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August 8, 2022

CEO Press Conference

Financial Results for the First Quarter of the 2022 Fiscal Year

Akira Shimada, 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 press conference with President

(Akira Shimada)

I'll now share our Financial Results for the First Quarter of the 2022 Fiscal Year.
 Our operating revenue and operating income for the 2022 fiscal year increased year-on-year, and our operating revenue and profit for the period were all record highs for the first quarter. Our operating revenue increased by 176.3 billion yen year-on-year to 3,068.9 billion yen due to factors such as increased operating revenues in companies such as NTT DATA and NTT Ltd. and cost reductions. Around 57 billion yen of that 176.3 billion yen was the result of a favorable exchange rate. Operating income increased by 17.1 billion yen year-on-year to 503.4 billion yen due to operating revenue increases in companies such as NTT Data and NTT Ltd. Profit for the period increased by 28.6 billion yen year-on-year to 368.8 billion yen due to factors such as an increase in operating revenues and operating income and a one-time favorable effect of income tax. The overseas operating income ratio increased by 2.1 points to 6.1% due to factors such as NTT Data's operation revenue increase and the cost reductions achieved through our structural reforms of NTT Data and NTT Ltd.

I'll now announce the operating and operating income for each segment which you can see on page 5.

In our Integrated ICT Business Segment, operating revenue decreased due to factors including price reductions in the consumer business, leading to an overall decrease in year-on-year operating revenue. This decrease in operating revenue was offset by cost reductions in each business, resulting in an increase in operating income compared to the previous year.

In our Regional Communications Business Segment, as of the first quarter, operating revenue and operating income decreased year-on-year due to a decrease in operating revenue from fixed voice-related services and the absence of a gain in the sale of real estate recorded in the previous fiscal year. Nevertheless, we expect year-on-year increases in operating revenue and operating income for the full year due to a predicted increase in SI business operating revenue, growing business operating revenues, and thorough cost reductions.

In our Global Solutions Business Segment, NTT DATA recorded an increase in sales due to strong digitalization demand, and NTT Ltd. increased its sales due to the expansion of high-value-added services. NTT Ltd. also achieved cost reductions through structural reforms. Overall, both operating revenue and operating income increased year-on-year.

In the segment encompassing other businesses such as real estate and energy, operating revenue and operating income increased year-on-year due to factors such as increased sales from an increase in electricity brokerage at ENNET and an increase in operating revenues from electricity charges, reflecting soaring fuel prices.

Next, I have five news items to share (outlined beginning on page 7).

First, I will explain our promotion of the medical and healthcare business. Today, we entered into a capital and business partnership with Genesis Healthcare, a leading player in genetic testing and data analysis. In addition, we will acquire a 19.3% stake in Genesis Healthcare. We will strengthen NTT Life Science's database by incorporating the data owned by Genesis Healthcare. By combining the data analysis and genetic testing technologies of NTT Life Science with the technologies of Genesis Healthcare, we will improve the quality of analysis and testing. By providing these services to pharmaceutical companies and medical institutions, we will contribute to improving the quality of healthcare.

Next, I would like to discuss our organizational decentralization (outlined on page 8). From October 2022, the holding company will establish geographically dispersed bases in Takasaki City, Gunma Prefecture, and Kyoto as a trial of regional decentralization of the organization. Through this trial of about 200 people, we will verify issues and countermeasures in business execution and communication due to organizational decentralization before considering full-scale implementation. Through this initiative, we aim to achieve sustainable business operations.

The next topic I will address is our demonstration experiments aimed at achieving the stable transportation of large amounts of hydrogen (outlined on page 9). To realize large-scale and stable transportation of hydrogen through pipelines, NTT Anode Energy is conducting research and development on the safety of a double pipe system upon the request of the New Energy and Industrial Technology Development Organization (NEDO). We will jointly develop this project with the National Institute of Advanced Industrial Science and Technology and Toyota Tsusho. Through this initiative, we will examine and verify safety measures, with the future goal of using this technology to power factories, commercial facilities, and power plants. In the long run, we will use this technology to contribute to the establishment and development of smart cities to enable the consumption of hydrogen on the societal level.

I will now discuss our developments in SAP and new solutions (outlined on page 10).
 NTT DATA and SAP have jointly developed "Connected Product", a solution that facilitates insurance procedures by tracking the transportation of fragile cargo using IoT sensors. We will realize cost reductions for all involved parties, including insurance companies and logistics companies, by implementing cargo tracking throughout the supply chain and simplifying insurance procedures for damage, delays, and the like. We are currently conducting a joint demonstration experiment with a German insurance company and a Spanish logistics company, which is scheduled to run until September 2022. In the future, we plan to use the technology to develop business for international insurance logistics companies.

Finally, I would like to call your attention to the progress of our medium-term management strategy described on page 11.

This concludes my presentation.

Q&A

  • Regarding the regional decentralization of the organization, I would like to know why Takasaki City and Kyoto City were chosen as the two locations.

    One of the purposes of the regional decentralization of the organization is to strengthen resilience. We wish to model the predicted conditions that would occur if an earthquake directly hit the Tokyo metropolitan area and verify whether or not conventional countermeasures are sufficient. We chose Takasaki City and Kyoto City after considering factors including past earthquake frequency, inland position, and accessibility by bullet train.

  • Since the holding company is promoting regional decentralization, do you have any plans to encourage operating companies such as NTT DOCOMO and NTT DATA to further diversify their organization?

    Currently, we are verifying whether the corporate planning department, which judges the continuity of the business, and the general affairs department, which confirms the safety of employees in the event of a disaster, can function together even if they are separated remotely. Therefore, we are beginning this diversification within the holding company. Naturally, we will apply the results of the holding company to each operating company in accordance with their characteristics and think about strengthening resilience in a way that is appropriate for each operating company.

  • Regarding KDDI's communication failure last month, the government has announced that it will start seriously considering domestic roaming. I would like to hear your thoughts on the challenges with this system. How do you think they should implement it?

    The recent KDDI communication failure is not a problem that is unique to any single company. NTT DOCOMO also caused a failure last year, but since we do not know detailed data on KDDI, we will first thoroughly review our own network's countermeasures.
     Regarding emergency call roaming, as we have said before in several settings, we would like to cooperate so that we can implement it as soon as possible. To attain it, we need to achieve cooperation among operations and arrangements while following the Ministry of Internal Affairs and Communications (MIC)'s instructions. In addition, we need to implement it without spending too much time. Although we need to discuss the callback function, we should focus on what we can achieve in a short period.
     Also, we think that the architecture and operation of networks of the IoT era will need to be strengthened again when considering the future emergence of things such as autonomous driving, so we would like to look into this as well.

  • Regarding roaming in the event of a communication failure, I think there will be a difference depending on whether only emergency calls are covered, but what are your thoughts on how costs should be borne? I think you have stated that service providers should bear the cost, but do you think, for example, that citizens or the government should also bear some costs?

    As for the cost of roaming, I think that the bare minimum should be borne by the service provider. Of course, we must consider responsibility for cost, taking various stages and the required standards into account. First and foremost, it is my understanding that the service provider is only responsible for the roaming used for emergency calls.

  • Do you have a trial calculation of the cost of roaming in the event of a communication failure?

    We have not yet made this calculation. The issue is quite complicated, and we must consider to what extent we can provide service beyond emergency calls without causing the network traffic to become congested. When considering anything other than emergency calls, we have to take utmost care to avoid causing congestion. Therefore, we must consider adopting a service menu that mainly provides backup services for corporate customers.

  • I heard that NTT established a remote standard organization in July with a target of 30,000 staff members. How far is the system currently expanding? Are there any specific numbers available at this time?

    On July 1st, we introduced a remote standard organizational system for our organizations that applies to over 30,000 of our staff, which makes it possible to work remotely from anywhere in Japan, and we believe that the number of employees using this system will gradually increase. The most recent data I can provide is from a month ago. According to this data, originally, 1,500 people were working from different regions from their homes, but that number has decreased to 1,300 as of the end of July. However, some or even the majority of these 200 people may represent those who chose to work remotely within the cities where our organizations are located rather than relocating. The details are not yet clear, and personnel changes will be made gradually, so I would like to report again after a little time has passed.

  • President Miyagawa of SoftBank Corp. has said that services should be made available outside of emergency calls, but I'd like to hear your thoughts on this, President Shimada.

    Regarding the extent that services should be made available outside of emergency calls, as I said earlier, if one company's network traffic becomes congested, other companies' network traffic may also become congested, resulting in a more widespread failure. We must ensure that we contain congestion as a bare minimum requirement. NTT may provide a service such as SMS. However, we should first form a consensus on the mechanism we should use and how we should work together. Since MIC will have a discussion session, we should think more deeply about this issue there. In any case, it is our basic premise not to spread traffic congestion.

  • Regarding roaming during a communication failure, I think we must discuss the emergency callback function. What is the range of concrete measures you have in mind to address this need as soon as possible?

    I think we should implement roaming without the callback function. First of all, we should discuss the issue, as you said, so I am not in a position to say what is the best course of action on my own. For example, if there were group consensus on including something like SMS, it must be implemented. If we expand the functions, we will incur additional costs in remodeling the network, so we must discuss how to bear the costs. For these reasons, we must start with discussions as the bare minimum before implementing anything.

  • Regarding the current financial results, you said that operating revenue and net income were record highs for the April-June quarter, but what contributed the most to this performance? Was this result within the expected range?

    The financial results correspond to our earnings forecast, so they were generally within our expectations. Our domestic business is expanding at the expected rate. Overseas, NTT DATA's digitalization demand and NTT Ltd.'s high-value-added services continue to grow, so I think we can say that overseas business as a whole has picked up. On the other hand, the backlog of overseas orders has not yet been resolved, partially due to the impact of semiconductor shortages. In fact, the order backlog increased in the first quarter. I believe that if the delay in delivery of telecommunications equipment is resolved, there will be room for further expansion of our overseas business.

  • Given the tight electricity supply, the government is trying to operate up to 9 nuclear power plants and add additional thermal power plants to secure the electricity supply for winter. Please tell us your evaluation of these measures and the impact of the rise in energy prices on NTT's business performance.

    Energy supply is a critical issue. I would like to express my gratitude to the government for making the maximum effort to address this issue. We assumed that the price of electricity would rise by about 20% in our business plan. However, by the end of the first quarter, electricity charges have risen by about 30%.
     Therefore, I think energy costs and the depreciation of the yen will have a significant impact. Since we are a major electricity consumer, we must pay close attention to this factor.

  • Rakuten Mobile has discontinued its 0-yen plan, but I would like to know how users reacted to that and what the user trends have been since then.

    Naturally, providing a network service costs money, so I think Rakuten Mobile's decision makes sense. Whether or not our business is directly impacted by this decision is unclear. Nevertheless, NTT DOCOMO's MNP experienced gains during the first quarter of this fiscal year. Ahamo is also growing steadily.

  • In the Regional Communications Business segment, operating income and operating revenue have decreased. Now that new company presidents for both NTT East and NTT West have been appointed, please tell us about the future direction and expectations for the regional companies.

    NTT East and NTT West have both said that they would like to increase non-telecommunications sales to more than 50% of the total by 2025, and they would like to grow the newly launched so-called regional business to about 350 billion yen as soon as possible.

     NTT East and West are both taking on new challenges in various regions, such as initiatives in agriculture and fisheries, the biomass businesses, and so on. A central goal for both NTT East and West is to launch new regional businesses to provide local production for local consumption. Although we experienced losses in the first quarter due to factors such as the impact of the sale of the real estate business during the previous fiscal year, we believe we will achieve our business plan for the current fiscal year. We wish to encourage the creation of new businesses that take advantage of the characteristics of each region.

  • Regarding KDDI's recent communication failure, one of the various countermeasures was the use of Wi-Fi. What are your thoughts on initiatives such as 00000JAPAN that will be used in response to a regional disaster?

    Although we have not begun discussing the specifics yet, I think it would be good to use public telephones for emergencies. I would like to discuss with each of our companies whether the conventional disaster countermeasures that we have been considering, including Wi-Fi, can be applied in the event of a communication failure.
     Of course, we will need to hold discussions about cost sharing, so we need to think together about how to create an initiative.

  • Following KDDI's recent communication failure, there has been renewed interest in public telephones, but the standards changed this past spring, and NTT East and NTT West announced plans to reduce the number of public telephones. In light of the recent communication failure, has there been any reconsideration of public telephone use in the event of a large-scale disaster? President Shimada, please tell us your thoughts at this stage, such as if there will be any change in plans or other considerations.

    Of course, the use of public telephones will still be available, but I think we should focus on public telephones for disasters which can be used in convenience stores to respond to disasters. The number of public telephones for disasters will be overwhelmingly larger in the near future and will be more convenient for customers in times of disaster. I would like to consider various ways we can use them.

  • I would like to know whether KDDI's recent communication failure has affected IoT contracts for individuals and corporations. I would also like to know if there will be any impact on the outlook for the current fiscal year.

    We have begun discussions with corporate customers on how to proceed with backups. Basically, I think that backups will be through the line of another carrier for NTT DOCOMO's users, but the question is what kind of proposals the network operators of both sides will make to customers in the future. For example, we may provide services such as inserting two SIM cards, or both companies may become MVNOs. We will consider various measures and think about how to ensure the customer's business continuity. For instance, NTT Communications provides a backup menu in which KDDI's network is used in the event of a communication failure. As an extension of this menu, it is natural for a mobile carrier to provide another carrier's network as backup. For individual users, some carriers already provide two mobile devices and two SIMs services through which users can choose the network carrier. These services come at an additional cost to users, so it is up to individual users whether or not to choose such services.

  • When do you think that roaming without a callback function will become possible in the event of a communication failure?

    It is difficult to say exactly when because discussions on the matter have not yet been held. We hope that the four mobile carriers will hold thorough discussions and bring MIC together to realize this service at an early stage.

  • Some people believe that KDDI's refund of 200 yen per customer in response to the communication failure is insufficient, but what do you think?

    I will refrain from commenting on KDDI's refund specifically. In principle, refunds should be given based on the conditions written in the contract. In addition, I think it is necessary to decide by considering the size of the communication failure and the corporation's social responsibility, so a corporation must decide according to the situation.

  • How much will the network have to be modified to enable roaming emergency calls without a callback function? Will there be less repair work than if a callback function was included?

    Even if roaming emergency calls without a callback function are enabled, the network will need to be modified. We cannot make this modification overnight, and it will require considerable countermeasures. To make the callback function available, an even larger renovation would be required to maintain the database, and so on.

  • How much impact did the weakened yen have on your operating income for your overseas business?

    Overseas operating revenue increased by 98.7 billion yen, of which 57.0 billion yen was due to the impact of exchange rates. Exchange rates have had almost no impact on operating income.

NTT Group Medium-Term Management Strategy

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We announced our new NTT Group medium-term management strategy which is based on the fundamental principle "Innovating a Sustainable Future for People and Planet" in May 2023