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February 6, 2020

CEO Press Conference

Financial Results for the Nine Months Ended December 31, 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.

Photo of CEO Press Conference

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

(Jun Sawada, CEO)

Now, I will give a brief summary of our consolidated results for the third quarter of the fiscal year ending March 2020.

Our financial results can be summarized as higher revenue and lower profits. Operating income dropped while net income increased.
Business revenue was the highest ever for the third quarter and has increased for three consecutive fiscal terms.
Operating income decreased year on year due to a drop in revenue from mobile communications services of NTT DOCOMO and a cost increase concerning the reorganization of overseas operations.
We do not disclose our quarterly profit plan, but we are currently outperforming it and aim to finish this fiscal year surpassing the yearly profit target as well.
The increase in net income for this quarter was partly due to valuation gains of ENNET Corporation when it became one of our consolidated subsidiaries.
With regard to overseas sales, and operating income to sales ratio overseas, the former increased, in other words, business revenue increased both in Japan and overseas; however, the latter, operating income to sales ratio overseas, dropped from the same month a year earlier due to a reorganization-related cost increase, a delay in shifting to high-value-added services, an increase in expenses for enhancing our brands, and other factors.

Next, I would like to explain the status of financial results by segment.
Business revenue grew, driven by the data communications business and consolidation of ENNET as a subsidiary into the Group in "other business" segment.
Operating income, in the meantime, was greatly weighed down by the mobile communications business, which saw a profit decrease due to discounts but is outperforming our plan, and may also surpass the yearly target.
The regional communications business saw a year-on-year profit increase because it did not have a loss related to metal cables unlike the previous fiscal year, and we will continue to work towards surpassing the yearly target as well.
The long distance international communication business is unlikely to achieve our global target due to the reorganization but we have moved up our schedule for structural reforms and streamlining since the latter half of the previous year. We will continue to work toward meeting our yearly target.
The data communications business and "other business" segment maintained about the same levels year on year.

Photo of CEO Press Conference

Next, I will report on some key topics.

As announced early today, we have decided to go into partnership with Tokyo Century Corporation in leasing business and other new fields. As part of this effort, we will move the 1.3 trillion yen of assets and 1.2 trillion yen of liabilities of our leasing business off the balance sheet and set up a 50:50 joint corporation with Tokyo Century. This joint corporation will be an affiliated company accounted for by the equity-method, having a negative impact on our operating income but we will be able to reduce our debt by 1.2 trillion yen.
At the recent earnings announcement of NTT DOCOMO, we announced the liquidation of accounts receivables. We will continue to expand this effort as well.

As a matter of fact, we are strategically taking the following two measures: we are planning to liquidate assets or take them off the balance sheet, thereby using money more efficiently to generate cash to be invested for growth or returned to shareholders. Usually companies use retained earnings for such purposes, but we will go beyond that and utilize our assets we hold to expand our business more aggressively. In addition, we are planning to work together with Tokyo Century in new business fields that are capital-intensive such as data centers, environment/energy, real estate, etc.

With regard to industrial digital transformation with Mitsubishi Corporation, we will together promote DX especially in the area of food distribution and industrial material distribution. As well, we will jointly invest in HERE for location information business.
In the same month of December, we announced our strategic alliance with Microsoft. The partnership will feature what we call a Global Digital Fabric, which is a foundation based on a combination of NTT's infrastructure and Microsoft's cloud, and we will propose it to customers around the world. Together we will also develop corporate digital solutions related to security and social robotics. As Microsoft is heavily committed to power consumption, we will work together for years to come on development in the field of IOWN and All Photonics Network.

Photo of CEO Press Conference

With regard to Smart City, as we have talked about our efforts with Las Vegas many times, the number of pipelines has grown to around 70. Two of them will start in February. We will introduce a data-utilization infrastructure using Cognitive Foundation to the Cyberjaya area of Malaysia and Denenchofufutaba Gakuen.

This year, we participated in CES2020 for the first time. We had over 10,000 visitors to our booth, and moreover NTT-related movies were viewed 26.8 million times as of February 3. We are a little surprised to see more than 25 million views of the movies in just three weeks. We understand that IOWN has garnered great interest.

The next topic is the utilization of medical information, which we announced with Kyoto University earlier this week. The aim of the project is to develop a foundation which enables efficient accumulation and analysis of medical big data that helps people in a true sense. Software to be deployed is extremely flexible, and able to form interconnections with various electronic health records. We will establish a new company called "PRiME-R" and try to find more medical institutions willing to work with us.
With regard to e-sports, we have set up a new company. In addition, in the next fiscal year, we will work on promoting development of local 5G.

Now, about the promotion of ESG management.
For Diversity and Inclusion, we have joined "The Valuable 500," an international initiative for promoting the involvement of disabled people, launched at last year's World Economic Forum in Davos.
As well, starting from February 20, we will introduce robots called "OriHime-D" made by Ory Lab Inc. to the reception at our head office building on a trial basis. Remotely operated by pilots, who have disabilities or difficulty going out, these robots with a height of around 120cm will greet and guide visitors. While visitors cannot see the pilots, the pilots can see visitors and will take them to meeting rooms during the trial. If the trial works out, we will employ pilots, that way creating more employment opportunities for people with challenges. Ory Lab has done a few trials so far at cafes, but this will be the first trial at an office.

That concludes my explanation.

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