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CEO Press Conference

August 6, 2014 (Wednesday)

Financial Results for the Three Months Ended June 30, 2014

Hiroo Unoura, President, and CEO
Also in attendance:
Hiroshi Tsujigami, Senior Vice President of Corporate Strategy Planning Department
Takashi Hiroi, Senior Vice President, Director of Finance and Accounting Department

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The following are the key points of the comments given at the Aug. 6th CEO Press Conference.

(Hiroo Unoura, CEO)

Today I will explain NTT’s financial results for the three months ended June 30, 2014. (This three-month period will hereafter be referred to as “FY2014/1Q”.)
The highlights of the financial results for FY2014/1Q are as follows.

Operating revenues increased by ¥31.1 billion year-on-year, driven by overseas operations. This was the fourth consecutive year that operating revenue increased.

Operating income reached ¥298.0 billion, down ¥50.9 billion year-on-year. This is 25% of the annual target and therefore in line with expectations.

As I stated at the start of the fiscal year, this year differs from a typical year in that we will be working toward the latter half of the year beginning in FY2014/2Q (i.e., the three months ending September 30). Therefore, we will continue to pursue the original income targets via revenue growth and continued cost-cutting at all Group companies.

Next, I will describe the expansion of our global cloud services.

We are continuing to pursue M&A opportunities with respect to our global cloud services. In FY2014/1Q, Dimension Data acquired U.S. ICT solutions provider Nexus IS, strengthening its coverage on the U.S. West Coast.

Cross-selling has grown not only in North America but globally. Including the announced deal with the U.K. government’s HM Treasury, NTT received a total of $50 million in orders in FY2014/1Q. Additional high-probability orders worth tens of millions of dollars are in store for FY2014/2Q. These results can be considered a validation of the NTT Group’s overall strength.

Due to initiatives such as these, overseas sales grew to a healthy ¥363.3 billion, up ¥96.4 billion year-on-year.

Next, I will describe the improved competitiveness of NTT’s network services.

NTT’s network services have seen a definite growth in user base. In the mobile communications business, NTT DOCOMO has improved its mobile number portability (MNP) and reduced its churn rate. The result has been a clear recovery with net additions of 460,000 subscribers, up 370,000 year-on-year.

Photo of CEO Press ConferenceIn the regional communications business, NTT West continued its healthy trend begun in the second half of FY2013. FLET’s Hikari saw an increase in new lines opened, while rate-discount and customer retention programs led to a reduction in service cancellations for both NTT West and NTT East. As a result, FLET’s Hikari saw net additions of 270,000 subscribers, up 50,000 subscribers year-on-year and putting it on track to achieve its annual target.

Additionally, costs of fixed-line and mobile access networks were decreased by ¥45 billion, on track to the annual target of reducing such costs by ¥190 billion.

Next, I will discuss the general outlook for the consolidated financial results of the NTT Group.

Although this has not been explained previously, net income decreased in FY2014/1Q year-on-year, but it is still on track at 25% of its annual target. Healthy net income predicted heading into the second half of FY2014 means that it is currently meeting expectations.

Next, I will explain the factors that contributed to results in each individual segment.

In the regional communications business, income remained roughly unchanged from 2013 despite the increased impact of FLET’s Hikari rate discounts, which were offset by cost controls initiatives and improved operational efficiency.

Both NTT East and NTT West are expected to meet their income targets. NTT East expects the impact of rate discounts to drop off from FY2014/2Q into the second half of the year. NTT West expects an increase in revenues due to growth in FLET’S Hikari subscriber numbers beginning at the end of last year and extending through FY2014/1Q, as well as due to renewed cost-cutting efforts in preparation for the second half of the year.

In the long distance and international communications business, income dropped by ¥7.9 billion year-on-year. NTT Communications’ reduced income in the domestic market was a major factor in this, but its overseas business experienced strong growth.

NTT Communications experienced a drop in domestic network revenues, but it simultaneously pursued a policy of cost-cutting.

A major reason for the drop in operating income this year was temporary costs from NTT Communications’ integration of IP-VPN and other networks into “Arcstar Universal One”.

In the future, the effects of this network integration, plus efforts to revise the company structure and strengthen its sales system are expected yield an increase in revenue.

Overseas, NTT Communications worked with Group companies to grow businesses while it implemented a broad cost-cutting scheme on a global scale. It is expected that the NTT Communications Group will achieve its annual income targets through these initiatives.

Photo of CEO Press ConferenceDimension Data reported strong sales growth of 26% on a local currency basis. However, income remained unchanged from last year due to upfront investment, capital investment, and labor build-up costs associated with the company’s ramped-up IT outsourcing and expansion of its cloud services.

The mobile communications business saw income decrease ¥38.0 billion year-on-year, due in part to the expansion of the Monthly Support program. However, as explained in NTT DOCOMO’s announcement of its financial results, business is off to an extremely good start on the operational front, and NTT DOCOMO is expected to meet its income targets. It will achieve these targets by aiming for increased packet revenue from increased subscribers numbers, as well as cost-cutting through the continued revision of sales techniques based on new rate plans.

In the data communications business, income remained roughly unchanged from the previous year despite the partially lingering effects of last year’s unprofitable business deals. These effects were offset by improved gross margins from an increase in sales and a decrease in sales administration costs. Strong order volume made it likely that targets would be met.

In conclusion, the NTT Group overall saw a reduction in income year-on-year, but results were generally in line with expectations. We will continue to work toward achievement of the targets set at the beginning of the year. This concludes the NTT Group financial results announcement for FY2014/1Q.

Next, I will outline the response of NTT to the “Notice Regarding Stock Repurchases” announced today by NTT DOCOMO.

NTT DOCOMO resolved to acquire ¥500.0 billion of treasury stock in spring 2014. Today, NTT DOCOMO announced its decision to launch a tender offer for ¥350.0 billion of that stock.

Additionally, in today’s NTT Board of Directors meeting, it was resolved that 177 million shares of common stock (worth ¥300.0 billion) that the NTT parent company holds in NTT DOCOMO would be sold back to NTT DOCOMO.

This transaction will take 20 business days to complete. The profits of this sale to NTT itself will be recorded as extraordinary profits in the financial statements. A separate press release will cover related corrections to the business plan.

This stock sale will have little impact on the consolidated results of the NTT Group because it is a capital transaction within the Group, but it will improve the financial situation of NTT itself. These funds will be used to acquire treasury stock or paid out as dividends.

This concludes my explanation of NTT’s response to this matter.

Related information
Financial Results for the Three Months Ended June 30, 2014  
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