Achieving the current Medium-term
Management Plan targets while
balancing growth investments such
as generative AI for the next
Medium-term Management Plan

In FY2023, consolidated revenue reached a record high of ¥6,084.0 billion. Although consolidated operating income decreased due to the absence of the PayPay Corporation remeasurement gain of ¥294.8 billion, in terms of actual figures excluding this impact, we achieved double-digit growth of ¥110.7 billion (+15%) year on year. In addition to the core Consumer segment returning to profit growth, all segments reported higher profit. I believe we were able to achieve this growth because we pulled together as a team. In particular, I believe the market responded positively to the fact that we were able to turn around and get mobile service revenue back on a growth trajectory one year ahead of plan. We made a strong start in the first year of our Medium-term Management Plan, but we have not changed our final-year targets. This is because the business environment surrounding the Company is full of new growth opportunities, such as in the field of generative AI, and we want to lay the groundwork for the future. For the last three years, we had been curbing upfront investments partly due to the impact of mobile service price reductions and movement restrictions associated with the COVID-19 pandemic. We have finally emerged from this period of perseverance, and would like to use the anticipated profit growth as upfront investments to achieve substantial growth during the next Medium-term Management Plan period and beyond. Of course, we will firmly secure our current Medium-term Management Plan targets and balance them with growth investments.
The targets of our current Medium-term Management Plan, based on actual figures excluding the impact of the PayPay Corporation remeasurement gain, are a compound annual growth rate of 8% in operating income and 17% in net income from FY2022 (actual) to FY2025. These growth rates are by no means low, but our FY2023 results surpassed these target figures. I believe that our efforts have enabled us to further expand our options for future growth.

In the Media & EC segment, alongside an increase in account advertising revenue, efforts of cost optimization centered on the commerce business and selective focus in strategic businesses proved successful, with segment income increasing 24% year on year in FY2023. This substantially contributed to the increase in the Company's consolidated operating income. In FY2024, we expect to continue boosting profits by approximately ¥30 billion year on year, mainly by enhancing service origins such as by revamping the "LINE" and "Yahoo! JAPAN" apps, in order to drive renewed growth in search, advertising, commerce, and other services.
In response to the information leakage due to unauthorized access disclosed in November 2023, LY Corporation plans to allocate approximately ¥15 billion in FY2024 for robust security enhancements. As the parent company, we will also examine and promote measures to ensure effective security governance.

In FY2023, the Financial segment recorded segment loss of ¥5 billion. However, it marked profit improvement of ¥7.4 billion year on year, which greatly contributed to the upward revision of consolidated results. Assuming PayPay Corporation, which was consolidated from the second half of FY2022, had been consolidated from the beginning of FY2022, the increase in profit would have been even larger at ¥21.6 billion.
Consolidated gross merchandise value (GMV) for "PayPay" increased 22% year on year to ¥12.5 trillion. While it may seem that growth has slowed compared to the 34% growth seen in FY2022, the growth rate in FY2023 remained elevated when adjusted for the uplift from the Japanese government's My Number Points campaign implemented in FY2022. "PayPay" registered users grew 11% year on year to 63.04 million, with the number of payments and the transaction unit price per user also steadily increasing. "PayPay" has already secured two-thirds of the market share in the solidly growing code payment domain, and with the addition of credit card payments from PayPay Card Corporation, GMV is continuing to grow. The future looks increasingly promising. We will not content with holding the “No. 1 position in code payments,” and aim to further enhance lineup of financial services by combining "PayPay" with credit card transactions, thereby increasing our earning power. Furthermore, the GMV of SB Payment Service Corp., which provides settlement services, increased 19% to approximately ¥8 trillion. This growth was largely driven by a 25% increase in non-telecommunications areas.
With the growth of PayPay Corporation and SB Payment Service Corp., we are expecting the Financial segment to turn profitable in FY2024.

As mentioned earlier, we are seeing improvements in the profitability of our mobile business ahead of schedule, and initiatives in other businesses are also progressing smoothly. Accordingly, we expect adjusted EBITDA and operating cash flow to increase steadily going forward. Meanwhile, we have completed the rollout of 5G coverage, and for the time being we expect to be able to keep annual capital expenditures in the Consumer segment and Enterprise segment at around ¥330 billion. As a result, we believe that we will be able to maintain primary free cash flow, which refers to adjusted free cash flow before making growth investments in generative AI, Next-generation Social Infrastructure, and other areas, will continue to significantly exceed the current total shareholder returns of approximately ¥400 billion. We will continue to focus on generating this primary free cash flow, as it is the source of funding for maintaining a high level of shareholder returns.
Our basic capital allocation approach is to secure a high level of primary free cash flow each year, and to have several tens of billions of yen left over after deducting base station leasing fees and dividends paid from financing cash flow, so that we have options for additional growth investments and financial improvements. In FY2023, we prioritized additional growth investments. Specifically, we made Ireland-based Cubic Telecom Ltd. a subsidiary by acquiring a 51% stake in the company for ¥76.1 billion in March 2024. Cubic Telecom Ltd. provides an IoT platform for connected cars and software-defined connected vehicles (SDCVs), and we believe it has great potential. From the perspective of long-term capital management and operation, we financed the acquisition of Cubic Telecom Ltd. by taking out long-term loans of ¥38 billion from the Japan Bank for International Cooperation (JBIC) and ¥38 billion from four Japanese financial institutions. Although this was our first loan from JBIC, it was recognized as an investment contributing to the healthy development of both the Japanese and international economic society, leading to a loan with a very long-term. Cubic Telecom Ltd.'s business is linked to the development cycle of automobiles, and will require a certain amount of time before producing results. Accordingly, we thought that we should finance it over a long-term. The loan matches our needs and we are very grateful for receiving it.
In the future, we plan to flexibly utilize fundraising methods such as Bond-Type Class Shares and long-term loans to meet the need for major long-term funds, mainly for growth investments in generative AI and Next-generation Social Infrastructure, while also continuing to provide shareholder returns of around ¥400 billion. The Series 1 Bond-Type Class Shares issued in November 2023 (¥120 billion) have a call (repurchase) option that can be exercised after five years, and they are considered 100% equity from an accounting perspective without diluting the voting rights of common shares. As such, it is a good fit for long-term growth investments, and of the funds raised in this series, approximately ¥110 billion (after taking into account subsidies from Japan's Ministry of Economy, Trade and Industry's “Cloud Program”) will be allocated to AI computing infrastructure. We believe that the capital expenditures needed to maintain and improve the competitiveness of our existing mobile service business, as well as dividends, should be covered by operating cash flow each fiscal year. However, we also believe that it is crucial to strategically combine a variety of fundraising methods for growth investments aimed at generating additional earnings, while taking into account the amount and repayment period.

We place great importance on engaging in dialogue with our shareholders and investors, and I myself conduct dozens of meetings each year. Previously, there was a lot of focus on whether we would be able to continue providing high levels of shareholder returns. Recently, I can really feel the high expectations for our growth, based on the business opportunities presented in the rapidly evolving field of generative AI. We will be continuously committed to delivering high levels of shareholder returns while meeting those expectations.
The Company upholds the balance of business growth and shareholder returns as our equity story. We focus on total shareholder return (TSR) as a management indicator that clearly highlights this, and it is tied to medium-term remuneration of Board Directors. Specifically, the remuneration is designed to be linked to a coefficient calculated based on the Company's actual three-year TSR and TOPIX comparisons, creating a system that enables management to share a common perspective with shareholders.

In FY2023, mobile service revenue returned to growth one year ahead of schedule, which I believe alleviated concerns about the sustainability of shareholder returns. This also has contributed to the recent rise in our share price, and, as a result, led to a significant increase in TSR. While we feel that appreciation for the "Beyond Carrier" strategy is gradually rising, I also believe that we need to work to gain the understanding of our shareholders and investors regarding our growth strategy centered on Next-generation Social Infrastructure. As the CFO responsible for navigating the Company onto a growth trajectory, I aim to convey numbers in a future-oriented way, ensuring that shareholders and investors can properly evaluate our growth potential.