JAPAN TELECOM HOLDINGS ANNOUNCES FISCAL 2002 INTERIM RESULTS

12 November 2002

Consolidated ordinary profit climbs to 141.1 billion yen from 15.0 billion yen in fiscal 2001 interim results Annual forecasts revised upward

TOKYO: JAPAN TELECOM HOLDINGS CO., LTD. ("JAPAN TELECOM HOLDINGS") (TSE: 9434) today announced consolidated and non-consolidated results for the first six months of fiscal 2002. JAPAN TELECOM HOLDINGS turned in strong results that were ahead of expectations. Based on this performance, JAPAN TELECOM HOLDINGS also announced upward revisions to its full-year forecasts.

JAPAN TELECOM HOLDINGS's strong six-month performance was due to increased revenues, reduced customer acquisition and retention costs, and cost savings at its mobile telecommunications subsidiary, J-PHONE CO., LTD. ("J-PHONE"), combined with steady revenues, and larger-than-expected cost savings from restructuring and revitalization activities at its fixed-line telecommunications subsidiary, JAPAN TELECOM CO., LTD. ("JAPAN TELECOM").

"At the end of the six-month period, we are well ahead of plan in raising the competitiveness and efficiency of the company, " said William (Bill) Morrow, President of JAPAN TELECOM HOLDINGS. "Our revitalization efforts and cost-reduction programs are increasing profitability faster than we expected, and, at the same time, we continue to improve our market position." He added, "This strong interim performance has resulted in us raising our targets for the full year."

Consolidated financial summary

(billion yen, except where stated)
  Interim 2002 Interim 2001 Change
Operating revenue 884.8 849.7 +4.1%
Ordinary profit 141.1 15.0 +836.3%
Net profit/(loss) 43.5 (5.1) nm
Earnings/(loss) per share (yen) 13,621 yen (1,624) yen nm
EBITDA (%) 30.4% 16.8% 13.6pp

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.
[Note]
  • *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.

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

Fiscal 2002 Forecasts

JAPAN TELECOM HOLDINGS today issued upward revisions to its full fiscal 2002 forecasts based on the vitality of its businesses and on continuing improvements in efficiency. On a consolidated basis, JAPAN TELECOM HOLDINGS expects fiscal 2002 operating revenue to reach 1.77 trillion yen, ordinary profit to total 245.0 billion yen, and net profit to total 65.0 billion yen. On a non-consolidated basis, JAPAN TELECOM HOLDINGS expects operating revenue to reach 147.0 billion yen, ordinary profit to reach 9.5 billion yen and net profit to reach 11.5 billion yen.

JAPAN TELECOM HOLDINGS will pay an interim dividend of 600 yen per share, and as a result of its strong performance, will increase the full year dividend to 1,200 yen per share.

Consolidated

(billion yen)
  Revised FY02 Forecast
(12 November 2002)		 Prior FY02 Forecast
(28 May 2002)
Operating revenue 1,770.0 1,770.0
Ordinary profit 245.0 183.0
Net profit 65.0 48.0

Non-consolidated

(billion yen)
  Revised FY02 Forecast
(12 November 2002)		 Prior FY02 Forecast
(28 May 2002)
Operating revenue 147.0 155.0
Ordinary profit 9.5 8.0
Net profit 11.5 10.0
[Note]
  • *
    Interim fiscal 2002 financial summary attached.

Condensed Consolidated Statement of Income

For the six months ended 30 September 2002 and 2001

(million yen)
  Interim FY2002
30 September 2002		 Interim FY2001
30 September 2001
Operating revenue 884,826 849,751
Operating costs and expenses 742,068 826,291
Operating profit 142,757 23,459
Non-operating revenue 142,757 23,459
Non-operating expenses 5,627 12,117
Ordinary profit 141,102 15,069
Extraordinary gains 395 18,876
Extraordinary losses 5,859 2,639
Profit before income taxes 135,638 31,305
Net profit (loss) 43,524 (5,189)
EBITDA 269,265 142,497
EBITDA margin (%) 30.4% 16.8%

Condensed Consolidated Balance Sheets

As of 30 September 2002 and 31 March 2002

(million yen)
  As of 30 September 2002 As of 31 March 2002
Assets
Fixed assets 1,512,619 1,541,188
Investments and advances 91,289 89,168
Current assets 274,857 314,963
Total Assets 1,787,567 1,856,335
Liabilities and Shareholders' Equity
Fixed liabilities 276,216 365,244
Long-term borrowings 45,559 109,857
Current liabilities 1,007,158 1,067,650
Short-term borrowings 731,958 726,797
Liabilities 1,283,375 1,432,894
Minority Stakes 71,260 32,043
Shareholders' Equity 432,932 391,397
Total liabilities, Minority Stakes
and Shareholders' Equity		 1,787,567 1,856,335

- Ends -

Notes to Editors

JAPAN TELECOM HOLDINGS CO., LTD.

With effect from August 1, 2002, the JAPAN TELECOM Group implemented a new holding company structure under which JAPAN TELECOM CO., LTD. (JAPAN TELECOM), was renamed JAPAN TELECOM HOLDINGS CO., LTD. (JAPAN TELECOM HOLDINGS), and operates its fixed-line, mobile, and other businesses as separate, peer subsidiaries. In addition to supervising the consolidated operations of the JAPAN TELECOM Group, JAPAN TELECOM HOLDINGS concentrates much of its efforts on realizing synergies and facilitating business efficiencies among its subsidiaries. For more information, please visit www.vodafone-holdings.co.jp

J-PHONE CO., LTD.

J-PHONE CO., LTD. (J-PHONE) is a leading mobile operator in Japan and a member of the Vodafone Group, the world's largest mobile community. J-PHONE offers sophisticated mobile services, including high-quality voice telephony, Sha-mail (picture messaging), Movie Sha-mail (video messaging), J-SKY (Internet and e-mail access), and Java's applications. As of October 1, 2002, the company had more than 13 million customers, of which more than 85% are J-SKY subscribers. J-PHONE was awarded one of three licenses to operate 3G mobile services in Japan and is currently at an advanced stage of deploying a 3G W-CDMA network. For more information, please visit www.j-phone.com

JAPAN TELECOM CO., LTD.

JAPAN TELECOM CO., LTD. (JAPAN TELECOM), started operations in 1986 as a carrier providing long-distance services throughout Japan. It delivers voice and data transmission services to its customers through a 10,000-kilometer fiber-optic network that spans Japan. In 1997, JAPAN TELECOM merged with International Telecom Japan and launched global network services that made it Japan's first carrier operating both at home and around the world. As an IP service leader, JAPAN TELECOM has consistently been a pioneer in introducing the most advanced IP technology, such as Japan's first nationwide IP backbone in 1998, Japan's first Giga-bit level optical switch network in 2000, and the world's first MPLS-based IX network services in 2002. As part of the implementation of the new holding company structure, the core fixed-line business of JAPAN TELECOM was transferred to a new wholly owned subsidiary of JAPAN TELECOM HOLDINGS, JAPAN TELECOM CO., LTD. (New JAPAN TELECOM). For more information, please visit www.japan-telecom.co.jp

NON-CONSOLIDATED PERFORMANCE

JAPAN TELECOM HOLDINGS' non-consolidated results for the first six months of fiscal 2002 comprise the results of JAPAN TELECOM until 31 July 2002 (during which it was the operating company for the fixed-line business and until 30 June 2002 the operating company for the businesses operated by Japan System Solution Co., Ltd. and Telecom Express Co., Ltd.) and the results of JAPAN TELECOM HOLDINGS thereafter.

Forward-Looking Statements

This press release contains certain forward-looking statements concerning the operations and strategy of JAPAN TELECOM HOLDINGS (references to which in this disclaimer shall include, as appropriate, JAPAN TELECOM) and its expectations concerning its financial and operating results, in particular its fiscal 2002 performance forecasts (including consolidated operating revenue, ordinary profit and net profit and non-consolidated operating revenue, ordinary profit and net profit), as well as expectations for trends in the Japanese fixed-line and wireless telecommunications markets. This press release also contains certain forward-looking statements concerning J-PHONE's operations and strategy and its expectations concerning its financial and operating results, in particular its expectations for the launch of full commercial 3G services and 3G area coverage. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.

There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to: changes in economic conditions that would adversely affect demand for JAPAN TELECOM HOLDINGS's and J-PHONE's services; greater than anticipated competitive activity; slower customer growth or reduced customer retention; the impact on capital spending from investment in network capacity and the deployment of new technologies, including 3G technology; the possibility that technologies will not perform according to expectations or that vendors' performances will not meet JAPAN TELECOM HOLDINGS's or J-PHONE's requirements; changes in projected growth rates in the telecommunications industry; the accuracy of and any changes in JAPAN TELECOM HOLDINGS's and J-PHONE's projected revenue models; future revenue contributions of data services offered by JAPAN TELECOM or J-PHONE; JAPAN TELECOM HOLDINGS's and J-PHONE's ability to successfully introduce new services, in particular 3G services, and the delivery and performance of key products; the success of JAPAN TELECOM HOLDINGS in achieving disposals of non-core assets, changes in the regulatory framework in which JAPAN TELECOM HOLDINGS and J-PHONE operate; and the impact of legal or other proceedings involving JAPAN TELECOM HOLDINGS or J-PHONE or other companies in the telecommunications industry.

All written or verbal forward-looking statements attributable to JAPAN TELECOM HOLDINGS and J-PHONE or persons acting on their behalf made in this press release or subsequent hereto are expressly qualified in their entirety by the factors referred to above.