Financial Results for the Three Months Ended June 30, 2020 and Financial Forecasts for the Fiscal Year Ending March 31, 2021

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

(Jun Sawada, CEO)

I would like to offer my heartfelt sympathy to the people who have been affected by the spread of the novel coronavirus (COVID-19), as well as the people affected by the heavy rains in July.

For the first quarter ended June 30, 2020, both operating revenues and operating income decreased.

Operating revenues decreased by 5.1% year-on-year. Operating revenues substantially decreased by 8% overseas, compared with 3.8% in Japan.

The decrease in operating income has been covered by various cost reductions, resulting in a decrease of 1.5% or approximately 7.6 billion yen from the previous fiscal year.

For the first quarter ended June 30, 2020, operating revenues and operating income fell by roughly 70.0 billion yen and 10.0 billion yen, respectively, owing to the negative impact of COVID-19.

Next, I would like to explain the financial condition by segment.

Operating revenues from the mobile communications business segment decreased, but operating income increased year-on-year, as mentioned in the recent earnings release of NTT DOCOMO. Operating income increased from the previous fiscal year, as the reduction in revenues from sales of terminal devices, and the decline in revenues from the mobile communications services resulting from the decrease in international roaming revenues, as well as from the impact of introducing new billing plans and expansion of adoption of those plans were offset by cost reductions.

Operating revenues from the regional communications business segment decreased year-on-year. This segment experienced decreases in revenues from voice-related services and revenues from hospitals partly due to the impact of COVID-19, and recognized increased losses from retirements of unnecessary fixed assets. In addition, this segment incurred costs and expenses to improve the environment in relation to the ongoing COVID-19 pandemic.

Operating revenues from the long distance and international communications business segment decreased by 68.6 billion yen due to the impact of COVID-19 and effects of fluctuations in foreign exchange rates. However, operating income increased year-on-year, thanks to the cost reductions resulting from the freezing of corporate initiatives and the structural reforms implemented abroad during the previous fiscal year.

Operating revenues from the data communications business segment increased, as mentioned in the recent earnings release of NTT DATA. However, operating income fell from the previous fiscal year due to the impact of COVID-19.

Operating revenues of other business increased thanks to the expansion of consolidations by NTT Urban Solutions, while operating income remained unchanged from the previous fiscal year.

Then, I will explain the financial forecasts for the year ending March 31, 2021 (FY2020).

It is anticipated that operating revenues and operating income will fall by approximately 350.0 billion yen and 70.0 billion yen, respectively, due to the impact of COVID-19. We do not factor in the reissuing of a declaration of a state of emergency in Japan in our forecasts, and expect that economic activities in Japan will gradually recover after the lifting of the declaration of a state of emergency in May.

Outside of Japan, we anticipate that the pace of recovery will be more moderate chiefly in Europe and the United States than in Japan, although the pandemic is gradually coming to an end in some countries.

As a result, we plan to see a substantial decrease of operating revenues by roughly 400.0 billion yen, but anticipate an increase in operating income and net income year-on-year by covering such a decrease in operating revenues by our restraints of and reductions in capital investments amounting to as much as 80.0 billion yen, as well as cost reductions of as much as 100.0 billion yen.

The impact of COVID-19 is expected to decrease operating revenues by 350.0 billion yen, the breakdown of which is roughly half and half in Japan (180.0 billion yen) and overseas (170.0 billion yen). COVID-19 is expected to have a more negative impact on operating income in Japan, amounting to 45.0 billion yen.

As a result, net income is expected to slightly increase from the previous fiscal year, and earnings per share (EPS) is also anticipated to marginally increase from the previous fiscal year.

I will explain the financial forecasts by company.

At NTT DOCOMO, it is expected that operating revenues will decrease, while operating income will increase. It is financially structured so that the impact of COVID-19 will be covered principally by cost reductions.

Both NTT East and NTT West anticipate that operating revenues and operating income will increase. NTT West will achieve increases in operating revenues and operating income for the first time since its formation. NTT East will achieve increases in operating revenues and operating income for the first time since FY2010. This reflects a strong increase in net revenues from Fiber to the Home (FTTH) services and cost reductions.

Financial results of the long distance and international communications business segment cannot be compared by company, as the definitions we used for April to June are different between the current fiscal year and the previous fiscal year because of the reorganizations of NTT Communications and NTT Ltd. that occurred in July last year. For this reason, operating revenues will decrease, and operating income will increase, both expressed in the totals of the segment. Overseas, it is anticipated that a decrease in revenues from the SI services will be covered by cost reductions resulting from the structural reforms, among other measures.

NTT DATA expects a decrease in both operating revenues and operating income. Unfortunately, NTT DATA now has no choice but to make plans in anticipation of a decrease in revenues due to the impact of COVID-19, although the company consistently increased revenues since its formation in 1988.

NTT Urban Solutions expects to see an increase in operating revenues and decrease in operating income. The company expanded its consolidations, which makes it possible to achieve positive revenues.

I will explain some key topics.

The first topic is about the work style adopted by NTT Group. This is one of our major efforts in response to the novel coronavirus pandemic. The percentage of NTT Group's indirect departments adopting the working from home system was 55% at the end of July. In late July, we changed our policy to aim to reduce the office attendance percentage below 30%, which means that more than 70% of our employees will work from home.

In parallel, we are considering the underlying systems. What we should consider consists largely of three initiatives. The first is a Work from Home allowance. The second is conversion to payment of the actual commutation allowance amount, which means that we will discontinue payment of so-called commutation pass charges. The last relates to super-flextime work, which is the work style without a preset core time. We plan to introduce these three initiatives in October.

Moreover, we plan to make satellite offices available by using our existing buildings. The target facility we have chosen as the first satellite office is the building located in Noborito. We want to increase and expand our satellite offices from now on.

In addition, we have introduced the avatar OriHime-D into NTT's receptions. This avatar is suitable for the remote world where disabled persons can work remotely.

My next topic relates to the provision of our services. Toward the realization of a remote world, we have now picked up seven services. This is the first round, and we would like to further expand our service lineups.

Most notable is the online workspace "NeWork." This online workspace, which will be made available free of charge by NTT Communications at the end of August, is the service by which virtual office spaces will be safely reproduced. The servers will be located in Japan. It will help companies encourage Work from Home.

LINE is one of the most popular social networking services (SNS). We also will provide the business chat service "ELGANA," an enterprise version of such SNS feature. A company within NTT West Group has already started providing this service.

In addition, NTT DOCOMO will provide Work from Home support services, and NTT DATA will provide "NaNaTsu" that will support smart municipalities through RPA-based business process automation. In order to secure social distancing, we also have provided "Window Talk" by which conversations can be held through a window.

Next, I would like to talk about the progress of our Medium-term Management Plan.

We completed deployment of at least one 5G base station in every prefecture at the end of June. We are conducting a broad array of activities, including issuing green bonds, based on our ongoing strategies.

That concludes my explanations.