KDDI (9433) Status update summary

Investigation findings and background

• From August 2018 to December 2025, two employees at subsidiaries orchestrated fictitious circular transactions in the advertising agency business, involving 21 out of 218 business partners and accounting for 99.7% of agency sales, with no real advertisers or deliverables.

• The scheme was initiated to cover losses and meet sales targets, with Person A receiving personal benefits and Person B acting under instructions, both taking extensive measures to avoid detection, such as fabricating documents and isolating contacts.

• No management or other employees were aware of the scheme prior to disclosure, and no similar cases or organized involvement by the parent company or other subsidiaries were found.

• The investigation, conducted from January 14 to March 31, 2026, included document reviews, digital forensics, interviews with 80 individuals, and a survey of 778 employees.

• Root causes included lack of expertise in the advertising agency business, overreliance on specific individuals, insufficient risk awareness, inadequate segregation of duties, and weak internal controls and audits.

Financial and operational impact

• Cumulative revenue of ¥246.1 billion was reversed, with operating profit reduced by ¥49.9 billion and operating income by ¥150.8 billion; impairment losses totaled ¥64.6 billion and external outflows reached ¥32.9 billion.

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

• Financial results for FY26-03 Q3 showed operating revenue up 3.8% and profit for the period up 5.1% year-on-year, with cash flow generation remaining stable.

• The impact is considered one-off, with no effect on core telecom and internet businesses or cash flow generation; the mid-term management strategy remains on track.

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

Governance, recurrence prevention, and future initiatives

• Key executives and directors at affected subsidiaries resigned, two employees were dismissed, and parent company executives voluntarily returned part of their compensation; disciplinary measures were taken for others with supervisory responsibility.

• Recurrence prevention measures include strengthening risk management, segregation of duties, partner management, internal audits, credit management, whistleblowing systems, and ethics education.

• Group governance will be reinforced through a new Risk Management Committee, Group Governance Enhancement Committee, and practical engagement to foster transparency.

• The company will review all subsidiaries, enhance oversight, and may consider business reorganization or divestment where appropriate.

• Civil lawsuits and possible criminal charges are being pursued to recover funds lost through the fictitious transactions.