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  6. 3Q FY2019 Results Briefing

QAs from earnings release meetings and others

February 7, 2020: 3Q FY2019 Results Briefing

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

Question: What is driving your strong and continuous revenue growth?
Answer: Adoption of ICT, such as enterprise systems migration to cloud and IoT usages, has been gradually increasing among Japanese enterprises and we expect this trend should continue. Under this favorable situation, demands for reliable network and system, which is our competitive advantage, has been strong.
Question: Your FY2019 operating profit target, JPY7.6 billion, seems conservative considering your strong 1Q-3Q19 results.
Answer: We recognize 1Q-3Q19 profit results were quite strong; however, we have to keep in mind the uncertainty surrounding how much NTT Docomo’s unit price for mobile interconnectivity charge will decrease in Mar. 2020 and this is why we maintain our conservative full year outlook.
Question: What is driving your strong enterprise mobile subscription growth?
Answer: We established “IoT Business Division” at the beginning of FY2019 by consolidating related internal resources to enhance business foundation. Also, demands for IoT projects, such as surveillance and network cameras, are continuously increasing.
Question: Please give us your comment on potential impacts if MNOs lower their voice call charges, as some news outlet reported.
Answer: We think voice call charges' reduction should apply to all MVNOs. If that were to happen, it should lead to cost decrease for MVNOs and ultimately benefits to users as well.
Question: What made your consumer mobile service, IIJmio, subscription slightly decreased from 2Q19-end?
Answer: Right after the revised Telecommunication Business Law, enacted on Oct. 1, 2019, consumer mobile service providers didn't aggressively engage in promotion which led to a calm quarter for the entire market; there wasn't much in/out flow of users. Accordingly, we didn't see new entry to our services. Toward 4Q, which tends to be strong due to seasonality, we have been enhancing our promotion activity.
Question: Please update us on your eSIM services
Answer: As for consumers, our current service is beta version and we are now preparing to launch official service. As for enterprises, we are seeing great interests as eSIM and IoT systems have high compatibility.
Question: Regarding unit price for mobile interconnectivity charge, please explain "future cost method" which will be adopted from next fiscal year.
Answer: While the current calculation method imposes uncertainty on our financials outlook as the unit price is fixed at the end of our fiscal year (March), with the adoption of new "future cost method" we can expect such uncertainties should be diminished as the unit price will be notified at the beginning of a fiscal year. However, we think transparency regarding each factors used in “future cost method” is highly important because calculation factors are based on MNO’s future expectation and estimate.
Question: As for systems construction, please tell us how much revenue and profit were recognized as along with construction progress in 1Q-3Q19.
Answer: The revenue was JPY1.76 billion and gross profit was that of approximately 10%. It could be said that in 1Q-3Q19 period we already recorded revenue and profit most of which are to be completed in 4Q19. There was no revenue and/or profit recognized based on percentage of completion in FY2018.
Question: This year’s year over year increase for personnel-related costs and expenses is larger than usual. Will this trend continue?
Answer: This year’s increase came from our employee reward policy, including raising basic salary, which took place from the beginning of FY2019.
Question: Do you expect any impact from Coronavirus?
Answer: As for now, we see no serious concerns. We may see indirect impact from our pre-paid SIM offerings to foreigners if tourism to Japan decline and/or our subsidiary in Shanghai's temporary shutdown.
*This answer is as of February 7, 2020.
Question: Do you expect any constraints to your business during the Olympics?
Answer: As we expect many things including transportation of people and goods will be constrained during the Olympics, we are already making plans and preparing for that. Systems construction may be avoided around the Olympcis and be scheduled before or after it.

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