JAPAN TELECOM HOLDINGS ANNOUNCES FISCAL 2002 INTERIM RESULTS - 2

Interim Fiscal 2002 Results

Consolidated operating revenue

On a consolidated level, interim fiscal 2002 operating revenue totaled 884.8 billion yen, up 4.1% from the same period one year ago. Growth in consolidated revenue primarily reflected a 4.6% increase in J-PHONE revenues that was driven by continued good customer growth. J-PHONE increased its customers by 769,000 in the interim period primarily on the back of continuing strong data demand for J-SKY (Internet and e-mail services), Sha-mail (picture messaging), and Movie Sha-mail services (video messaging), as well as improved marketing and sales activities. J-PHONE achieved an 18.0% market share of total customers in the first-half of the fiscal year, compared to 17.0% in the first-half period of fiscal 2001. Overall, Average Revenue Per User (ARPU) declined moderately in line with expectations.

Consolidated operating revenue breakdown
(billion yen)
  Interim 2002 Interim 2001 Change
Mobile Communications 709.1 671.7 +5.6%
Fixed-line Communications 199.0 196.9 +1.1%
Other 8.5 16.8 -49.4%
Elimination (31.9) (35.7) -
Operating revenue 884.8 849.7 +4.1%

Darryl E. Green, President of J-PHONE, said, "We are delighted to announce exceptional results that reflect the hard work, determination, and support of our employees and a very positive acceptance from the marketplace. We set out to make J-PHONE into one of Japan's most efficient growth companies, and the half-year results show the outcome of our efforts. J-PHONE intends to continue to introduce innovative and exciting products, while further leveraging merger synergies and operating efficiencies."

Interim operating highlights - mobile telecommunications

J-PHONE highlights in the first half include the following:

  • Sha-mail-enabled handsets continued to register strong demand in the interim period. Subscribers with Sha-mail-enabled handsets climbed to 6.7 million users at the end of September 2002, from just above 4.4 million at the end of fiscal 2001. Subscribers with these handsets represented approximately 52% of J-PHONE's subscriber base at the end of September 2002.

  • Movie Sha-mail-enabled handsets registered 766,000 by the end of the interim period, up from 115,300 at the end of March 2002, the month when Movie Sha-mail was launched. Subscribers with these handsets represented about 6% of J-PHONE's subscriber base at the end of September 2002, and this figure is climbing steadily.

  • Non-voice data products increased to account for 20.2% of September 2002 revenues. This growth was driven by the popularity of J-SKY mobile internet, Sha-mail, and Movie Sha-mail products. At the end of September 2002, J-SKY subscribers accounted for 85.2% of the subscriber base.

  • The success of data and content products further boosted data revenues. Although this benefited ARPU, an expected decline in voice ARPU more than offset gains, with ARPU declining from 7,600 yen for the year ended 31 March 2002 to 7,350 yen for the first half year ended 30 September 2002. Data, as a percentage of service revenue on a twelve month rolling basis, climbed from 15.1% in March 2002 to 19.5% in September 2002 term.

  • Churn rate continued to improve during the first six months of fiscal 2002, falling from the average monthly rate of 2.14% over a twelve-month period at the end of fiscal 2001 to 1.94% over the six months period to the end of September 2002. This was due to active Customer Relationship Management (CRM) activities and the appeal of J-PHONE's product portfolio.

  • New subscriber incentives fell from 40,000 yen for the year ended 31 March 2002, to 36,000 yen for the six month period ended 30 September 2002, as J-PHONE adjusted acquisition incentives *1.

  • Purchasing efficiencies have enabled J-PHONE to increase efficiency of capital expenditures on 3G infrastructure will enable quicker national coverage with a lower total capital expenditure.

[Notes]
  • *1 Excludes equipment margin.

Interim operating highlights - fixed-line telecommunications

Revenues at JAPAN TELECOM were in line with expectations, up modestly from 169.5 billion yen during the same period last year to 174.2 billion yen (on a pro-forma basis). This was largely due to continued growth in data services, better than expected performance in voice revenues, and revenue contribution from managed services. JAPAN TELECOM highlights in the first half include the following:

  • Project V, JAPAN TELECOM's enterprise-wide initiative put in place to revitalize and optimize the company's performance, made considerable strides in raising competitiveness. Of particular note, JAPAN TELECOM substantially shrunk its operating cost structure, with reductions in access charges, and a broad range of selling, general and administrative expenses.

  • Data services revenue, including SOLTERIA, Japan's first commercial IP-VPN service, increased steadily during the first six months of fiscal 2002. Data services represented 24.5% of service revenues at the end of September 2002 (on a pro-forma basis).

  • JAPAN TELECOM entered into an agreement to transfer its ADSL network asset to eAccess. This allows JAPAN TELECOM to smoothly migrate dial-up ODN users to ADSL, thereby enhancing service revenue and improving product profitability on a stand-alone basis, while at the same time offering customers a high-quality high-speed service.

  • JAPAN TELECOM successfully launched a new business partnership with IBM that will bring a suite of telecom services to the corporate segment.

Consolidated costs and expenses

Consolidated operating costs and expenses declined 10.2%, to 742.0 billion yen in the first six months of fiscal 2002. Within this category, mobile telecommunications operating expenditures declined 9.7%, to 578.0 billion yen. Merger benefits at J-PHONE were achieved by rationalizing technical and administrative functions across the business. Additionally, careful management of customer acquisition incentives led to a 10% decrease in acquisition incentives per unit during the first six months of fiscal 2002, compared to the first six months of fiscal 2001. J-PHONE also began to leverage the resources of Vodafone Group Plc to achieve savings in procurement of handsets and other network infrastructure.

Fixed-line expenses, meanwhile, totaled 186.4 billion yen, a decline of 14.1% largely due to substantial increases in efficiency brought about by aggressive implementation of the ongoing Project V. JAPAN TELECOM did much to rationalize its business structure during the period, including redefining its business model establishing a partnership with eAccess to provide ADSL services, and separating mobile agency and mobile billing development activities into distinct companies with effect from 1 July 2002. JAPAN TELECOM HOLDINGS has also sold the facility construction divisions of its JAPAN TELECOM Engineering companies to Bovis Lend Lease (Japan) Inc. This transaction was completed on 1 November 2002. Moreover, certain bill printing-related assets of JAPAN TELECOM Create Co., Ltd. have been sold to Toppan Forms Co., Ltd. with effect from 1 October 2002.

Consolidated capital expenditures

Consolidated capital expenditures during the interim period totaled 192.8 billion yen, 25.7% below previous interim term. Capital spending will accelerate in the second half of fiscal 2002 due to the deployment of J-PHONE's 3G network. J-PHONE intends to offer 3G coverage equivalent to its current 2G coverage by September 2003 by deploying an innovative network that fully leverages the latest advancements in 3G-network technology.

Consolidated earnings

Reflecting revenue growth and strong improvements in costs and expenses, consolidated ordinary profit in the first six months of fiscal 2002 increased to 141.1 billion yen, and consolidated net profit for the interim period was 43.5 billion yen, compared to the 5.1 billion yen loss recorded during the first six months of fiscal 2001.

The consolidated EBITDA margin for the first six months of fiscal 2002 stood at 30.4%, a 13.6% point increase from the first six months of fiscal 2001. J-PHONE's EBITDA margin totaled 30.7% and JAPAN TELECOM's EBITDA margin.

Non-consolidated performance *2

JAPAN TELECOM HOLDINGS's interim fiscal 2002 non-consolidated ordinary profit and net profit were ahead of expectations. Interim non-consolidated operating revenue totaled 144.2 billion yen, ordinary profit totaled 9.5 billion yen, and net profit reached 9.5 billion yen.

[Notes]
  • *2 See Notes to Editors (Non-consolidated performance).