NTT DoCoMo, Inc. (DCM)
F3Q2011 (03/31/11) Earnings Conference Call
January 28, 2011 3:00 AM ET
Osamu Hirokado – IR
Ryuji Yamada – President and CEO
Kiyoyuki Tsujimura – SVP
Masatoshi Suzuki – SVP
Tetsuro Tsusaka – Barclays Capital
Atsuo Takahashi – Mizuho Securities
Hitoshi Hayakawa – Credit Suisse
Daisaku Masuno – Nomura Securities
Hisataka Soejima – AllianceBernstein
Shinji Moriyuki – Nikko Cordial Securities
Daisuke Oshidari – JP Morgan
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Ladies and gentlemen thank you very much for sharing your precious time to attend this meeting. We would now like to start this Analyst Presentation announcing the results for the first three quarters of the fiscal year ending March 2011. I am Hirokado, Managing Director of the IR Department. And I’ll be serving as NC [ph] for this meeting. Please be advised that this session is broadcast via live on FOMA network and also over the Internet. And a recorded video of this meeting will be provided on DoCoMo’s website on an on-demand basis. Please be advised of this.
Now we would like to start. I would like to introduce the participants from NTT DoCoMo. First we have Mr. Ryuji Yamada, President and CEO; Mr. Kiyoyuki Tsujimura, Senior Executive Vice President; Mr. Masatoshi Suzuki, Senior Executive Vice President; Mr. Bunya Kumagai, Executive Vice President, Responsible for Consumers; Mr. Kazuto Tsubouchi, Managing Director of Finance and Accounts Department and CFO; and also Mr. Kaoru Kato, Managing Director for Corporate Strategy & Planning Department.
Let me confirm the documents to be used for this meeting. We have the earnings release. We also have the presentation slides. And two pieces of press releases. One entitled DoCoMo to Offer Flat-rate Data Billing for Smartphones and Tablet PCs. The other one entitled NTT DoCoMo Announces 10-year Green Vision. So these four sets of documents are distributed to you. Please confirm that you have them all.
Now for today’s meeting we will start with a presentation from Mr. Yamada, followed by a Q&A session. We intend to finish the meeting at 6 o’clock sharp. Please also be advised that this – that there might be risk pertaining to forward-looking information. Please refer to the presentation for the risks pertaining to forward-looking statements.
Good afternoon. I am Yamada of NTT DoCoMo. Thank you very much for sparing your precious time to attend this meeting. I would also like to take this opportunity to express my gratitude for your continued patronage to the company. Now without further ado, I would like to the presentation for the results of the first nine months of the fiscal year ending March 2011. We have a quite a bulky documents. So I would just like to focus on the highlights.
I’ll begin from page three. The financial results for the first three quarters of fiscal year ending March 2011. For the first three quarters, operating revenues dropped by 1% and reached 3,209.1 billion yen. Operating income increased by 7.9% and reached 758.5 billion yen. So operating income revenues decreased by income increased. Because of the changes of the estimation method of the loyalty program allowances in the first half, the operating incomes progressed to full-year focus was 90.3%, a very favorable progress.
In the fourth quarter, due to the brisk sales of smartphones, we are expecting an increase in commissions and therefore we have not decide – we have decided not to change the operating incomes full-year forecast. Next page regarding the highlights of the results. Especially if you look at here growth, service level improvement, and cost control. We were able to simultaneously achieve these different challenges.
First about the smartphone sales. On a cumulative basis, this fiscal year we sold 1.26 million units as of the end of December. Packet revenues increased by 76.6 billion yen or 6.5% year-on-year. The revenues from new businesses which is represented by other revenues. Other revenues increased by 54.6 billion yen. So as you see here, these efforts for additional growth have delivered tangible results. The maintenance and improvement of service level, actually I’ll come back to this topic later but we were able to receive the number one rating in customer satisfaction. We maintained our churn rate low at a very low level. And we launched the Xi service.
Proper cost control. Well despite the increase of smartphone sales and resultant increase in data traffic, we were able to save equipment sales expenses as well as capital expenditures. So as I said, we were able to simultaneously achieve these three different challenges. Number five. Now this chart compares to year-on-year changes in operating income compare – year-on-year changes in operating income, as you see there, our operating income increased by 55.8 billion yen year-on-year.
Now first let me talk about the reduction of operating income, our operating revenues of 33.2 billion yen. Among that, voice revenues decreased by 140.5 billion yen, due to the expanded uptick of Value Plan and the reduction of billable MOU. On the other hand, packet revenues increased by 76.6 billion yen. Other revenues also increased by 54.6 billion yen. As I said earlier, this is the revenues from the new businesses. As we cultivated these new opportunities, we were able to generate additional revenues.
Equipment sales revenues, this dropped, so this is a reduction. Equipment sales revenues decreased by 23.9 billion yen. I’ll come back to this topic later but total handset sales, total number of handsets sold increased but because we were able to reduce the cost of equipment, we were able to – the total handset sales revenues decreased by 23.9 billion yen. So that was about the revenue side. Now let me talk about the expense side. The operating expenses decreased due to the decrease of equipment sales expenses which decreased by 42.4 billion yen. Because we were able to curb the procurement costs and saved commission fee, we were able to reduce the equipment sales expenses by up to 42.4 billion yen year-on-year.
Also network costs decreased by 43 – 45.3 billion yen due to a reduction in depreciation and amortization. Other expenses also decreased by 1.3 billion yen. The subsidiary related expenses and other expenses that are linked to other revenues increased however because we changed the loyalty program allowances estimation method. The reduction was limited to 1.3 billion yen. So all-in-all, we were able to achieve 758.5 billion yen in operating income which increased by 55.8 billion year-on-year.
Now slide number six. I think you already are aware of these, so just briefly. The MAX 50 Discount service. Now 80% -- more than 80% of the total subscribers have joined one of these discount packages. So its revenue – negative revenue impact is already minimized. On the other hand the Value Plan subscription reached a 68% of our total subscriber base. And the growth is already slowing. So I think in one year’s time or so this impact will become nothing.