KDDI (9433) Status update summary

Investigation findings and background

• A Special Investigation Committee found that from August 2018 to December 2025, nearly all advertising agency business at two subsidiaries consisted of fictitious circular transactions, initiated to cover losses and meet sales targets.

• The scheme was led by two individuals who concealed the transactions through exclusive communication, fabricated contracts, and realistic but false performance reports; Person A received personal benefits, while Person B acted under instructions.

• Approximately 99.7% of the advertising agency business was fictitious, with no real advertisers or deliverables for most transactions, involving 21 out of 218 business partners.

• The misconduct went undetected for years due to lack of expertise, insufficient risk awareness, and over-reliance on specific personnel; no management or other employees were aware prior to disclosure.

• No similar cases were found in other consolidated subsidiaries or elsewhere in the group after a comprehensive investigation.

Financial and operational impact

• Cumulative revenue of ¥246.1 billion was reversed, and operating profit was reduced by ¥49.9 billion due to the fictitious transactions.

• Impairment losses of ¥64.6 billion were recorded, with a total impact on operating income of ¥150.8 billion and net income of ¥129 billion; external outflows totaled ¥32.9 billion.

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

• The subsidiaries will withdraw from the advertising agency business, which accounted for 18% of Biglobe's total revenue.

• The group’s core telecom and other businesses remain unaffected, and the company will continue with its medium-term management plan; cash flow generation remains stable.

Governance, root causes, and recurrence prevention

• Root causes included lack of business expertise, insufficient risk management, inadequate internal audits, overreliance on specific individuals, and weak subsidiary oversight.

• Recommendations and measures include strengthening risk assessment, segregation of duties, partner management, procurement authority, credit management, and internal audits.

• Group finance management will be revised to ensure appropriateness of lending and centralize financial oversight.

• The company will foster a culture of open communication, reinforce its corporate philosophy, and implement ethics education and whistleblowing systems.

• A new Group Governance Enhancement Committee was established to ensure group-wide implementation and monitoring of prevention measures.