Executives: Keita Horii - General Manager, Investor Relations Takashi Tanaka - President Hirofumi Morozumi - Executive Vice President, Corporate Sector, Executive Director Shinichi Muramoto - Managing Executive Officer, Deputy General Manager of the Corporate Sector Tsutomu Honda - Administrative Officer, General Manager of the Corporate Management Division Makoto Takahashi - Executive Vice President, Company Executive Director of Value Added Business Sector Yuzo Ishikawa - Executive Vice President, the Company Executive Director of Consumer Business Yoshiaki Uchida - Senior Managing Executive Officer, Executive Director of Technology Sector Takashi Shoji - Managing Executive Officer, Executive Director of Solutions Business and Global Business

Sector
Analysts: Satoru Kikuchi - SMBC Nikko Securities Inc. Yoshiyuki Kinoshita - Bank of America Merrill Lynch Daisaku Masuno - Nomura Securities Hideaki Tanaka - Mitsubishi UFJ Morgan Stanley Securities Mitsunobu Tsuruo - Citigroup Inc Atsuo Takahashi - Mizuho Securities Co.

Keita Horii: Thank you very much for waiting. Thank you for joining us out of your very busy schedules. Since it's time, we'd like to start the meeting on KDDI business results ended in March 2017.

I am your facilitator today. My name is Horri from IR Department. There will be Japanese-English simultaneously interpretation for the meeting and please be advised it will be distributed live on the Internet and that it will be available on demand. Allow me to introduce today's participants. To your left, in the center, President Tanaka; Executive Vice President, Corporate Sector, Executive Director, Morozumi; Managing Executive Officer, Deputy General Manager of the Corporate Sector, Muramoto; Administrative Officer, General Manager of the Corporate Management Division, Honda; and center to your right, Executive Vice President, Company Executive Director of Value Added Business Sector, Takahashi; Executive Vice President, the company Executive Director of Consumer Business, Ishikawa, Senior Managing Executive Officer, Executive Director of Technology Sector, Uchida; Managing Executive Officer, Executive Director of Solutions Business and Global Business Sector, Shoji.

We have three items available related to business results and three items related to TSE's disclosures. Six items have been distributed. Similar materials are also posted on IR website. As for performance and subscription targets mentioned in the Q&A and in the handout, please confirm the disclaimer in the material. Regarding today's proceedings, first, President Tanaka will talk about the business results, followed by questions-and-answers session.

Mr. Tanaka, the floor is yours.

Takashi Tanaka: Ladies and gentlemen, thank you very much for coming to join us despite your busy schedules. I would like to explain the financial results for the fiscal year ending March 2017. Now these are the few points I would like to cover in

my presentation: First, the financial results for fiscal year ending March 2017; second, initiatives for achieving the mid-term targets; and number three, financial forecast for fiscal year ending March 2018.

First, on financial results for the fiscal year ending March 2017. Next please. These are the highlights for the fiscal year that has ended in March 2017. Financial performance and operations such that operation income was ¥913 billion, up 9.7% year-over-year. Domestic business contributed to increase their profit and we also strengthened Life Design business.

Now on shareholder return and capital policy. Dividend per share was raised by ¥5 from the initial forecast. We also conducted a share buyback of ¥100 billion and canceled over 5% of the treasury share. Next, please. Next is on factors for change in the operating income.

From the far left, mobile communications revenue was up by ¥30.8 billion year-on-year, increasing earnings. Total sales cost, including the handset subsidies and sales commissions, declined by ¥85 billion year-on-year, while there was increase at cost from impairment of idle facilities. So the other section in the Personal Segment increased in income by ¥23.7 billion. And domestic business in the value segment and the business segment was the main driver in increasing the earnings. Next, please.

This is about mobile communications revenue. It was up 1.8% year-on-year, on top of stable growth of au. Expansion of MVNO will drive the revenue growth going forward. Next is on the number of mobile IDs. The total of au accounts representing the number of unique users of au service, plus the number of subscriptions of MVNO offered by consolidated subsidiaries, is the number of mobile IDs until the third quarter.

The total number of mobile IDs had been on a declining trend, but it rebounded to an increasing trend in the fourth quarter. It was increasing even after excluding BIGLOBE, which was consolidated at the end of January. We will continue to aim at growing the number of mobile IDs, which is au and MVNO on a combined basis. Next on total ARPA, it was ¥6,340 up 3.4% year-on-year. Of this au communications ARPA shown in blue in the graph was ¥5,830, up 2.5% year-on-year.

And value-added ARPA in orange was ¥510, up 15.9% year-on-year. Total ARPA based on au subscribers continue to growth in a stable fashion. Next, I would like to explain our initiatives for achieving the medium-term targets. This is the medium-term target framework on Page 9 if I may. Once again, repeat what I said earlier.

The three years leading up to March 2016 was a period where we promoted the 3M Strategy and expanded our customer base and started to grow. Under the new medium-term targets, we are presuming business growth in the following three areas. Number one, to achieve sustainable growth in domestic telecom business; and second, in the Life Design business, we change at expanding the business domain to non-Telecom areas based on au customer base. We are to maximize the au Economic Zone; and number three, to achieve ambitious development of global business. These are the three that we are to focus on.

And a few of these initiatives, we will look to achieve sustainable growth in domestic telecom business and establish new pillars of growth. Page 10 points to focus on in the first and second year in the medium-term are planned, in line with recent market environment where user mobility has seized among three MNO companies. MNO is penetrating the market, and we should accelerate the transformation. In the domestic telecom business, we will continue to expand the number of mobile IDs with au and MVNO combined, leveraging KDDI Group's customer base. In the Life Design business, 3u M&A, we will look to acquire a new expertise in customer base and strengthen efforts to generate the IoT business.

In the global business, we will promote mobile business in Myanmar and Mongolia. On top of that, we will also upgrade the service quality of the data center operations. Next, please. Page 11 is about au STAR. We will try to improve the customer experience value and strengthen the point program partnerships.

au STAR Loyal avoids WALLET points every month, depending on the customer's number of years of service usage and data communication charges. au STAR Gift Au STAR Gift offers points that can be exchanged with merchandise, and such initiatives are implemented to enhance the attractiveness of the program in terms of both accumulating and using the points well. WALLET points can also be accumulated by using au WALLET, prepaid card and credit card as well, allowing the user to charge the points on the prepared card to spend it as e-money, and we will like these efforts to result in expanded au Economic Zone and total merchandise volume. Page 12 is about price plans for smartphones. In place of eight, 10 and 13 gigabyte that happened often before, since September last year, we have an offering 20 gigabit and 30 gigabit plans called Super-Dedzilla.

On the right, looking at the number of users by plan, the reduction in the number of eight or 13 gigabit plan users is outweighed by the increase in 20 or 30 gigabit plan users. Those customers are using LTE file or [Dedzilla 5] gigabit and below are also shifting to high-volume data plans. Going forward, we will promote greater value-added such as high-volume video content or image content to further drive ARPA. Next is on MVNO business. In low-cost or LCC smartphone market, all the companies within our group will try to leverage their respective strength to maximize the number of mobile IDs.

UQ Mobile, partly owing to their TV commercial, has been enjoying arising recognition. Face-to-face sales will be enhanced at UQ spot and mass retailers, mainly targeting those who will be using the smartphone for the first time. J:COM mobile, with the objective of

retaining J:COM customers, will

leverage J:COM sales networks to reinforce our sales of tablets, amongst others. BIGLOBE will utilize its own channels, mainly online channels, to develop new customers, focusing on the demand for SIM cards. Next, Page 14 is about Life Design business.

To establish the growth drivers or pillars in the non-Telecom areas, we will aim at transforming ourselves from a telecom company to a Life Design company. As is in the diagram above, a variety of services are provided to customers depending on their life stages in the middle of the diagram, where there are customer touch the points, online au Smart Pass and au STAR on the left. And au shops which are off-line, real physical shops on the right, will be strengthened. As shown on the bottom, development of enablers to expand the total merchandise volume will also be augmented as well. Next page, Page 15 alliances and investments in the Life Design business.

As you can see in the schematic view so far, in new communications area where we utilized alliances and investments to strengthen the business. In financial service, starting with the establishment of Jibun Bank in 2008. We've utilized web [Manixx Systems] since 2014, offering au WALLET settlement business. In the commerce business, Jupiter Shop Channel with the top-sharing TV shopping has been consolidated. And by acquiring the shopping mall, we launched Wowma!, expanding our customer base further.

More recently, we're also promoting alliances and investments anticipating the IoT era. Going forward, to bolster the Life Design business, we are promoting growth investment, including [indiscernible]. Next, please, about Touchpoint. In addition to alliances investment, we are also strengthening Touchpoint in our services. Au Smart Pass membership recorded ¥15.22 million as of the end of March.

Since January, we've started au Smart Premium. We are enhancing special offers for members such as au everyday by adding security functions like insurance special offer. We are boosting connections from online to real stores. Next, please. Page 17, commerce service.

Last December we acquired a shopping mall business from DeNA. And we started in January this year a new shopping mall, Wowma!. In March, we launched a sales promotion with zero sign-up and monthly membership fee, which helped the number of applications for store opening to soar from March. We aim for services that can cater to various needs of our customers, an intent to expand the number of stores and product lineup. Next, please.

Financial service. Next slide, please. Since April last year, the – by collaborating with group companies, we started offering financial services to au customers from January this year at Shinjuku and Osaka directly operated au stores. These financial services have been ruled out, and we are planning to expand them successively. On the right-hand side, on online banking, Jibun Bank has ranked high in Nikkei Veritas and others.

From March, we've partnered with Seven Bank, starting Smartphone ATM service. Going forward, we will enhance value in customer experience and strengthening convenience. Next, on energy service, left-hand side. au Denki or electric power service enjoy a steady growth in subscription since its launch in April last year. On the right, from April this year, in the Kansai or the Western parts of Japan, we started offering gas service.

In both services, we offer a WALLET reward point together with our settlement service such as au WALLET credit card. We intend to decrease our market penetration. Next, please. Generating IoT business. As KDDI IoT cloud service, we started offering Toilet Occupancy Management and Toilet Water-Saving Management.

These are just examples, left-hand side, with occupancy management. In addition to reducing waiting time, depending on how often toilet is used, frequency of cleaning can be reduced, too. That's lowering the cost, and further, by converting less frequently used toilets to meeting rooms and others, space can be more effectively used. On the right-hand side, by using human perception sensors, the water volume is controlled automatically compared with the full 40% to 50% water saving as possible, enabling customers to effectively reduce cost in their offices as we have had. Page 21, active promotion of global business.

In global consumer business at Myanmar's MPT and MobiCom in Mongolia, we roll out full scale LTE services. In data center Communications, we promote the high-quality data center business centered in Europe. We're the largest number of connections in the world, and we'll continue to promote mobile business in emerging countries in Asia and data center business. Next please. Lastly, on financial forecast for fiscal 2018 March term.

Next please. On operating income. Operating income forecast for March 2018 is ¥950 billion. In this term, we implement measures for sustainable growth for the next term and beyond to achieve mid-term objective of CHS 7% operating income with a steady progress. Next, please.

On major KPIs, left mobile ID. With au retention and MVNO sales expansion, we aim for ¥26.55 million by end of March 2018. The right, regarding au Economic Zone and gross merchandising value or GMV by expanding a Life Design business and strengthening settlement business, we aim for ¥1.7 trillion for this year. Next please. Capital expenditure.

For March 2018, the CapEx for from mobile is projected to be ¥330 billion and ¥200 billion for fixed line and another. In total, ¥530 billion is projected. Next please. Dividend per share. For March 2017, dividend will be increased by ¥5 from the beginning of the term forecasted, making it ¥85 for the year.

For March 2018, we plan to take ¥90 for the year, and increasing dividend for [16] consecutive year. Next, please. Last page, summary. Left, March 2017 term, the term that ended. We enjoyed significant profit increase due to contributions from the domestic business and strength in Life Design business, such as commerce, finance and energy.

In terms of concerning the shareholder payout, ratio increased to 38.3%. We repurchased own share about ¥100 billion, right hand side this term. We intend to make a steady progress, towards achieving CHS 7% in operating income. Shareholder returns. We are planning to have 39.2% payout ratio, increasing the dividend for the 16th consecutive term.

In addition, we also adopted a resolution to repurchase our shares up to aggregate ¥100 billion. Going forward, we intend to achieve sustainable income growth and bolstering shareholder return at the same time. This concludes my explanation on the year ended March 2017. Thank you so much for your kind attention.

Keita Horii: Next, we would like to start the questions-and-answers.

Those of you who have questions, if you could please currently state your name and affiliation, the name of the company that you belong to. If you have multiple questions, the question will be answered one-by-one. Anyone with questions, please. I see hand in the second row, to the right. Please go ahead.

Q -

Satoru Kikuchi: My name is Satoru Kikuchi from SMBC Nikko, I have three questions, number one, au STAR Loyal its impact? I think it was – so in the fourth quarter, and this fiscal year, I understand that there's going to have a lot of impact in terms of the value. What is your plan? What do you think is going to be the impact from the program? And for the year that ended, ¥85 billion, our sales cost reduction was achieved according to your presentation. In the near fiscal year, I think the prices of handsets and devices will change and so what would be the impact of that? What will be the effect of cost reduction there as well?

Keita Horii: It seems that you have multiple questions, and question number one. So first on the STAR Loyal or au STAR, ¥200 – ¥25 billion is the profit this year and the amount of cost reduction for this fiscal year. The reduction to be achieved for the personal, ¥24.9 billion in sales cost reduction for the personal segment.

Satoru Kikuchi: Thank you. My second question, you are trying to increase the number of mobile IDs. That's one of the main KPIs, which you have emphasized multiple times. So you're going to focus on the number of mobile IDs or is it really the communication revenue? It seems that you are focusing on the number of IDs, and UQ mobile will be strengthened as part of that. Is that the correct understanding? In the fourth quarter, it seems that telecom revenue is slightly down perhaps impacted by points and so forth.

In the fiscal year, there's going to be a slight increase as we see it, but depending on how you strengthen UQ mobile, the telecom revenue could either go up down. Are you going to look at that closely or rather focus more on the number of mobile IDs as you operate, is that the correct understanding?

Keita Horii: Well, to answer – well, no point in increasing just the number of IDs. ID times ARPA, so Mobile telecom revenue, which is a multiplication of the two factors and needs to be maximize that’s what we’re going to do in that. Having said so, in the market, au IDs as an MNO is down and MVNO is up. ARPA is still positive steadily.

So we need to maximize the two, which are multiplied with each other. That’s the kind of operation we’re trying to pursue.

Satoru Kikuchi: Understood. Question no three, au Economic Zone that you mentioned this fiscal year.

Keita Horii: ¥0.42 trillion, so ¥420 billion of the Economic Zone expansion, that’s a plan.

Satoru Kikuchi: What’s to be increased, I wonder. So what is the breakdown of that amount? What is going to be increase and what kind of measure are you going to implement some you may have already explained, but please?

Keita Horii: Well, just to go over the numbers. ¥1.28 trillion for the year that has ended, and this year's forecast is ¥1.7 trillion, just to give you the breakdown. au WALLET related or settlement related, ¥970 billion au [indiscernible] simple settlement ¥360 billion, so with the two combined $1.33 trillion, and commerce and electricity, and finance as well as insurance. ¥370 billion, and in total it comes to $1.7 trillion.

So with the two combined ¥1.33 trillion, and commerce, and electricity, and finance as well as insurance 370%, and in total it comes to ¥1.7 trillion. That is the breakdown. Did that answer your question? Yes. Thank you. Any other questions.

Yoshiyuki Kinoshita: Merrill Lynch, Kinoshita is my name. Two questions, please. First question, so according to Mr. Kikuchi's question about the term ended. Again, how much was it? I would like to know the actual about the WALLET.

For instance, about the Economic Zone?

Keita Horii: Just a moment please. Regarding the previous term, we don't have the detailed breakdown, but the settlement ¥1.47 trillion, commerce, electricity, and others all added, ¥233 billion in total. ¥1.28 trillion, a new breakdown for the settlement. Au WALLET, ¥723 billion. The countdown settlement, ¥324 billion.

Thank you.

Yoshiyuki Kinoshita: Thank you. My second question. Just suppose in this term, in operating income, suppose it lands to us forecasting three years, 7% growth revenues in the next term, again 7%. That will be the higher operating income growth that you must achieve in two years that will make 7%, adding the previous term and this term.

So which segments, in what way in the next term would enjoy growth even more than this term? Could you share with us your ideas?

Keita Horii: Well, well, you are impatient. As you may know, currently, mobile communication business, domestic communication, is in a difficult environment. Regarding this term, about ¥50 billion by having the strategic investment in the next term in three years, CAGL 7% should be realized. Regarding the detailed breakdown, perhaps, you could ask the same question about the same time next year. About the strategic investment, perhaps you have to pay expenses first, and then in the next term, you will have a lighter burden so you can accelerate the growth.

Or in order to accelerate the growth, you are doing something else and – so rather than having lighter cost, even with that same cost by increasing sales, would you have better? Do you have profits? Do you have the breakdown of the ¥50 billion, since this is a good opportunity, first of all? About the au STAR, so that we could work on the retention ¥20 billion, ¥50 billion, channel reform, ¥15 billion are to be spend to the most specific at au shops, including those whose ad design channel reform will be conducted, so ¥15 billion. And in relation to Life Design, a ¥10 billion, so in total ¥50 billion. That’s the breakdown of the strategic investment. Regarding the reasons, next term and beyond, we need to bolster the retention. And in Life Design business, in the new Life Design business, in – from various aspects, we want to have better recognition.

And we intend to spend them on those.

Yoshiyuki Kinoshita: If I may, in the personal business towards the next term, this term, the 3% growth. Do you think you can accelerate the growth further?

Keita Horii: Well, this is about the next term. So perhaps, I could share that with you. When the next term comes, this term has just begun, as you know.

Rather than accelerating it in principle, we would like to maintain the current growth momentum as much as possible. As I already shared with you in the au communication platform, including MVNO, by increasing various non-Telecom business, we would like to ensure growth. Thank you.

Daisaku Masuno: My name is Masuno from Nomura Securities. I have two questions.

One has to do with strategic investment. What are the results in the past? And what should be expected this fiscal year. Jupiter Shop Channel, Wowma!, Wipro, you had three acquisitions so far in this fiscal year.

Keita Horii: Well, what I have just mentioned was the achievement so far so what’s going to be the achievement this fiscal year ¥50 billion of strategic investment plan for this fiscal year, what kind of results or impact is that going to have. So if you could please review the results or the outcome of the investment.

So far I am going forward. So Shop Channel, BIGLOBE. Well, BIGLOBE, someone else is in charge. And what was the other one Wowma!. Okay, so those are the three you mentioned.

In principle, Shop Channel and Wowma! I'm responsible for. And for Shop Channel, as you know, the senior consumers, they have very robust demand for consumption. It's very active. So this fiscal year – in the last fiscal year rather, we have been able to quite steadily increase the business. And although we do not disclose the details, we plan to see increased income this fiscal year as well.

So we expect the business to grow quite steadily and successfully. Shop Channel and au, the synergies have between the two is to be also harvested. In the third quarter last year, we had launched a festival. And au brand has been able to attract a lot of traffic. And so with such synergies in place, we believe that it will be quite effective.

For Wowma!, well this has been our fervent wish. And with DeNA's agreement, we have been able to how this business. It's a shopping mall business in the open market. For merchants, they have a lot of expectations and, as Mr. Tanaka said, of the ¥50 billion strategic investment, ¥10 billion also is going to be a spent on expanding the number of merchants for Wowma!, and specifically, starting from March.

We have been implementing part of strategic investment and the number of merchant acquisition in March was four times more than that in February, and actually in April, we have had four-digit number merchants acquired already. This is similar to what Yahoo! did last several years ago. But Life Design business starts with shopping mall business. So in order to drive that, we believe that now is the time to invest and start growing. And we believe the business will grow quite successfully.

The results of BIGLOBE will be seen going forward. What are the potential synergies? There are about four synergies that we have in mind. One is BIGLOBE's customer base of 2.6 million. We can leverage that for au business. So to drive the number of au customers, leveraging BIGLOBE's customer base, and conversely, from KDDI to BIGLOBE.

For example, FTTH users can be referred from KDDI to BIGLOBE and vice versa so mutual referrals can be made. And as you all know, we offer a number of products. We're working on number of products, EC energy and so forth. So a few offering of products, BIGLOBE can drive its own sales. And number four, network efficiency enhancement.

To the extent possible, we want to reduce the cash-out or cash investment. So there are four areas of synergies that can be expected. And as to the specifics, we are now carrying out concrete discussions and studies. So the earliest possible stage, we would like to see tangible results from these synergies.

Daisaku Masuno: Well, just trying to clarify, Wowma! alone ¥10 billion investment, that's not the case.

You said Life Design business overall. Wowma! is only part of that. I understand now. So BIGLOBE’s results, how are they reflected in the plan I wonder?

Keita Horii: I cannot disclose a specific numbers. Part of it is reflected in the financial plan.

We acquired it as of 31 of January. Not everything is yet reflected. So we would like to be aggressive on this going forward.

Daisaku Masuno: Value segment revenue plan, is ¥100 billion only an increase of ¥4 billion. If you could comment on that ¥10 billion most of that is going to be for value segment?

Keita Horii: Well, so if you consider that, I think a double-digit growth is going to be expected for next year.

And one word, we have to make investment in order to grow in the future.

Daisaku Masuno: My second question, so cash distribution, return from investment ¥500 billion in three years. So last year is ¥170 billion of business investment and you would be making the same amount of investment and share buyback ¥100 billion that’s going to be how you distribute the cash. It seems that that it’s going to be the normal pattern of cash distribution, am I correct? And so the focus of business investment last year, it seems was more on the personal segment as it turned out. So how is that going to be changed or not changed and what’s going to be the cash distribution breakdown?

Keita Horii: This year ¥170 billion of funds, including funds for M&A that is factored in.

Free cash flow planned is ¥480 billion, ¥220 billion for dividend payment and ¥100 billion for share buyback and there's some remainder left. So we would like to study and discuss how to spend the rest and that's going to be the target going forward. With respect to mergers and acquisitions in principle, for the non-telecom business, including the IoT business, we would like to focus on that and if there is an opportunity, including opportunity oversees we will like to spend the M&A money. But at this moment, we can’t say anything definitive at this moment. I hope you will understand.

Daisaku Masuno: Last, but not least, the one last question with respect to the existing business, well, so far I asked about the new investments, but for existing business, MVNO contracts, so the growth is in the plan? And so what is the plan? And ARPA is also going to be driven and grown 20 gigabit, 30 gigabit, high volume data plans, 12 this coming fiscal year, what’s the going to be the impact from those plans and MVNO throughout the year? What is the level of growth expected? Well, UQ Mobile or TV commercial has been launched aggressively but throughout the year, what's going to be the impact from those?

Keita Horii: Well, to answer your question I think you will know if you calculate, UQ Mobile what’s going to be the specific impact. We have not really delineated to that extent, mobile IDs for example. This year’s forecast in total ¥2,655 or ¥26.6 million and year ended ¥26.02 million and au ¥24.77 million, MVNO ¥178,000. So MVNO, if you do the math, there will be an increase of 910,000. BIGLOBE, J:COM and UQ Mobile combined.

So UQ Mobile will have a greater proportion amongst the three, we believe. On the other hand, with respect to ARPA, with respect to the au telecom ARPA, it's expected to go up by 1.2% year-on-year, and value added ARPA 9.8% increase year-on-year. That's the forecast. So if you multiply, you will be able to calculate the telecom revenue. So plus 0.5% increase.

If we can achieve that, that should be good.

Daisaku Masuno: So in the second half of the year, ARPA and new subscriptions' momentum in the second half will improve. Is that your expectation?

Keita Horii: Well, that is our hope. Yes.

Daisaku Masuno: Well, if we look at the market, with respect to the MVNO, how will the MVNO market grow?

Keita Horii: At this moment, it's hard to forecast.

So perhaps this is rather conservative or is on the safe side. But that is our forecast. Thank you. Any other questions please.

Hideaki Tanaka: Mitsubishi UFJ Morgan Stanley Securities, Tanaka is my name.

Two questions, so one by one. First question, as President mentioned, in the final analysis the au subscriptions and MVNO, what will be the figures that you have in your mind? In the end, MVNO increase, I can intuitively see, at what level it will be in a kind of a balance? If you could share with us some ideas.

Keita Horii: We would like it to sort of the – see them in good balance. But unfortunately, in this term, MVNO – au is decreasing, MVNO is increasing structurally. Regarding the future, it's difficult to forecast.

Hideaki Tanaka: According to MIC industry guideline, previously, reaching ¥50 million. Or has it already reached ¥50 million?

Keita Horii: So perhaps, this momentum is likely to stop. But currently, according to various survey companies, the market research companies the MVNO might increase. So personally, it's just difficult to make a statement, to be honest with you.

Hideaki Tanaka: Understood.

My second question, the ¥50 billion strategic investment, when I look at the substance rather than the one-time thing you have always looked at these matters. They don't strike me as extraordinary factors of ¥50 billion. You're making the strategic investments only in the next term without that.

Keita Horii: It’s not that you’ll be able to have the factors for increased the revenues or income. I talked about three things.

First, retention part. As you rightly said, au STAR subscription, the members, if it increases, then this momentum is going to continue. But regarding the second, related to channel development, and this term, we intend to do this in an intensive manner. The third, Life Design business. Expanding the base and we are planning to make – spend expenses here.

So it's not that we are not going to do this in the beyond, but we do intend to spend these costs in rather intensive manner.

Hideaki Tanaka: Understood thanks.

Keita Horii: Any other questions please.

Mitsunobu Tsuruo: My name is Tsuruo from Citigroup Securities. Thank you.

I have two questions. One has to do with the evolution of the free cash flow, if you could please explain ¥480 billion this year and last year ¥528 billion? That’s going to be a decline. Well, a CapEx will increase by ¥10 you he could share with us your view on that. So what's your thinking behind free cash flow this year and next year as well, if possible?

Keita Horii: The first point would be addressed by Mr. Morozumi.

The year that ended, free cash ¥528 billion and this year ¥ 480 billion that’s going to be a decline, why, that was the question, I believe. As we responded earlier, for this fiscal year and the investment cash flow, ¥170 billion for M&A or investment is fully factored. It’s reflected fully. For the year-ended March 2017, the investment cash flow the repayment funds with the two combined that was included and plus ¥170 billion, BIGLOBE M&A ¥46 billion of interest bearing debt. So they were repaid and that pushed up the cash flow and thus the number was last year.

Mitsunobu Tsuruo: Thank you. My second question about share buyback, ¥100 billion, the amount is the same from last year. So total shareholder return ratio of 50% or so unchanged dividend payout, that you have always had as part of your policy was 35% and since this is a good opportunity. If you could once again explain the thinking behind total shareholder return ratio and dividend payout ratio?

Keita Horii: You said around 50%. Well, just to calculate, it's 56.8% to be precise in terms of total shareholder return ratio.

Sorry, I have to say that emphasize this specific number. With respect to shareholder return in principle, we will continuously increase the dividend and of course it will have to be underpinned by growth that’s the kind of operation we’re trying to pursue. And second with respect to share buyback we watched the balance that was what we said at the time of announcing the mid-term plan. Of course, we have to look at the share price. And we have decided on ¥100 billion looking at various factors.

And we would like to be agile and flexible in terms of the amount. Well, I'm sorry for being vague, but I would like to emphasize 56.8% in terms of total shareholder return ratio.

Atsuo Takahashi: Mizuho Securities, Takahashi. I have just one question. In relation to the previous questions, in this term, the total shareholder return, as I look at the number compared with DOCOMO, it's a little higher than that of DOCOMO.

And regarding the previous term, as I look at the payout ratio, 38%. So the midterm plan, that's 35%, and it's already better than that. And in this term, it's a little less than 40%. According to midterm plan, regarding the shareholder the return plans, you are already achieving this and that shareholder return has already been achieved, as I look at those numbers. As to management, concerning the shareholder return, has there been any change? Or regarding this term, is it something temporary? Would you like to share with us any ideas in that regard in principle?

Keita Horii: We are a conservative company.

Regarding this term, it's 39.2%, a little shy of 40%. It's higher than 35% and I think that's okay. So that it will not go down, that will be our baseline. If the company grows, then, together, with the company's growth, of course, there's going to be a good growth in investment, but we, again, would like to make returns to shareholders. So I hope that you will understand.

Atsuo Takahashi: Thank you. End of Q&A

Keita Horii: So with this, we would like to conclude the meeting on financial results for the fiscal year ended March 2017 by KDDI. Thank you so much for your kind attendance. Thank you very much indeed.