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)
Finally, this is the last press conference on financial results that will be given by me. I would like to take this opportunity to thank you all again for your cordial relationship with me.
I would like to explain the financial results for the fiscal year ended March 2018 and financial forecasts for the fiscal year ending March 2019.
Starting in the fiscal year ending March 2019, the Company will apply the International Financial Reporting Standards (IFRS) in place of the Generally Accepted Accounting Principles (US-GAAP) that we have used to date. This will be done as explained previously. Financial results for the fiscal year ended March 2018, which I will explain below, are based on the US-GAAP.
Now, I would like to present an outline of our Consolidated Results for the Fiscal Year Ended March 2018.
Our revenue and profit increased. As with the case of the results for the period until the third quarter, revenue, operating income, and net income were all the highest they have ever been.
For your information, the previous highest revenue, operating income and net income were recorded in the second preceding fiscal year (fiscal 2015), fiscal 2003 and the previous fiscal year (fiscal 2016), respectively, and have all been exceeded by the results of this fiscal year.
Revenue rose by 3.6%, or ¥408.6 billion, year on year to ¥11,799.6 billion due to an increase of revenue from the data communications business driven mainly by overseas sales, and an increase of revenue from the mobile communications business owing partially to expansion of the mobile communications market. Looking at the breakdown of revenue based on domestic and overseas categories, overseas revenue increased by ¥339.8 billion.
Operating income rose by 6.7%, or ¥103.1 billion, year on year to ¥1,642.8 billion due partially to an increase of profit in long distance and international communications businesses driven by, for example, organic growth of the mobile communications business, the data communications business and Dimension Data.
Additionally, in relation to the financial forecast, the increase of profit was small until the third quarter because NTT East and NTT West recorded an impairment loss for metal cables in the third quarter. However, profit rebounded in the fourth quarter and significantly increased to exceed the plan by ¥52.8 billion, thanks to efforts made by Group companies to increase profit.
Net income for the fiscal year concerned rose by 7.4%, or ¥59.6 billion, year-on-year to ¥859.7 billion, even after excluding the impact of receipt of an arbitration award paid by Tata Sons (¥50 billion in shares held on a consolidated basis). It should be noted that even after excluding the impact of receipt of the arbitration award paid by Tata Sons, net income was higher than ever.
As a result, earnings per share also increased by 10.2%, or ¥39.79, year-on-year to ¥430.73 after excluding the impact of the Tata Sons issue. In addition, overseas sales and operating income grew steadily and achieved a year-on-year increase.
Next, I would like to explain the status by segment.
In the regional communications business, profit decreased by ¥5.2 billion year-on-year to ¥354.3 billion. The decrease was expected, and profit was secured amid a decrease in sales by ¥75.3 billion. In addition, profit exceeded the initial financial forecast by ¥24.3 billion due partially to efforts to improve cost effectiveness.
Furthermore, regarding the results of NTT East and NTT West on a non-consolidated basis, both companies will provide an explanation later. As for the retirement of metal cables on an as-is basis that was implemented in the third quarter, the accounting standards used were the Japanese standards, and therefore the loss from the retirement was recorded as an extraordinary loss. Due to this, operating income increased significantly year-on-year, and as for the consolidated results based on the US standards, the retirement was recognized not as an extraordinary loss but as operating expenses.
In long distance and international communications businesses, profit increased by ¥52.7 billion year-on-year to ¥93.6 billion. The profit includes approximately ¥20 billion, a difference between impairment losses, etc. sustained in the previous fiscal year and the current fiscal year, which exerted an effect of increasing the profit. In addition, these impairment losses were recognized in a conservative fashion from the perspective of reducing the cost burden for later fiscal years. If the effect of such recognition is excluded, Communications Group and Dimension Data posted a year-on-year profit increase of ¥18.2 billion and ¥17.1 billion, respectively.
For the segment of mobile communications and data communications businesses, I would like to give a brief explanation, although the results have already been announced by NTT DOCOMO and NTT DATA.
In the mobile communications business, profit increased by ¥30.5 billion year-on-year to ¥982.1 billion due partially to an increase of profit in the smart life segment of NTT DOCOMO.
The data communications business’ profit rose by ¥19.9 billion year-on-year to ¥127.8 billion due partially to the effect of the consolidated expansion of the Dell Services division acquired in the previous fiscal year; an increase of revenue resulting from 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.
Let me move on to the general overview of the medium-term financial targets.
The previous fiscal year was the final fiscal year of the “Towards the Next Stage 2.0” strategy. Earnings per share (EPS), for which the strategy set a target, was ¥431 even after excluding the impact of receipt of the arbitration award paid by Tata Sons, while the medium-term financial target for EPS had been set at no less than ¥400. In addition, as for the goal of reducing capital investment in the domestic network business by no less than ¥200 billion yen (compared to fiscal 2014), we have actually reduced such investment by ¥204.9 billion. Similarly, as for the goal of reducing fixed-line/mobile access-related costs by no less than ¥800 billion (compared to fiscal 2014), we have reduced such costs by ¥856 billion and achieved the medium-term financial target.
It should be noted that we will work to achieve the targets for overseas sales/operating income one year later than scheduled, due to various changes in business environments.
Next, let me explain our major initiatives.
The number of mobile service users has increased (net additions) by 1.49 million to 76.37 million.
The number of FTTH subscribers increased (net) by 0.48 million to 20.53 million. Of those, the number of “Hikari Collaboration” subscribers increased (net) by 2.37 million to 11.12 million, exceeding half the number of FTTH subscribers.
In regard to Wi-Fi hotspot hosts, mainly local governments and mass transit agencies have actively taken the initiative to launch the hosting service. The number of hosts collaborating with us increased by 187 from the end of the previous fiscal year to 744.
Regarding our initiatives to promote the B2B2X model, we have helped each user with digital transformation by continuously 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.
Last October, we started to provide services through the open platform “FIELD system” that enables the introduction of IoT in manufacturing businesses and has been worked on together with Fanuc. As exemplified by this progress, we are seeing some results of the above-mentioned initiatives and are convinced that we are making incremental steady progress. Our aim is to further promote these initiatives going forward. For our major initiatives in the previous fiscal year, please see page 12 of the reference material.
Next, I would like to talk about expansion of global cloud services.
Regarding the amount of cross-selling orders, it increased satisfactorily to $830 million.
As announced previously, we completed the transfer of responsibility of managing the cloud service business from Dimension Data to NTT Communications.
This will promote the concentration and centralization of investment and development activities that overlap between NTT Communications and Dimension Data, and accelerate further growth of cloud services by enhancing new service development and other activities.
In addition, we completed the acquisition of shares of” Secure-24”, the US-based major IT-managed service provider, in April. To promptly provide competitive services to the managed service market which is expected to achieve high growth, NTT Group will strengthen its managed services with “Secure-24” playing a leading role in such attempt.
As for our initiative “Tokyo 2020 Medal Project: Towards an Innovative Future for All,” we are making efforts with help from media people and were able to collect about 900,000 phones in the fourth quarter and the cumulative number of phones collected in the one-year period starting in April of last year when the project was launched reached about 3.3 million. To make the largest-scale project in the history of Olympic and Paralympic Games a success, we would like to have your continued cooperation.
Next, I would like to explain our business performance forecast for the fiscal year ending March 2019.
As I mentioned at the very beginning of this session, from the fiscal year ending March 2019, we will apply the IFRS in place of the US-GAAP that we have used to date. The business performance forecast has been prepared based on the IFRS, and the actual results of the previous fiscal year compared with the forecast data have also been replaced with approximate data prepared based on the IFRS.
We are planning to increase our revenue and operating income.
Regarding revenue, we are aiming to increase our revenue by ¥51.8 billion year-on-year to ¥11.83 trillion mainly through expansion of overseas sales in long distance and international communications businesses and the data communications business.
Regarding operating income, our target is to increase it by ¥48.2 billion year-on-year to ¥1.69 trillion, incorporating the profit growth, cost reduction and other activities of each group company.
With regard to net income for the fiscal year concerned, we project that it will decrease by ¥18.7 billion to ¥880 billion because the results of the fiscal year concerned will not be affected by the receipt of the arbitration award (¥50 billion) paid by Tata Sons, which affected the results of the previous fiscal year. If such effect is excluded, however, net income will essentially increase by ¥31.3 billion year-on-year.
Let me move on and explain our forecast by segment.
In the regional communications business, fixed voice-related revenue in particular is expected to continue to decrease. However, we will limit a year-on-year decrease of profit to ¥8.6 billion and aim to earn ¥343 billion of operating income by continuously working on measures to reduce costs, such as improving productivity through integration and systematization of business operations and improving effectiveness of development and management costs.
Additionally, in the previous fiscal year, metal cables were retired on an as-is basis as a measure to reduce the cost burden for later fiscal years. In this fiscal year as well, we are planning to implement the same scale measure to reduce the cost burden for later fiscal years as that for the previous fiscal year. As such, no increase or decrease in profit is expected as a result of this measure.
In long distance and international communications businesses, profit is expected to increase by ¥39 billion year-on-year to ¥130 billion, based on assumptions that the Communications Group will increase profit by ¥12.5 billion mainly through expansion of its overseas data center business and that Dimension Data will increase profit by ¥19.2 billion by driving organic growth and improving efficiency.
In the mobile communications business, while making steady progress toward improving cost effectiveness, NTT DOCOMO will work to implement measures such as sharing profit with customers and making investments for future growth. Through these efforts, it will aim to increase profit by ¥3.1 billion year-on-year to ¥990 billion.
In the data communications business, profit is expected to increase by ¥18.6 billion year-on-year to ¥142 billion through expansion of domestic sales and organic growth and improved profits in overseas areas.
That concludes my explanation of business performance forecast by segment. We will strive to achieve a consolidated operating income of ¥1.69 trillion in a reliable fashion.
Next, I would like to talk about shareholder returns.
In respect of treasury stock buybacks for fiscal 2017, in March, we repurchased ¥42 billion of treasury stocks within a ¥150 billion upper limit, which was resolved at the Board of Directors meeting in February. As a result of this repurchasing, the cumulative amount of treasury stock repurchased this fiscal year was ¥235.2 billion.
In addition, we will complete repurchasing of the remaining treasury stocks worth approximately ¥108 billion by June 2018.
In relation to dividends, the annual dividend amount for fiscal 2018 will be increased by ¥20 year-on-year to ¥170 per share, on the basis of our healthy business results and an increase in dividends paid by Group companies to NTT. The interim dividend for fiscal 2018 and onward will be set at ¥85 per share.
At the end of my explanation, I would like to provide information on a new Medium-Term Management Strategy.
As announced previously, we will, as a basic strategy, continue and strengthen our efforts to change ourselves to become Value Partners and will continuously work on three initiatives to (1) increase profit for the global business, (2) enhance our capabilities to generate revenue from domestic network services and (3) take on the challenge of developing new markets mainly through promotion of the B2B2X model. We would like to formulate and announce specific goals and initiatives as a new Medium-Term Management Strategy under a new management framework simultaneously with the settlement of accounts for the second quarter.
That concludes my explanation.
* * *
(Hiroo Unoura, CEO)
As an officer of a holding company, I have made my best efforts to do my best for the last 16 odd years. Furthermore, I have engaged in various reforms as the President for the last six years. Inquiries you made with the public relations office in advance assuming that the President is changed include requests for me to reflect on my six-year stint as the President and to have a little talk about the new management structure. I will talk about a series of related events.
I was introduced by the then-President Miura here six years ago. Maybe few people remember what I said six years ago, but I said something like: “I would like to do a job commended by my junior colleagues saying it was a good thing that he changed the Group's direction drastically at that time.” I also said that I will recover the Group's ability to generate revenue in the domestic business, with the global business serving as a pillar under two Medium-Term Management Strategies. I implemented several measures such as improving the competitiveness of NTT DOCOMO, which was then said to be the only loser, and reforming the business structure of NTT East and NTT West, which were troubled by decreased revenue and profit. The billing plans of NTT DOCOMO made a significant shift to the family share type. NTT East and NTT West also had just made a shift from the retail model to the wholesale-type Hikari Collaboration model. Under the circumstances where revenue from the fixed-line business would not increase again, NTT East and NTT West had a responsibility to continuously provide universal services. Those companies needed to address the issue “what should be done to maintain as many fixed-line as possible.” As a result, I made a proposal for migration to IP fixed-line networks, although we have a long way to go before implementing the migration. Furthermore, I worked to make a proposal for transforming the business structure of the Group into the B2B2X model.
After such a drastic change of direction, various issues will continue to come up. To tell the truth, it has been my hope for two years that someone else will navigate the Group under the new structure after the drastic change of direction, rather than I myself navigating the Group to address such issues. For two years, I have contemplated a new structure in which Vice President Shinohara assumes the position of Chairman and Vice President Sawada assumes the position of President. The B2B2X model is our initiative mainly based on the results of our R&D work. For this, Vice President Shinohara worked really hard. Regarding the growth of the global business and enhancement of revenue of the domestic business, Vice President Sawada made great efforts. I will leave the front line with peace of mind.
I think Vice President Sawada is known by many of you. He is the busiest vice president in the history of the holding company. I had him assume a concurrent position of the President of NTT Security. I also asked him to work on the global business as well as the domestic business. He undertook various tasks as the CFO and officer in charge of personnel affairs. I am sure that he is busiest among the past vice presidents, and he has achieved results. My introduction will end here. Let me present to you Vice President Sawada.
(Jun Sawada, Vice President)
Thank you for your kind introduction. May name is Jun Sawada. I am grateful to receive such commendation from President Unoura. Today, the NTT Group's financial results revealed that revenue, operating income and net income were all the highest they have ever been. In addition, net income has increased for three consecutive years, which means that a new record for net income has continuously been set for three years. President Unoura has worked on various measures for six years and as a result, the stock price more than tripled, EPS more than doubled and dividends also more than doubled. He changed the Group dramatically. I am honored to be appointed as the successor to such a president but at the same time I find it sobering to be assuming such heavy responsibilities. I am committed to fulfilling them.
Regarding the new Medium-Term Management Strategy, President Unoura explained that it will start this autumn. However, as for the efforts to change ourselves to become Value Partners, such efforts are always our basics, whether in a three-, five- or seven-year plan. I will continue to follow such an approach and aim to achieve EPS growth, reward shareholders and share profit with customers while providing excellent services. I would like to follow his basics and add new elements, such as streamlined investments, cost reduction, new services, global activities, etc., as an extension of the basics. NTT Security has approximately 1,500 employees in 15 countries. The number of Japanese employees is 100. Amidst such great diversity, I always keep the importance of “integrity” in mind. Integrity may be translated as “seigi (justice)” or “seijitsu (sincerity)” in Japanese. I am determined to manage the business operations and navigate the Group with integrity. Thank you for your continued support.
(Hiroo Unoura, CEO)
Later on, NTT East and NTT West will hold a press conference on their financial results. In addition, we just held a press conference on personnel changes at NTT DATA. President Iwamoto of NTT DATA, President Yamamura of NTT East and President Murao of NTT West have worked together with me for six years to make a major change to the business of the Group as a whole. I am grateful for the great results they produced.
That concludes my explanation.