Japan Communications : Second 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.

November 10, 2022

Consolidated Financial Results

for the Six Months Ended September 30, 2022

(Under Japanese GAAP)

(Yen amounts are rounded down to millions, unless otherwise noted.)

1. Consolidated financial results for the six months ended September 30, 2022 (from April 1, 2022 to September 30, 2022)

2. Cash dividends

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).

* 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: None
   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)

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

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

• Quarterly financial results reports are exempt from quarterly review conducted by certified public accountants or an audit corporation.
• Proper use of earnings forecasts, and other special matters
  A financial results meeting will be held on Friday, November 11, 2022 for institutional investors, analysts and the press. The Company plans to post a video of this financial results meeting on its website promptly after the meeting is held.

1. Qualitative Information on Results for the Six Months Ended September 30

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 by which subscriber identity information (profiles) necessary for using telecommunication services can be remotely written to the devices which supports eSIM such as iPhone and users can change mobile service operators without replacing SIM cards, as was the case before. Because this makes users can use multiple lines of different mobile operators and/or can use separate phone numbers such as for private and business purposes on the same one (1) smartphone, it is expected to become more popular in the future.
      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.
   3. 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 named Mebuku Ground Inc., was established on October 6, 2022,

with jointly investment by prominent companies and prominent financial institutions in Gunma Prefecture, and the above corporation started issuing digital IDs called "mebuku ID" on October 21, 2022. Users can use "mebuku ID," on their smartphone for both public services (such as administrative procedures) and private services.

The "mebuku ID" platform is FPoS based, and the Company will support "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 six months ended September 30, 2022 were 2,762 million yen, an increase of 558 million yen (up 25.4%) compared to the six months ended September 30, 2021 (hereinafter referred to as the "same period of the previous year"). This was mainly due to an increase in sales from the flat-rate or semi-flat rate voice services of "Nihon Tsushin SIM."

Cost of sales was 1,577 million yen, an increase of 214 million yen (up 15.7%) compared to the same period of the previous year. Increases in cost of sales compared to increases in net sales are largely avoidable because the mobile networks of both data and voice communications procured by the Company from NTT DOCOMO, INC. have been set not to exceed the amount of the appropriate costs under efficient management plus appropriate profit.

As a result, gross profit amounted to 1,185 million yen, an increase of 344 million yen (up 41.0%) compared to the same period of the previous year.

Operating profit amounted to 293 million yen (52 million yen for the same period of the previous year) and profit attributable to owners of parent amounted to 301 million yen (64 million yen for the same period of the previous year).

Financial results by business are as follows

Revenue of 67 million yen (58 million yen in the same period of the previous year) from overseas operations in the segment information are included in the Enabler Business.

1. Explanation on financial position

1. Assets, liabilities and net assets

Assets

Current assets at the end of the current second quarter were 1,946 million yen, an increase of 536 million yen compared to the end of the previous year. This was mainly due to increases of 429 million yen in cash and deposits and 80 million yen in accounts receivable - trade. Of the 1,358 million yen balance of cash and deposits, 250 million yen is substantially restricted in use as it has been temporarily entrusted as capital to jointly establish a corporation with other companies, etc., by the companies, etc., that plan to make the investments. In addition, included in the 291 million yen deposits received balance in liabilities is the same amount of 250 million yen. Non-current assets were 662 million yen, an increase of 131 million yen compared to the end of the previous year. This was mainly due to increases of 67 million yen in intangible assets and 57 million yen in investments and other assets.

As a result, total assets amounted to 2,610 million yen, an increase of 666 million yen compared to the end of the previous year.