ANNUAL REPORT 2004
Year ended September 30, 2004
FOR THE FUTURE
THE MTI GROUP IS STEADILY SOLIDIFYING ITS
FOUNDATION FOR RAPID FUTURE EXPANSION.
MTI IS BUILDING MOMENTUM IN TWO CORE
BUSINESSES TO ACCELERATE ITS GROWTH.
The MTI Group has moved forward with its shift in operations from mobile phone sales to businesses
structured around mobile contents distribution. Moreover, by obtaining ISO certification and
implementing a range of other measures, the Group has succeeded in creating an organization that will
support future business growth in large-scale outbound telemarketing.
Both businesses are in areas where the MTI Group can fully demonstrate its strengths. Using these
core businesses as a springboard for growth, the MTI Group will steadily boost efforts to achieve
robust expansion of net sales and uninterrupted growth in earnings.
Future Forecast Disclaimer Consolidated Financial Highlights - - - - - - - - - - - - - - - 01
The projected MTI results, management strategies, and beliefs about the
future presented in this Annual Report 2004 are based on MTI
Interview with the President - - - - - - - - - - - - - - - - - - 02
determinations obtained from information available at the time of writing. Financial Section (Consolidated Basis) - - - - - - - - - - - 11
Readers are requested to be aware of the potential for a large discrepancy Board of Directors and Corporate Auditors - - - - - - - - 29
between the forecasts contained here and actual business results, Corporate History - - - - - - - - - - - - - - - - - - - - - - - - 29
as these predictions contain elements of uncertainty as well as known Corporate Data - - - - - - - - - - - - - - - - - - - - - - - - - - 29
and unknown risks.
The MTI Group has made a new beginning, with
2004 as “the year of its second founding.”
The MTI Group is focusing on moving to a new
growth stage, by leveraging its two core busi-
nesses in mobile contents distribution centered
on “melody ringtones” and Chaku-uta ® (vocal
ringtones), and large-scale outbound telemarket-
ing for medical insurance sales.
President and CEO
PROGRESS REPORT ON THE COMPANY’S businesses, to achieve strong net sales growth and
MEDIUM-TERM PLAN generate continuous growth in earnings.
These initiatives proved successful. Our mobile con-
Please discuss MTI’s operating results and tents distribution business grew to account for more than
Q achievements for the fiscal year ended September 50% of net sales. In both name and fact, this business
30, 2004. became our core operation through our efforts to trans-
form our business structure from mobile phone sales to
Although consolidated net sales of ¥11,524 mil- an organization centered on contents distribution. The
A lion fell below our original target, the “melody ring- telemarketing business took more time to set up than we
originally anticipated, but given our positive achievements
tones” business showed strong growth and
exceeded the plan objective. Consequently, we such as obtaining ISO certification, we succeeded in cre-
were able to absorb the large initial investment ating an organization that will lead to future growth.
burdens in our core businesses, achieving recur- Based on these results, I can say that we have laid the
ring profit. I would also like to highlight the fact business foundation for our core businesses to serve as
that we have laid the business foundation to pro- the springboard for growth over the medium term.
mote future growth, as evidenced by our success- Net sales for the fiscal year fell below our original plan,
ful shift to a business structure centered on because of delays in the development of the telemarketing
contents distribution and the acquisition of ISO business and a drop in sales to volume merchandisers in
certification in our telemarketing business. the mobile phone sales business. On the other hand,
despite a recurring loss forecast due to the substantial ini-
The MTI Ltd. (MTI) Group positioned mobile contents dis- tial investment burdens, and even though the loss in the
tribution and large-scale outbound telemarketing as its telemarketing business was higher, we succeeded in main-
core businesses, and applied to these core businesses its taining recurring profit thanks to the strong growth of our
strength in market development capabilities of “creating a mobile contents distribution business, which enjoys a high
new business model for customer acquisition, using gross margin.
proprietary data analysis techniques.” We then made
substantial strategic initial investments in these core
NET SALES BY SEGMENT NET SALES BY SEGMENT
(Fiscal year ended September 2004) (Millions of yen) (Fiscal year ended September 2004) (%)
CONTENTS CONTENTS DISTRIBUTION 3.0
SOLUTIONS 903 MOBILE TERMINAL
MOBILE TERMINAL 35.4 51.7
Note: In the consolidated fiscal year under review, MTI classified its solutions business as a separate business. Beginning with the consolidated fiscal year ending September 2005,
however, the Company will abolish this business classification because it disposed of its stock in Card Commerce Service Co., Ltd. through an exchange of shares executed on
September 14, 2004, and also terminated its business operations with cocodes, inc.
MTI ANNUAL REPORT 2004
TO MAINTAIN A FUTURE FAST GROWTH TRACK: To make sure that MTI stands among the winners in
MOBILE CONTENTS DISTRIBUTION BUSINESS this field, however, we absolutely must seek further growth
in the number of subscribers, and maintain our rank at the
The “melody ringtones” business at MTI continues top of the selection menu order.
Q to show dramatic growth. What kind of measures To accomplish this, we plan to further enhance aware-
ness of the “All Cool Melodies Are Yours” service through
are you considering for the future?
aggressive promotional activities, with banner ads on
Together with Chaku-uta®, we will invest our man- mobile phone sites and television commercials. We will
A agement resources intensively in “melody ring- also seek to stimulate non-paying members (potential
paid-subscribers) and convert them into paid subscribers,
tones” as our most important businesses. We will
seek further growth in the number of subscribers by expanding our mobile ringtone and other contents
in the future through strong promotional activities. offerings.
Because the “melody ringtones” business accounts for the
highest share of Japan’s total mobile contents distribution
market, the MTI Group positions this segment as its most Q MTI’s Chaku-uta ® services are at the top of the
mobile contents site menu order, but looking at the
important business together with “Chaku-uta ®” business huge expansion of this market, how will MTI add
for establishing a fast growth track. We will concentrate momentum to its growth?
our management resources in this business and pursue an
aggressive marketing approach.
Our “melody ringtones” site “All Cool Melodies Are A MTI will aim to achieve an even higher ranking posi-
tion by enhancing the appeal of its contents
Yours,” a service offering unlimited access, provides through an increase in the number of contracts
exceptional value for the money. It also receives high with artists, and vigorously pursuing aggressive
marks from customers for its tone quality and services. promotional activities.
While many other providers are facing a drop in the
number of subscribers, or are struggling to sign up new As of the end of September 2004, the number of third-
members, MTI is rapidly building up its subscriber base. generation (3G) mobile phone terminals in use had broken
CHANGE IN NUMBER OF PAID SUBSCRIBERS CHANGE IN i-mode MENU POSITION AT NTT DoCoMo
(Thousands of subscribers) (Rank)
4 6 4
12 10 9
20 11 10
21 Chaku-Uta ®
1,900ED 1,950 2,075ED 2,150 2,245ED 2,330 2,400ED 2,600
PROJECT ACTUAL PROJECT ACTUAL PROJECT ACTUAL PROJECT ACTUAL 54 Chaku-Melo (PDC)
2003 / Dec. 2004 / Mar. 2004 / June 2004 / Sep. 2003 / Nov. 2004 / Jan. 2004 / Apr. 2004 / July 2004 / Oct. 2005 / Jan.
04 MTI ANNUAL REPORT 2004
through the 15.85 million unit level at au (KDDI’s mobile
telecommunication division) and the 6.48 million unit level Q During the fiscal year, MTI began full-scale partici-
pation in contents distribution for NTT DoCoMo.
at NTT DoCoMo, Inc. With this improvement of the mar- What kind of strategy is MTI considering for the
ket infrastructure, we expect the market for Chaku-uta ® to future, as well as for other telecommunications
expand rapidly and achieve a scale rivaling “melody ring- carriers?
tones” in the near future, fueled with the introduction of
complete songs (full music) distribution service. MTI will strive to establish a firm position with NTT
music.jp., inc., MTI’s consolidated subsidiary, is the A DoCoMo, which has substantial room for us to
central force in our Chaku-uta ® business. By implementing increase the number of subscribers, and become a
the following measures, we will aim for an even higher top-class contents provider with all carriers.
First, we will seek to boost the attractiveness of our We will not rest content with MTI’s achievement as the
contents by widening our contents offering, leveraging on No. 1 provider for au. We will challenge ourselves boldly,
our unique position as an independent contents distributor, to expand the number of our subscribers and establish a
to cover as many artists as possible across record labels, solid position at NTT DoCoMo, which accounts for the
while simultaneously undertaking aggressive advertising majority share of mobile terminals and is expected to enjoy
and promotional activities aimed at building the service’s strong growth in the future with the proliferation of its 3G
name awareness. mobile phones.
Furthermore, since the MTI Group has earned a repu- During this fiscal year under review, we developed
tation with record companies, production houses and aggressive advertising and promotional activities and
other firms as being extremely effective as a promotional worked to increase the number of subscribers, by focus-
venue, owing to our large number of subscribers in various ing on “melody ringtones,” which boast the largest market
genres, we will leverage this diverse subscriber base to scale and exhibit a high degree of liquidity among sub-
the maximum extent possible. scribers, as the target for our offense. As a result, as of
October 2004, even though less than a year had passed
since we began offering our services in November 2003,
the menu position of “All Cool Melodies Are Yours” stood
TVCF CURRENTLY BEING BROADCAST
Flash! Pro Baseball Weather forecasts
“All Cool Melodies Mapple “Beat the Chaku-uta®
Are Yours” unlimited Traffic” routes
MTI ANNUAL REPORT 2004
at No. 10 with 3G FOMA subscribers, and at 11th with mobile contents utilizing cutting-edge technology, and con-
2G MOVA subscribers at NTT DoCoMo, skyrocketing from tinually developing aggressive advertising and promotional
the initial 54th ranking. measures, the MTI Group will further expand the number
This power has generated a synergistic effect for MTI’s of subscribers at all telecommunications carriers.
other mobile contents services as well. We are steadily
expanding our subscriber base, with the dictionary con-
tents we introduced in April 2003 climbing to fourth FOR LONG-TERM GROWTH OF EARNINGS:
place, the “Mapple short cuts in heavy traffic” information TELEMARKETING BUSINESS
site with a traffic jam forecast function that we introduced
in November 2003 moving to seventh place, and the 3D Large-scale outbound telemarketing for third-
animation “Flash! Pro Baseball” professional baseball
mobile contents service we launched in March 2004
Q sector insurance, a business MTI began during the
fiscal year under review, finished the year with
rising to third place. weak results. What was the reason, and what
By working to develop mobile contents services suited measures has MTI taken for recovery?
to customers’ needs and to create attractive, high-quality
CHANGE IN POLICY CLOSING RATIO
0.29 0.25 0.25 0.24
813 2,426 537 2,866 729 2,475 738 3,006 790 3,128 728 2,990 834 2,302 860 1,863 890 1,405 868 1,398 1,000 1,405
2003 / Oct. 2003 / Nov. 2003 / Dec. 2004 / Jan. 2004 / Feb. 2004 / Mar. 2004 / Apr. 2004 / May 2004 /June 2004 /July 2004 / Aug. 2004 / Sep.
Number of policies closed Number of operators, cumulation for the month Policy closing efficiency rate (number of policies closed/number of operators)
06 MTI ANNUAL REPORT 2004
During the initial months, our contract closing company to receive ISO9001:2000 certification as a
A rate was lackluster because the turnover rate of firm conducting outbound telemarketing for insurance
our operators exceeded our projection. Based on sales (obtained by ITSUMO Ltd., a consolidated subsidiary
these results, we reviewed hiring practices and of MTI).
improved our operations procedures through the These steps enabled us to lay solid foundations for an
ISO certification process. Thanks to these efforts, organization capable of managing this business with high
the contract closing rate has been steadily efficiency. Together with improved accuracy of the opera-
improving. We anticipate achieving positive tion, we now expect to achieve positive results in operat-
results in operating income during the next ing income in the next fiscal year. We intend to continue
fiscal year. building our insurance policy portfolio, which is the source
of long-term and stable commission income, while taking
Because commission income from the third-sector insur- steps to maintain and improve our contract closing rate.
ance sales business utilizing telemarketing can be
received over the long term, MTI has positioned this busi-
ness as a strategic one for the long-term growth of sta- MEDIUM-TERM EARNINGS ESTIMATE, QUANTITATIVE
ble earnings. Our objective for the first year was to close OBJECTIVES AND FINANCIAL STRATEGY
18,000 policy contracts with an organization of 150 tele-
marketing operators, but our actual results ended at
8,399 contracts. Q What is MTI’s outlook for the fiscal year ending
To break out of the start-up period slump, during the
third quarter we temporarily froze expansion of our call We expect to achieve consolidated net sales of
centers in Shinjuku (Tokyo) and Hachinohe (Aomori
Prefecture), and placed the highest priority on improving
A ¥12,700 million, a 10.5% increase over the year
in review. Although we will lose the contribution
operator retention and contract closing rates. from Card Commerce Service Co., Ltd., a consol-
In addition to developing and executing measures at idated subsidiary in the solutions business
the hiring stage to screen out human resources with the segment, in terms of both revenue and earnings,
potential to become excellent operators, we set up pro- the digital music distribution sector is expected to
cedures for process improvements by becoming the first contribute substantially toward sales. In terms of
CORE COMPETENCE OF THE MTI GROUP (1)
Because our two core businesses have been created on a base shared by the MTI Group, we can achieve
rapid net sales growth and continuous growth in earnings while synchronizing all our businesses.
WE CAN ACHIEVE RAPID NET SALES GROWTH AND CONTINUOUS GROWTH IN EARNINGS
Concentrated Investment of Management Resources
DISTRIBUTION OF MOBILE CONTENTS LARGE-SCALE OUTBOUND TELEMARKETING
Position of Core Businesses
The core competence of the MTI Group comprises market development capabilities that enable
MTI to create new customer acquisition business models using proprietary data analysis techniques.
MTI ANNUAL REPORT 2004
earnings as well, we expect to maintain our recur- Our goal for the fiscal year ending September
ring profit for the full year in spite of continued A 2007 is to expand consolidated net sales to
high-level investments. ¥18,700 million with recurring profit of ¥1,900
million and a recurring profit margin of at
The digital music distribution business, including “melody least 10%.
ringtones” and Chaku-uta ®, is expected to rapidly expand
and contribute to boosting consolidated net sales by MTI’s medium-term plan is to expand consolidated net
10.5% from the fiscal year under review to ¥12,700 mil- sales to ¥18,700 million in the fiscal year ending
lion. With regard to recurring profit, on the other hand, September 2007, with our mobile contents distribution
results will be positive but we do not expect to maintain business acting as an engine for growth.
earnings at a level commensurate with the growth in net With regard to recurring profit, we plan ultimately to
sales, because we will continue making a high level of earn ¥1,900 million, even though we will incur a high level
initial investment. of promotional costs in the immediate future, by increas-
In our “melody ringtones” and telemarketing business- ing earnings through growth in the number of subscribers
es, we believe that we have laid a solid foundation for for our mobile contents distribution business and also by
future growth through the initial investments made during getting our telemarketing business on track.
the fiscal year. To expand these businesses further, how-
ever, it is imperative that we continue making a certain
level of investment. In addition, in our Chaku-uta® busi- Can you discuss MTI’s financial strategy, including
ness, we plan to launch large-scale promotional activities
to solidify our position among the top players in this
Q the reason for the sale of shares of Card
Commerce Service Co., Ltd.?
fast-growing business segment.
We are working to strengthen our financial base
Please explain MTI’s quantitative medium-term
A and expand our bank commitment lines, while
taking steps to concentrate MTI’s management
Q objectives. resources on our core businesses.
CORE COMPETENCE OF THE MTI GROUP (2)
We are concentrating investment of management resources in the Group’s core businesses and
launching the MTI Group’s “stock businesses” on a fast-growth track as quickly as possible.
WE CAN ACHIEVE RAPID NET SALES GROWTH AND CONTINUOUS GROWTH IN EARNINGS
Concentrate investment of management resources in the Group’s core businesses
08 MTI ANNUAL REPORT 2004
Because we believe it will be necessary to make a sizeable operations in the online non-mobile credit card payment
investment in our core businesses until we can achieve a processing service business and the core businesses of
high and continuous growth in earnings, we consider the MTI Group. Accordingly, we decided that the sale of
strengthening our financial base to be a key management CCS shares was an effective alternative.
objective. This is why we are working to enhance our finan- We plan to use the capital obtained from the sale
cial strength, through steps such as improving our equity of shares mainly to expand and enhance our core busi-
ratio, and to create a system enabling us to procure funds nesses, and as capital for business investments including
flexibly for business investments. M&A. We will also use the capital to reduce borrowings,
Card Commerce Service Co., Ltd. (CCS) has grown with the goal of strengthening our financial position. In
steadily from the standpoint of both business size and net parallel with this, we are also pursuing an increase in our
earnings, thanks to the growth of its customer base. loan limit (commitment line) from our financial institutions,
However, we judged that it would be difficult to achieve to enable us to procure funds flexibly according to our
a synergistic effect between that company’s main capital needs.
MTI ANNUAL REPORT 2004
CONCLUDING MESSAGE founding boldly, with the goal of achieving strong net sales
FROM THE PRESIDENT growth and continuous growth in earnings.
I am convinced that we are finishing establishing a
Q What final message would you like to deliver to
MTI’s shareholders and potential investors?
solid business base to support MTI’s future growth. We
are determined to move forward and aggressively enable
the MTI Group to make great strides through the years of
our second founding. We look forward to continuing to
A MTI will work vigorously to build a company for its
second founding on the groundwork laid during the receive our shareholders’ support for the growth and
year, with the goal of achieving strong net sales development of the MTI Group.
growth and generating continuous growth in
earnings. January 2005
The MTI Group has always been ahead of the times and
carved out markets for products whose markets were
expected to surge, such as sales of mobile phones and Toshihiro Maeta
broadband asymmetric digital subscriber lines (ADSL), President and CEO
and proceeded to expand our businesses as we forged
markets by providing such sales and services.
Nevertheless, in the past there was an unstable aspect
to our operations, and our operating results fluctuated
greatly depending on the trend for the goods and
services that MTI focused on.
The fiscal year just ended was the first year of our
efforts to position mobile contents distribution and large-
scale outbound telemarketing as our core businesses, and
transform the MTI Group into a business that can antici-
pate strong growth over the long term. Certainly, we can
say that the MTI Group began the year of its second
10 MTI ANNUAL REPORT 2004
SIX-YEAR SUMMARY (CONSOLIDATED BASIS)
MTI Ltd. and Consolidated Subsidiaries
Millions of Yen
Years ended September 30 1999 2000 2001 2002 2003 2004
For the year
Net sales ----------------- ¥ 7,580 ¥ 9,148 ¥ 14,316 ¥ 11,478 ¥ 11,020 ¥ 11,524
Operating income - - - - - - - - - - - - - - - - - 429 350 757 60 377 196
Recurring profit ----------------- 400 340 703 105 315 29
Net income (loss) - - - - - - - - - - - - - - - - - 204 831 (3,223) (478) 118 1,634
Total assets - - - - - - - - - - - - - - - - - - - - - 4,661 8,581 9,889 10,009 9,757 10,836
Total shareholders’ equity - - - - - - - - - - - - 2,814 3,639 2,017 1,522 1,627 3,672
Per share data Yen
Net income (loss): Primary - - - - - - - - - - ¥ 76,014.34 ¥ 19,356.98 ¥ (53,936.26) ¥ (7,663.48) ¥ 1,888.74 ¥25,315.72
: Fully diluted - - - - - - - – – – – 1,719.16 21,233.35
Cash dividends - - - - - - - - - - - - - - - - - - 5,000.00 340.00 340.00 340.00 340.00 340.00
Total shareholders’ equity - - - - - - - - - - - 212,403.69 65,055.96 32,288.15 24,366.36 25,991.91 55,557.43
MANAGEMENT’S DISCUSSION AND ANALYSIS (CONSOLIDATED BASIS)
SUMMARY OF MANAGEMENT STRATEGY cocodes, inc. Although CCS is expanding its earnings, management
To achieve rapid net sales growth and continuous growth in earn- determined this business lacked opportunities to create synergistic
ings, during the consolidated fiscal year ended September 30, effects with the MTI Group’s core businesses.
2004, the MTI Group positioned the contents distribution business During the fiscal year ending in September 2005 and in future
and telemarketing business as the Group’s core businesses. The years, the MTI Group will further concentrate management
Group also made concentrated investments of management resources in its two core businesses and focus on putting the
resources in these two areas, based on market development Group on a fast-growth track as quickly as possible.
capabilities that enable MTI to create new customer acquisition
business models using proprietary data analysis techniques. CHANGE IN SUBSIDIARY COMPANIES SUBJECT
During the period under review, the MTI Group moved ahead TO CONSOLIDATION
according to its plan and shifted from mobile phone equipment The MTI Group is composed of MTI, seven consolidated subsidiary
sales to a business structure centered on contents distribution for companies and one nonconsolidated subsidiary company accounted
mobile phones, with the key focus on music distribution to mobile for by the equity method, and two affiliated companies accounted
phones. At the same time, the Group was able to lay the business for by the equity method. During the fiscal year under review, MTI
foundations for expansion of large-scale outbound telemarketing in sold Card Commerce Service Co., Ltd., which was a consolidated
third-sector insurance sales. subsidiary, through an exchange of shares.
In other actions, the Company sold its stock in Card Commerce
Service Co., Ltd. (CCS), an Internet-based credit card payment pro- BUSINESS ENVIRONMENT
cessing service business, through an exchange of shares and also According to the statistics published by the Telecommunications
withdrew from the Internet-based supermarket delivery business by Carriers Association (TCA) on the total number of mobile phone and
12 MTI ANNUAL REPORT 2004
Personal Handyphone System (PHS) subscribers, the mobile Contents Distribution Business
telecommunications sector related to the MTI Group’s main busi- In the contents distribution business, MTI emphasized increasing
ness is showing steady growth. As of the end of September 2004, the number of subscribers to its “All Cool Melodies Are Yours”
the number of subscribers had reached over 88.64 million (up melody ringtone service for mobile phones, and focused efforts
5.6% compared with the end of September 2003) and Internet- especially on raising the awareness level and signing new members
enabled mobile terminals had increased to 72.32 million units (up at NTT DoCoMo. MTI was also successful in launching large-scale
9.1% compared with the end of September 2003). The rate of promotion activity, substantially boosting the number of subscribers
increase in net subscriber and terminal growth, however, continues above its initial plan.
to slow. Furthermore, in addition to aggressively developing Chaku-utaTM
On the other hand, the number of third-generation (3G) mobile vocal ringtones, which are regarded as killer content in the era of
phones showed substantial growth, increasing 100% year on full-scale 3G mobile phone diffusion, the MTI Group developed and
year to 22.6 million units, and this has uncovered new business introduced attractive mobile content incorporating the Group’s most
opportunities accompanying this rapid growth. advanced proprietary functions. These included traffic information
with a traffic delay prediction function, and real-time professional
PROFIT AND LOSS ANALYSIS baseball games utilizing 3D animation.
Net Sales As a result of these efforts, the number of fee-paying users
Net sales for the fiscal year under review fell below the outlook increased by 750,000 from the level at the end of the previous fis-
the MTI Group had announced at the beginning of the period. cal year to 2.6 million users. Net sales in the contents distribution
Nevertheless, net sales were supported by the growth of MTI’s business were ¥5,954 million, and operating income was
contents distribution business, and increased 4.6% from the level ¥417 million.
of the prior fiscal year to ¥11,524 million.
Performance by Operating Segment In the solutions business, Card Commerce Service Co., Ltd., a sub-
The general conditions of MTI’s net sales by business segment are sidiary company, boosted the number of customers and accounts
described below. The results are not comparable to the previous handled as the e-commerce market expanded, and steadily
fiscal year, because the Company reorganized its business increased both net sales and earnings. MTI nevertheless experienced
segments during the fiscal year under review. a slump in the Internet-based supermarket delivery business being
developed by cocodes, inc., another subsidiary company. As a
NET SALES BY OPERATING INCOME (LOSS) BY OPERATING INCOME AND
OPERATING SEGMENT (Millions of Yen) OPERATING SEGMENT (Millions of Yen) OPERATING MARGIN
Projected Projected Operating Income (Millions of Yen)
Actual Actual Operating Margin (%)
CONTENTS 5,809 CONTENTS 29 5.3
DISTRIBUTION 5,954 DISTRIBUTION 417
SOLUTIONS SOLUTIONS 3.8
903 117 3.4
MOBILE 4,586 MOBILE 266
TERMINAL 4,083 TERMINAL 232
OTHER 350 757 60 377 196
233 –12 2000 2001 2002 2003 2004
MTI ANNUAL REPORT 2004
result of these factors, net sales in this segment were ¥903 mil- focused on promotion costs in the contents distribution business
lion, with operating income of ¥117 million. and on hiring and training start-up costs in the telemarketing busi-
MTI sold Card Commerce Service Co., Ltd. and withdrew from ness. These investments were undertaken to put the MTI Group
the Internet-based supermarket delivery business, and will eliminate onto a fast growth track in its two core businesses.
this segment beginning from the fiscal year ending in September
2005. OPERATING INCOME
As a result of the measures described above, operating income for
Mobile Terminal Business the fiscal year under review fell 47.8% year on year to ¥196 mil-
Results in the mobile terminal business fell below MTI’s initial plan, lion, and the operating margin decreased by 1.7 percentage points
despite steady growth in carrier-brand store sales, because volume from the prior fiscal year to 1.7%. The Company exceeded its initial
merchandisers experienced sluggish sales growth as consumers projection because of excellent growth in the contents distribution
refrained from purchasing mobile phones. As a result, net sales in business, which boasts a high gross margin.
this segment were ¥4,083 million, and operating income was
¥232 million. NON-OPERATING INCOME AND EXPENSES
Net non-operating expenses for the fiscal year under review rose to
Telemarketing Business ¥167 million, from ¥61 million the previous year.
In the telemarketing business, the MTI Group has entered third-
sector insurance sales of insurance products such as medical insur- RECURRING PROFIT
ance that can be expected to produce steady growth with the rapid Although recurring profit fell by 90.5% compared with the previous
advancement of Japan’s aging society. Together with establishing fiscal year to ¥29 million, this exceeded the Company’s initial
call center bases in Shinjuku (Tokyo) and Hachinohe (Aomori outlook because of excellent growth in the contents distribution
Prefecture), MTI made an aggressive initial investment centered on business, which boasts a high gross margin.
operator hiring and training.
Because the time required to train operators was longer than EXTRAORDINARY GAINS AND LOSSES
expected, net sales in this business were ¥349 million, with an The Company booked an extraordinary gain of ¥2,974 million from
operating loss of ¥553 million. an exchange of shares as part of a transfer of the stock of Card
Commerce Service Co., Ltd., a subsidiary company. This resulted in
Other a net extraordinary gain of ¥2,126 million in the fiscal year under
Net sales in MTI’s other segment, including the reuse business for review, compared with an extraordinary loss of ¥97 million during
products such as home appliances and personal computers, were the previous fiscal year.
¥233 million. The operating loss was ¥12 million.
COST OF SALES AND SELLING, GENERAL AND As a result of the above, the net income of MTI and its consolidated
ADMINISTRATIVE EXPENSES subsidiaries for the fiscal year under review was ¥1,634 million.
Cost of sales declined 11.9% from the prior year to ¥6,077 million. This substantially exceeded the initial projection. Net income per
MTI improved its ratio of cost of sales to net sales by 9.9 percent- share also increased sharply from the prior year’s ¥1,888.74 to
age points, to 52.7%. This result reflects the increase in the con- ¥25,315.72.
tents distribution business, which has a low cost of sales, as a
percentage of the Company’s total net sales. DIVIDENDS
On the other hand, selling, general and administrative expenses The MTI Group places great emphasis on contributing to its share-
rose 40.3% year on year to ¥5,249 million. As a percentage of net holders through the creation and expansion of corporate value. The
sales, this represented an 11.6 percentage point increase com- Company has adopted a policy of determining its dividend compre-
pared to the previous fiscal year, from 34.0% to 45.6%. This hensively by taking into consideration factors such as the need to
increase was the result of aggressive initial investment, which was strengthen its business structure and enhance internal reserves to
14 MTI ANNUAL REPORT 2004
provide for aggressive business development. For the fiscal year year-end, mainly because of a reduction to the consolidation adjust-
under review, the Company approved a dividend of ¥340.00 ment account.
per share. Because of large net income resulting from the sale of sub-
sidiary company stock, total shareholders’ equity increased ¥2,044
ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY million year on year to ¥3,672 million. This also boosted the equity
Total assets increased by ¥1,079 million from the end of the prior ratio, which rose from 16.7% at the end of the prior fiscal year to
fiscal year, to ¥10,836 million at the end of the fiscal year under 33.9%. In light of the need to further strengthen its financial base
review. as a foundation for rapid expansion of its business, the Company
Cash and deposits were boosted by the sale of subsidiary com- will continue to execute measures to improve the stability of its
pany stock and increased by ¥1,531 million year on year to ¥5,930 financial position.
million. Notes and accounts receivable – trade also increased com-
pared with the end of the prior fiscal year, primarily due to the ANALYSIS OF CASH FLOWS
increase in net sales in the contents distribution business. As a Although income before income taxes increased substantially, net
result, total current assets at the end of the fiscal year under cash used in operating activities was ¥249 million, compared with
review increased by ¥2,294 million to ¥8,922 million. net cash provided of ¥1,262 million in the prior fiscal year. This
Total intangible assets decreased by ¥233 million from the end mainly reflected a net gain on sales of investment securities and an
of the previous fiscal year to ¥399 million, as the Company pushed increase in accounts receivable – trade because of the growth in
ahead with software write-offs. Total noncurrent assets at the end net sales.
of the fiscal year under review were ¥1,846 million, ¥1,253 million Net cash provided by investing activities was ¥3,277 million, in
less than at the previous fiscal year-end. contrast to net cash used of ¥366 million in the previous fiscal year.
Notes and accounts payable – trade increased by ¥163 million This change resulted primarily from proceeds from sale of shares
year on year as the Company expanded its contents distribution acquired through an exchange of stock in an affiliated company.
business, rising to ¥1,009 million. The Company also took steps, Net cash used in financing activities was ¥569 million, com-
however, to repay short-term debt. As a result of these changes, pared with net cash used of ¥265 million in the prior fiscal year.
total current liabilities at the end of the fiscal year under review This mainly reflected repayment of debt.
declined by ¥388 million from the end of the previous fiscal year to As a result of the above, the increase in cash and cash equiva-
¥4,363 million. lents for the fiscal year under review was ¥2,458 million, and the
Total long-term liabilities at the end of the fiscal year were balance of cash and cash equivalents at the end of the fiscal year
¥2,762 million, ¥116 million less than at the previous fiscal under review was ¥5,870 million.
TOTAL ASSETS TOTAL SHAREHOLDERS’ EQUITY RETURN ON EQUITY (%)
(Millions of Yen) AND EQUITY RATIO
Total Shareholders’ Equity (Millions of Yen) 61.7
Equity Ratio (%)
8,581 9,889 10,009 9,757 10,836 3,639 2,017 1,522 1,627 3,672
2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004
MTI ANNUAL REPORT 2004