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CEO Press Conference

November 10, 2017 (Friday)

Financial Results for the Six Months Ended September 30, 2017

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 give the outline of our Consolidated Financial Results for the Second Quarter of the Fiscal year ending March 2018.
Following the first quarter, our revenue and profit increased.

Revenue rose by 2.5%, or ¥140.5 billion, year on year to ¥5,664.8 billion due to the impact of consolidated expansion in the data communications business and organic growth of overseas group companies.

Operating income rose by 5.3%, or ¥48.7 billion, year on year to ¥975.2 billion. While profit of the mobile communications business dropped, as was announced by NTT DOCOMO, profit from other businesses increased.
This is the level of progress as expected, and is very steady progress in line with the annual plan.

Net income for the quarter rose by 10.8%, or ¥51.4 billion, year on year to ¥527.5 billion.

In the second quarter, revenue, operating income, and quarterly net income were all the highest ever. We announced in the annual plan that we are aiming for the highest levels, and we have been keeping up with the plan.

Overseas sales and operating income are steadily growing compared with the previous year.
The amount of cross-sell orders is increasing satisfactorily, to total 280 million dollars due to orders in the manufacturing industry in Europe.

With regard to network services, the number of mobile service users has increased (net additions) by 480,000 to 75.36 million, and the number of subscribers to the “Kake-hodai & Pake-aeru” plan has continued to increase (net) by 2.55 million to 39.62 million.

The number of FTTH subscribers increased (net) by 330,000 to 20.39 million.
Among them, the number of “Hikari Collaboration” subscribers increased (net) by 1.4 million to 10.15 million, exceeding 10 million, showing steady growth.
In regard to Wi-Fi hotspot hosts, our client businesses and local governments have taken the initiative to launch the hosting service. The number of hosts collaborating with us increased by 85 compared with the previous year to 642 hosts.

Regarding our initiatives in the B2B2X model, we are expanding collaboration with other companies and local governments in various fields such as sport, transportation, and manufacturing to create novelty value and solve social issues.

Next, I would like to talk about shareholder returns.
In respect of stock buybacks, as of October, we have repurchased ¥60.3 billion of a ¥150 billion upper limit, which was resolved at the Board of Directors meeting in September. As a result of this repurchasing, the total number of shares repurchased will exceed 1.2 billion. If treasury shares are canceled as usual, the number of outstanding shares will be less than 2 billion, slightly exceeding 60% of the 3.2424 billion shares, which was the peak level. If all these repurchased shares are retired, the rate of retired shares will be a little less than 40%. At this moment, 35% have been retired.

Photo of CEO Press ConferenceNext, I would like to talk about the status of our initiative “Tokyo 2020 Medal Project: Towards an Innovative Future for All,” which I mentioned at the financial results briefing for the first quarter and asked for your cooperation.
In addition to gradually receiving cooperation from businesses, primarily Tokyo 2020 partner companies, as a result of establishing a new mobile phone recycling class for elementary school students in July, and because of trying to have a positive impact on the next generation, the number of collected phones was about 800,000 in the second quarter alone, while it was about 740,000 in the first quarter.
Through these efforts, the cumulative number of phones collected was about 1.54 million, and we expect that will exceed 2 million phones during this month.
I have mentioned that this year’s target was 3 million phones, but to aim above 3 million, we would like to have your continued cooperation, including from businesses.

To summarize profit by segment, as mentioned before, total profit rose to 48.7 billion year on year despite a decrease in profit in the mobile communications business, which was canceled out by an increase in profit in other businesses.
I would like to explain the status by segment.

In the regional telecommunications business, despite the year-on-year decrease in the fixed income of voice revenues, both NTT East’s and West’s profit increased due to a decrease in expenses as a result of accelerated depreciation of legacy systems in the previous fiscal year. In terms of consolidated results, the total profit of all businesses rose by ¥20.9 billion year on year to ¥253.2 billion, primarily because of the gain on the sale of real estate in the previous fiscal year. The profit of NTT East rose by ¥17.9 billion on a non-consolidated basis, and the profit of NTT West rose by ¥21.8 billion. Consolidated results of the total profit rose by 9%, or ¥20.9 billion, mainly due to the use of different accounting methods.

Profit of long distance and international communications businesses rose by 66.9%, or ¥28.2 billion, year on year to ¥70.4 billion mainly due to the increased profit associated with an increase in revenue from the overseas data center business under the NTT Communications Group, a profit recovery in Dimension Data, and the effect of impairment of ¥10.9 billion on NTT Security in the previous year.

Profit of the data communications business decreased by ¥36.5 billion year on year to ¥547.3 billion due to NTT DOCOMO’s implementation of measures to reduce expenses for later fiscal years since the first half of the fiscal year.

The data communications business’s profit rose by ¥23.1 billion year on year to ¥59 billion due to the effect of the consolidated expansion of the Dell Services division acquired in the previous fiscal year, increased revenue in domestic business expansion, and the impact of M&A-related temporary expenses in the previous year.

The financial results of NTT Data were released the other day, but the numbers are different from the consolidated results because the financial results of NTT Data are based on domestic accounting standards.

Revenue and operating income for the full fiscal year ending March 31, 2018 are in line with the initial forecast.

The initial forecast for net income was ¥830 billion. However, considering the effect of a given arbitration award from Tata Sons as announced by NTT DOCOMO on October 31, net income is expected to rise ¥50 billion to ¥880 billion, which is different from the published number because of the ownership ratio.

EPS is ¥416, considering share buybacks, which were carried out during the second half of the fiscal year, and ¥440, considering the effect of the given arbitration award from Tata Sons.

The summary of forecasts by segment stay the same as the forecasts presented at the financial results briefing in May. I would like to comment on some of the differences in outlook between the first half of the fiscal year and through the year.
Regarding the regional communications business, we are considering spending about ¥120 billion in the third quarter to remove copper wiring as a measure to reduce cost burden for later fiscal years. We have planned since the outset to carry out the measure to reduce the future cost burden in the third quarter. Although we are currently considering the details, we expect the regional communications business’s profit to decrease by ¥29.5 billion, considering the removal would cost about ¥120 billion.
In regard to the mobile communications business, we believe that we can achieve the profit total as planned due to cost reduction progress in the second half of the fiscal year.
With reference to the long distance international communication business, unlike in the previous fiscal year, which saw impairment of about ¥50 billion on Dimension Data in the third quarter, we will see a positive impact this fiscal year. In addition, considering the status in the first half of the fiscal year, we anticipate aiming above the target profit due to organic growth.
The data communication business is on track.
We will strive to achieve the forecasts of the full fiscal year and end with NTT’s consolidated results being above expectations.

We are making steady progress as planned on the medium-term financial goals in terms of efficiency in capital investment and cost reductions.
Regarding overseas sales and operating income, we recognize that achieving the target for this fiscal year is very difficult due to the extremely high target I mentioned in the first-quarter meeting. As I also mentioned before, while postponing the achievement of the goal for about a year, we are aiming to accomplish it as soon as possible.
Concerning EPS, we expect to achieve the target of above ¥400.

Photo of CEO Press ConferenceI would like to explain about enhancing overseas businesses.
Although I talked in the last financial results briefing about the direction, after we considered enhancing collaboration of cloud services between NTT Communications and Dimension Data, we have finalized our decision making today.
Specifically, under Dimension Data, we established a cloud wholesale services company that mainly relocates cloud facilities. In terms of cloud facilities, development and operation of Dimension Data, we are preparing to settle assets, review operating processes, external authentication and audit, as well as deciding upon approximately 370 employees to be transferred. We are aiming at the end of March next year to make this cloud wholesale services company “Dimension Data Cloud Wholesale Services, Inc.,” a subsidiary of NTT Communications. Starting next April, by integrating the service development and operation in NTT Communications and providing wholesale services to group companies including Dimension Data, we will establish a system to provide the cloud business as well as cloud-based full-stack solutions.
As a result, I believe that we will be able to consolidate and centralize investment and development, combine the strengths of NTT Communications’ experience and Dimension Data’s cloud, provide leading services first in the market, and enhance services according to customer needs.
We will continue to enhance the competitiveness of the cloud business, including enhancement of promotion of advisory services that contributes to customers’ digital transformation as well as managed services.

This concludes my speech.

Related information
Financial Results for the Six Months Ended September 30, 2017 
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