Japan Communications : First Quarter Flash Financial Report for Fiscal Year Ended March 31, 2024

Note: This document has been translated from a part of the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

August 3, 2023

Consolidated Financial Results

for the Three Months Ended June 30, 2023

(Under Japanese GAAP)

Company name:	Japan Communications Inc.
Listing:	Tokyo Stock Exchange: Prime Market
Securities code:	9424
URL:	http://www.j-com.co.jp/
Representative:	Naohisa Fukuda, Representative Director-President
Inquiries:	Mitsuru Kodaira, Executive Officer, and CFO
Telephone:	[phone]

Scheduled date to file quarterly securities report:	August 4, 2023
Scheduled date to commence dividend payments:	-
Preparation of supplementary material on quarterly financial results: Yes
Holding of quarterly financial results briefing:	Yes (for institutional investors, analysts and
	the press)

(Yen amounts are rounded down to millions, unless otherwise noted.)

1. Consolidated financial results for the three months ended June 30, 2023 (from April 1, 2023 to June 30, 2023)

(1) Consolidated operating results (cumulative)			(Percentages indicate year-on-year changes.)
	Net revenue		Operating profit	Ordinary profit	Profit attributable to
		owners of parent
Three months ended	Millions of yen		%	Millions of yen		%	Millions of yen	%	Millions of yen	%
June 30, 2023		1,715		26.7	267		68.6	287	59.1	597	270.1
June 30, 2022		1,353		28.1	158		556.2	180	616.8	161	459.8
Note: Comprehensive income	For the three months ended June 30, 2023:	¥574 million	[329.8%]
		For the three months ended June 30, 2022:	¥133 million	[425.2%]
	Basic earnings		Diluted earnings
		per share		per share
Three months ended				Yen			Yen
June 30, 2023		3.61		3.61
June 30, 2022		0.98		0.97
(2) Consolidated financial position
		Total assets		Net assets	Equity-to-asset ratio	Net assets per share
As of		Millions of yen	Millions of yen		%		Yen
June 30, 2023		3,008		2,112		66.3		12.08
March 31, 2023		3,040		1,534		46.1		8.50
Reference: Equity
As of June 30, 2023:		¥1,993 million
As of March 31, 2023:		¥1,402 million

1

2. Cash dividends

		Annual dividends per share
	First quarter-end	Second quarter-end		Third quarter-end		Fiscal year-end	Total
	Yen	Yen		Yen		Yen	Yen
Fiscal year ended	-	0.00		-			0.00		0.00
March 31, 2023
Fiscal year ending	-
March 31, 2024
Fiscal year ending		0.00		-			0.00		0.00
March 31, 2024
(Forecast)

Note: Revisions to the forecast of cash dividends most recently announced: None

3. Overview and management policy for the fiscal year ending March 31, 2024

Since its founding in 1996, the Company has propounded and implemented the MVNO business model, an innovative form of telecommunications business, having developed its business with the mission of transferring (communicating) data safely, securely, and conveniently. Specifically, the Company is engaged in three businesses: mobile communications business (SIM business), communications business through local mobile networks (local 4G/5G), and digital ID (FPoS: Fintech Platform over SIM) business for use on smartphones.

The Company plans to ensure a stable revenue base with continuous evolution in the SIM business and to invest the revenue in the local 4G/5G business and FPoS business in order to develop them into pillars of future earnings. In the local 4G/5G business, the Company aims to build advanced showcases in the U.S. and leverage this experience to expand in Japan.

In the FPoS business, the Company has acquired a certification under the Digital Signature Act for "my Digital Certificate" (issued by my FinTech Inc., a subsidiary of the Company) based on its patented FPoS technology, and develops the "my Digital Certificate" to be actually utilized as a safe, secure, and convenient digital ID that can be used on smartphones.

Considering the factors described above, one of the Company's management priorities is to grow the scale of its business to a market capitalization of 500 billion yen in three to five years from the launch of the commercial service of FPoS (on October 21, 2022).

2

* Notes

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): None
2. Adoption of accounting treatment specific to the preparation of quarterly consolidated financial statements: None
3. Changes in accounting policies, changes in accounting estimates, and restatement
4. 1. Changes in accounting policies due to revisions to accounting standards and other regulations: None
   2. Changes in accounting policies due to other reasons: None
   3. Changes in accounting estimates: None
   4. Restatement: None
5. Number of issued shares (common shares)
6. 1. Total number of issued shares at the end of the period (including treasury shares)

As of June 30, 2023

As of March 31, 2023

165,009,239 shares

165,009,239 shares

(ii) Number of treasury shares at the end of the period

As of June 30, 2023

As of March 31, 2023

15,004 shares

15,004 shares

1. Average number of shares outstanding during the period (cumulative from the beginning of the fiscal year)

Three months ended June 30, 2023

Three months ended June 30, 2022

164,994,235 shares

164,243,235 shares

• Quarterly financial results reports are exempt from quarterly review conducted by certified public accountants or an audit corporation.

3

1. Qualitative Information on Results for the Three Months Ended June 30

1. Explanation on operating results
   Since its founding in 1996, the Company has propounded and implemented the MVNO business model, an innovative form of telecommunications business, having developed its business with the mission of transferring (communicating) data safely, securely, and conveniently. Specifically, the Company is engaged in three businesses: mobile communications business (SIM business), communications business through local mobile networks (local 4G/5G), and digital ID (FPoS: Fintech Platform over SIM) business for use on smartphones.
   The Company plans to ensure a stable revenue base with continuous evolution in the SIM business and to invest the revenue in the local 4G/5G business and FPoS business in order to develop them into pillars of future earnings.
2. 1. Mobile Communications Business (SIM business)
      Upon a ruling by the Minister of Internal Affairs and Communications in June 2020, the Company launched the "Nihon Tsushin SIM" which provides flat-rate voice plans equivalent to that of major mobile phone operators in July 2020, and the Company has continued to achieve growth both in the number of subscribed lines and quarterly revenue.
      The Company has been improving the product specifications of "Nihon Tsushin SIM" to strengthen its product competitiveness. In April 2022, the Company started supporting eSIM, which is embedded in devices such as smartphones, in advance of other MVNOs (announced on April 6, 2022). In addition, by March 2023, the Company had introduced an identification method using electronic certificates stored in "My Number Card" in identification under the Act on Identification, etc. by Mobile Voice Communications Carriers of their Subscribers, etc. and for Prevention of Improper Use of Mobile Voice Communications Services.
      In April 2023, the Company enhanced "Reasonable Minna-no Plan," which is a flagship plan of "Nihon Tsushin SIM." While keeping basic monthly fees unchanged, the Company increased the basic data limit for data communications from 6 GB to 10 GB. Besides, the Company made two options for free domestic voice calling, one is 70 minutes of free voice calls and another is an "all-you-can-calls" for calls no longer than 5 minutes. By these options available, customers can compare the price of the "Reasonable Minna-no Plan" with the price of other companies' plan.
      Furthermore, the Company supported the MNP One Stop service in May 2023. When customers would like to switch mobile phone carriers without changing their mobile phone numbers (a process known as "Mobile Number Portability" or "MNP"), they had to start MNP process at the mobile phone carrier with which they are currently under contract, and in some cases, customers may give up on MNP due to cancellation prevention measures and other such actions taken by the mobile phone carrier with which they are currently under contract. In the MNP One Stop service, customers can start MNP process with the mobile phone carrier to which they intend to switch. The MNP One Stop service is supported by NTT DOCOMO, INC. (hereinafter, "NTT DOCOMO"), KDDI CORPORATION / OKINAWA CELLULAR TELEPHONE COMPANY, SoftBank Corp., Rakuten Mobile, Inc. and the Company.
      As a result of the above, revenue from "Nihon Tsushin SIM" has been growing steadily for both individual and corporate subscribers, and the number of MNP port-ins from major mobile phone operators and major MVNOs has also been increasing. In addition, the number of subscribers for voice communication services under partner brands has also been increasing steadily, and as a result, the SIM business has seen growth both in the MVNO Business and Enabler Business.
   2. Local 4G/5G Business through Local Mobile Networks
      In the local 4G/5G business, the Company aims to build advanced showcases in the U.S. and leverage this experience to expand in Japan. A U.S. subsidiary of the Company operates a business that provides SIMs used for connections with local mobile networks in the U.S. market. To connect with local mobile networks, it is necessary to write a large amount of highly specialized information to SIMs. The Company provides SIMs that can connect to local mobile networks set up by partner and customer companies by accumulating and utilizing technologies and expertise in relevant fields through the U.S. subsidiary. The Company will continue to accumulate knowledge in Japan and the U.S., and will utilize this knowledge to develop case examples in the local 4G/5G business.

4

1. Digital ID (FPoS) Business for Use on Smartphones
   Smartphones become widely used, and we can use various business operators' services with downloading their apps on smartphones. Meanwhile, we are recognizing that the various information including personal information of customers are shared with numerous business operators including service providers in an unclear state whether a sufficient security is ensured or not. On the other hand, as globalization accelerates, well-developed societies such as Japan does not have option to give up efforts to digitalize data including personal information and to generate new value by working with the digitalized data. A mechanism is required to ensure the security and privacy of data, including personal information.
   Against the above background, the Company is pushing forward with a business that will establish and provide digital IDs that can be used on smartphones using FPoS, the Company's patented technology. FPoS guarantees the identity (confirmation of the person's identity) and authenticity (confirmation that the person's intent is not falsified) of a customer by examining the combination of an electronic certificate issued to the customer's smartphone (iPhone and Android) by an electronic certification authority accredited under the Digital Signature Act and a private key generated in the customer's smartphone.
   In the Internet world, it is easier to impersonate or falsify than in real world. Because we cannot confirm the counterpart is who we think he or she is, and we cannot confirm the information that arrived from the counterpart is in fact sent by him or her, indications of intention or transactions over the Internet are not reliable. However, if the identity and authenticity of telecommunications via the Internet can be guaranteed using FPoS, indications of intention or transactions over the Internet can be reliable. In Internet banking, for instance, banks will be able to execute transactions under conditions that guarantee that the transacting entity is the account holder and requests for transactions such as remittances are made based on the account holder's intent and depositors can avoid the risk of having their funds transferred by a third-party impersonator.
   Guaranteeing the identity and authenticity of communications via the Internet will provide a means of solving issues faced by service providers in a wide range of sectors, including not only banking (Internet banking), but also healthcare, administration, education, and transportation, etc.
   Furthermore, the Company is collaborating with Mebuku Ground Inc., a private-public partnership company made up of 57 participants, including Maebashi City, private-sector business enterprises and universities. As part of this collaboration, the Company has added "Dynamic Opt-in" function to FPoS. With "Dynamic Opt-in", customers can confirm the status of their personal information provided to business operators and the status of their personal information shared with other business operators at any time. For example, customers can permit, not permit or cancel to permit to provide their personal information to Business Operator A or to share the information for Business Operator A with Business Operator B at any time. With "Dynamic Opt-in", customers can manage their personal information by themselves, and their personal information cannot be shared with others without customer's permission. Even when customers provide their personal information to apps on smartphones etc., they can use it safely and securely because they can choose which business operator they permit to use their personal information and which business operator they do not permit to use their personal information.
   "Dynamic Opt-in" is premised on a mechanism for conducting data sharing safely and securely among business operators, which is one of the most important aspects of FPoS. FPoS works by granting access only when a public key contained in an electronic certificate correctly combines with a private key generated in a smartphone. FPoS protects customers' valuable personal information safely and shares the information with other business operators only by explicit permission by customers.
   Linking data with a single number is an effective method, but the simplicity of such a method exponentially increases the associated risks. Therefore, extremely stringent technical restrictions must be placed on access to this data. For example, when accessing a mobile communication network, or in other words using a mobile phone, if access is provided using an ID/password or a one-time password, a mobile phone could be used for free if these are hacked and exploited. To prevent this from happening, mobile phone operators supply IC chips known as SIM. If this IC chip becomes ineffective, a mobile phone is rendered inoperable. Similarly, access to valuable data, such as personal information, must be rigorously restricted.
   The Company is working toward its mission of transferring (communicating) data safely, securely, and conveniently. FPoS is a technology and operation that fulfills a core role in this mission.

5