Financial Results for the 2020 Fiscal Year and Outlook for the 2021 Fiscal Year

(Jun Sawada)

I would like to thank you all for coming to this press conference despite your no doubt busy schedules. I would like to start by explaining how we have handled the recent situation in which members of our management dined with parties such as general government officials.

I apologize sincerely for the immense trouble and concern that these management members caused to our customers, shareholders and other stakeholders through their choice to dine with parties such as personnel from government ministries and agencies.

I'll now share the action that we have taken so far. On March 9, we established a special investigations committee, with external experts among its members, which is now conducting an investigation to determine the facts about the relationships between the parties involved. This incident was partly due to insufficient oversight of our management. We are reflecting seriously on the fact that an act like this was committed by management who are supposed to be setting an example for our staff, and are thoroughly revising our internal rules and putting measures in place to prevent such an incident from occurring again in the future and regain the trust of our customers, shareholders and other stakeholders.

I will announce future measures after our special investigations committee announces its results. I appreciate your patience during this ongoing investigation.

I'll now announce the consolidated results for the 2020 fiscal year. All of operating revenue, operating income, and profit for the period increased during this fiscal year; in fact, operating revenue and operating income were our record high.

Despite a number of factors that impacted our operating revenue, such as a decrease in device sales at NTT DOCOMO and a decrease in SI revenue overseas due to factors such as the novel coronavirus (COVID-19), along with changes in the accounting method for some of NTT Ltd.'s revenue, these impacts were offset by positive factors such as an increase in smart lifestyle revenue at NTT DOCOMO and an increase in domestic SI revenue, and revenue increased by 44.6 billion yen year-on-year.

Likewise, our operating income was negatively impacted by factors such as decreases in profit due to COVID-19 and ballooning electric power procurement costs for ENNET, but these were offset by the NTT Group's increase in revenue and cost reduction, with the result that operating income increased by 109.2 billion yen year-on-year.

Profit increased by 60.9 billion yen year-on-year as a result of factors such as the increase in operating income and the influx of 40 billion yen in profit as a result of accounting processes associated with the acquisition of NTT DOCOMO as a wholly owned subsidiary.

Overseas revenue decreased due to factors such as changes in accounting processes for some revenue and the impact of COVID-19, but operating income margin improved due to factors such as streamlining by NTT Ltd.

All of operating revenue, operating income and profit for the period exceeded our projections.

While COVID-19's impact on our finances caused a 200 billion yen decrease in operating revenue and a 50 billion yen decrease in operating income, the decrease in overseas SI revenue at NTT DATA and the decrease in device sales at NTT DOCOMO were mitigated to a greater degree than expected, and as a result, the impacts on operating revenue and operating income for the year were around 150 billion yen and 20 billion yen less than initially expected, respectively.

I'll leave the results for each segment to respective companies, who will explain their results later, but our other business segments saw a 134.6 billion yen decrease in operating revenue and a 26.1 billion yen decrease in operating income. This is due to factors such as the division of our leasing business and ballooning electric power procurement costs for ENNET.

I'll now share our outlook for the 2021 fiscal year. Operating revenue, operating income and profit for the period are expected to increase year-on-year. All are expected to be our highest yet, and we are aiming to make this the first year we achieve 1 trillion yen in profit for the period.

With COVID-19 continuing to have an impact, there will be decreases in revenue due to factors such as NTT DOCOMO's launch of ahamo and our increase of returns to customers through Gigaho Premier, but factors such as an increase in SI revenue through robust demand for digitalization, the expansion of the smart lifestyle domain, the effects of structural reforms overseas and cost reduction measures at each company will ultimately see both operating revenue and operating income increase year-on-year.

Profit for the period is expected to increase by 168.8 billion yen year-on-year due to the increase in profit associated with operating income and the effect of acquiring NTT DOCOMO as a wholly owned subsidiary. As a result, we aim to dramatically increase EPS (earnings per share) from 248 yen in the 2020 fiscal year to 300 yen in the 2021 fiscal year.

I'll skip explanations for each segment.

Regarding our progress toward our medium-term financial targets, we planned to announce our review of our medium-term business strategies in May, but we decided that it would be best to wait until the report on the Ministry of Internal Affairs and Communications' meeting about ensuring fair competition is made public, so I will not include this in today's announcement. Once the report is released, I will announce the results of our review.

Good progress is being made toward each financial target, particularly in the area of cost reduction. Our cost reduction target for the 2023 fiscal year was 800 billion yen or more, but based on our projections for the 2021 fiscal year, we expect to reduce costs by over 840 billion yen in the upcoming year, accomplishing this target two years earlier than our original plan.

We also expect to meet our Capex to Sales target, with 13.5% set as the target for the 2021 fiscal year.

Projected EPS for the 2021 fiscal year is 300 yen, and we are working to achieve our fiscal 2023 target of 320 yen in the 2022 fiscal year, one year earlier than our original plan. Our overseas operating income margin increased by 0.6 points to 3.0% in the 2020 fiscal year, but with an increase in operating income expected at NTT DATA and NTT Ltd., we are aiming for 6.0% in the 2021 fiscal year.

I'll now share several news items.

First, I'll talk about how we are strengthening and globalizing our research and development operations. To strengthen cooperation between the fundamental research carried out by our research institutes and the development functions of our vendors, we will open the IOWN Integrated Innovation Center in July 2021. With 500 employees, this center will work to strengthen cooperation with NEC, Fujitsu and other partners and incorporate personnel exchange into our initiatives as our research institutes carry out their operations. I want to strongly promote research and development using technology such as photoelectric fusion devices, including our development of a platform for optical disk aggregated computing, combinations of moving and fixed parts and combinations of networks and computing. We plan to appoint Hidehiro Tsukano, who is currently the advisor for NTT Advanced Technology and previously served as the vice-president of Fujitsu, as the director of the center.

We plan to increase our budget for research and development in new domains, including service development and investment in growth fields, to around 500 billion yen in the 2021 fiscal year. Of the five-year budget of 2 trillion yen announced in our medium-term business strategies, we will have allocated 1.25 trillion yen in the first three years (2019-2021 fiscal years), and I want to accelerate our investment in this area so that we exceed 2 trillion yen in the final two years.

We also want to open a laboratory dedicated to building a natural world in May. We will translate the vision for a new society expressed by IOWN's concept into information that will feel relevant to members of the public. Centering on a joint creation project with Professor Yasuo Deguchi from Kyoto University, I want to make use of alliances with Infocom Research (ICR) and Hakuhodo, combining input from the science and liberal arts worlds to create a specific vision for the future, determine the scope of IOWN's contribution and then share that information.

Regarding the promotion of ESG in our management, I will share two ways in which we are strengthening our governance. The first pertains to wholly owned subsidiaries. To facilitate more active initiatives by the respective Boards of Directors, we have introduced an outside director and executive officer system at our main subsidiaries. The second is a revision of our officer compensation. The ratio of performance-based compensation will be increased from 30% to 50%, and a new system will be implemented to make officers more conscious of improving the company's value in the medium to long term.

I'll now tell you about two new services to create a remote world. The first is a cloud-based contact center to enable remote networks to be set up quickly, inexpensively and easily in small and medium businesses. In a word, this new service enables businesses to set up contact centers in their homes.

The other is Flexible Remote Access, which facilitates secure access to zero-trust networks, enabling easy responses in remote access environments. IDs are issued to enable easy, secure remote access from any location. The service was released on April 23.

I'll now share several points regarding our progress toward our medium-term business strategies. I'll start with the implementation of our B2B2X model. As of the end of March 2021, we have a total of 104 B2B2X projects, exceeding our goal of 100 projects by the 2021 fiscal year one year earlier than our original plan. In terms of our personalization initiatives, NTT DOCOMO agreed to a capital operations partnership with Medley, Inc., centering on online medical treatment. NTT DOCOMO also announced yesterday that it has agreed to a business partnership with MUFG Bank for the provision of digital financial services.

In terms of making our global businesses more competitive, we concluded a memorandum of understanding (MOU) with the Australian state of New South Wales to create smart cities. We also announced to the press today that we will establish a local company in Israel to create a new business in July this year.

I'll finish by announcing shareholder returns. It was decided in today's Board of Directors' meeting that we will aim to increase dividends by 5 yen year-on-year to 110 yen per share in the 2021 fiscal year. We have also finished the treasury stock acquisitions that were decided on in November 2020.

This concludes my explanation.