Japan Communications : Third Quarter Flash Financial Report for Fiscal Year Ended March 31, 2023

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.

February 9, 2023

Consolidated Financial Results

for the Nine Months Ended December 31, 2022

(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:	February 10, 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 nine months ended December 31, 2022 (from April 1, 2022 to December 31, 2022)

(1) Consolidated operating results (cumulative)			(Percentages indicate year-on-year changes.)
	Net revenue		Operating profit		Ordinary profit	Profit attributable to
			owners of parent
Nine months ended	Millions of yen		%	Millions of yen		%	Millions of yen	%	Millions of yen	%
December 31, 2022		4,321		27.6	542		171.5		568	176.3	511	135.0
December 31, 2021		3,386		39.9	199		-		205	-	217	-
Note: Comprehensive income	For the nine months ended December 31, 2022:	¥464 million	[139.2%]
		For the nine months ended December 31, 2021:	¥194 million	[-%]
	Basic earnings		Diluted earnings
		per share		per share
Nine months ended				Yen			Yen
December 31, 2022		3.10		3.07
December 31, 2021		1.32		1.31
(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
December 31, 2022		2,735	1,337			44.5		7.38
March 31, 2022		1,944			785			33.6		3.97
Reference: Equity
As of December 31, 2022:		¥1,217 million
As of March 31, 2022:		¥652 million

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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, 2022
Fiscal year ending	-	0.00		-
March 31, 2023
Fiscal year ending							0.00		0.00
March 31, 2023
(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, 2023

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 build a stable income stream by continuing the evolution of the SIM business, as well as to develop the local 4G/5G business and FPoS business to become the pillar of future earnings by investing in the two businesses.

In the local 4G/5G business, the Company aims to build advanced showcases in the U.S. and leverage the experience to expand in Japan.

In the FPoS business, the Company has acquired certification under the Digital Signature Act for "my Digital Certificate" (the issuing entity is my FinTech Inc., a subsidiary of the Company.) based on its patented FPoS technology, and are working on its actual use as a digital ID that can be used safely, securely, and conveniently on smartphones.

With the surrounding situation above described, the management of the Company perceives a market capitalization of 500 billion yen as the growth business scale in three to five years from the launch of commercial service of FPoS (launched on October 21, 2022).

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* 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: Yes
   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 December 31, 2022

As of March 31, 2022

165,009,239 shares

164,258,239 shares

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

As of December 31, 2022

As of March 31, 2022

15,004 shares

15,004 shares

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

Nine months ended December 31, 2022

Nine months ended December 31, 2021

164,622,831 shares

164,243,235 shares

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

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1. Qualitative Information on Results for the Nine Months Ended December 31

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 build a stable income stream by continuing the evolution of the SIM business, as well as to develop the local 4G/5G business and FPoS business to become the pillar of future earnings by investing in the two businesses.
2. 1. Mobile Communications Business (SIM business)
      In July 2020, the Company launched the "Nihon Tsushin SIM," which provides flat-rate voice plans equivalent to that of major mobile operators, following the June 2020 ruling by the Minister for Internal Affairs and Communications that set the prices of wholesale telecommunication services relating to voice communications services provided to the Company from NTT DOCOMO, INC. shall not exceed the amount of the appropriate costs under efficient management plus appropriate profit. Net sales of "Nihon Tsushin SIM" are increasing steadily, and with the increase in MNP transfers from major mobile operators and major MVNOs, it is beginning to become recognized as a main line.
      Although the Company has timely introduced new additional plans to "Nihon Tsushin SIM," since April 2022, the Company began supporting eSIM, which is embedded in devices such as smartphones, in advance of other MVNO operators (announced on April 6, 2022). An eSIM is a SIM on which subscriber identity information (profiles) necessary for using telecommunication services can be remotely written in eSIM-embedded devices such as smartphones so that customers can change mobile service operators without replacing SIM cards, as was the case before. This will enable customers to use multiple lines of different mobile operators and/or use separate phone numbers, such as for private and business purposes, on the same smartphone.
      Besides, as of January 2023, the Company has started an identification by the electronic certificates stored in "My Number Card" as an 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 this approach, an identification will be completed upon customer's reading their "My Number Card" with their smartphone and they can start using our service on the day of application, in case of that they choose eSIM. This will improve customer's convenience and will contribute to prevent improper use of mobile phones by strict identification.
      In addition, the Company has requested NTT DOCOMO, INC. for an interconnection of voice networks in June 2022 (announced on June 10, 2022). This request, which the Company had been considering for long time, was made as the Information and Communications Council of the Ministry of Internal Affairs and Communications presented a policy of allocating mobile numbers (090, etc.) to MVNOs in December 2021. The Company will secure a stable business foundation by procuring both data and voice communication networks through interconnection and aim to become a "Neo Carrier" who can provide comparable services as mobile operators without owing mobile base station.
   2. Local 4G/5G Business through Local Mobile Networks
      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. For connections with local mobile networks, it is necessary to write a large amount of highly specialized information to SIMs. The Company provides SIMs that are able to 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. By utilizing achievements in the leading U.S. market, the Company is working on similar initiatives for the local 4G/5G business in Japan.

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1. Digital ID (FPoS) Business for Use on Smartphones
   Under the "Vision for a Digital Garden City Nation" (vision to realize a comfortable life for everyone so that they enjoy benefits from digitalization, leaving no one behind by solving regional issues through digital implementation) which was declared by the Japanese government in 2021, it was announced on June 17, 2022 that project applications by Maebashi City, Ebetsu City (Hokkaido Prefecture), and Gunma Prefecture were adopted.
   Among the above, in the project of "Maebashi living-tech promotion business," which was applied by Maebashi City, a business corporation ("Mebuku Ground Inc."), which was established with the joint investment by prominent companies and financial institutions in Gunma Prefecture, released the "mebuku App," which utilizes digital ID ("mebuku ID"), in October 2022. Customers can use "mebuku ID" on their smartphone for both public services (such as administrative procedures) and private services. At the "Maebashi BOOK FES," an event held in Maebashi City at the end of October 2022 where people bring their books and have a relationship with new readers, it was utilized as the digital ID to connect each book and person.
   The "mebuku ID" platform is FPoS based, and the Company has supported the "mebuku ID" as the first case of the FPoS business.
   Gunma Prefecture and Ebetsu City also plan to use "mebuku ID," and the Company plans to provide FPoS based services in these three regions during the current fiscal year.

As a result of the above, the Group's consolidated net revenue for the nine months ended December 31, 2022 were 4,321 million yen, an increase of 935 million yen (up 27.6%) compared to the nine months ended December 31, 2021 (hereinafter referred to as the "same period of the previous year"). This was because of the growth of the flat-rate or semi-flat rate voice services of "Nihon Tsushin SIM" in the MVNO Business (up 22.6% from the same period of the previous year), and the growth of the voice services of partner brands in the Enabler Business (up 33.6% from the same period of the previous year).

Cost of sales was 2,388 million yen, an increase of 370 million yen (up 18.3%) compared to the same period of the previous year. This was mainly due to an increase in mobile network usage fees in association with the growth of "Nihon Tsushin SIM." Nevertheless, increase in cost of sales compared to increases in net revenue are largely avoidable because the mobile networks of both data and voice communications procured by the Company from NTT DOCOMO, INC. have been set to not exceed the amount of the appropriate costs under efficient management plus appropriate profit. In addition, there were partial adjustment of bandwidth costs for past fiscal years retroactively by mobile operators during the nine months ended December 31, 2022.

As a result, gross profit amounted to 1,933 million yen, an increase of 564 million yen (up 41.3%), compared to the same period of the previous year.

Operating profit amounted to 542 million yen (199 million yen for the same period of the previous year) and profit attributable to owners of parent amounted to 511 million yen (217 million yen for the same period of the previous year).

Financial results by business are as follows:

	For nine months	For nine months
Net revenue	ended December 31,	ended December 31,	Year-on-year change
	2021	2022
MVNO Business	1,842	2,258	416
Enabler Business	1,544	2,063	518
Total	3,386	4,321	935

(Millions of yen)

Year-on-year change

(%)

22.6

33.6

27.6

Revenue of 97 million yen (93 million yen in the same period of the previous year) from overseas operations in the segment information is included in the Enabler Business.

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