Message to Shareholders and Investors

I would like to begin my message with a brief discussion of the Fiscal 2005 business environment and operating results. Vodafone, whose mobile handsets are our mainstay product, fully launched third-generation mobile services in the term, but suffered five straight months of a net decline in subscribers in the first half of the year due to delays in expanding area coverage and problems with mainstay handsets. In the second half, decline in net subscribers was halted thanks to the launch of new second-generation handset models, revised fixed-fee plans, and promotional activities by Vodafone and sales companies, but subscriber growth significantly lagged that of competitors DoCoMo and au.

As Vodafone's core sales agent, we worked particularly hard to promote sales and retain existing subscribers in this poor business environment. Sales competition remained fierce as leaders DoCoMo and au went on the offense, but two mergers in the previous fiscal year enabled us to start the year with 13 additional well-located stores in our store network. We maintained strong employee morale at existing stores, and as a result of everyone pulling together, we boosted consolidated ordinary income by 48.4% year-over-year to a record 946 million yen. Also, we added six additional stores, two through small-scale mergers and four through new store openings, bringing our store network to a total 55 by the end of the fiscal year.

In my last report I declared that we would refocus on growth, and indeed we launched new businesses including the fixed-line sales business in 2005. The fixed-line sales business has yet to contribute to earnings, but we aim to improve earnings in the business going forward. Japan Pro Staff Co., Ltd., our subsidiary involved in the human resources business, saw an increase in human resource dispatches, and finally turned profitable in the second half of Fiscal 2005, the third year after we launched the business. Number portability, which allows users to change mobile carrier without changing their mobile phone number, is scheduled to begin this November. I also expect mobile phone technology to continue to evolve as Suica functionality is added to handsets, and large-capacity music handsets and terrestrial digital TV receiving handsets are launched. In line with our management philosophy of meeting new challenges and believing in our potential, we will continue to pursue growth in new businesses and the ever-evolving mobile phone market. I respectfully ask for your continued understanding and support as we set even higher goals for ourselves in the future.

March, 2006
President & CEO,
Takeru Nishikawa

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