KDDI (9433) Status update summary

Investigation findings and background

• Fictitious circular transactions in the advertising agency business at two subsidiaries spanned from August 2018 to December 2025, involving 99.7% of the business's sales and 21 out of 218 business partners, with two employees orchestrating the scheme.

• The scheme was initiated to cover losses and meet sales targets, with no evidence of organized involvement by the parent company or other subsidiaries.

• Transactions were structured to appear legitimate, with fabricated contracts, invoices, and internal explanations to avoid detection.

• No similar cases were found in other consolidated subsidiaries after a comprehensive investigation.

• Lack of expertise in the advertising agency business and insufficient risk awareness at all organizational levels contributed to the prolonged undetected misconduct.

Financial and operational impact

• Cumulative revenue of ¥246.1 billion and operating profit of ¥49.9 billion were reversed due to the fictitious transactions, with operating income down ¥150.8 billion and net income down ¥129 billion.

• Impairment losses totaled ¥64.6 billion, and external outflows reached ¥32.9 billion.

• The group revised its full-year forecast downward, with revenue reduced by ¥270 billion, operating profit by ¥88 billion, and net income by ¥50 billion.

• Amended financial reports and corrections to prior period statements have been filed.

• The advertising agency business will be discontinued, while the core telecommunications business and cash flow generation remain unaffected.

Governance, root causes, and recurrence prevention

• Overreliance on specific individuals, insufficient segregation of duties, inadequate credit and subsidiary management, and weak internal audits were identified as key governance failures.

• Recurrence prevention measures include strengthening risk assessment, rotating personnel, enhancing credit management, centralizing financial oversight, and improving whistleblowing systems.

• Group-wide governance will be reinforced with new committees, reporting lines, and ethics education.

• Initiatives focus on enhancing ethical standards, rebuilding monitoring frameworks, and improving communication and oversight across subsidiaries.

• Strengthening business partner management and procurement authority segregation are also being implemented.