| 1. Business Results | ||
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| During the first six-month period of the fiscal year ending March 31, 2008, the Japanese economy expanded at a moderate pace. Although there was a general sentiment of caution in the business environment, corporate profits improved and capital investment increased. There were also signs of recovery in employment. Dramatic changes are continuing to take place in the telecommunications market in conjunction with the advance of ubiquitous broadband communications including optical access and third-generation mobile communications. Although the market for conventional fixed-lined communications services is shrinking as a result of the shift from ADSL to optical access, broadband services are continuing to grow over all. Conventional fixed-line telephone services are contracting in conjunction with the shift to optical IP telephony. In the mobile communications market, with the introduction of mobile phone number portability last year, competition on rates and services is becoming increasingly fierce. Within this business climate, NTT Group continued to make efforts towards realization of the NTT Group's Medium-Term Management Strategy (released November 2004) and is working to expand and solidify its broadband foundations, starting with optical access services. Specific business activities included expansion and improvement of services to promote greater use of B FLET'S optical access services and a review of business processes to improve customer service. As a result of these activities, the number of B FLET'S subscribers reached 7.42 million. In addition, efforts in taking the customer-centered perspective to bolster the overall strength of FOMA third-generation mobile communications services in terms of services, rates, handsets and network quality resulted in an increase of FOMA subscribers to greater than 40 million. NTT Group also reviewed its marketing structures to reinforce its marketing strategies for corporate customers and launched Japan's first 40 Gbps next-generation lines dedicated for communications. NTT Group also engaged itself in making efforts to provide solution services precisely tailored to the customer business types and formats. Regarding construction of a safe, secure, and highly-reliable next-generation network that combines the strengths of existing fixed-line networks with those of an IP network, various companies from a wide range of fields participated in the field trials that NTT Group began in 2006, allowing NTT Group to confirm various services and verify connectivity with networks. Home users also served as monitors, testing high-definition video distribution services and high-quality IP telephony services, and provided insights into customer needs and verification of technical aspects of the services. Although IP-related income from B FLET'S and FOMA and system integration income increased as a result of these activities, voice service related income declined, and NTT Group consolidated operating revenues were 5,187.7 billion yen in the first six-month period of the fiscal year ending March 31, 2008 (a decrease of 1.2% from the same period in the previous year). Consolidated operating expenses were 4,623.7 billion yen (an increase of 1.4% from the same period in the previous year) due to the effects of a review conducted on depreciation expenses and other factors. As a result, consolidated operating income was 564.0 billion yen (a decrease of 18.4% from the same period in the previous year), consolidated income before income taxes was 583.3 billion yen (a decrease of 16.6% from the same period in the previous year), and consolidated net income was 195.2 billion yen (a decrease of 33.0% from the same period in the previous year). The asset transfer procedures, which relate to the transfer of the substitutional portion of employee pension funds for which individual NTT Group companies have recorded as extraordinary income, have not been completed. As a result, this income has not been recorded in the consolidated interim financial statements, which are prepared in accordance with U.S. GAAP. Nippon Telegraph and Telephone East Corporation (NTT East) and Nippon Telegraph and Telephone West Corporation (NTT West) revised their forecasts for full-year results, taking into account the effect of changes in depreciation methods in relation to renewal plans for major machinery and equipment. Accordingly, a 29.9 billion yen increase in operating expenses was recorded for this six-month period. Also, based on its income plan, NTT West revised the amount recorded as deferred tax assets. Accordingly, an increase in corporation, inhabitant, and enterprise taxes of 68.6 billion yen was recorded for this semi-annual reporting period. Business performance of NTT and the main NTT Group companies during the first six-month period of the fiscal year ending March 31, 2008 were as follows. |
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Nippon Telegraph and Telephone Corporation (NTT) |
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| To implement "NTT Group's Medium-Term Management Strategy", NTT, in its capacity as holding company, endeavored to conduct effective group management through the planning of group strategies and the redistribution of managerial resources in line with changes in the business environment. As a result, NTT received 9.5 billion yen as group management and administration revenue (a decrease of 3.2% from the previous fiscal year). With regard to research and development in anticipation of future high-quality video distribution services, NTT developed "video compression LSI circuits", which are expected to be widely used in equipment that can simultaneously retransmit terrestrial digital broadcasts and in video processing devices that meet the high quality demands of broadcasters. In addition, NTT conducted the world's first successful demonstration of confinement of atoms in a stable state, an accomplishment previously thought to be impossible and a step towards the creation of quantum computers. As a result of these efforts towards development of technologies that will serve as the foundations for broadband and ubiquitous services, NTT received 63.4 billion yen (an increase of 3.9% from the previous fiscal year) as fundamental research and development revenues. As a result of the above, NTT's operating revenues, recurring profit and interim net income for the first six-month period of the fiscal year ending March 31, 2008, were 221.2 billion yen (an increase of 0.8% from the previous fiscal year), 147.2 billion yen (a decrease of 0.3% from the previous fiscal year) and 148.6 billion yen (an increase of 3.3% from the previous fiscal year), respectively. |
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NTT East and NTT West |
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| During the first six-month period of the fiscal year ending March 31, 2008, NTT East and NTT West took measures to bolster sales including expansion and enhancement of B FLET'S services and worked to secure their revenue bases by enhancing broadband services and to increase business efficiency. Specific measures included promotion of rate discount programs designed to increase the number of B FLET'S subscribers and the launch of new services in response to customer requests such as FLET'S Home Security, which enables customers to check the status of their home from a remote location using a mobile phone or FLET'S Phone. Efforts to improve customer service included review of the application process for B FLET'S and introduction of new systems for greater efficiency to reduce the time from application to the start of services. In addition, NTT East and NTT West conducted vigorous IP technician training directed towards the construction of a stable operating foundation for broadband services. To improve management efficiency, NTT East established "Office Marketing Departments" in Tokyo area branches and the subsidiaries in other areas and established "NTT East Solutions Corporation" to provide optimal corporate solution services in the Tokyo area. NTT West reorganized its headquarters and established subsidiaries in western Japan to provide system engineering services and repair services for IP-based systems. NTT West now has five operating bases in western Japan including the subsidiaries established last year. Despite the management efforts above, due to the severe business environment, operating revenues of NTT East and NTT West in the first six-month period of the fiscal year ending March 31, 2008, were 981.8 billion yen (a decrease of 3.1% from the previous year) and 939.7 billion yen (a decrease of 2.1% from the previous year), respectively. NTT East's interim net income was 73.1 billion yen (an increase of 106.3% from the previous fiscal year) as a gain on transfer of Kosei-Nenkin-Kikin benefits was recognized as special profit. NTT West revised deferred tax assets. As a result of the revision among others, NTT West recognized an interim net loss of 5.5 billion yen. |
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NTT Communications Corporation (NTT Communications) |
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| During the first six-month period of the fiscal year ending March 31, 2008, NTT Communications promoted provision of Information and Communication Technology (ICT) solutions to corporate customers. ICT solutions are designed to address management problems and to provide individual customers with services suited to their diversifying lifestyles and needs. More specifically, NTT Communications worked to provide value adding solutions to corporate customers through such measures as a change to a new structure for the provision of corporate services designed for specific industries and business types as well as the strengthening of SE (System Engineering) functions and promotion of consulting services tailored to particular business structures of each customer. NTT Communications also worked to bolster its product lineup by offering "GIGASTREAM", Japan's first 40 Gbps high-quality, highly reliable next-generation dedicated line. In the area of global business, NTT Communications formed tie-ups with local businesses in Shanghai, China, for the launch of Premier Data Center Services that feature high-quality and highly reliable facilities and operating standards, and expanded and improved service structures in the Chinese mainland, Hong Kong, and Taiwan region including the opening of an office in Tianjin, the eighth office in the greater China region. NTT Communications also expanded its service territory with the start of international IP-VPN services (MPLS type) in the United Arab Emirates, the first time a Japanese carrier has offered such services in the Middle East. For individual customers, NTT Communications worked to expand its OCN Internet access services, augmenting its marketing of OCN Hikari with FLET'S, a service that offers a menu of optical access services, worked to enhance antivirus and antispam security measures, and launched My Address Plus, a service that allows customers to easily obtain their own email addresses with a JP domain. As a part of its measures to integrate management of video distribution, NTT Communications started providing, a high-quality Multi-channel Broadcasting Service, that was already available on 4th Media Service on the new OCN Theater Service, and worked to realize an integrated operation of a video image distribution service. With regards to fixed-line telephone services, NTT Communications addressed diversifying customer needs by promoting sales of its Pl@tinum Line low-cost plan for domestic and international calls and calls to mobile phones and launching a new service called Pl@tinum Line & Sekaiwari that provides even greater discounts on international calls. As a result of the above, NTT Communications operating revenues in the first six-month period of the fiscal year ending March 31, 2008, were 562.1 billion yen (an increase of 2.7% from the previous fiscal year). Its interim net income was 39.5 billion yen (an increase of 120.0% from the previous fiscal year) as a gain on transfer of Kosei-Nenkin-Kikin benefits was recognized as special income. |
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NTT DoCoMo, Inc. (NTT DoCoMo) |
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| During the first six-month period of the year ending March 31, 2008, amidst the continued fierce competition that began with the introduction of number portability in mobile phones from the previous year, among others, NTT DoCoMo worked to increase its overall capabilities by implementing a variety of measures from a customer-driven perspective to create new mobile phone value, by offering user-friendly billing services, enhancing and expanding its handset lineup and services, and improving network quality. With respect to user-friendly billing services, NTT DoCoMo launched the Fami-wari MAX50 and Hitoridemo Discount 50 new discount services. To enhance and expand its handset lineup, NTT DoCoMo launched sales of the FOMA 904i series compatible with such services as 2in1 (two handsets in one), Chokkan Game (motion-control game downloads) and Uta-hodai (music downloads). It has also launched slim, compact yet multifunctional FOMA 704i series. Concerning the improvement of network quality, NTT DoCoMo, paying close attention to the opinions of customers, worked to improve service area quality and increase network speeds. In addition, NTT DoCoMo worked to expand the use of credit services and to create new revenue sources by increasing the number of DCMX members. Despite the efforts made above, due to a decrease in mobile phone revenues, NTT DoCoMo's consolidated operating revenues for the first six-month period of the year ending march 31, 2008 were 2,325.1 billion yen (a decrease of 2.4% from the previous fiscal year) and consolidated net income was 246.5 billion yen (a decrease of 20.4% from the previous fiscal year). |
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NTT DATA Corporation (NTT DATA) |
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| During the first six-month period of the year ending March 31, 2008, software investment increased as a result of increased corporate earnings and heightened needs on the part of customers to ensure computer system reliability. To ensure its competitive advantage and maintain its ability to respond to customer needs, NTT DATA worked to shift their approach from "quantity (sales) to quality (working methods, value creation business)" and to achieve the highest customer satisfaction in the industry. Specific measures included "managerial reform", "development process reform", "promotion of group management efficiency", "review of unprofitable businesses", "creation of growth engines" and "development of human resources" as the key policies of medium-term management. With respect to the "managerial reform", NTT DATA implemented measures to standardize management processes. With respect to "development process reform", NTT DATA implemented measures to reinforce the R & D organizational structure of Software Engineering through restructuring. To raise the "group management efficiency", NTT DATA integrated "Group Strategy Headquarters" and "Global Business Promotion Sector" with "Corporate Strategy Planning Department" to create "Group Strategy Headquarters" to reinforce group management and drive forward international development. Concerning the "review of unprofitable business", in order to improve profitability, NTT DATA decided to dissolve some of its consolidated subsidiaries. Concerning the "creation of growth engines", NTT DATA established the "Health Care System Business Headquarters" to strengthen business in the healthcare field, which is an area of great potential for significant growth. With respect to "development of human resources", NTT DATA endeavored to train less experienced employees and to certify qualified professionals capable of putting their high expertise in practice to plan and execute their work, utilizing its certification system based on the employee's skill and experience. Through these endeavors, NTT DATA actively engaged itself in vigorous marketing activities and development of efficient system geared towards securing subscriptions for new systems and for the launching of new services. NTT DATA also continued to provide stable services for existing systems. As a result of these efforts, NTT DATA's consolidated operating revenues for the fiscal year ending March 31, 2008 were 466.1 billion yen (an increase of 2.8% from the same period in the previous fiscal year) and consolidated net income was 21.2 billion yen (a decrease of 6.2% from the same period in the previous fiscal year). |
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| During the period under review, cash flows from operating activities were 1,307.8 billion yen, up 514.2 billion yen (64.8%) from the previous year as a result of increases in net income and depreciation and amortization costs for the six-months period. The increase in cash flows was primarily a result of a decline in net corporate taxes (NTT was permitted to recognize its impairment loss on shares of Hutchison 3G UK Holdings Limited as a tax write-off, resulting in net corporate taxes of 98.1 billion yen) and a decrease in accounts receivable resulting from the fact that phone charges for March 2007 were carried over into the current half-year under review because the last day of the previous fiscal year, March 31, 2007, was a bank holiday. Cash flows used in investing activities reached 1,062.0 billion yen, mainly due to the acquisition of fixed assets. This is a decline of 94.8 billion yen (8.2%) from the previous year, resulting primarily from a decrease in acquisition of tangible fixed assets compared to last year, while cash was expended in long-term investments. Cash flows used in financing activities for repayment of loans and other expenditures were 427.7 billion yen, up 84.4 billion yen (24.6%) from the previous year. This increase was the result of higher cash outflows for the repayment of short-term and long-term loans. As a result of the above, NTT Group's balance of cash and cash equivalents at the end of the current half-year was 616.4 billion yen, down 179.8 billion yen (22.6%) from the previous fiscal year ended March 31, 2007. |
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In addition to increasing corporate value over the medium- and long-term, NTT has identified the return of profits to shareholders as an important management goal. In paying dividends, NTT, while giving consideration to stability and sustainability, will base such payments upon a full range of factors, including business performance, dividend payout ratio and financial standing. It is planned that dividends for the current annual period will be 9,000 yen per share, comprising a 4,500-yen end-of-term dividend and a 4,500-yen interim dividend. While maintaining a view towards capital efficiency, NTT will allocate retained earnings to investments directed towards capturing growth opportunities and to the strengthening of its financial structure. |
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Copyright (c) 2007 Nippon telegraph and telephone corporation |