QAs from earnings release meetings and others

May 12, 2021: FY20 Financial Results Briefing (Online)

(*) This is a summary of questions and answers took place at the Briefings.

Question: What are the main reasons you were able to achieve significant profit growth in FY2020. How much of it is coming from onetime cost decrease impact along with the mobile data interconnectivity charge revision?

Answer: We were able to structurally achieve significant profit improvement as enterprise recurring revenue(*) including enterprise network services accumulated strongly which led to economy of scale. FY2020 network services gross profit, which led such strong profit growth, increased by JPY7.26 billion year over year. Of which JPY1.09 billion is related to onetime cost reduction impact along with the revision of FY2019 mobile data interconnectivity charge.

(*) Enterprise recurring revenue: among recurring revenue, which revenue is recognized along with continuous provision of services, deducting consumer, MVNE and WAN revenue (which had a specific revenue decrease factor)

Question: Regarding the large scale network project (total revenue JPY5.4 billion) mentioned in your presentation, will the revenue mostly be recognized under systems integration (SI)?

Answer: The revenue of this project, cross-selling various enterprise network services together with SI, will be mostly recognized as network services.

Question: How is customer acquisition for your new consumer mobile plan "Giga Plan" going? Please also share your FY2021 target.

Answer: As of May 6, 2021, we have approximately 350 thousand subscriptions, including new users. While we do not disclose FY2021 acquisition target, we expect monthly net addition to be a few ten thousands.

Question: How is eSIM service under "Giga Plan" attracting customers?

Answer: While old eSIM services used to be seen and treated as trial usage as there was a limited number of compatible devices, Giga Plan's eSIM services have been receiving stronger than expected customers' interests. Going forward, along with an increase in compatible devices, we continue to regard this service as a strong differentiation point utilizing full-MVNO.

Question: FY2021 total revenue (consolidated) seems conservative as you have a new consolidated subsidiary, PTC Systems (S) from Singapore from the beginning of FY2021. Please explain.

Answer: While we expect to have approximately JPY8.5 billion of revenue contribution from PTC, we expect approximately JPY8.3 billion of revenue decrease in our mobile business mainly due to the launch of "Giga Plan" which works to lower ARPU(*). As a results, we target FY2021 total revenue to be JPY230 billion.

(*) ARPU is an abbreviation for Average Revenue Per User.

Question: When do you expect DeCurret, your equity method investee, turn positive. Also, please update us on digital currency business situation.

Answer: We expect DeCurret to turn positive around 4Q21. As most of the cost for their crypto assets trading services is fixed-type costs such as depreciation costs for systems, we can expect to see the business turning positive along with revenue accumulation up to a certain point. Furthermore, with order book trading services, added from April 2021, which function is popular among large users, we expect the profitability situation should gradually improve. As for digital currency business, DeCurret plans to develop its settlement platform for digital currency in FY2022 based on their know-hows obtained from executing various experiments with enterprise shareholders as well as digital currency forum(*).

(*) Digital Currency Forum: DeCurret as a group coordinator, Forum to explore the feasibility of digital currency in Japan.

Question: You target operating profit ratio of over 9% in FY2023, which is the last fiscal year of your new Mid-term plan. How do you plan to achieve this target?

Answer: As seen in FY2019 and FY2020, our operating profit ratio improved along with enterprise recurring revenue accumulation, which business can enjoy economy of scale. As main stream adoption of IT services by Japanese enterprises just started, we expect to see market expansion to continue to the middle-to-long term. Under such market situation, we expect to achieve the goal by continuously executing and enhancing our current business strategy of operating Internet and related systems which are social infrastructure and also by developing and providing reliable and highly value-added network services to our enterprise customers.

Question: What is your comment on so-called “dinner scandal” between NTT and the Ministry of Internal Affairs and Communications (MIC) as well as the removal of Mr. Taniwaki of MIC.

Answer: Communication between NTT who is a Japan's leading telecommunication carrier and the MIC who is in charge of making Japan’s telecommunications policy is important. Putting the dinner scandal aside, yet constructive discussion is hoped for. As my personal impression of Mr. Taniwaki is that he has been making policies based on a very broad perspective including various critical issues such as China-U.S. relations and security. While I acknowledge what triggered the removal, I am sorry to see such a talented person leave.