NTT DOCOMO, Inc (DCM)

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NTT DoCoMo, Inc. (DCM)

F3Q13 Earnings Call

October 26, 2012 4:00 AM ET

Executives

Kazunori Yamamoto – Managing Director, IR

Kaoru Kato – President and CEO

Fumio Iwasaki – SVP

Hirotaka Sato – Managing Director, Accounts and Finance Department

Kazuto Tsubouchi – SVP and CFO

Analysts

Daisaku Masuno – Nomura Securities

Tetsuro Tsusaka – Morgan Stanley

Hiroshi Yamashina – BNP Paribas

Hitoshi Hayakawa – Credit Suisse

Yoshiyuki Kinoshita – Merrill Lynch

Presentation

Kazunori Yamamoto

Thank you very much for waiting. And thank you very much for attending this press conference despite your busy schedule. We would now like to commence NTT DOCOMO’s Analyst Meeting announcing the Results for the First Half of the Fiscal Year Ending March 2013. I am Yamamoto of the IR department, and I will be serving as emcee for this meeting.

Please be advised that this session is broadcast via live service on telephones as well as the Internet. And also, a recorded video of this meeting will be provided through DOCOMO’s website for on-demand distribution.

Now, I would like to introduce to you the participants from NTT DOCOMO. We have Mr. Kaoru Kato, President and CEO; Senior Executive Vice President, Mr. Kazuto Tsubouchi; Senior Executive Vice President, Fumio Iwasaki; Executive Vice President responsible for consumer marketing, Mr. Takashi Tanaka; Executive Vice President and Managing Director of Corporate Planning and Strategy Department, Mr. Kazuhiro Yoshizawa; Senior Vice President and Managing Director of Finance and Accounts department, Mr. Hirotaka Sato.

For today’s meeting, we will be using three sets of documents which are distributed to you; the earnings release, the presentation slides, as well as the press release. Please confirm that you have full set of documents.

For today’s meeting, we would like to start with a presentation from Mr. Kaoru Kato based on the presentation slides, which comprises three parts. First, the financial results; number two, DOCOMO’s competition strategy; and number three, future business management. After the presentation, we would like to entertain your questions and we would like to finish the meeting by 6 o’clock.

Please also be advised that the comments made during this meeting, during the – also including the Q&A session may contain forward-looking statements, and please refer to the slide or the Form 20-F filed with the SEC regarding potential risks.

Now, without further ado, I would like to have Mr. Kato. Please start the presentation.

Kaoru Kato

Good afternoon to you and thank you very much for attending this conference despite your busy schedule. I would now like to start the presentation regarding the financial results. The presentation consists of three points or three parts, and there might be some points that I might skip.

So let me first start from slide number three, the highlights of the first half results. Operating revenues reached ¥2,207.3 billion, which is ¥94.3 billion or 4.5% higher compared to the same period last fiscal year. Operating income was ¥471.1 billion, down ¥37.4 billion or 7.4% year-on-year. Operating income reduced; however, operating revenues have recorded a stable increase.

Regarding the concrete results, total handset sales increased by 14% year-on-year and reached 11.84 million units, making a favorable progress. Especially, the smartphone sales was quite brisk. We sold 6.44 million units, up 77.6% year-on-year for the first half. Our Xi subscribers has been increasing at a faster pace than expected and the total number of subscription was 6.2 million as of the end of September, up 178.6% compared to March 2012. And the smartphone user base has been expanding and which resulted in an increase of packet revenues of 7.6% year-on-year, which reached ¥975.6 billion for the first half.

Slide number four, the selected financial data. I’ve already commented on the operating revenues and operating income. Free cash flow, as you can see there, decreased by ¥216.6 billion year-on-year. This was mainly due to the increase of subscribers purchasing handsets based on installments that was the major reason. And also because of the facility buildup for the Xi LTE network.

Slide number five, the factors behind year-on-year changes in operating income. As you can see on the left-hand side, the orange part represents the operating revenues changes and the green part are the expenses. Voice revenues excluding the impact of billing – monthly support, decreased by ¥80.8 billion due mainly to the reduction in billable MOU. Packet revenues increased by ¥87.9 billion due to the stepped up efforts to sell smartphones and Xi-enabled devices.

The third box represents the impact of monthly support discounts, which accounted for a decline of ¥71.8 billion. Other revenues increased by ¥31.9 billion due mainly to the increased subscription to the mobile phone protection delivery service and the revenue contribution from subsidiaries. Equipment sales revenues increased by ¥127.2 billion due mainly to the increase in the number of handsets sold.

The green parts on the right, equipment sales expenses on the flip side of the revenues increased by ¥64.4 billion and other expenses also increased due to the increased sales by the subsidiaries. Other expenses increased by ¥67.4 billion. So, all together, if we subtract these expenses from the revenues, operating income decreased by ¥37.4 billion year-on-year.

Now let me give you some numbers. The handset sales for the second quarter, as you see from the middle box there, was 6.67 million units. So if you combine the first quarter results, altogether in the first half, we sold 11.84 million units, which is making a very favorable progress towards our full year target of 23.8 million units. The first half sales increased by 14.4% and the new sales also increased by approximately 16%. We will leverage the winter collection and promote the sales of Xi and smartphones going forward.

Slide number seven. The total handset sales of smartphones for the first half was 6.44 million units, which is 74% higher compared to the last fiscal year. The second quarter sales was 3.95 million units. We believe the smartphone user base will be the main driver for our growth going forward. So we believe it is very important that we increase the number of smartphone users in order to boost our packet revenues.

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