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.
Summarized below are the key points of the explanations and comments given at the press conference.
(Hiroo Unoura, CEO)
I would like to present an outline of our Consolidated Financial Results for the Third Quarter of the Fiscal Year ending March 2018.
Following the second quarter, our revenue and profit increased.
Revenue rose by 4.3%, or ¥361.5 billion, year on year to ¥8,722 billion due to an increase of about ¥300 billion in overseas sales, and an increase of about ¥60 billion in domestic sales driven, for example, by increased revenue from mobile communications services of NTT DOCOMO.
Operating income rose by ¥1 billion in total, year on year to ¥1,319.6 billion. While (about ¥125 billion of) metal cables were retired on an as-is basis in the regional communications business, profit from group companies increased. In addition, although Dimension Data and NTT Security recorded an impairment loss in the previous fiscal year, there is no impact of such loss in this fiscal year. This and other factors led to the increase in operating income. I would like to explain the retirement of metal cables on an as-is basis later.
This is the level of progress as expected, and is very steady progress in line with the annual plan. An increase in profit is smaller compared with the second quarter due to retirement of metal cables on an as-is basis, but profit is expected to rebound in the fourth quarter.
Net income for the quarter rose by 10.1%, or ¥67.9 billion, year-on-year to ¥736.6 billion due to the impact of receipt of an arbitration award paid by Tata Sons.
Revenue, operating income, and net income were all the highest ever.
Overseas sales and operating income are steadily growing compared with the previous year.
The amount of cross-sell orders is increasing satisfactorily, due to orders from energy-related companies in Europe.
Next, I would like to explain the status by segment.
In the regional telecommunications business, as we mentioned the retirement of metal cables (worth ¥125 billion) on an as-is basis in the briefing on the financial results for the second quarter, the cables were removed all at once in this third quarter as a measure to reduce the cost burden for later fiscal years. Due to this, profit decreased by ¥74.8 billion, year on year to ¥255.7 billion. As a result of this retirement, depreciation costs are expected to be reduced by a combined annual amount of ¥6 billion for NTT East and NTT West in the following fiscal year and beyond. Regarding this project, starting in the previous fiscal year, we changed the depreciation method from the declining balance method to the straight line method in line with the introduction of the International Financial Reporting Standards (IFRS) in the following fiscal year. This brings forward depreciation costs to later fiscal years, so profit will be recorded in accounting terms for a while. However, bringing forward costs only means postponing the assumption of burdens to later fiscal years, and to shoulder as much burden as possible in advance and spread costs evenly, we took the measure to reduce the cost burden for later fiscal years.
In the previous fiscal year, NTT East and NTT West spoke about 5% depreciation of the residual value, but we recorded a large amount of depreciation costs by reviewing the residual value of old equipment. In this fiscal year, we are addressing the issue of metal cables. The use rate of the cables has already been lowered, but many of them are still used partially. Therefore, we cannot remove them entirely. For this reason, the portion of the cables that are not used was retired on an as-is basis, resulting in costs for later fiscal years being set off against the apparent profit gained due to the change of the depreciation method. In the previous fiscal year, 5% depreciation of the residual value was carried out evenly for each quarter, but the retirement of metal cables on an as-is basis for this fiscal year was implemented all at once in the third quarter. As a result, profit decreased significantly in the regional telecommunications business, but it is expected to rebound to the initially planned level in the fourth quarter.
In long distance and international communications businesses, NTT America conservatively revised its medium-term forecast by factoring in the most recent market environment, and recorded a loss of ¥19 billion due to impairment of goodwill. To eliminate burdens for future years, figures for the medium-term forecast were revised conservatively on the assumption that we will face more fierce competition. To prepare for future risks, an impairment loss was recognized in this fiscal year. This issue was anticipated as a risk in the initial plan of this fiscal year, so the impact on the business plan is negligible.
On the other hand, we saw a profit recovery in Dimension Data. Additionally, in the previous fiscal year, impairment losses were recorded for Dimension Data and NTT Security by the third quarter, but this does not affect the results of this fiscal year. As such, profit increased by about ¥60 billion year on year.
Through the above activities, we responded to several future risks in the third quarter of both the previous and current fiscal years. This resulted in our operating income amounting to ¥76.6 billion.
For the segment of mobile communications and data communications businesses, I would like to give a brief explanation as a segment, although the results have already been announced by NTT DOCOMO and NTT DATA.
In the mobile communications business, NTT DOCOMO implemented a measure to reduce the cost burden for later fiscal years, from the first half of the fiscal year. In the previous fiscal year, the measure was carried out mainly in the second half and therefore figures for the first half were rather small. However, they showed a gradual recovery. In the third quarter, profit decreased by ¥5.7 billion year on year to ¥833.6 billion. As NTT DOCOMO has already provided an explanation, we anticipate that there will be no impact of the measure in the fourth quarter, and profit is expected to rebound to the initially planned level.
The data communications business's profit rose by ¥22.1 billion year-on-year and its operating income came to ¥89.1 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 fact that there was no impact of M&A-related temporary expenses in this fiscal year although such impact was observed in the previous year.
The progress of mobile communications and data communications businesses is in line with our expectations.
Toward the end of the fiscal year, our group companies are expected to earn more than the forecasted operating income of ¥1.59 trillion and reach the ¥1.6 trillion mark by continuously implementing measures to increase income and reduce costs.
Furthermore, we aim to increase our revenue and profit in the following fiscal year as well.
Next, let me explain our major initiatives.
With regard to network services, the number of mobile service users has increased (net additions) by 800,000 to 75.68 million, and the number of subscribers to the "Kake-hodai & Pake-aeru" plan has continued to increase (net) by 3.53 million to 40.60 million, surpassing the 40 million mark.
The number of FTTH subscribers increased (net) by 400,000 to 20.46 million. In addition, we face difficulties achieving the annual goal of 800,000 (net additions), but sales normally increase in the period from February to April every year.
Furthermore, we are steadily generating demand from corporate customers and expect that NTT East and NTT West will make every effort to achieve their goals.
Additionally, the number of “Hikari Collaboration” subscribers increased (net) by 1.91 million to 10.66 million, exceeding half the number of FTTH subscribers and 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 124 to 681.
In addition, we are making steady progress to achieve the medium-term financial goals in terms of efficiency in capital investment for the domestic network business and cost reductions in fixed/mobile access networks.
Regarding our initiatives in the B2B2X model, we are continuously expanding collaboration with other companies and local governments by helping each user with digital transformation in various fields such as sport, transportation, and manufacturing to create novelty value and solve social issues.
As for our initiatives in the B2B2X model, we will introduce several case examples along with the latest study results in the “NTT R&D Forum 2018” held on February 22 and 23. Moreover, following the “CeBIT” held in Hanover, Germany last year, we will participate in the “Mobile World Congress 2018” (which will be held in Barcelona from February 26) in order to introduce our representative and advanced projects that utilize AI, IoT, 5G and other technologies. This is the first time that the NTT Group as a whole will participate in the event, although NTT DOCOMO has participated in it on its own until now. In addition, for the Mobile World Congress 2018, we secured a space approximately three times larger than that for our booth in the CeBIT. If your schedule permits, please visit not only the NTT R&D Forum 2018 but also our booth in the Mobile World Congress 2018.
Next, I would like to talk about expansion of global cloud services.
As NTT Communications announced in November, we are moving forward with the final procedures for acquiring Secure-24, the US-based major IT-managed service provider. Secure-24 is a company that offers outsourcing solutions including applications. North America is seeing the growth of a business strategy in which operations for applications, cloud services, data centers, security, etc., are collectively outsourced in the form of ICT as a Service. We are certain that this trend will gain momentum globally. We expect that after becoming a member of the NTT Group, Secure-24 will make a significant contribution to growth and development of our global business.
Next, I would like to talk about shareholder returns.
In respect of treasury stock buybacks, on December 8, we completed repurchasing up to a ¥150 billion upper limit, which was resolved at the Board of Directors meeting in September. As a result of this repurchasing, the cumulative amount of treasury stock repurchased in this fiscal year is ¥193.2 billion.
With regard to the status of our initiative “Tokyo 2020 Medal Project: Towards an Innovative Future for All,” in our press briefing on the financial results for the second quarter, we had support from news people and the project was covered in their news articles. Thanks to all of you, we could collect about 860,000 phones in the third quarter and the cumulative number of phones collected, which was about 1.54 million at the end of the second quarter, reached about 2.4 million.
This year's target is 3 million phones, and we would like to have your continued cooperation. Additionally, we saw an increase in the number of phones provided not only by individuals but also by Olympic and Paralympic partner companies. Because the designs of medals have not yet been determined, it is unclear how many phones will be necessary. However, we will collect as many as possible and if we collect more than necessary, we will use extra phones to make donations.
At the end of my explanation, as NTT Urban Development announced in a press briefing today, we will launch the share office business in a new form, so I would like to provide information on this.
Beyond the scope of ordinary share offices, we will move forward with the provision of services that combine facilities such as project rooms, event spaces, kitchen spaces and bike ports in addition to offices and conference rooms, with the aim of providing spaces and services that respond to increasingly diverse workstyles and lifestyles of users.
The service brand is “LIFORK” created by combining life and work, and in April this year we will start by opening offices at two locations in the center of Tokyo, Otemachi and Akihabara, and then increase offices gradually.
There are telephone exchange stations in front of a railway station and other places not only in the center of Tokyo but also within commutable areas in the Tokyo Metropolitan Area. We are gradually replacing machinery and equipment, creating open spaces, which will be utilized for the business of NTT Urban Development. We will promote these activities with a view to contributing to workstyle reforms.
For details, please refer to the press release published by NTT Urban Development today.