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CEO Press Conference

February 10, 2017 (Friday)

Financial Results for the Nine Months Ended December 31, 2016

Hiroo Unoura, Representative Director and
President, Chief Executive Officer
Also in attendance were:
Takashi Hiroi, Senior Vice President, Director of Finance and Accounting Dept.
Eiichi Sakamoto, Senior Vice President, Director of Corporate Strategy Planning Dept.

Photo of CEO Press Conference

Summarized below are the key points of the explanations and comments given by Mr. Unoura at the press conference.

(Hiroo Unoura, CEO)

I would like to explain our Financial Results for the Third Quarter of the Fiscal Year Ending March 2017 Nine Months Ended December 31, 2016.

We booked decreased revenue and increased profit, which indicates a similar earnings tendency observed in our half-year results.
Our operating revenue decreased 1.6%, or ¥134.9 billion, year on year to ¥8,360.5 billion, substantially affected by the foreign exchange fluctuation (yen appreciation) that caused sales in overseas operations to decrease by approximately ¥181.0 billion. If we exclude the impact of the exchange fluctuation, we would have earned approximately ¥46.0 billion more in revenue. Our operating income increased by 17.0%, or ¥192.0 billion, from the year-ago period to ¥1,318.6 billion. Included in the increase is some ¥50 billion, a positive effect resulting from the change in our depreciation method made in the current fiscal year from the declining balance method to the straight-line method. The ¥142.0 billion increase after deducting the ¥50 billion resulted from the efforts made in each business segment for revenue increase and cost reduction.

As a result, we posted strong financial results for third quarter in terms of progress with respect to our annual earnings plan. For the remaining fourth quarter, in our half-year earnings report we revised upward our initial earnings plan. We will work harder in order to “land on a higher place” from the revised earnings plan.

Next, let me explain our overseas operations.
Our yen-based overseas sales decreased by ¥110.2 billion from the year-ago period affected by foreign exchange fluctuations; however, dollar-based sales grew $430 million.
Dollar-based overseas operating income grew approximately $20 million reflecting our real earning power and the result of our steady efforts made thus far.

Photo of CEO Press ConferenceNow I’d like to explain our major activities.
Orders received via cross-selling in global cloud services have steadily grown to $820 million on a cumulative basis as the result of a greater number of orders received in the current quarter for our financial and healthcare services in the Asia-Pacific area.
In our domestic network services, we won 73.59 million contracts for mobile services, a net increase by 2.62 million contracts year on year. We have also continued to enjoy an increase in the number of subscribers for “Kake-hodai & Pake-aeru” to 35.20 million, a net increase of 5.49 million subscribers. Such increases have contributed to a revenue increase in our mobile communications services.
The number of subscribers for FTTH (fiber-to-the-home) services increased by 640,000 in net terms, or 200,000 more than the net increase recorded in the year-ago period. The total number of FTTH subscribers stood at 19.90 million at the end of December, slightly short of the order of 20 million. The Hikari Collaboration service has seen the number of subscribers steadily growing as its service has continued to be opened to traffic on a wider scale. For your information, the number of subscribers for the DOCOMO Hikari service exceeded 3 million on January 14, less than two years since we started providing the service.
A word about Wi-Fi area owners. Thanks to its aggressive introduction by businesses and municipalities the number of Wi-Fi area owners to whom our group provides cooperation increased by 101 from the year-ago period, standing at 494 at the end of December.

Next, let me explain our shareholder return plan.

Last December, we announced our plan to repurchase shares for treasury stock worth up to ¥150 billion. At the end of January, we repurchased some 10 million shares in the amount of ¥50 billion.
Also in June last year (or of the current fiscal year), we repurchased 59.04 million shares worth ¥267.4 billion, principally from those held by the government. In total, by the end of January, for treasury stock, we have so far repurchased our shares in the amount of ¥317.4 billion on a cumulative basis.
By the end of the coming June, we plan to disburse the remaining ¥100 billion of the announced ¥150 billion for repurchase of our shares; we intend to disburse the remaining amount as promptly as possible.

Next, I’d like to explain per-segment results.

Regional communications business increased its operating income by ¥98.3 billion year on year to ¥330.5 billion because of (ⅰ) a narrowing year-on-year decrease in fixed voice revenue, (ⅱ) the progressing cost efficiency that has added to income, and (ⅲ) the profit derived from the difference between in the applicable depreciation method and the result in the measures applied to the mitigation of future cost burden which added ¥54.0 billion to profit.

The long distance and international communication business booked decreased revenue because of the effect of foreign exchange fluctuations on overseas business. The business also posted decreased operating income because of an impairment loss and other one-time expenses.
First, let me explain about the NTT Communications group, which provides the Hikari Collaboration service. The group has expanded its VPN (virtual private network) service targeted at corporate customers which resulted in a revenue increase from the data network, has its overseas subsidiaries steadily growing principally on data center business, and has worked for reduction of its costs including selling expenses. As a result, NTT Communications’ group-wide income increased by ¥13.1 billion.
On the other hand, Dimension Data posted decreased income as it recorded a one-time expense derived from its structural reform aimed at operating income improvement; furthermore, the group wrote down goodwill on Dimension Data, and booked an impairment loss derived from the integration of the NTT Security business recorded in second quarter. Thus, the long distance and international communication business as a whole posted a ¥63.5 billion decrease in profit year on year to ¥18.7 billion.
Now, allow me to give you supplementary explanations about the impairment loss booked on Dimension Data in the current quarter. In our interim earnings report we explained that until last year our working group had been engaged in discussions about various tasks to be overcome for promoting global business and that they had already set about some measures aiming for higher efficiency in procurement costs.
We have yet to implement various measures including those being studied at the holdings company. These are efforts aiming for the growth of the global business and the enhancement of the total NTT group’s corporate value. One example of such efforts is the strengthening of the global cloud service. At each NTT group company, discussions are under way about what functions should be reinforced or how their role should be clearly defined to move toward the reinforcement of global cloud services.
We are convinced that implementing some of these measures will contribute to the improvement of NTT group’s consolidated operating income. But the measures will require Dimension Data to modify its initially planned medium-term business forecast. We would like you to understand that such a change may mean that Dimension Data will transfer part of its business to another group company.
We would like to explain to you about this matter as an individual case in the early part of the next fiscal year. Since any such change may require relocation of personnel at this moment we are carefully planning implementation of the necessary changes. So, I will dispense with further details.
Dimension Data’s fiscal year runs from October of one year to September of the next. In the current third quarter, we reviewed Dimension Data’s medium-term plan in consideration of its September financial results. And as a result, we decided to book an impairment loss on Dimension Data. May I repeat here that this measure will serve to reinforce the overseas business conducted by the entire NTT group.
Now, how will the impairment loss affect the NTT group’s earnings forecast? In our initial business plan published last May and the revised business plan made public in the interim earnings report for the current year, we had assumed the loss to be a risk factor and discounted it as a “non-cash measure being identified” under “intersegment elimination.” We had also explained to investors about the measure as an “extra measure designed to address potential risk.” So, we are not required to modify our business plan on an NTT group consolidation basis.

Photo of CEO Press ConferenceProfit of the mobile communications business increased by ¥156.3 billion year on year to ¥839.3 billion. What contributed to the increase are (ⅰ) the increased revenue from mobile communication services, (ⅱ) growth of the Smart-Life Domain, and (ⅲ) the effect of cost reductions, plus the positive effect in the amount of ¥57.0 billion derived from the difference between the applicable depreciation method and the result in the measures applied to the mitigation of future cost burden.

Data communications business had an income increase resulting from increased sales and curtailed unprofitable businesses; however, as we recorded a one-time expense incurred in M&A activities in the current fiscal year, the business saw a year-on-year decrease in income in the amount of ¥7.0 billion, booking operating income of ¥67.1 billion.
NTT Data increased operating income by ¥10.2 billion year on year as it recorded a one-time M&A expense as an extraordinary loss. For your information, NTT Data applies domestic accounting standards.

That concludes my explanation about NTT group’s financial results.

In May last year, we announced that we were considering delisting from the New York Stock Exchange. As one of the required steps, we have decided to apply for delisting in March. Please refer to the news release we have distributed.

That’s all for my explanations.

Related information
Financial Results for the Nine Months Ended December 31, 2016 
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