Ikuko Hongou: [Interpreted] Thank you very much for waiting. We would like to begin KDDI’s briefings on the financial results for the first half of fiscal year ending March 2022. Thank you very much for your attendance despite your busy schedule today. My name is Hongou from Investor Relations Department and I will be facilitating today’s meeting. This session will be held with English and Japanese simultaneous interpretation.

Today’s briefings will be streamed on demand from our IR website. Let me introduce today’s participants. To your left from the middle, we have Takahashi, President. Next to him is Muramoto, Executive Vice President, Executive Director, Corporate Sector. Now, to the right from the center we have Shoji, Executive Vice President and Executive Director of Personal Business.

And we have Mori, Senior Managing Executive Officer, Executive Director in Solution Business Sector. And to the right at the back is Yoshimura, Managing Executive Officer, Executive Director Technology Sector. And finally, to the left in the back, we have Saishoji, Executive Officer, General Manager, Corporate Management Division. Documents related to our earnings results include presentation materials, flash report and detailed materials, which will be on the IR website as well. Please refer to the disclaimer on each of the documents for all the contents of the material, as well as the financial results and numerical targets disclosed in the Q&A session.

Our President, Takahashi, will first brief you on the financial results, followed by Q&A. So I hand over to President Takahashi, please.

Makoto Takahashi: [Interpreted] Hello, thank you very much. Thank you for taking time out of your busy schedule to attend the financial results briefing of KDDI today. Let me explain the results for the first half, the second quarter of the fiscal year ending March 2022.

I will explain the 4 points on the slide today. First is the highlights of consolidated financial results for the first half. Right side, operating income was ¥573.1 billion, and the progress against full-year forecast was 54.6%. Revenue increased and operating income decreased in the first-half. We are making steady progress towards full-year forecast.

Next is the consolidated operating income factors for change in the first half. Starting from the left, multi-brand communications ARPU revenue declined by ¥30.4 billion. And lower telecom revenue remains within our expectation. With the contribution of Group MVNO revenue and roaming revenues, mobile communications revenues was up by ¥11.7 billion. In addition, growth fields including life design domain and Business Services segment increased by ¥11.8 billion.

On the other hand, we recorded 3G-related expenses and SG&A as part of our operation looking ahead to the future. So in total, operating income decreased by ¥15.7 billion. Next is multi-brand strategy. We launched 5G in all brands, including UQ mobile and povo. First is au 5G network.

Establishment of area coverage is affected somewhat by COVID-19 and other factors, but we will focus on covering places frequented by customers. Left side, we will connect 5G in train lines and commercial districts. By the end of March 2022, we aim to cover 21 routes in Kanto, including JR and private railways and 5 routes in Kansai. Next is the subscriptions and unit sales. Right side, cumulative 5G unit sales reached 4.7 million at the end of September, upgrade including iPhone centering on au was strong.

We will aim for 8 million units by the end of March 2022. Let me now explain the features of each brand, starting with au on the left side. 5G mobile data traffic per person is more than 2.5 times that of 4G. As contents become richer with high resolution videos, we will offer, as shown on the right side, reliable and unlimited use, enhanced set plans and purchases of handsets as full lineup of 5G services, so that customers can use 5G comfortably. Next is UQ mobile.

We will offer simple and secure price plans with reliable support. Left side, we launched discount with Electricity and Internet. In addition to discount with electricity, we also have discount with Internet, which is highly penetrated among households to offer higher value for money. Right side. Reliable support and enhanced services is available with UQ mobile as well.

And lastly, povo. We will offer a new experience value through povo2.0. Left side, by adding diverse topping to ¥0 base plan, our service aims for innovativeness that can tailor to customers’ lifestyles. Right side, we will cope with new methods of use in the eSIM and SIM-free era, and meet the needs of highly active digital native tier. In addition, by offering new data charge method called Giga Katsu, we will deliver a brand new experience where data is earned in the users’ daily lives.

Next is Metaverse, an experience available only with 5G. We will continue leveraging the cutting-edge technologies and deliver a diverse experience value with our partners to enhance the appeal of 5G going forward. Next is the business alliance with SpaceX’s Starlink. Starlink provides high speed low latency satellite broadband network, we signed a contract to use Starlink for backhaul lines at au base stations. Next is on growth fields.

Performance of growth fields in the first half of year ending March 2022, we are making a steady progress towards a full year forecast. To the left, you have operating income, Life Design Domain, which was ¥120 billion, up ¥10 billion year-on-year, driven by an increase of ¥4.9 billion year-on-year in the financial business. Progress is 48%. But we expect profit increase for the energy business effects in the second half, which is in line with our assumption. In terms of operating income in business services, this was ¥92.3 billion within increases imposed NEXT Core and Core Businesses.

Progress is steady of 50.1% towards the full-year forecast. This year is the final year of our current midterm management plan. In addition to achieving our top-line target of ¥1.5 trillion and ¥1 trillion in the growth fields, we will strive towards double-digit CAGR growth in profit as well. This is the financial business in the Life Design Domain. To the left, you will have the settlement – transaction volume on settlement and loans, which is actually up by 1.3 times a year-on-year to ¥5.2 trillion, it’s a significant growth.

At the same time, operating income of our financial business to the right has also grown remarkably as well generating ¥24.6 billion, which is plus 24.9% year-on-year. We are also strengthening the linkage between financial services. Currently, in addition to strengthening the linkage between the bank and credit card through au PAY, we are promoting linkage with other financial services beyond that. By strengthening the linkage between the financial services such as au Jibun Bank, we have executed initiatives that leverage the strength unique to KDDI, such as receiving preferred interest rate of maximum 200 times. The linkage of financial services were effective with a substantial growth in core services; from left, au PAY members increased by 4.3 million year-on-year, au PAY Card increased by 1.2 million year-on-year to 7 million members.

The number of accounts at au Jibun Bank was 4.48 million and loan product balance was ¥1.7 trillion, we have steadily increased the customer base and assets. Next is the operating revenue of Business Services segment. Our growth driver NEXT Core Business grew double-digit at plus 17% year-on-year. NEXT Core Business will generate synergies in and out of Japan centering on Internet of Things our top runner. KDDI with its strength in comprehensive telecommunication in global base has approximately 20 years of operational track record and experience in IoT.

In addition to connected cars deployed on a global basis, KDDI is rapidly increasing IoT connections in social infrastructure such as smart meters for electricity and gas. In July 2021, we exceeded 20 million in IoT connections, and by fiscal year ending in March 2023, we aim to exceed 30 million connections. Along with the advancement of 5G, we will co-create new businesses with customers who have deployed IoT, using the IoT connections and ancillary services deployed today as our platform. We will support customers in diverse sectors developing recurring business. And to the right, we have begun delivering KDDI ID manager, a service that manages customer ID in order to support the customers realize recurring business.

Moreover, we have started communication test in the commercial environment, so that businesses can use cases can be developed in the age of 5G SA. Lastly on the initiatives for non-financial activities. On global environmental conservation, in order to be carbon neutral in 2030, we aim to cut CO2 emissions by 50% compared to FY 2019. An action plan is developed based on the power consumption forecast up to 2030. We’ve run PDCA with a focus on reductions in real terms.

To the left is closing our 3G this fiscal year, a material element in the reductions. By closing ahead of peers, we will promote a shift to power efficient network. And to the right is the establishment of KDDI Green Partners Fund, leveraging our strength to create innovation with startups, we will contribute to solving social issues through partnerships. Next is expanding DX personnel. As we promote transformation to personnel first enterprise, we will strengthen growth fields such as Life Design Domain and Business Services segment, while aiming to solve social issues through these businesses.

For this purpose, we will expand the group’s entire DX personnel with a target of 4,000 members by March 2024. The speed of this initiative will be accelerated with the view of front loading the target. So finally, in summary, with regards to our financial results, our first half results show steady progress. Lower telecom revenues are factored in, and already in our forecast and we operate looking ahead into the future. Growth fields are making a steady progress in both Life Design Domain and Business Services segment.

Towards Sustainable Future. We will promote 5G with multi-brand. We deliver new customer experience value by building areas frequented by customers and leverage characteristics of each brand. In Life Design Domain, we will strengthen service collaboration with financial business. In Business Services segment, next core business will grow fueled by IoT as top runner.

With this, we will capture the environmental changes and promote business strategies. So, thank you very much for your kind attention. A -

Ikuko Hongou: [Interpreted] We will now take questions. In order to receive as many questions as possible, we would like to limit the number of questions to 2 per person. If you have 2 questions, we will answer the first question first before receiving your second question.

Please raise your hand if you have any questions. Please. So, UBS Securities, Mr. Takahashi, please.

Kei Takahashi: [Interpreted] This is Takahashi from UBS Securities.

Thank you very much. I have 2 questions. First, is group ID, number of group ID, in the second quarter, compared to the decline in the first quarter, it seems like a significant improvement in the second quarter. And it seems like net additions, net increase is very close. So the number of group ID in the second quarter, how do you analyze this? What is your interpretation? And this improvement trend, what is your outlook of the improvement trend? Thank you very much.

Makoto Takahashi: [Interpreted] Thank you for the question. Number of group ID is our focus now. As you just mentioned, the first quarter total was, compared to the total for first quarter, it is still a net decline of 20,000. So we wanted to achieve positive number in the second quarter. But right now, around spring of this year, Rakuten started the ¥0 price plan.

And, there was an outflow with Ahamo. With UQ mobile, we were able to regain the momentum. In August, we started having a good prospect of net addition. And in September and October, with the launch of povo2.0, we have not made this public, but a few 10s of 1,000s of net addition will be secured. So we have a good prospect of securing that level.

So third and fourth quarter, we will grow our net additions, so that we will achieve net additions for the full year. We caused you some concerns about the momentum. But in the second quarter, we wanted to achieve positive. But now, we have a good prospect. So we’re focusing on growing this, going further.

Kei Takahashi: [Interpreted] Thank you very much. And my second question is also related to that, povo. Including povo2.0, the entire povo’s trend in the number of subscriptions and other numbers will be greatly appreciated. So please enlighten us on that. And with povo2.0, this is completely different plan from the ones before.

So what is the initial users’ reaction? Where do you stand? Thank you very much.

Makoto Takahashi: [Interpreted] Thank you for the question. povo, in the recent press conference, I said that around 900,000. We just exceeded 1 million. So, about 100,000 growth per month.

Initially, we caused inconvenience to our users. But now, we are off to a good momentum, good start. In November, we want to increase this one more step. As I mentioned earlier, this is effective for the increase in the ID, number of IDs. As of August, UQ mobile, we used UQ mobile to gain the momentum.

And we are gaining more momentum with povo. But the key is povo’s ARPU. Right now, compared to the average UQ, average price, we can have higher level with povo. This is specifically were web, so we can reduce the subscription acquisition cost. So this is something we are very much focusing on.

I am sorry for a long answer. We’re working with Circles.Life. They’re very agile. So it’s not that we subscribe in the end. After the subscription, we can approach the customers with topping.

And so, it is exactly DX. This is very much DX. And because we have this great partner, we can increase the number of toppings. And this can be data-oriented. So we will – it’s not a short-term initiative.

We want to build the initiative. And this will be the weapon, the ammunition for us. So we want to increase our internal knowhow and build on this. Giga Katsu and povo2.0, the ecosystem I think is now functioning pretty well, isn’t it? Well, not yet, not yet. So after we started the service in October, there were some things we had to address on the customer side.

And Giga Katsu is now being done more on a full scale from November. As you know, this is different in customer approach, customers’ approach, the customers with Giga Katsu. Until now, the telecom companies were working hard to increase the telecom ARPU, but now, partners will promote. And as a result, data will be added. I should not talk much about it.

But this can be used as the second SIM, and we have high expectations for it.

Ikuko Hongou: [Interpreted] So, second question, Ando-san from Daiwa Securities.

Yoshio Ando: [Interpreted] Thank you very much. I have 2 questions. So first question is related to the earlier question.

So by brand, so I guess you have spoken quite a bit about povo. But what about au and UQ mobile? What is the recent trend for these two other brands and also churn rate in q2, and currently, how is the churn rate trending? Also, you are implementing different promotions. So what sort of promotions had been successful? If we could introduce some of those stories.

Makoto Takahashi: [Interpreted] So I will explain briefly and then Shoji-san perhaps can follow up. So with regards to churn rate, I was hoping it will go down more.

In Q2 it was 0.74. So from my perspective, I think we need to further decline it. So perhaps we still need to make some efforts here. Initially assumed, I think subscribers are actually remaining in au, more than we had assumed in the beginning. We thought that more will be migration from au to UQ mobile or povo, but wasn’t as much.

Now, maybe this is impact of iPhone, especially last year’s version. So, more than we had expected, subscribers remained with au. Meanwhile, UQ mobile, we have set with electricity or an au Denki, and also, fixed line. So we have a nice line up. And since au Shops can now handle UQ mobile as well.

So we are somewhat – some people say we’re tailing after SoftBank, but we are reflecting on that and taking good lessons from that as well. So I think we’re running a very nice purchase cycle on this. Meanwhile, with regards to promotions, au’s summer commercial was received well. And this has contributed to the momentum of au. And with regards to UQ, we have changed the frame.

The UQUEEN now speaks all these proverbs and many good sayings. And so, with regards to promotions, it’s starting to make a really nice move. So I talked a lot, but so Shoji-san, please.

Takashi Shoji: [Interpreted] I really don’t have much more to add. It’s exactly as President said.

With regards to churn rate, again, as President Takahashi said, we were hoping to reduce this further more. But if you look at the number of handset sales, even compared to last year, we have been able to grow handset sales, which means that market is activated. And so maybe that’s why churn rate is higher as well. But we have also new additions as well, new sales. With regards to promotional cost, as was explained earlier, we have in short-term had to increase the sales channel for UQ mobile.

So I will say most of the au Shops and au Styles can handle UQ mobile. This is where we have put a lot of emphasis in to engage in different sales promotion activities. That is all from me.

Yoshio Ando: [Interpreted] Thank you. And my second question, I was looking at that step graph.

And so, you said that the low revenue was within your assumption. So just a confirmation. So, for Q2, about Q2, what sort of impact was there in terms of the mobile service price reductions? I think there was a little bit of hint there. And also, full-year forecast. Based on the current situation, how would the second half look? If you could explain a little bit on that.

Makoto Takahashi: [Interpreted] Let me see. So with regards to the impact of lower prices, when we started off this year, we were looking at ¥60 billion to ¥70 billion per year on the revenue from the price cut. Now, after first half, we’re at about ¥30.4 billion. So it is pretty much in line with our expectation. So I think we will probably stay within this scope.

Now, if you look at the overall structure, so we had the price cut of about, impact of ¥30.4 billion or so. But we have roaming revenue as well. So this is really offsetting it. So we have actually a little bit of headroom, which will allow us to actually do migration of 3G. We can spend cost on the migration on 3G earlier before the peers.

So this is upfront investment, and also, we’re depreciating this year. And we’re frontloading that process as well. And we can also build up for next year strategic investment. And that’s how we can finish it off like this. So in Q2, internally, we knew that we were going to decline in terms of profit.

So we’re disclosing ¥1.5 trillion based on this assumption, so we know that we are able to accomplish this target. So that’s what we think. So it is in line with our forecast and is trending steadily. Thank you.

Unidentified Analyst: [Interpreted] Thank you very much.

I have two questions. So the step chart on Page 4. This is more detailed than the first quarter. So I cannot do a simple comparison with the first quarter. But the others, negative number is a bit large.

So if you think of something, this ¥10 billion increase in others than the first quarter. So what is included here? Thank you. That’s my first question.

Shinichi Muramoto: [Interpreted] Thank you for the question. So the largest one, in the second quarter, we had big, the upside in the handset sales.

And so, the sales cost accounts for the majority, including the upgrade, 3G migration is progressing well. So compared to the first quarter, that is the large factor.

Unidentified Analyst: [Interpreted] I see. So another follow-up question. Churn rate did not decline as much as you expected, but the ID, number of ID still declining.

So it means you are acquiring new users, new subscriptions. So the cost associated with that, how are you increasing that? Is that cost or any special measures? If you have any changes, please let me know.

Takashi Shoji: [Interpreted] As I alluded to earlier, and as you just correctly mentioned, compared to last year, we had iPhone in the second quarter, so the number of handset sales had a significant upside. So the commission from that and the related cost increased. One more factor is, as Muramoto-san mentioned, 3G, this is the last year, the 3G.

So we are doing the migration at a great speed, to promote customers’ replacement. We are taking various measures and launching various handsets to promote customers’ replacement. We’re accelerating it from last year. So that is the cost, additional cost. And for churn rate, as I said earlier, and as you correctly mentioned, the market has activated quite significantly.

So, the churn rate went up, but the new subscription is also seeing a great upside. But in the second quarter, we could not turn to net additions, but we’re seeing great improvement in the current situation. So, we are determined to make further improvements.

Unidentified Analyst: [Interpreted] Thank you. My second question is about ARPU.

First quarter ARPU was ¥4,280, and second quarter is ¥4,270, ¥10 down. So, ¥4,200 I thought will be for the full year, but ARPU decline seems to be suppressed. There are various brands. So the ARPU forecast, the makeup is difficult to forecast. au down a little, and povo and UQ will increase, then the mix will be a decline.

But you have upsell, I think, and seasonal factors or the voice factor. So this change of ARPU, could you analyze the trend of ARPU and the ¥4,200 full-year forecast? Do you still have headroom against this ¥4,200?

Makoto Takahashi: [Interpreted] Thank you. You exactly explained where we are. The negative factors, the medium-term momentum recovery, so UQ mobile and povo will be promoted further. So, by further promoting, ARPU will decline, so that’s the negative factor.

But we have 5G for all brands, this is a big thing, iPhone 13 and area expansion is also progressing. We are learning lessons from the past. So, we are now focusing on 5G on places frequented by customers. It has 2.5 times higher than that of LTE. So the price is appropriate to that.

And we are also upselling from UQ to au. This is what we have to do in the 5G era, what we wanted to do. There were other reasons we added brand this year. But this is taking shape and that’s a positive factor. So, combining all that factors, we are forecasting ¥4,200 for the full year.

So we need to steadily incorporate this into our strategy. 5G generates traffic more than we thought, and this is a very important point. So compared to Pitatto Plan of this unlimited large volume is increasing, accelerating, well, various factor. Of course, Pitatto Plan traffic, it increases in accordance with that increase, and this UQ to au flat. This will be most impactful for the ARPU.

And so, we will offer such services to our users to increase the ARPU. OTT player Netflix and other players, we are ahead of them. And we are very close with Netflix working very closely. So if we bundle, the churn rate is extremely low, it’s less than 1%, extremely low. So that is our aim.

That is the ideal level. So it goes up. We try to prevent the downgrade, once they go up. We offer various products so that the customers will stay that will be the core of our strategy.

Ikuko Hongou: [Interpreted] Thank you.

Next question, Masuno-san from Nomura Securities.

Daisaku Masuno: [Interpreted] Thank you. This is Masuno from Nomura Securities. So not so much current situation, but I want to ask you about next fiscal year. First question is about market environment next year, what we’re learning today? Is that competition is intense? So, whoever wins, the other that lost will come back and overcome, and then the other competitors, other peers will fall and they come over again, come back again.

So, because everyone is active, the market will not basically increase and it will not decrease either, but it will not increase. So that’s the feeling I have about the market. That’s what I’m learning. Now, you said that you will maintain your full-year plan. So, as a result of the competition, because this is market, how are you going to – how do you forecast next year?

Makoto Takahashi: [Interpreted] You are exactly right, because of competition and because of demographic, there’s no population increase.

But the way we contact with the customers, whether it be eSIM, or SIM-free handsets, the way – the touch points with customers are changing. So, I think, each company will be creative on that. But if you look at history, as a result of this competition, what happened, services improved, prices have come down, but now – the prices are now starting point is zero. So, each company, each player, if there’s too much pain felt from there, they will not be able to invest in 5G, and we understand that. So as a result of competition, it’s really about how quickly can you deploy 5G service and generate traffic, so that we can increase in ARPU on top of increasing customer service.

So I feel as though we’re in that phase, and naturally of in terms of facilities. So we lend to Rakuten. We share facilities and equipments with SoftBank. So, with that, we are able to reduce costs. So that we can describe our telecom revenue.

So, I think, that’s the picture of us going forward. So we’ll do our best.

Daisaku Masuno: [Interpreted] So according to what you just said, the market will continue to evolve, remain competitive. And if the users use maybe 2 or 3 times more in traffic, then there’ll be a greater percentage of unlimited use, and that’s a natural results. So that’s how you will be able to capture organic growth.

Is that a correct understanding?

Makoto Takahashi: [Interpreted] Yes, I think so. In principle, whatever that declines in terms of telecom revenue, then it will be added – this offset by value added service. But, I think, we have to grow our telecom revenue with 5G, because otherwise we’ll not be able to really increase our value. And, if it’s generating a traffic about 2.5 times, then if that’s – it’s really about how do we replace the plans with this sort of traffic, I think, that’s the challenge we face. And with increasing activities, the value added service at the top layer will increase as well.

So, obviously, the way we view the movies in the last 5, 10 years have really changed drastically. And I’m sure you notice that it has changed dramatically with pandemic. So, I think, this is an area we need to really seek out opportunities.

Daisaku Masuno: [Interpreted] And there’s one more question about cost. You were saying that, you will have about ¥9 billion in 3G closure, that’s what you have been saying before, but now you’re accelerating that.

So this year, is it ¥90 billion? Or are you going to spend more and promote closure, and in terms of roaming revenue, which is increasing this year will probably fall next year? So if you look at it in a chunk, you have the cause that will decline and then you have revenue that will increase or decrease, so how are you looking at the balance? And what is your view for next year?

Makoto Takahashi: [Interpreted] Well, let’s see. With regards to ¥90 billion, it is in progress with the plan, and as we have communicated already. With regards to CapEx, it’s about ¥60 billion. And we have about ¥30 billion in sales related, marketing related, so that’s the breakdown. With regards to roaming, I’m not able to say how much this year, but there’s a certain amount, and roaming revenue isn’t going to be down drastically.

Right now, if their area coverage exceeds 70%, we stop the roaming surplus, but it’s not that they’re able to do the 70% like flat. But sometimes they say that, even if they exceeded 70% in coverage, they want to be able to continue to use our roaming service. So, I think this year, we can expect substantial revenue from that, and next year onward, there’ll be decline. But we have the ¥60 billion in CapEx, I think, we should be able to offset or absorb that within that range of ¥60 billion that I said earlier. So that’s the flow for this year and next year.

And like, I said, in the beginning, I think, this will trend in this manner. If that’s the case, it’s really about how much cost we can spend on recovering the momentum. I think, we’re beginning to see momentum in 5G. So, we will develop growth strategy along with this momentum.

Daisaku Masuno: [Interpreted] And just a confirmation on the number, you said, CapEx, so the ¥60 billion.

So you are saying that it will not go below ¥60 billion next year for roaming?

Makoto Takahashi: [Interpreted] I see. Yes.

Ikuko Hongou: [Interpreted] Next question, please. Mitsubishi UFJ Morgan Stanley Securities, Mr. Tanaka, please.

Hideaki Tanaka: [Interpreted] Yes, this is Mitsubishi UFJ Morgan Stanley Securities, Tanaka speaking. My first question is on Life Design Domain. The operating income for second quarter 3 months is ¥60 billion, and it’s not growing from last year, year-on-year, please explain this part?

Makoto Takahashi: [Interpreted] Yes. I thought, I will receive this question. So, second quarter year-on-year comparison is not showing any growth, and what’s happening here is the power electricity related factor, the financial and the repair and compensation business.

Profit is growing steadily. But in energy, last year, what happened was in the first half, procurement costs declined significantly and generated profit in the second half. The winter was very cold in the supply demand balance was off balance. J-TES’ market was disrupted, and we incurred a big loss. This year, starting from the first half of this year, the procurement price is rising, it’s higher this year.

And, therefore, it is a loss up to the second quarter and it’s offset. And that’s why there’s no growth. Now, the second half, the electricity, we learned lessons from last year. And J-TES side is now including safeguard, and we included the bilateral procurement, and so not much volatility risk in the second half. So, with that, the second quarter is a slight negative, but we can achieve a profit on a full-year basis.

Hideaki Tanaka: [Interpreted] Thank you very much. So excluding this power electricity factor, what was the absolute amount and the percentage growth?

Makoto Takahashi: [Interpreted] Financial ¥4.9 billion and repairing compensation is not disclosed, but better growth than financial business. First half was 9.1% profit on a year-on-year basis. So that’s all I can say.

Hideaki Tanaka: [Interpreted] Thank you very much.

Another related question about financial business. You mentioned that the settlement loan transaction value increased by 1.3 times and the operating income 25%. So the margin improved, I think, what happened? Could you elaborate?

Takashi Shoji: [Interpreted] Oh, I did not pay much attention there. I did not either, but nothing big happened, I see. So the settlement, loan settlement, including [Kontank SI] [ph], au Financial Holdings, Jibun Bank, house mortgage loan is going very well, growing steadily.

But I’m sorry, the margin declined somewhat. I’m sorry, I did not pay full attention to that.

Hideaki Tanaka: [Interpreted] Thank you. Next question. Now, Business Services segment.

Second quarter, 3 months, last year operating income was ¥44.6 billion and this year is ¥49.7 billion. So it is growing, but I thought that the growth is not a big. So, I wanted to see double-digit growth. What is your take on this?

Makoto Takahashi: [Interpreted] Yes, of course, I know you feel like that. Mori-san, please?

Keiichi Mori: [Interpreted] We plan to grow more in the second half.

In the first quarter, we had the one-off factors in the previous year. And another factor was handset gross margin difference was a factor. So the difference in the gross margin of handset, this impact lingered until the second quarter. So the second quarter could not show a double-digit growth. But in the second half, we will no longer have that factor.

So this downside factor will be gone. And DX related business which is going well. This is growing out of double-digit. Last year COVID-19 started and the emergency mobile need surged. But now that is sort of settled in this time around the full scale DX, and teleworking and office network, hybrid network will spread, expand, so we want to grow well in that sector.

Makoto Takahashi: [Interpreted] Thank you. ¥1.5 trillion and ¥1 trillion, and second – double-digit growth were mentioned in the presentation. So we want to focus on aiming, achieving that.

Hideaki Tanaka: [Interpreted] Yes. So just for clarification, second quarter, 3 months, the Business Services segments, Core Business, the handset portion of the Core Business was a sizeable, and the profit margin was not so good.

So that’s why the entire mix deteriorated?

Keiichi Mori: [Interpreted] You’re right. Yes, that was what happened in the Core Business. And in the second half, we will no longer have that factor. In the profit progress rate, we are already 50% progress rate against before your forecast, so if we can go well. In the second half, we will achieve the full year target.

Hideaki Tanaka: [Interpreted] Thank you.

Ikuko Hongou: [Interpreted] Next is Kinoshita-san from BofA Securities.

Yoshiyuki Kinoshita: [Interpreted] I have 2 questions as well, so first question on Business Services segment confirmation and how I should look at this going forward? In Business Service segment, in business DX’s IoT would connected be in here or would it be in the conventional? And, also, if you look at IoT connections, because of the lack of automobile production, would it be difficult to achieve your target this year? And how would that impact the profit? Would it be possible to impact your profit? So that’s my first question.

Makoto Takahashi: [Interpreted] So Mori-san, please answer that question.

Keiichi Mori: [Interpreted] Yes, the connected car is included in here both domestic and overseas.

Everything is included here. In business DX, yes, it’s included in there. Also, with regards to the COVID, and chips shortage, and the decline in production of automobile, this is scheduled in October. That portion is actually below the plan, but even then when you look at the closing after first half. We have been able to achieve our target for first half in the overall IoT business.

With regards to automobile, we’re not quite sure how the semiconductor issue will affect the automobile production. It’s not easy to predict. But, I know, they’re making different efforts and it is starting to recover. And also the demand for automobile itself hasn’t really disappeared, and it’s there. So this is something we know, it will recover for sure.

So in that sense, there’s no big concern. Well, then – so impact on the profit is limited, right? Is that the right understanding, even if there’s a slight delay? With regards to semiconductor, maybe, there’s a view that it might be difficult to recover this year, this fiscal year. Yes, there is some impact more or less, but we can offset the cover with other elements.

Yoshiyuki Kinoshita: [Interpreted] Thank you. Then second question about not electricity business.

But I’m looking at the total business, including telecom. If you look at the rise in the current energy cost, would that impact your profit revenue? I sometimes get asked this question. So if you could be as specific as possible, I would appreciate it.

Makoto Takahashi: [Interpreted] So last year, we didn’t have enough learnings. And so, there was…

Yoshiyuki Kinoshita: [Interpreted] No, this is not about Denki business, but actually I’m asking about your telecom business.

You have explained in detail about the Denki business, electricity business, I’m okay with that. But with regards to telecom business, you can’t pass that through the rising energy costs and the telecom costs. Is this something that I should be concerned about or not at all?

Kazuyuki Yoshimura: [Interpreted] Well, let’s see. Of course, there was cost, but it’s a bilateral transaction contract with the power company. So the volatility is not so high.

So impact is minimal. And also, because we’re increasing base stations, there’s more energy concern, but we’re actually also implementing energy conservation saving technology. So this will not affect the overall telecom business.

Yoshiyuki Kinoshita: [Interpreted] Thank you very much.

Ikuko Hongou: [Interpreted] Next, SBI SECURITIES, Mr.

Moriyuki, please.

Shinji Moriyuki: [Interpreted] I have 2 questions. One is about traffic. You mentioned earlier the 5G traffic is growing. But there is a demand growth from the lower prices, but what is the traffic growth trend? And what is the growth trend, pace of growth? You could give me an image, I’d appreciate it.

Kazuyuki Yoshimura: [Interpreted] So the traffic increase trend is continuing. We’ve said twice double in 3 years. And that is the kind of growth we’re seeing. Under COVID-19, mobile is growing, so that’s one factor. And as Takashi said, this twice double trend in 5G is also existent.

So we’re seeing this increasing trend. So doubling every 3 years is the forecasts that we often see and the mobile traffic is growing at that pace. So there was the lower price impact and you are now accelerating the growth or exceeding that growth pace or not. So you’re talking about total ARPU, no traffic. So, once the lower price impact as run its course, the traffic increase will become more impactful a big factor.

The traffic growth is accelerating or growing in line with the plan, in line with our anticipation.

Makoto Takahashi: [Interpreted] So, generally, lower price means higher traffic. So you’re talking about that correlation, right? Yes, generally true. But, this correlation has not been secured yet. Before that, if you switch to 5G, the traffic is 2.5 times bigger.

So, we are focusing on that point now. So, we have UQ price and povo, the traffic is increasing accordingly. That kind of correlation is not yet seen. We need more time to ascertain that.

Shinji Moriyuki: [Interpreted] So next about your energy, electricity business, Takahashi-san, you said loss in the second quarter.

Does that mean operating income decline or the profit is already generated? Third quarter profit decline and fourth quarter will be a big increase, is that the right forecast?

Shinichi Muramoto: [Interpreted] I do not have the numbers at hand, so I cannot be very accurate. But the energy business year-on-year decline is because of the second quarter. And the third quarter will not be as big a decline on the year-on-year basis as much as second quarter, but we do not have the exact numbers.

Ikuko Hongou: [Interpreted] So since our time is up, this will be the last question. Eguchi-san from Credit Suisse Securities.

Hiroyasu Eguchi: [Interpreted] This is Eguchi from Credit Suisse. I have one question about Business Services segment, one confirmation. So in first half, this is plus-17% year-on-year. This is growth in next core business. So going forward, so DX personnel, you said you will, for the increase on that.

So compared to SoftBank, your DX talent. And, of course, it matters about definition. So you can’t do an apple-to-apple comparison, but just in terms of size, it seems as though you should be falling behind SoftBank. So do you think you may decelerate next fiscal year? So how are you going to grow this? You do have customer base. So if you can – is it your cross-selling that’s working well? How are you going to grow in DX, especially on the customer side? How are you going to expand your business? If you could share with us, the way you think about this.

I appreciate it.

Keiichi Mori: [Interpreted] Thank you. So DX talent, we are moving in line with this plan. And this year, for this fiscal year, we are able to increase both our core talents and also other personnel as well. So our target 4,000.

We want to accelerate this as much as possible, so that we can achieve this earlier. And we are confident that we can achieve this to a certain level. And it’s true. In order to grow business DX talents, or business DX itself, we need telecom plus [alpha] [ph] technology personnel, that will be key. You have the development talents, but most important is people who do business development or project management.

So those core resources there will be key. And so, we have DX University. It’s a program we launched. So we can promote that.

Hiroyasu Eguchi: [Interpreted] And then, my follow-up on that.

NTT has internal development team and they are reinforcing that. And as an industry, I think customers are trying to increase their internal engineers. So you said the core talents is in development in PM, product management resources. Are you able to hire? Do you see any issues here?

Keiichi Mori: [Interpreted] So we have the parent and the group entities. So in terms of development, so first of all, in terms of core personnel, that’s mostly in parent.

And, of course, they need to increase this at the subsidiaries as well. So we have a program to increase our core personnel there. And in fact, we have been able to foster maybe half of our resources already, so we’ll continue with that. Now, if you look at overall personnel, including development, we are promoting agile development, so that we can internally develop DX programs ourselves. So, we can market this to our external enterprise customers.

And also, the services we market can be developed with agile development. And we are already proceeding with this. So in terms of reinforcing the personnel there and development capabilities, I think we’re not quite sufficient there yet. So we are implementing different measures. And we will continue to strive towards improving that.

Hiroyasu Eguchi: [Interpreted] Thank you very much.

Ikuko Hongou: [Interpreted] Time has come so, we will close KDDI Corporation financial results briefing for the first half of the fiscal year ending March 2022. Thank you very much again for your attendance.