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CEO Press Conference

February 6, 2015 (Friday)

Financial Results for the Nine Months Ended December 31, 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

Photo of CEO Press Conference

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

(Hiroo Unoura, CEO)

Today, I would like to explain our financial results for the nine months ended December 31, 2014 (This nine-month period will hereafter be referred to as “FY2014/3Q”.)

Our operating revenues increased by 2% (¥157.3 billion) year-on-year, driven by the growth of overseas businesses, posting an increase for the fifth consecutive year. However, our operating income dropped to ¥910.9 billion, down 7.5% year-on-year.

Our business performance is progressing as expected toward meeting our annual targets, thanks to the increased income from the regional communications business and the data communications business, as well as the increased sales resulting from the up-selling effect of the “new billing plan” introduced for the mobile communications business. We will continue to step up our efforts, such as cost reductions, toward the achievement of our plan.

Next, I would like to talk about our achievements in the field of global cloud services.

Sales from our overseas activities increased by 33.5% (¥288.1 billion) year-on-year and, thus, we are progressing steadily toward the achievement of the annual target of $15 billion.

Orders resulting from cross-selling of global cloud services reached approximately $146 million in total up to FY2014/3Q, showing a steady growth in the business. In FY2014/3Q alone, cross-selling efforts resulted in orders of $29 million, among which the one secured from a European company, which deals in nonferrous metals, resulted from the cross-selling of service products of Virtela Technology Services that NTT Communications acquired last year and those of Dimension Data. This success illustrates that the comprehensive strength of the NTT Group is highly valued by our client.

Next, I would like to talk about our efforts to enhance our competitiveness in the field of network services.

In the network services business, the user base is steadily expanding, as can be seen in the fact that the number of mobile phone subscribers to the “new billing plan” has increased and that the number of subscribers to the “FLET’S Hikari” services has maintained the same level of net increase as in the previous fiscal year.

In addition, our cost reduction efforts in the fixed-line and mobile communications services are steadily bearing fruit toward the achievement of our annual target of ¥190 billion in overall cost reductions. The reduction in marketing costs and the improvement of the efficiency of maintenance operations resulted in cost cutting of ¥154 billion.

Finally, I would like to comment on shareholder returns.

Last November, we set the goal of buying back up to ¥350 billion of our common stock, and, by the end of December, completed ¥256.6 billion of share buybacks, mainly from the Japanese government. As of the end of January, we have repurchased ¥290.7 billion of shares in total.

Now, I would like to explain results in each individual segment.

In the regional communications business, operating income increased by 30.9% (¥31 billion) compared to the previous fiscal year, as a result of vastly improved operational efficiency as well as the reduction of marketing costs. We will continue to invest our energy into cost reductions toward the end of the fiscal year.

Photo of CEO Press ConferenceIn the long distance and international communications business, the intensifying competition in the domestic markets has led to a 12.4% (¥12.5 billion) decrease in operating income; however, the overseas businesses are steadily growing.
By continuing to work to grow the business in this segment, mainly in overseas markets, taking advantage of cross-selling opportunities and by moving ahead with aggressive cost reduction measures such as the automation/standardization as well as the offshoring of backyard operations of corporate network services, we will continue our pursuit of securing target income also in this business.

I would like to point out that, in our long distance and international communications services companies, Dimension Data, among others, is showing steady growth as a result of the expansion of its cloud services and its focus on IT outsourcing services in addition to the expanded consolidation scope, posting an increase in sales of 25.7% year-on-year.

Operating Income from the mobile communications business fell by 14.7% (¥100.9 billion) year-on-year due to the negative impact of the “new billing plan” and the decrease in gross margins of handsets, in addition to the increased impact of the “monthly support” discount program. We only have two months left until the fiscal year end, but we will continue our pursuit of achieving income above the target by continuing with aggressive cost reduction efforts and by maintaining the increase in revenues in the form of increased packet revenues, taking advantage of up-selling opportunities under the “new billing plan”, which is showing signs of recovery.

The data communications business posted an increase in operating income of 62.7% (¥21.9 billion) due to an improvement in gross margins in conjunction with an increase in sales and a reduction of sales administrative expense, in addition to a reduction in unprofitable transactions. We hope to achieve income above the target by continuing with such efforts as steady translation of orders on hand into revenue.

This concludes my explanation about our financial results.

And now, taking this opportunity, I would like to make some comments on the “Hikari Collaboration Model”, the service that NTT East/West have started providing, and “docomo Hikari”, the service that NTT DOCOMO has started.

Photo of CEO Press ConferenceThe “Hikari Collaboration Model” service was launched behind schedule, but it has turned out that a certain period for consideration and preparation was secured for service providers to start various services taking advantage of the fiber optic access services. Although several concerns and anxieties have been voiced from various quarters and the public comment process is still under way, basically, most of such concerns are expected to be solved. We believe that the “Hikari Collaboration Model” service has made a good start in that all the service providers started providing their services at the same time without any providers lagging behind in entering the market. However, I mean that the first step has just been made, and we will continue to further proceed with our efforts toward the realization of a market where a greater variety of players participate to create more diverse services.

Next, I would like to comment on the “docomo Hikari” plan.

Last year, NTT DOCOMO introduced the “new billing plan” with the aim to shift its focus from acquiring users who may switch to other carriers in short periods of time to offering more affordable rates to long-term users. This time, by introducing the “docomo Hikari” plan in addition to the said plan, we are proud to announce that our customers are now being offered a much wider choice of services.

By adding the “docomo Hikari” plan to the existing “new billing plan”, it is now possible for customers to upgrade their billing plans at the same price they are paying now and to get an additional handset with additional payment of just a marginal amount. The plan is the key to opening the door for our customers to enjoy much richer broadband experiences.

Photo of CEO Press ConferenceWhile the market is shifting from the initial growth stage to the maturation stage, we see this billing plan as a plan anticipating emerging trends. We are proud to explain that the plan is really tailored to suit a new emerging market where users will enjoy richer content and will utilize multiple handsets to the fullest extent, and, some time after, will experience wearable computers, which are supposed to be popular in the future.

We are working in our desire to leap out of the conventional framework of competition toward a new stage through the introduction of these services. Through these initiatives, we will continue our pursuit of expanding our business and promoting the evolution of our services.

I would like to thank you for your attention.

Related information
Financial Results for the Nine Months Ended December 31, 2014 
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