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February 5, 2021

CEO Press Conference

Financial Results for the 3rd Quarter of the 2020 Financial Year

Financial Results for the 3rd Quarter of the 2020 Financial Year
Jun Sawada, President and Chief Executive Officer,
Representative Member of the Board
Also in attendance were:
Kazuhiko Nakayama, Senior Vice President, Head of Finance and Accounting Dept.
Takashi Taniyama, Senior Vice President, Head of Corporate Strategy Planning Dept.

Photo of CEO 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).

In the third quarter of the 2020 financial year, operating revenues decreased while operating income increased. At the moment, progress on both operating revenues and operating income is better than expected. Operating revenues decreased by 124.7 billion yen year-on-year due to factors such as the loss of sales on NTT DOCOMO devices and a decrease in SI revenue overseas as a result of issues such as COVID-19, along with changes in our account processing methods for some of our revenue.

Despite the decrease in revenue due to COVID-19, operating income increased by 51.9 billion yen year-on-year for reasons such as an increase in revenues from the smart life business of NTT DOCOMO and cost structure reforms in overseas operations.

Income for the period increased by 34.3 billion yen year-on-year due to the increase in operating income and income of around 19.0 billion yen generated by a small number of shareholders through the acquisition of wholly owned subsidiaries by NTT DOCOMO. At 831.2 billion yen, this is the highest income we have ever generated in the third quarter.

While overseas sales decreased year-on-year due to factors such as COVID-19 and changes in some of our revenue accounting processing methods, good progress is currently being made on our overseas operating income margin through measures such as streamlining of NTT Ltd. With that said, caution is still needed as we encounter issues such as economic activities being restricted once again due to COVID-19 in countries around the world. We do not see a need to revise our annual plan, but we are working to exceed the targets set in the plan.

The negative impact of COVID-19 caused operating revenues and operating income to fall by around 160.0 billion yen and 30.0 billion yen, respectively, in the third quarter.

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.
Operating revenues increased year-on-year in the regional communications business due to a net increase in Fiber to the Home (FTTH) services, an area in which NTT East and NTT West have had strong performance. This was the first increase in 10 years. At NTT West, operating income decreased despite the increase in operating revenues as facilities were expanded and some equipment was discarded, but when we break the results down by quarter, we can see that operating revenue increased in the second and third quarter, showing more progress than expected.

Photo of CEO Press Conference

Operating revenues from the long distance and international communications business segment decreased due to the impact of COVID-19 and the change of the revenue accounting processing method at NTT Ltd. However, operating income improved as a result of structural reforms in the previous financial year. As a result, operating revenues decreased year-on-year while operating income increased year-on-year.

The operating revenues and operating income of the data communications business segment increased year-on-year, as stated in the announcement of the financial results of NTT DATA.

I will now explain some key topics.

I will start by talking about our initiatives to handle COVID-19. As a Designated Public Corporation, the NTT Group has continued to ensure a reliable supply of communication services, but unlike the previous state of emergency , fixed communication traffic during the latest state of emergency have increased by only around 10% during daytime hours on weekdays. We have also been extending payment deadlines, as we did during the previous state of emergency, to make the situation easier for our customers. As the state of emergency was extended, we have pushed back payment deadlines to the end of April 2021. Various forms of technology are also being used in the NTT Group to expand the volume of our call center work that can be done from home and enable over 70% of the work in our indirect divisions to be done at home.

At the press conference for our previous financial results, we announced that we would create a new service brand called Remote World. We aim to share the worldview of this service with a wide audience and entrench it in the services used in society. The concept of this brand is the creation of new spaces that go beyond face-to-face communication.
I will now talk about two new services we have introduced to expand the scope of operations that can be performed remotely. One is AI phones, which were launched by NTT DOCOMO in December 2020. Artificial intelligence (AI) and robotic process automation (RPA) are used to automate phone and computer operations that were previously performed by personnel.
We also added to the COTOHA Voice DX range provided by NTT Communications, which uses audio to create digital transformation (DX). The range now features options enabling people in emergency situations to type a message and batch send it as an audio call to pre-registered numbers.

I will now tell you about five challenges we are facing in the new areas and businesses we are entering.

The first is launching a new initiative in the development project in Higashisakura, Nagoya that was previously announced to the media by NTT Urban Solutions. The initiative aims to implement digital twin computing in community development based on the concept of connecting the real and the virtual.
The second is NTT InfraNet's smart infrastructure platform with 3D space information from the NTT Group's underground equipment. The platform has been launched in the 23 wards of Tokyo and we will now work to expand that area and make the service compatible with other companies' facilities.

Photo of CEO Press Conference

The third and fourth are two companies established by NTT East. One is NTT ArtTechnology, a new enterprise established to cover local culture, arts and similar and share a new way of appreciating art across a wide area, primarily online. The other is NTT e-Drone Technology, which supports our initiatives using Japanese-made drones. Farming is the first area where we have used these drones, and NTT e-Drone Technology was established to help us expand this business further. The fifth is the initiatives with 5G and Beyond 5G that were announced by NTT DOCOMO this week. One of those initiatives seeks to provide optimal wireless access network packages to overseas telecommunications carriers through our 5G Open RAN Ecosystem, and has been launched with 12 companies in Japan and overseas. In addition to communication device vendors, we will supply these together with Intel, Dell, Nvidia and various other similar companies. The 12 companies using this system will establish a consortium to provide Japan's first 5G solutions to corporations with overseas offices. Proof-of-concept testing has been conducted in Thailand, and commercial services have been launched. We were also the first in the world to conduct proof-of-concept testing for technology to switch between mobile towers using measurements obtained through mobile signals. The technology was developed for Beyond 5G and tested in the 60Hz band using an open-wheel car with a maximum speed of 300km/h. Various other initiatives are also underway, including a smart campus cooperation with Kindai University. We concluded a comprehensive partnership agreement covering the whole of the NTT Group last November, and are conducting extensive investigations.

I will finish by talking about our returns to our shareholders. It was decided at today's Board of Directors' meeting that we will increase projected dividends for the end of the 2020 financial year to 55 yen, five yen higher than our projection at the start of the financial year. This will make a total of 105 yen per share for the year, a 10 yen increase year-on-year. We previously announced that continuous dividend increases are a basic principle in our medium-term management strategies, and this, along with factors such as the good progress in our results for this period, the increase in operating income through NTT DOCOMO's acquisition of wholly owned subsidiaries and the improvement in our cash flow, are reflected in our decision to increase dividends.

This concludes my explanation.

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