KDDI CORPORATIONKDDI CORPORATIONUbiquitous Solution CompanyUbiquitous Solution Company
Third Quarter Financial Results of the Fiscal Year ending March 2005
January 27, 2005
Tadashi OnoderaPresident
The figures included in the following brief, including the business performance target and the target for the number of subscribers are all projected data based on the information currently available to the KDDI Group, and are subject to variable factors such as economic conditions, a competitive environment and the future prospects for newly introduced services.Accordingly, please be advised that the actual results of business performance or of the number of subscribers may differ substantially from the projections described here.
1.1.1.1. Financial Results HighlightsFinancial Results Highlights(1-3Q/ 9 months ended Dec.2004)
Consolidated basisOperating revenues rose by 4.3% yoy and operating income was up by 3.3%, as strong“au” Business absorbed declined revenues in BBC & Solutions and other segments.Posted extraordinary gain of ¥27.7B through transfer of PHS Business (3Q).
“au” BusinessOperating revenue jumped by 15.5% and Operating income up by 12.9% yoy.Commenced Chaku-uta FullTM; total downloads topped 1 million (on January 5th).Achieved largest share of net adds for the year (2004:52.2%) and steadily expanded No. of WIN subs reaching 2.03million at end-December.
BBC & Solutions Business Despite steady increase in sales of internet-based services, sales and operating incomedeclined yoy owing to fall in voice revenues.Started sales of Metal Plus (on December 1st).Merged fixed-line subsidiaries and reorganized corporate sales forces.
TU-KA BusinessAchieved strong sales of simple handset “TU-KA S”.
1
2
3
4
Note:Operating revenues, operating income, year-on-year comparisons described here are those during 9 months endedDecember basis. See attached Data Book for 3Q results. 1
1.2. 1.2. FullFull--Year Outlook for FY 2005.3Year Outlook for FY 2005.3
On a consolidated basis, company forecasts at ¥2,914.0B (+¥15.0B) for operatingrevenues and ¥293.0B (▲¥16.0B) for operating income by factoring some changes mainly in “au” Business.
“au”: Operating income forecast at ¥277.0B(▲¥16.0B) due to a decline of ARPUby tighter control of mobile phone use during driving and increased expenses by expanded sales of WIN handsets and reinforced retention.
-ARPU: ¥7,190 → ¥7,170 (down ¥20 yen)-WIN cumulative subs: 3.0 million → 3.2 million (up 0.2 million)-No. of handsets sold: 11.3 million → 11.6 million (up 0.3 million)
CAPEX guidance at ¥340.0B(+¥30.0B ) mainly due to roll-out plans accelerated to enhance service coverage of “au”.
Previous→Latest Forecast (Change)
1
2
Note 1: All figures are on a consolidated basis except those where business segments are referred.Note 2: Full-year forecasts take into account the effect of divesting PHS Business on both consolidated and segment basis. 2
2.2. Consolidated Financial ResultsConsolidated Financial ResultsOperating revenues
0.0
1,000.0
2,000.0
3,000.0
4,000.0
FY2004.3 FY2005.3(E)0.0
100.0
200.0
300.0
400.0
FY2004.3 FY2005.3(E)
Operating income(Billions of yen)
1-3Q 1-3Q
(Billions of yen)
1-3Q 1-3Q
(Billions of yen)FY2004.3 FY2005.3(E) FY2005.3
1-3Q 1-3Q yoy Latest F Previous F
Operating revenues 2,104.3 2,846.1 2,194.3 4.3% 2,914.0 2,899.0Operating income 234.7 292.1 242.5 3.3% 293.0 309.0 Operating margin 11.2% 10.3% 11.1% - 10.1% 10.7%Ordinary income 221.2 274.5 235.6 6.5% 285.0 300.0Net income 123.4 117.0 154.1 24.9% 193.0 198.0Free Cash Flow 384.6 404.2 410.3 6.7% 390.0 406.0EBITDA 522.2 688.0 516.8 -1.0% 660.0 678.0 EBITDA margin 24.8% 24.2% 23.6% - 22.6% 23.4%
3
3. 3. ““auau”” BusinessBusinessOperating revenues
0.0
50.0
100.0
150.0
200.0
250.0
300.0
FY2004.3 FY2005.3(E)
Operating income(Billions of yen)
1-3Q 1-3Q
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
FY2004.3 FY2005.3(E)
(Billions of yen)
1-3Q 1-3Q
(Billions of yen)FY2004.3 FY2005.3(E) FY2005.3
3Q 3Q Latest F Previous F
Subs ('000) 15,977 16,959 18,759 19,460 19,460 of module-type 326 361 452 470 470
WIN(EV-DO) 47 343 2,032 3,200 3,0001X 11,717 13,166 14,797 - -cdmaOne 4,213 3,450 1,930 - -
ARPU(yen) 7,490 7,440 7,190 7,170 7,190Voice 5,830 5,800 5,470 5,430 5,440Data 1,660 1,640 1,720 1,740 1,750
FY2004.3 FY2005.3(E) FY2005.31-3Q 1-3Q Latest F Previous F
Operating revenues 1,330.7 1,825.1 1,537.2 2,070.0 2,049.0Operating income 189.5 239.5 213.9 277.0 293.0 Operating margin 14.2% 13.1% 13.9% 13.4% 14.3%Ordinary income 181.3 229.1 210.9 274.0 289.0Net income 105.3 130.0 124.6 163.0 172.0Free Cash Flow 218.9 207.3 129.2 135.0 158.0EBITDA 332.4 437.7 368.2 484.0 503.0 EBITDA margin 25.0% 24.0% 24.0% 23.4% 24.5%
4Note: ARPU is calculated for ordinary handsets which exclude module-type terminals.
4.4. BBC & Solutions BusinessBBC & Solutions BusinessOperating revenues
-20.0
-10.0
0.0
10.0
20.0
FY2004.3 FY2005.3(E)
Operating income(Billions of yen)
1-3Q 1-3Q
(Billions of yen)
0.0
200.0
400.0
600.0
800.0
FY2004.3 FY2005.3(E)
1-3Q 1-3Q
(old definition)KDDI principle only
(new definition)Consolidated Fixed-line Biz.
(old definition)KDDI principle only
(new definition)Consolidated Fixed-line Biz.
(Billions of yen)FY2004.3 FY2005.3(E) FY2005.3
3Q 3Q Latest F Previous F
DION subs('000) 2,559 2,687 2,874 2,880 2,880 of ADSL 914 1,109 1,497 1,510 1,530FTTH subs('000) - 23 78 100 100 of Hikari Plus - 9 61 - -
FY2004.3 FY2005.3(E) FY2005.31-3Q 1-3Q Latest F Previous F
Operating revenues 409.7 542.5 385.3 508.0 497.0Operating income 16.3 16.4 8.3 -8.0 -12.0 Operating margin 4.0% 3.0% 2.1% -1.6% -2.4%Ordinary income 15.8 15.8 8.6 -8.0 -12.0Net income 1.5 -28.8 -3.2 -13.0 -15.0Free Cash Flow 60.3 74.2 34.8 -10.0 -9.0EBITDA 85.7 112.4 69.1 79.0 75.0 EBITDA margin 20.9% 20.7% 17.9% 15.6% 15.1%
(Note1)
Note1 : No. of line subscriptions was 68,000 at end-December 2004.
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Note 2: Figures of FY2004.3 and previous forecasts of FY2005.3 are based onthose of KDDI principle only, while results and latest forecasts ofFY2005.3 are on a consolidated fixed-line business basis.
5.5. TUTU--KA BusinessKA BusinessOperating revenues
0.0
10.0
20.0
30.0
40.0
FY2004.3 FY2005.3(E)
Operating income(Billions of yen)(Billions of yen)
0.0
100.0
200.0
300.0
400.0
FY2004.3 FY2005.3(E)
1-3Q 1-3Q 1-3Q 1-3Q
(Billions of yen)FY2004.3 FY2005.3(E) FY2005.3
1-3Q 1-3Q Latest F Previous F
Operating revenues 210.6 276.5 178.4 233.0 232.0Operating income 12.7 15.4 14.2 16.0 17.0 Operating margin 6.0% 5.6% 8.0% 6.9% 7.3%Ordinary income 9.5 11.4 12.4 14.0 15.0Net income 8.3 9.1 8.2 10.0 10.0Free Cash Flow 42.2 55.0 38.9 56.0 54.0EBITDA 54.2 71.2 50.7 65.0 65.0 EBITDA margin 25.7% 25.7% 28.4% 27.9% 28.0%
FY2004.3 FY2005.3(E) FY2005.33Q 3Q Latest F Previous F
Subs ('000) 3,670 3,632 3,600 3,580 3,520ARPU(yen) 5,020 5,020 4,460 4,480 4,470
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6.6. Pocket Business Pocket Business (ref.)(ref.)
Operating revenues Operating income(Billions of yen) (Billions of yen)
0.0
5.0
10.0
15.0
20.0
25.0
FY2004.3 FY2005.30.0
50.0
100.0
150.0
200.0
250.0
FY2004.3 FY2005.3
1-3Q 1H 1-3Q1H
(Billions of yen)FY2004.3 FY2005.3
3Q 1H
Subs ('000) 2,914 2,897 2,926 -of Air H" 936 990 1,101 -
ARPU(yen) 4,730 4,750 4,430 -
FY2004.3 FY2005.31-3Q 1H
Operating revenues 140.6 184.0 86.9 86.9Operating income 17.0 21.1 5.5 5.5 Operating margin 12.1% 11.5% 6.3% 6.3%Ordinary income 15.6 19.0 4.9 4.9Net income 15.8 19.1 4.0 4.0Free Cash Flow 40.0 47.2 20.9 20.9EBITDA 47.0 61.3 24.6 24.6 EBITDA margin 33.4% 33.3% 28.3% 28.3% 7
7.7. Capital Expenditures and othersCapital Expenditures and others(Billions of yen)
FY2004.3 FY2005.3(E) FY2005.31-3Q 1-3Q Latest F Previous F
CAPEX (Cash basis) Consolidated 146.2 253.3 200.0 340.0 310.0au 89.9 161.2 149.4 230.0 200.0BBC & Solutions 32.0 55.1 33.7 86.0 82.0TU-KA 8.9 14.7 5.9 9.0 9.0Pocket (ref.) 7.5 12.9 5.0 5.0 5.0
Depreciation Consolidated 274.2 365.7 265.1 351.0 352.0au 137.6 184.9 150.3 202.0 202.0BBC & Solutions 63.9 84.1 57.6 79.0 80.0TU-KA 40.2 53.8 35.1 47.0 47.0Pocket (ref.) 29.1 38.7 18.7 18.7 18.7
Debts Consolidated 1,229.1 1,179.8 901.6 871.0 871.0au, BBC & Solutions 766.5 736.0 632.7 651.0 617.0TU-KA 276.0 262.4 224.1 181.0 208.0Pocket (ref.) 142.4 134.5 - - -
Debt / EBITDA multiple - 1.7 - 1.3 1.3Debt / Equity ratio - 1.17 0.79 0.77 0.75
(Note 1)
(Note 1)
(Note 1)
(Note 2)
(Note 2)
(Note 2)
Note 1: Regarding BBC & Solutions Segment, figures of FY2004.3 and previous forecasts of FY2005.3 are based on those of KDDI principle only,while results and latest forecasts of FY2005.3 are on a consolidated fixed-line business basis.
Note 2:Pocket’s figures for 1-3Q and forecasts of FY2005.3 are those at the end of 1H as it is deconsolidated in H2 due to a transfer effective inOctober 2004. 8
Segment DiscussionsSegment Discussions
““auau”” BusinessBusiness
BBC BBC && SolutionsSolutionsBusinessBusiness
9
30,000
35,000
40,000
45,000
1.1. 1.1. Sales CommissionsSales Commissions
(yen)
Full-yearFY2003.3
3Q 4QFY2004.3
0
FY2005.33Q1Q 2Q 1Q 2Q
*New purchases& upgrade modelsAverage commissions /unit*
“au”Business
(Billions of yen)
(yen)
(‘000 units)
FY2003.3 FY2004.3 FY2005.3(E) FY2005.31Q 2Q 3Q 4Q 1Q 2Q 3Q Latest F Previous F
90.0 90.0 92.0 112.0 94.0 114.0 112.0
37,000 36,000 36,000 37,000 37,000 39,000 39,000
2,410 2,490 2,590 3,070 2,550 2,930 2,870
428.0
38,000
11,300
Sales commissions 405.0 384.0 445.0
Average commissions/unit 40,000 36,000 38,000
Number of units sold 10,100 10,570 11,600
10
“au”Business 1.2. T1.2. Trend of Net Additionsrend of Net Additions
0%
20%
40%
60%
80%
100%
0
100
200
300
400
500
4/‘02 9/‘02 3/‘03 3/‘049/‘03
<49.6% / 20.8%>
(’000subs)
11
12/’04
<48.7% / 21.9%>< - / - >
<59.9% / 20.0%>
9/’04
Note: Net-adds shares in 3Q/FY2005.3 and CY2004 include DoCoMo’s Do Pa subs.
Note
■ Achieved top share of Net Adds in 2004 (52.2%)Note with Dec-end subs at 18.76M.
Full-year3Q
Share of Ending Subs
Share of Net Adds
No. of Net Adds
1x launch WIN launch
(Market share)
Market share ofNet Adds /Ending subs:
FY 2004.3FY 2003.3 FY 2005.3
“au”Business 1.3. 1.3. Churn RateChurn Rate
1.8% 1.56% 1.49%1.37%1.40%
1.54%1.40%
1.48%1.7%1.8%2.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Improved 0.03 points yoy
FY 2003.3 FY 2004.3 FY 2005.3
(Churn)
<1.8%> <1.49%>Full-year12
1,550 1,660
4,550 4,400 3,920 3,600
6,420 6,420 6,320 5,990 5,930 5,900 5,830 5,560 5,570 5,470
7,060 7,150 7,270 6,970
1,7201,6401,140 1,240 1,320 1,430 1,720 1,730 1,720 1,740
5,540 5,430
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
11,610
Total ARPU WIN ARPU
1.4. 1.4. Trend of ARPUTrend of ARPU
7,560 7,660 7,640 7,5407,480
13
7,420 7,490 7,28090 90
<¥7,570><¥6,280><¥1,290>
<¥7,440><¥5,800><¥1,640>
11,550
7,260 7,1707,300 7,190
11,190 10,570
“au”Business
yoy change ▲ ¥300(▲ 4.0%)▲ ¥360(▲ 6.2%)+ ¥60 (+3.6%)
Note 1: 4Q ARPUs are those after the settlement of AC (Access Charges).
Voice
Total
Data
FY 2003.3FY2005.3(E)
full-yearFY 2004.3 FY 2005.3 FY 2004.3 FY 2005.3
(yen)
Full-year total ARPUof Voice of Data
Note 2: WIN ARPU is calculated on customers in one full month of operations.
AC
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2.1. 2.1. Update on WINUpdate on WIN(1)(1)■WIN sub additions have been accelerated since expanded sales in summer,
reaching 2 million-mark at end-December.■ Data Flat-rate subscription rate still remains high at 79%.
Growth of WIN & Flat-rate Subs
3/‘0412/‘03 6/’04 9/’04 3/’05(E)
573(83%)
343(87%)
1,191(81%)
3,200(-%)
Flat-rateSubs
12/’042,032(79%)
Service launch2 models
Add 1 model
Add 3 Summermodels
Add 4 Fall/Wintermodels
Plan a few Spring models
Ending subs
Ending subs(flat-rate sub ratio)
(‘000subs)
“au”Business
14
0
5,000
10,000
15,000
20,000
Pre-switch Post Pre-switch Post Pre-switch Post Pre-switch Post
VoiceData
2.1. 2.1. Update on WINUpdate on WIN((2)2)■ Looking at pre-switch data ARPU for those who upgraded to WIN, can see an
increase in total ARPU for mid-range users (“less than ¥4,500 group”). Declined sales to high-end users during a launching period is likely to cease, showing signs of increased ARPU on average among WIN upgrade users.
Note: Comparison of pre- and post-switch ARPU (Sept./Nov.) for those who changed to WIN in Oct. 2004.
Comparison of ARPU for Subs who Switched 1X→WIN
15
Pre-switch data ARPU Up to ¥2,300 ¥2,300~¥4,500
(Yen)
Approx.+ ¥1,800
Approx.+ ¥1,300
Voice
Data
Over ¥4,500
Approx.-¥5,200
Slight increase
Average among Upgrades
“au”Business
2.2. 2.2. EZ EZ ChakuChaku--utauta Full Full TM TM (1)(1)
■ EZ Chaku-uta FullTM, offering a rich source of musical expression, achieved 1 millionth download.
■ Double Teigaku subscription rate for EZ Chaku-utaFullTM handsets at approx. 85% (at end-Dec. 2004). 0
5
10
15
2002.12 2003.6 2003.12 2004.6
Downloads Chaku-uta handsets
Ref. (Millions)
Service launch
16
November 19, 2004
Comparison
“au”Business (Ring-tone songs)
(Chaku-uta FullTM) (Chaku-Uta)
December 2, 2002
Achieved 1 million DLs Jan. 5, 2005 (48th day of sales) End of Jan. 2003- 410,000 units(at end-Dec.2004) - 310,000 units (at end-Jan. 2003)- No. handsets
Compatible handsets Standard on 1X, WIN handsetsWIN 2004 autumn/winter models
Paid content (ref.) Approx. ¥300/song Approx. ¥100/song
Data size Approx. 1.5M~2.0MB Approx. 100KBNote: Including Chaku-uta Full handsets, number of Chaku-Uta handsets totaled 14.3 million units at end-Dec.2004.
“au”Business 2.2. 2.2. EZ EZ ChakuChaku--utauta FullFullTMTM (2)(2) (Ring-tone songs)
注1
Note 1: Usage results for Dec. 2004.
More Chaku-uta Full Users Hit Upper Limit
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Breakdown of Chaku-uta Full Subs
Female37% Male
63%
5%20%
20%17%
13%
8%12%
5%
0% 10% 20% 30%
10~14
15~19
20~24
25~29
30~34
35~39
40~49
50~
Total up to age 29: 62%
55%
86%
0%
20%
40%
60%
80%
100%
Chaku-uta Fullusers
Non-users
Subs Using Upper Limit of Double Teigaku
Note 2: Usage results for Dec. 2004 for those subscribing to Chaku-uta Full handsets in Nov. 2004. Upper limit of Double Teigaku, incl. ¥300 basic EZweb fee, is ¥4,500.
(Note 1) (Note 2)
(Age)
11. . FixedFixed--Line Biz Reorganization within GroupLine Biz Reorganization within GroupBBC & Solutions Business
Merger of Fixed-Line Subsidiaries
K-Solutions
KCOM
OSI Plus
KDDI Msat
Established KNSL
KDDI Network & Solutions
November 1, 2004Four former fixed-line subsidiaries
Merger
Reorganization of Corporate Sales Forces
(Principal)NW Solutions
Business Sector
Four former fixed-line
subsidiaries
Mainly Tokyo, Nagoya, Osaka/
Large Biz
Other(Regional/
Small-mid. Biz)
(Principal)NW Solutions
Business Sector
KNSL
ReorganizationNationwide/Corporations
18
2. 2. Initiatives for Metal PlusInitiatives for Metal PlusBBC & Solutions Business
Launch schedules:
- Marketing starts : Dec. 1st, 2004- Service starts : Feb. 1st, 2005
Sales Force Structure
19
Structural reform:
- Set up “Metal Plus BusinessManagement Div.” to promote services to both corporations andconsumers.
Future challenges:
- Rapidly establishservice coverage
Consum
ers
BBCBiz.
SectorDiscounters
“au” shops, other
Direct
Indirect
DM & telemarketing
Dealers
Large
NWSolutions Biz. Sector
Corporations KNSL
Small~m
id
Direct Sales Division
Indirect Dealers
Direct Sales Division (Note)
Note: Also use certain dealers, telemarketers etc.
Ubiquitous Solution CompanyUbiquitous Solution Company