Financial Results for 1st Quarter of the 2021 Fiscal Year

(Jun Sawada)

I would like to thank you all for coming to this press conference despite the hot weather and your no doubt busy schedules. I would like to start by expressing my heartfelt sympathy to all those who have been impacted by the outbreaks of the novel coronavirus (COVID-19).

I'll now tell you about our consolidated results for the first quarter of the 2021 fiscal year. Our financial results show that both revenue and profit are trending better than expected.

Operating revenue increased by 126.1 billion yen year-on-year to 2,892.6 billion yen, while operating income decreased by 11.3 billion yen year-on-year to 486.3 billion yen. Profit for the period was the highest yet, increasing by 67.3 billion yen year-on-year to 340.0 billion yen due to accounting processes associated with the acquisition of minority stockholders' shares when NTT DOCOMO was acquired as a wholly owned subsidiary.

Overseas sales increased year-on-year due to factors such as an increase in SI revenue as a result of a high level of demand for digitalization at NTT DATA. Overseas operating income is also improving due both to the increase in revenue and the effects of our structural reform.

I'll now talk about revenue and profit for each segment.

In our mobile communications business segment, revenue decreased due to price decreases. However, it increased year-on-year due to factors such as an increase in device sales and an expansion of the smart lifestyle domain in areas such as finance and transactions. On the other hand, profit decreased year-on-year as a result of strengthening measures to actively expand in the 5G area and achieve growth in the smart lifestyle domain.

In our regional communications business segment, both revenue and profit increased year-on-year due to an increase in revenue for packet communication and IP systems centering on optical services at both NTT East and NTT West, along with measures such as cost reduction.

In our long distance international communications business segment, both revenue and profit decreased year-on-year due to special demand for NTT COM's conference equipment in the first quarter of the previous fiscal year and an increase in costs associated with structural reform at NTT Ltd.

In our data communications business segment, both revenue and profit increased year-on-year, as we mentioned in the announcement of NTT DATA's financial results, due to a high level of demand for digitalization.

Regarding our future forecast, there are three points I would like to cover.

The first point is the competition in the mobile industry. We have strategically introduced payment plans such as ahamo and Gigaho Premier. This has enabled us to make the improvements that have been expected of us in both net additions and MNP. We are in a particularly favorable position with young subscribers. We expect that this year's price decreases will put around 250 billion yen back in customers' pockets each year. We aim to further expand our customer base through these measures.

Additionally, our cumulative total of cell towers on the new dedicated frequency for 5G has now exceeded 10,000. We are making progress at 2-4 times the rate of our competitors, and we are expanding 5G quite actively within the industry too. We now have 5.35 million 5G subscribers.

Next, I will talk about the impact of COVID-19. While the overall impact has decreased compared to the previous fiscal year, we are still seeing some negative impacts such as a decrease in international roaming revenue for NTT DOCOMO and a decrease in SI revenue for NTT Ltd. in Asian countries such as India. We expect to see the impact of COVID-19 gradually lessen as people learn to live with COVID-19 and factors such as increasingly widespread vaccination lead to economic recovery.

We are seeing favorable progress in our business situation at present. We recently reached 1.8 million ahamo subscribers, and expect to see further growth. While we can expect to see more major changes in our business environment in the future, I want to focus on areas like this as we continue working to accomplish our business plan.

The third point I want to mention is the revision of our third medium-term business strategies. Once the report on the Ministry of Internal Affairs and Communications' meeting about ensuring fair competition is made public, I want to announce a review of our medium-term business strategies. The most critical numerical target of our current financial targets is 320 yen in EPS (earnings per share) by the 2023 fiscal year, and we are already carrying out business activities with the aim of achieving this a year earlier than our original plan.

This concludes my announcement of our business situation. I have several news items to share.

The first is about the Tokyo 2020 Olympic and Paralympic Games (Tokyo 2020). The NTT Group was involved in the operation of Tokyo 2020 with contributions such as network operations. The networks we provided for broadcasting and communications have operated with no issues of note so far. Our operations at the Paralympic Games will mostly be the same as at the Olympic Games, and we will continue to endeavor to operate with the maximum possible safety.

I would like to write about three groups of new technologies we are providing. The first is our video streaming using Kirari!, ultra-realistic viewing technology that is used for remote live streaming of sailing events using wide composite videos.

We are also using holographic video streaming for the badminton events. Operational support for the Games is provided using CUzo, an AR-based guidance solution that transmits information on the event facilities and routes to a display so that the information is clearly indicated.

Additionally, you may remember that the Japanese women's softball team won gold the other day. I would like to extend my congratulations to the athletes and everyone who was involved. We have worked together with the Japan Softball Association since 2017 to test technology that optimizes players' performance. If our technology helped the team to win, nothing would make me happier.

Regarding our COVID-19 initiatives, we have been arranging for employees to be vaccinated at their workplaces, with the aim of vaccinating 164,000 employees in the NTT Group by the end of the year. As of July 31, we have vaccinated 58,000 employees, 35% of our total number.

For remote working, we aim to have less than 30% of our employees working on-site with the other 70%+ working remotely. In areas covered by the State of Emergency, we are working to ensure that less than 20% of non-essential workers are working on-site and the other 80%+ are working remotely.

My next announcement is part of our initiatives to strengthen and globalize our research and development work. In September, we will establish NTT sonority, Inc. with the aim of using personalized sound zone technology to effectively control the spaces where sound is heard. We want to use this technology to create comfortable acoustic spaces and contribute to the enrichment of society. The president will be Kazunori Kobayashi, the supervisor from NTT Service Innovation Laboratory who developed this technology. We are currently carrying out joint research, including a project with companies such as Jamco and Toyota Boshoku to create aircraft and car seats where people can enjoy music without headphones and a project with Okamura to provide a service where office chairs themselves create an acoustic environment limited to the space they occupy.

In our initiatives to achieve a remote world, I would like to mention three new services. The first is a cloud service that achieves DX (digital transformation) of companies' bond-issuing operations. The NTT Group itself issues bonds, and this is a service that we ourselves wanted to have, so we want to use this to speed up operations and contribute to a shift to working from home.

The second is home 5G, a home router provided by NTT DOCOMO that allows unlimited data use on 5G and 4G networks and requires no construction work.

The third is an OCN optical service. With a large number of online conferences taking place through applications such as Teams, Webex and Zoom as part of companies' remote work, many people are experiencing noise, lags and sound breaking up due to poor network conditions. To reduce these issues, we are providing a service to improve dynamic performance, including quadrupling the real-time usage band.

I'll now tell you about our progress on our medium-term business strategies. I'll cover five key points.

The first is part of our global strategy. Tokyo Century is now involved in our data center business in India. This enabled NTT to remove costs from our balance sheet while enabling Tokyo Century to enter the data center business. This is the first project of its kind.

Next, as part of our domestic DX strategies, we lowered the prices of our optical services in July and announced collaborations with Sky Perfect JSAT and ACCESS.

Lastly, in governance, we raised the number of outside members of our Appointment and Compensation Committee to three. As there are five members in total, there are more outside members than inside ones, which will strengthen our governance.

I will finish by talking about our shareholder returns. As per the information we provided, we are working to continuously increase shareholder returns while also actively acquiring treasury stock to improve capital efficiency. With that said, the Board of Directors decided today that no more than 250 billion yen in treasury stock is to be acquired. We aim to achieve our EPS target one year earlier than our original plan, and this will contribute to that. We also decided this based on our forecast for free cash flow and debt repayment during this period. Based on this, we want to change our EPS target for the 2021 fiscal year from 300 yen to 302 yen.

This concludes my explanation.