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CEO Press Conference

August 5, 2016 (Friday)

Financial Results for the Three Months Ended June 30, 2016

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

Photo of CEO Press Conference

The following are the core points of the comments given at the press conference.

(Hiroo Unoura, CEO)

I would like to explain the Financial Results for the Three Months Ended June 30, 2016.
The highlights of the Financial Results for the Three Months Ended June 30, 2016 are as follows.

I’m pleased to announce that the current Financial Results show increases in revenue and profits.
Operating revenue grew by ¥10.3 billion to ¥2,716.7 billion, a year-on-year increase of 0.4%, making this the sixth consecutive year of positive growth in the first quarter. This was due to the fact that, increased revenue from organic growth and promotion of M&A, notwithstanding the effects of a strong yen on oversea sales, together with increased revenue in the Smart Life field of the domestic mobile communications business, made up for the revenue decrease in the regional communications business.

Operating income grew by ¥128.6 billion to ¥487.4 billion, a year-on-year increase of 35.9%. In addition to a series of past initiatives for cutting costs by improving operational efficiency, this increase was due to the fact that, a unique feature of the current fiscal year, the effects of the change in the depreciation method and the associated mitigation measures for later fiscal years increased profits by about ¥54 billion.
The approximately ¥54 billion increase in profits comes from subtracting ¥63 billion in mitigation measures for later fiscal years, mostly related to the accelerated depreciation of old equipment, from the roughly 117 billion profit increase in the first quarter resulting from the change in the depreciation method, which in the current fiscal year went from the declining-balance method to the straight-line method. If we excluded the ¥54 billion resulting from the change in the depreciation method, operating income would amount to ¥74.4 billion, representing a year-on-year increase of 20.7%. It is the second consecutive year that first quarter Financial Results show an increase in profits. Moreover, quarterly net income too grew by ¥50.5 billion to ¥243.6 billion, a year-on-year increase of 26.1%, thanks to the increase in operating income. This also represented an increase for the second consecutive year.

Photo of CEO Press ConferenceNext, let me explain our major initiatives.
Overseas sales, calculated in US dollars, grew year-on-year by $210 million to $3.8 billion, a 5.8% increase, thanks to organic growth and promotion of M&A. However, when calculated in yen, due to the appreciation of the yen, they grew by ¥10.2 billion to ¥438.2 billion, a 2.4% increase.

On the other hand, overseas operating income, following the increase in the upfront expenses required for setting up data centers and expanding growth sectors, when calculated in US dollars, amounted to $140 million, almost the same as last year. When calculated in yen, due to the impact of a strong yen, it totaled ¥15.6 billion, a year-on-year decrease of ¥900 million.

As for overseas operating income, we are working to improve the balance of payments by strengthening the services and operations of the entire Group, as well as by upselling and cross-selling, starting with the expansion of global accounts.

In network services, mobile services subscribers increased to 71.61 million registering a net increase of 650,000 subscribers, while the number of “Kake-hodai & Pake-aeru” subscribers also grew to 31.59 million, registering a net increase of 1.88 million subscribers, leading to a revenue increase in mobile communication services.

FTTH added 260,000 new subscribers, 30,000 more than in the previous year. The Hikari Collaboration Model continued to expand the number of new lines and the number of its subscribers is growing steadily. The combined effect of increasing Hikari Collaboration subscribers and decreasing marketing costs contributed to an increase in the regional communications business revenue.

As for Wi-Fi area owners, companies and local governments have been actively promoting Wi-Fi introduction and the number of area owners working with our Group has grown to reach 461, adding 68 area owners.

As for reducing costs in fixed/mobile access networks, as a result of various initiatives which included reduced sales costs, cost reduction in the first quarter has reached ¥74 billion. Therefore, the total of costs reduced since FY 2015 amounts to ¥488 billion, signaling a steady progression towards our goal of ¥800 billion by FY 2017. We intend to steadily reduce costs by continuing to increase the efficiency of operations.

I would now like to talk about the promotion of the B2B2X model.
In May we announced the creation of the NTT Group’s new value-adding “corevo” AI technology and in July we announced that device-cooperation services using “corevo” were in the validation stage. We now intend to create a large number of new businesses by promoting our partner companies to use as communication tools technologies like “voice recognition,” “image recognition,” “coordination control of various devices” and more, which the NTT Group has been researching and developing over the course of many years.

I’d like to stress that even our collaboration with FANUC which was announced the other day, offering edge computing technology and ICT infrastructure, as well as management services researched and developed by NTT, marks an important contribution to improving Japanese manufacturing productivity and strengthening competitiveness.

We are also working to create added value by applying ICT to the fields of traditional arts and sports.
In the field of Kabuki theatre, we’ve taken on the challenge realizing a new Kabuki performance and video/sound technology, first in Japan (April) and then in Las Vegas (May). We are also working on the delivery of competition videos in triathlon, as well as collaborating with partners like J-League and Panasonic towards the realization of “smart stadiums.”

As for shareholders returns, in June we acquired 59.40 million treasury shares, mainly government-owned, for a total of ¥267.4 billion.

Next, I will explain the results for each of our individual business segments.
Operating income has increased in each segment.

Photo of CEO Press ConferenceIn the regional communications business, operating income grew by ¥56.7 billion to ¥127.8 billion, a year-on-year increase of 79.7%. This was a result of the improvement in the balance of payments following the shift to the previously discussed Hikari Collaboration, as well as of the roughly ¥27 billion resulting from the change in the depreciation method and mitigation measures for later fiscal years, and finally of ¥11.5 billion from real estate sales. If we exclude the effects of the change in the depreciation method and the profits from the real estate sales, the increase would amounts to ¥18 billion or 25.4%. We aim for steady profits and expect to exceed our targets also in the second quarter and beyond.

In the mobile communications business, in addition to what I mentioned before, income grew by ¥63.6 billion to ¥298.3 billion, a year-on-year increase of 27.1% due to the positive impact of ¥25 billion from the change in the depreciation method and the mitigation measures for later fiscal years.
In the first quarter, we saw a strong increase due to specific events such as the reaction of reserves of “Zutto-Kurikoshi” in the previous year and we expect to exceed goals set at the beginning of the year even in the second quarter and beyond by continuing to carry out steady business operations.

In the long distance and international communications business, income grew by ¥5.8 billion to ¥27 billion, a year-on-year increase of 27.3 % in spite of the impact of the exchange rate on the overseas business, as a result of cost-cutting measures and of revenue increase from data networks.
It should be noted that the impact on profits of the change in the depreciation method and of the mitigation measures for later fiscal years is minor and that we intend to keep accumulating profits also in the second quarter and beyond thanks to overseas business growth and continued efforts in cost efficiency.

In the data communications business, income grew by ¥3 billion to ¥21.9 billion, a year-on-year increase of 16.0%, thanks to the accumulation of profits due to an increase in sales and to the reduction of unprofitable projects.
It should be noted that the impact on profits of the change in the depreciation method and of the mitigation measures for later fiscal years was minimal and that we aim to achieve our target profits through increases in gross profits from sales growth.

In the other sectors, income grew by ¥2 billion to ¥12.3 billion, a year-on-year increase of 19.1% thanks to the contribution of Group companies, including that of NTT’s Urban Development announced on August 2.

The first quarter saw good results in each segment and, by sustaining this trend in the second quarter and beyond, we believe we’ll achieve our basic profit target of ¥1.41 trillion.
This ¥1.41 trillion basic profit target will be achieved one year ahead of schedule of last year medium-term targets (announced in May 2015). Furthermore, combined with the ¥20 billion from the change in the depreciation method and the mitigation measures for later fiscal years, we expect a further increase in profit even with regard to the target profit forecast of ¥1.43 trillion by exerting tight control on all related measures.

This concludes my explanations.

Related information
Financial Results for the Three Months Ended June 30, 2016 
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