Hikari Tsushin Reports First Operating Loss

TOKYO (04/24/2000) - One-time darling of Japanese Internet investors Hikari Tsushin Inc. today announced its first ever operating loss and predicted heavier losses for the full year -- news that is unlikely to pull the company out of a month-long tailspin that has seen its share price collapse 92 percent in just over two months.

The company said today revenue almost doubled in the first six months of its current financial year, the period to February 29, rising 92.2 percent to 191.3 billion yen (US$1.81 billion). At the operating level, the company recorded a loss of 13.0 billion yen against a modest 162 million yen operating profit recorded in the same period a year ago, company officials said at a television press conference.

Pre-tax profit increased 33.5 percent to 7.4 billion yen thanks to increased profits from sales of shares in Internet companies in which Hikari had invested, and net profit was 4.3 billion yen, up 42.9 percent from the same period a year earlier.

Hikari Tsushin operates a network of shops that sell cellular telephones and subscriptions to other telecommunications services, such as long distance telephone and digital satellite television. It makes money from the commissions paid by service operators. In addition, the company has been a keen investor in Internet businesses and startup companies.

Increased competition in the company's core cellular telephone subscription business lay at the heart of the worse business results. The company failed to match its sales targets, and as such, commissions were lower than expected.

For the full financial year, which ends on August 31, the company had more bad news for investors. Despite an anticipated 27.3 percent jump in revenues to 330.0 billion yen, the company said operating losses are expected to widen further for the full year to 11.6 billion yen. Pre-tax profit is predicted to be 28.0 billion yen, up 35.3 percent, and net profit will come in at 13.5 billion yen.

Reacting to the news, Hikari Tsushin stock ended the day at 19,800 yen, down by its maximum daily limit. The company has been locked in such limit-down trading for several weeks as investors struggle to get out of the stock which hit an all time high of 241,000 yen on February 15.

The company's fall has almost mirrored that, in reverse, of the fast rise of many Internet stocks.

After announcing a series of investments in Internet related companies as a way to broaden its business, the company became the favorite bet of many Japanese investors looking for the "next Softbank." But when its shares hit their stratospheric high, investors began to question the valuation the company, and others in the Internet sector, had been elevated to.

After a couple of weeks of up and down movements, the stock's wild down ride began in earnest around the beginning of March when an article in a weekly magazine painted a dirty picture of Hikari's business practices -- a story later rebuked by the company. Investors, however, were not convinced, and, just as an Internet stock can rise on nothing but investor enthusiasm, Hikari began dropping as an investor panic began.

The inability to trade the stock -- no buyers could be found most days in the open market -- led to even greater numbers of people looking to trade out of the issue and the company scrambled to reassure investors all was OK but a profits warning and the recent bankruptcy led investors to conclude they had been right all along and the selling continued.

Hikari Tsushin, in Tokyo, can be found online at http://www.hikari.co.jp/.

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