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CEO Press Conference

May 15, 2017 (Monday)

Financial Results for the Fiscal Year Ended March 31, 2017 and Financial Forecast for the Fiscal Year Ending March 31, 2018

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 at the press conference.

(Hiroo Unoura, CEO)

I would like to explain our Consolidated Financial Results for the Fiscal Year Ended March 2017.

We booked decreased revenue and increased profit.
Our operating revenue decreased by 1.3%, or ¥150.0 billion, year on year to ¥11.391 trillion, significantly affected by foreign exchange fluctuations (yen appreciation) that caused sales in overseas operations to decrease by approximately ¥220.0 billion. Excluding the impact of the exchange fluctuations, essentially we earned approximately ¥70.0 billion more in revenue.
Our operating income increased by 14.2%, or ¥191.6 billion, year on year to ¥1,539.8 billion. Included in this increase was approximately ¥68.0 billion resulting from such factors as a positive effect of the change in our depreciation method made during the previous fiscal year from the declining balance method to the straight-line method.
Owing to the increase in our operating income, our net income for the fiscal year concerned rose by 8.5%, or ¥62.4 billion, year on year to ¥800.1 billion, thereby breaking the record high level set in the previous fiscal year.
As a result, our EPS is at approximately ¥391, steadily making progress in attaining the medium-term financial target of “EPS at ¥400 or higher.”

Orders received via cross-selling in global cloud services reached a year-round record level of $940 million.
With regard to the B2B2X business model, we have announced initiatives on various occasions. We accelerated the implementation of specific collaborations with a wide range of companies. By making presentations of such initiatives at the “CeBIT2017” held in Germany in March, and the “Niconico Chokaigi 2017” in Makuhari, Japan in April, we actively introduced the NTT group’s initiatives. In this regard, we had some positive responses during the fiscal year concerned.

Next, I would like to explain the results of our key segments.

The regional communications business increased its operating income by ¥94.5 billion year on year to ¥359.5 billion, owing to a narrowed decrease in fixed voice revenue despite a continuing downward trend in revenue, compensation for decreased revenue, such as the progress of streamlining, and positive effects from the difference between the depreciation methods and from gains on sale of real estate, which added approximately ¥60.0 billion to profits.

In relation to the long distance and international communication business, the NTT Communications group increased its profits by 12.1%, or ¥14.3 billion, because of revenue increase in its data network, growth in Japan and overseas businesses, principally its data center business, and its activities to reduce costs. However, as we already mentioned, due to temporary expenses incurred for structural reforms of Dimension Data, and an impairment loss derived from the integration of the security business, which together amounted to ¥70.0 billion, the long distance and international communication business as a whole recorded a ¥55.9 billion decrease in profit year on year to ¥40.8 billion.

The profits of the mobile communications business increased by ¥163.3 billion year on year to ¥951.6 billion, owing to not only increased revenue from mobile communications services, the growth of the Smart-Life Domain, and the effects of cost reductions, plus but also a positive effect in the amount of approximately ¥60.0 billion arising from the change of the applicable depreciation method from the declining balance method to the straight-line method.

The data communications business had a profit increase resulting from curtailed unprofitable businesses as well as profits built up from increased sales. However, as we recorded temporary expenses incurred for M&A activities, the business saw a year-on-year decrease in profit in the amount of ¥4.9 billion, resulting in operating income of ¥107.9 billion.
For your information, NTT DATA applies Japanese accounting standards. Therefore, NTT DATA increased its operating income, as it recorded temporary M&A expenses in the amount of approximately ¥22.0 billion as an “extraordinary loss.”

Let me move on to the progress status of the medium-term financial targets (for the fiscal year ending March 2018).

Photo of CEO Press ConferenceOn the results for the fiscal year ended March 2017, our EPS has made stable progress, reaching approximately ¥391. On the basis of our business performance forecast for the fiscal year ending March 2018, we are expecting to accomplish the medium-term financial target of raising our EPS to “¥400 or higher”, to which we will come back later for a further explanation.
With smooth progress in streamlining capital investment and reducing costs, we project that we can manage to achieve the medium-term financial targets for the fiscal year ending March 2018.
For our overseas sales, we recorded $16.9 billion due to the expansion of consolidation scope, and the achievement of organic growth in the amount of $940 million from cross-selling during fiscal 2016, as we have explained earlier. Our overseas operating income amounted to $800 million. In our projections of business performance for the current fiscal year, our overseas sales will be $19.6 billion, and our overseas operating income will be $1.2 billion. Consequently, the situation poses difficulty for us in achieving our medium-term targets of $22 billion for sales and $1.5 billion for operating income. For this reason, we will extend the period for accomplishing the targets by one year, striving to meet them as expeditiously as we can.

Next, I would like to explain our approaches to reinforcing global businesses.

Our initiatives during the fiscal year ended March 2017 were as we explained before. We are aiming to continue reinforcing our initiatives for the go-to-market domain, the service operation domain, and the procurement domain.
I would like to use this opportunity to introduce an initiative for the fiscal year ending March 2018. We will engage in integrating and enhancing the cloud services of NTT Communications and Dimension Data. Specifically, it is our plan that NTT Communications will operate the facilities for the cloud services of these companies in an integrated manner, and will provide such facilities to Dimension Data wholesale. The two companies will continue cooperating with each other in their service development and marketing, in order to further enhance the profitability of this business. When specific details are set out, we will keep you informed.

Next, I would like to explain our business performance forecast for the fiscal year ending March 2018.

We are planning to achieve record-high levels in terms of all of operating revenue, operating income, and current net income.
Concerning operating revenue, our target is to expand our revenue from businesses in Japan by ¥34.0 billion year on year and overseas revenue by ¥325.0 billion year on year, and raise total revenue by 3.2%, or ¥359.0 billion, to ¥11.75 trillion.
Concerning operating income, we are aiming to increase it by 3.3%, or ¥50.2 billion, year on year to ¥1.59 trillion, incorporating the profit growth, cost reduction and other activities of each group company.
Furthermore, we project that positive effects associated with the change the depreciation method will amount to approximately ¥65.0 billion; in comparison with ¥68.0 billion in the previous fiscal year, it will be a ¥3 billion year-on-year decrease. Adding such effects, we are aiming to attain the operating income target of ¥1.59 trillion. This amount for operating income is to exceed the operating income for the fiscal year ended March 2004, which was ¥1560.3 billion, and thus mark a record high.
With regard to net income for the fiscal year concerned, we project that it will increase by 3.7%, or ¥29.9 billion, year on year to ¥830.0 billion because of increased operating income. As a result, we predict our EPS will rise by ¥23 compared with the previous fiscal year to ¥414, reaching the medium-term financial target of “EPS at ¥400 or more.”

Let me move on and explain our key segments.

Photo of CEO Press ConferenceProfits from the regional communications business are expected to increase, as the reduction of facility costs following the streamlining of investment by both NTT EAST and NTT WEST, and reduced expenses following streamlining will compensate for decreased revenue. However, with the gains on sale of real estate in fiscal 2016, and negative effects generated during fiscal 2017 from differences between Japanese and U.S. accounting standards in terms of accounting for pensions, we forecast that the profits will decline by ¥29.5 billion year on year to ¥330.0 billion. In other words, in terms of our business capability, we expect a year-on-year decrease in profit on a consolidated basis, although the profits of NTT EAST and NTT WEST will grow slightly.

The long distance and international communication business is forecast to increase its profits by ¥79.2 billion year on year to ¥120.0 billion, since we project an increase in the profits of the overseas subsidiaries, principally from the NTT Communications group’s data center business, and Dimension Data’s recovery of profits, in addition to reaction to the impairment loss during fiscal 2016.

The mobile communications business is projected to increase its profits by ¥3.4 billion year on year to ¥955.0 billion, owing to effects of continuous cost reduction as well as the growth of mobile communications services and the Smart-Life Domain.

The data communications business is projected to increase its profits by ¥22.1 billion year on year to ¥130.0 billion by firmly accumulating profits from sales expansion, despite the fact that temporary M&A-related expenses will continue to rise during fiscal 2017 as was the case for fiscal 2016.

Next, let me explain our shareholder return plan.

Last December, the Board of Directors resolved a plan to repurchase shares for treasury stock worth up to ¥150.0 billion. This plan was completed in April this year. As a result, during the fiscal year ended March 2017, we repurchased shares worth ¥374.1 billion in total, among which shares worth ¥267.4 billion were repurchased principally from the government in June the same fiscal year. Furthermore, we repurchased the remaining shares in the amount of ¥43.2 billion for treasury stock in April in the current fiscal year.
In relation to dividends, the annual dividend amount for the fiscal year ending March 2018 will be increased by ¥30 year on year to ¥150 per share, on the basis of our healthy business results and the fact that it is the 30th anniversary of our stock listing: ¥75 for the interim dividend, and ¥75 for the year-end dividend. This amount is six times higher than the level at the time of our stock listing.
That concludes my explanation.

Related information
Financial Results for the Fiscal Year Ended March 31, 2017 And Financial Forecasts for the Fiscal Year Ending March 31, 2018 
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