complex inquiries. As you can see from this graph, the response time has been cut by 80% to 90%. Since implementing from July, we used to have around 200,000 monthly inquiries prior to July, but this has been cut to half. We have worked together with startups to build this, and this is no longer at the trial level or pilot level, but this is implemented at all stores so that we will be able to reduce the burden of the frontline staff at the carriers.

Speaker #2: This is a very complex scenario, and by using this AI, we will be able to cut response time quite significantly for these complex inquiries.

Speaker #2: As you can see from this graph, the response time has been cut by 80–90 percent. And since implementing this from July, we used to have around 200,000 monthly inquiries prior to July, but this has been cut to half.

Speaker #2: So, we have worked together with startups to build this. And this is no longer at the trial level or pilot level, but this is implemented at all stores, so that we will be able to reduce the burden of the frontline staff at the carriers.

Speaker #2: We want to further showcase the professional customer service skills and warm interactions that our staff bring to the table by using this technology. Next is on the AI-enhanced lifestyle.

Hiromichi Matsuda: We want to further showcase the professional customer service skills and warm interactions that our staff bring to the table by using this technology. Next is on the AI-Enhanced Lifestyles. Last month, we released BuffMe, a service that uses AI to support individual growth. BuffMe is a conversational AI service that draws on approximately 150 content sources, including books, magazines, and web media, to search for needed information, organize key points, and provide concrete suggestions for learning and hobbies. The concept, the AI that helps you grow. You are able to learn new knowledge through dialogue with AI and evolve on yourself. That's the concept. As we see the contents generated increasing, we want to be able to provide information that can be drawn on trusted content sources, so there's no concern for hallucinations.

Speaker #2: So last month, we released Buff Me, a service that uses AI to support individual growth. Buff Me is a conversational AI service that draws on approximately 150 content sources—including books, magazines, and web media—to search for needed information, organize key points, and provide concrete suggestions for learning and hobbies.

Speaker #2: The concept is AI that helps you grow. So you are able to learn new knowledge through dialogue with AI and evolve yourself. That's the concept.

Speaker #2: And as we see, the contents generated are increasing. We want to be able to provide information that can be drawn from trusted content sources, so there's no concern for hallucinations.

Speaker #2: And we will also protect the rights of our content provider partners at the same time. So this gives peace of mind to both the user side and the provider side.

Hiromichi Matsuda: We will also protect the rights of our content provider partners at the same time. This is a peace of mind for both the user side and the provider side. We believe that this is something that we would like to grow going forward. Finally, on our initiatives for social implementation, strengthening the local touchpoints. To the left, you will see our local touchpoints, Happy Lawson Town, which uses Lawson stores as a hub to build communities. The first location opened in Ikeda City in Osaka Prefecture in June, and the second location opened in Hino City in Tokyo in August. In 2030, we aim to expand this to 100 locations across all 47 prefectures nationwide. By combining the real world with technology, we will contribute to solving local community challenges. To the right, you will see the concept of the Digital Belt.

Speaker #2: We believe that this is something we would like to grow going forward. And finally, on our initiatives for social implementation, strengthening the local touch points—and to the left, you will see our local touch points, Happy Lost in Town, which uses 'Lost in Stores' as a hub to build communities.

Speaker #2: The first location opened in Ikeda City in Osaka Prefecture in June, and the second location opened in Hino City in Tokyo in August. In 2030, we aim to expand this to 100 locations across all 47 prefectures nationwide.

Speaker #2: By combining the real world with technology, we will contribute to solving local community challenges. And to the right, you will see the concept of the Digital Belt.

Speaker #2: There's a slide about technological development of the all-photonic network. We want, in order to connect data centers nationwide with low latency and low power consumption, all-photonic networks will be extremely important.

Hiromichi Matsuda: There's a slide about technological development of the all-photonic network. In order to connect data centers nationwide with low latency and low power consumption, all-photonic network will be extremely important. Up until now, the optical signals could only be sent to a single destination, point to point. This time, we succeeded in transmitting using technology that sends signals to multiple destinations at once, making it the world's first such success in a commercial environment. The overall framework will contribute to ITU international standardization as well. With this, we will be able to support the society to build around AI. Next slide will explain on capital allocation regarding quality improvement, which is a key theme of our midterm plan. Core free cash flow, which funds our growth investments, is growing steadily. Up JPY 10.9 billion year-on-year over the past 12 months, with margins also holding stable.

Speaker #2: Up until now, the optical thickness could only be set to a single destination, point to point. This time, we succeeded in transmitting using technology that sends signals to multiple destinations at once, making it the world's first such success in a commercial environment.

Speaker #2: The overall framework will contribute to ITU international standardization as well. And with this, we will be able to support the society to build around AI.

Speaker #2: Next, I will explain capital allocation regarding quality improvement, which is a key theme of our midterm plan. Core free cash flow, which funds our growth investments, is growing steadily.

Speaker #2: Up ¥10.9 billion year on year over the past 12 months, with margins also holding stable. Operating cash flow margin stands at 21.6 percent, reflecting a strong fundamental base for growth investment.

Hiromichi Matsuda: Operating cash flow margin stands at 21.6%, reflecting a strong fundamental base for growth investment. In addition to this expanding capital base, we are also strengthening our review of the structure to broaden our pipeline of growth investments. We are also making progress on disciplined business portfolio review on the right-hand side. So far, this fiscal year, we have decided on 11 divestments, which will generate approximately JPY 150 billion in cash. We will continue to verify investment efficiency and strategic rationale as we proceed with business portfolio review. To help you gain a deeper understanding of the initiatives I have described today, we will hold KDDI Summit 2026, the KDDI Group's largest business event, on 27 October, 28 October. The venue is the Takanawa Gateway Convention Center in Takanawa, Tokyo, with simultaneous online streaming.

Speaker #2: In addition to this expanding capital base, we are also strengthening our review of the structure to broaden our pipeline of growth investments. We are also making progress on disciplined business portfolio review on the right-hand side.

Speaker #2: So far this fiscal year, we have decided on 11 divestments, which will generate approximately ¥150 billion in cash. We will continue to verify investment efficiency and strategic rationale as we proceed with business portfolio review.

Speaker #2: To help you gain a deeper understanding of the initiatives I have described today, we will hold the KDI Summit 2026, the KDI Group's largest business event, on October 27 and 28.

Speaker #2: The venue is the Takanava Gateway Convention Center, in Takanava, a, Tokyo. With simultaneous online streaming, we will introduce the digital belt concept that supports an AI driven society along with the AI latest social implementation examples of AI enhanced lifestyle and AI powered label details and the registration start date will be announced separately.

Hiromichi Matsuda: We will introduce the Digital Belt Initiative that supports an AI-driven society, along with the AI latest social implementation examples of AI-Enhanced Lifestyles and AI-Powered Productivity. Details and the registration start date will be announced separately. Finally, here is today's summary. As shown here, this reflects everything I have explained today. We will continue to drive our initiatives forward to achieve our full year forecast. Thank you for your support, and thank you very much for your attention.

Speaker #2: Finally, here is today's summary. As shown here, this reflects everything I have explained today. We will continue to drive our initiatives forward to achieve our full-year forecast.

Q1 2027 KDDI Corp Earnings Call

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