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CEO Press Conference

August 6, 2019 (Tuesday)

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Financial Results for the Three Months Ended June 30, 2019
Jun Sawada, Representative Director and President,
Chief Executive Officer
Also in attendance were:
Takashi Hiroi, Senior Vice President, Director of Finance and Accounting Dept.
Ryota Kitamura, Senior Vice President, Director of Corporate Strategy Planning Dept.

Summarized below are the points of the explanations and comments given at the press conference.

(Jun Sawada, CEO)
I am presenting a summary of our consolidated results for the three months ended June 30, 2019.
In brief, our first-quarter operating revenue increased on a year-on-year basis, but operating income decreased.
This quarter marked a record-high first-quarter operating revenue. Our first-quarter operating revenue has increased year-on-year for the ninth consecutive year, which applies to both domestic and overseas operations.
On the other hand, our first-quarter operating income decreased year on year, mainly because of the decrease in operating income of NTT DOCOMO as a result of its profit return to customers. We do not disclose specific quarterly targets, but both first-quarter operating revenue and income have exceeded their quarterly targets, showing that our operations are going well.
As to first-quarter net income, while our operating income in this quarter decreased by 6% year on year, net income declined by only 3%. This is attributable mainly to the gain on revaluation of Ennet when it was consolidated into the Group as a subsidiary.
As to overseas sales, because we were tied up with the integration process from April to June in preparation for the start-up of NTT Ltd., there was a concern that our first-quarter orders and operating revenue might drop. As it turned out, however, overseas sales increased by 2.9% year on year. On the other hand, the ratio of operating income to sales in overseas operations declined by 1.0% year on year due to the extra expenses needed for the integration process and advance investment.

Next, I will explain the financial results for the first quarter by segment.
The Group’s operating revenue increased in the first quarter year on year, because the rise in operating revenue from the long-distance international communication business, the data communications business, and other businesses absorbed the declines in operating revenue from the mobile communications business and the regional communications business. The Group’s first-quarter operating revenue increased by 62.7 billion yen year on year, primarily because of approximately 60.0 billion yen of increased operating revenue as a result of Ennet being consolidated into the Group as a subsidiary, which is now included in the “other business” segment. The Group’s operating income decreased in the first quarter year on year because the decrease in operating income of NTT DOCOMO could not be absorbed by the increase in operating income from other businesses.
The first-quarter operating income of the regional communications business increased slightly year on year because the efficient use of operational costs compensated for the decrease in its operating revenue.
The first-quarter operating income of the long-distance international communication business decreased year on year because its integration cost toward global reorganization was booked in this quarter. However, we expect the operating income on a full-year basis to exceed that of the previous fiscal year.
The first-quarter operating income of the data communications business was affected by advance investment and other expenses.
While the consolidation of Ennet into the Group has a significant impact on the Group’s operating revenue, its contribution to the Group’s operating income is not very large, because the company is an electricity reseller.

Since our announcement on May 10 of Financial Results for the Fiscal Year Ended March 31, 2019, we have implemented various initiatives. I will now explain the progress of the 21 initiatives.

First, concerning “Promote B2B2X Model,” we, in cooperation with Hokkaido University and the city of Iwamizawa, launched an initiative aimed at creating a smart agri-city using self-driving tractors.
We entered into a comprehensive cooperation agreement with Chiba City concerning electric power management, safety management, digital archives, etc.
We entered into a “Community Development Partnership Agreement” with 12 municipalities in the Sapporo Metropolitan Area.
At the end of July 2019, we, jointly with Tokyo Metro, launched an initiative aimed at developing the attractiveness and vitality of Tokyo together.
From August 2 to August 26, we are performing “August Minamiza Cho Kabuki” at the Kyoto Minamiza Theater, and the show is attracting excellent reviews.

Concerning the “Roll out 5th-Generation Wireless System,” we are conducting various activities in preparation for a trial scheduled for this fall. As the holding company of NTT Group, we already authorized the acquisition of a 20% stake of JTOWER to increase our efficiency in developing 5G antennas in the future.

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Concerning “Enhance Competitiveness in Global Business,” NTT Ltd. started operations on July 1, 2019. The new company was established to integrate three existing overseas businesses: NTT Security, Dimension Data, and NTT Communications.
On July 1, an opening ceremony for NTT Ltd. was held in London, in which NTT Group’s customers and Japanese and U.K. industry and government officials participated. We also received a welcome message from Former U.K. Prime Minister Theresa May. Global media such as CNBC interviewed us, and the foundation of NTT Ltd. got a lot of coverage. We now stand at the starting point, and the three companies will be integrated over the next two years.
Other global initiatives concerning “Enhance Competitiveness in Global Business” included the acquisition of Symmetry, a U.S. SAP-managed services business, and the acquisition of WhiteHat Security, a U.S. application security business. In July, these two U.S.-based companies came under the control of NTT Ltd. This approach is one of how we are striving to enhance our capabilities in overseas operations.

Concerning “Drive Self-Digital Transformation in Domestic Business,” we are currently taking various initiatives. I will introduce a few examples of our specific initiatives currently under way in the Group.
The first example is support for telephone inquiries about problems regarding glitches, which total approximately 6.5 million calls a year. NTT DOCOMO, NTT East, and NTT Communications have already adopted an automated support system using websites and chatbots, with NTT West currently in a trial phase. When NTT West puts this system in place, all of the leading NTT Group companies will have an automated support system through websites and chatbots.
The second example is human resource management (HRM). We decided on the introduction of SuccessFactors, a group-wide human resource management system for approximately 200,000 people working in NTT Group’s domestic major companies. A cloud-based HRM system will be introduced toward the start of the operation scheduled for next April.
The third example is robotic process automation (RPA). Since our announcement on this topic last November, the number of robots we introduced has increased by 3,000 to 15,000, and the number of business process applications has increased by 350 to 850. Probably, this initiative for RPA is one of the largest in Japan. Furthermore, we are in the process of standardizing the optical fiber systems at NTT East and NTT West. At the same time, we started an initiative to standardize the entire business system specifications at NTT East and NTT West for sales, services, and equipment management.

Concerning “Initiatives Leveraging talent, Technologies, and Assets,” we established several new companies on July 1, one of which was NTT Urban Solutions. This company, designed to redevelop urban areas, is already working on urban development projects currently under way in Hakata and Sendai.
Concerning the establishment of NTT Life Science, we, jointly with the University of Tokyo, established the Project Division of Genomic Medicine and Disease Prevention, which already started collaborative research. Also, we founded the Bio-Medical Informatics Research Center at NTT Laboratories.
As part of our smart energy business, we established a company named NTT Anode Energy on June 3. We applied to the Ministry of Economy, Trade and Industry for a company license. During the Board of Directors meeting today, it was resolved that we would transfer more than 50% of shares of Ennet and NTT Smile Energy to NTT Anode Energy. NTT Smile Energy is a joint venture between NTT West and Omron. As a result, we have set up a structure in which we can pursue the managed energy business by integrating resources, know-how, and governance. In the meanwhile, we are aiming at the promotion of the Smart Infra business. On July 1, 2019, NTT InfraNet, which had been a subsidiary of NTT East, was made a subsidiary directly under the holding company of NTT Group. From now on, we will promote the Smart Infra business through NTT InfraNet. One of the objectives of the Smart Infra business is to develop a platform for digitalizing spatial information. Already having engineering information about outdoor facilities such as infrastructure facilities and conduit lines, NTT InfraNet desires to create a connected process value chain through the digitalization and utilization of those facilities. In other words, the company is eager to increase efficiency through the realization of a connected value chain. Furthermore, the company wants to provide such know-how to other industries and companies, helping them to promote their digitization. We are strengthening our initiatives to pursue the three steps described above.

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Concerning “Enhance and Globalize R&D,” we announced the promotion of R&D globalization as well as the IOWN concept including All Photonics Network.
In July, we opened NTT Research, Inc. and held an open forum in the U.S., which was very well accepted. We will continue to build a network among researchers around the world to pursue fundamental research in the fields of quantum computers, cryptographic technology, and medical science.
On June 12, we introduced the IOWN concept in our keynote speech at Interop Tokyo 2019. We have a plan to share more details in the R&D forum to be held this fall.

Concerning “Contribute to Revitalization of Regional Societies and Economies,” NTT East founded NTT AgriTechnology. NTT West is offering collaborative outsourcing and collaborative systems. Concerning ”Disaster Countermeasures,” the full use of AI now allows us to estimate the severity of damage from natural disasters.

The last topic is stockholder returns. During the Board of Directors meeting today, it was resolved that we would buy back treasury stocks to be acquired from the Japanese government, the total amount of which is up to 300 billion yen. The total number of shares is 53,000,000 shares. Assuming that our shares may be acquired in the market, we set the upper limit with a large margin. The share buyback period is set between tomorrow and September 30, 2019. Based on the above, our EPS target for FY2019 has been revised from 456 yen/share to 462 yen/share (an increase of 6 yen/share).

This is the end of my presentation.

Related information
Financial Results for the Three Months Ended June 30, 2019