Financial Results for the Fiscal Year Ended March 31, 2023, Financial Forecasts for the Fiscal Year Ending March 31, 2024, and New Medium-Term Management Strategy

(Akira Shimada)

First, let me explain our Financial Results for the Fiscal Year 2022 and our forecast for the Fiscal Year 2023.
　For 2022 Fiscal Year, NTT Group reported higher operating revenues, operating income and net income compared with the previous Fiscal Year. Each set a new record.
　Operating revenues increased by 979.7 billion yen year on year to 13,136.2 billion yen, mainly due to an increase in revenues from the Global Solutions Business Segment and an increase in electricity revenues from Ennet. Of this increase, the impact of foreign exchange was approximately 280 billion yen.
　Operating income increased by 60.4 billion yen year on year to 1,829 billion yen, offsetting the impact of rising electricity costs by increasing profits and reducing costs.
　Net income increased by 32 billion yen to 1,213.1 billion yen, mainly due to an increase in operating income. The overseas operating income margin improved 0.9 percentage points from the previous fiscal year to 7.2%, due to an increase in operating income associated with higher revenues and cost reductions through structural reforms. This means that we achieved our medium-term financial target of 7% one year ahead of schedule.
　In terms of operating revenues and operating income by segment, first of all, in the Integrated ICT Business Segment, although there were some factors that contributed to the decline in operating income, such as the impact of price cuts in the consumer communications business, we recovered by increasing operating revenues and reducing costs in the corporate business and the smart life business, resulting in an increase in both operating revenues and operating income from the previous fiscal year.
　In the Regional Communications Business Segment, although there was an impact of the elimination of the one-time cost increase factor in the previous fiscal year, the decline in operating revenues and operating income was due to the impact of higher electricity costs than expected, as well as the delay in cost reduction measures at NTT West following a major communication failure in August.
　In the Global Solutions Business Segment, the increase in operating revenues and operating income compared to the previous year was due to the capture of robust digitalization demand and the expansion of high-value-added services at NTT Ltd., as well as cost reductions through restructuring at NTT Ltd.
　In the segment encompassing other businesses include real estate and energy, operating revenues and operating income increased year on year due to an increase in electricity fee revenues reflecting higher fuel prices at Ennet.

Next, I will explain our forecast for the Fiscal Year 2023. In terms of Fiscal Year 2023 earnings forecasts, we expect operating revenues to decrease from the previous year and operating income and net income to increase from the previous year. We will continue to aim for record operating income and net income, and work to achieve our medium-term financial target of EPS 370 yen. Operating revenues decreased from the previous year due to the impact of foreign exchange rates and a decrease in electricity revenues at Ennet. Excluding these impacts, we plan to continue to increase operating revenues in each of our major segments.
　Operating Income is projected to increase by 121 billion yen year on year due to the increased operating income of NTT DOCOMO and other group companies, although the impact of the sharp rise in electricity costs is uncertain. We plan to increase net income by 41.9 billion yen year on year due to an increase in operating income, despite an increase in interest expenses.
　Then operating revenues and operating income by segment. As for the Integrated ICT Business Segment, in addition to the growth of the corporate business and the smart life business, NTT DOCOMO plans to increase both operating revenues and operating income in the previous fiscal year as a result of the reduction of decrease in operating revenues due to the expansion of users of medium- and large-capacity plans in the consumer communications business and the realization of synergy effects through cost efficiencies.
　In the Regional Communications Business Segment, in addition to implementing cost-efficiency measures that were delayed in NTT West, both NTT East and NTT West plan to increase operating revenues and operating income from the previous year by expanding growth areas and reducing costs further.
　In the Global Solutions Business Segment, despite a decline in operating revenues due to the impact of the foreign exchange rate, we plan to increase both operating revenues and operating income from the previous fiscal year as a result of cost reductions through structural reforms, in addition to continuing to increase operating revenues by capturing digitalization demand.
　In the other segment, operating revenues is planned to decrease from the previous year due to a decrease in electricity fee revenues due to the rationalization of sales volume in Ennet. Although there is a decrease in operating income due to the decline in sales, the increase in operating income over the previous year is mainly due to an increase in the real estate business at NTT Urban Solutions.
　Progress on the current medium-term financial targets is generally on track. In the Fiscal Year 2022, EPS was 348 yen, exceeding the target of 340 yen. We aim to achieve our current medium-term financial target of 370 yen in Fiscal Year 2023. We plan to set new financial targets in our new medium-term management strategy, and we will switch to new financial targets for current medium-term financial targets other than EPS.
　Then, the progress of our current medium-term management strategy and the progress of our initiatives since February are shown on Page 10.

Next, I will explain our medium-term management strategy. Its subtitle is "New value creation & Sustainability 2027 powered by IOWN." This medium-term management strategy is a five-year plan from the Fiscal Year 2023 to the Fiscal Year 2027. Please refer to page 1 of the New Medium-Term Management Strategy. The basic concept of the new medium-term management strategy is "NTT will keep trying. For New Value Creation and Global Sustainability."
　Then see page 2. To that end, we will expand our investment in growth areas. Over the next 5 years, we will invest approximately 8 trillion yen in growth areas, up 50% from the previous level. The total investment includes existing fields is 12 trillion yen over 5 years.
　See page 3. For the future, we will expand our ability to generate cash. We plan to increase EBITDA, which has been flat until now, by 20% to about 4 trillion yen in fiscal 2027, through the expansion of investments in growth areas I just explained.
　See page 4. Next, we describe the pillars of our efforts to realize our strategy. It has three main pillars. The first pillar is "NTT as a Creator of New Value and Accelerator of a Global Sustainable Society." The second and third pillars are the mechanisms to support the first pillar, the second pillar is the enhancement of customer experience (CX), and the third pillar is the enhancement of employee experience (EX). The nine initiatives that make up these are explained below.
　See page 5. I will explain the first pillar, "TNTT as a Creator of New Value and Accelerator of a Global Sustainable Society".
　See page 6. It's the first initiative. "NTT as a Creator of New Value and Accelerator of a Global Sustainable Society." NTT Innovative Devices Corporation will be established in June 2023 with the aim of rapidly commercializing Photonics-Electronics Convergence Devices that achieve low power consumption as a solution to the increase in power consumption resulting from the increased use of AI and other technologies. We would like to start with an initial investment of 30 billion yen and gradually consider increasing the capital. In addition, we will invest approximately 100 billion yen in total in R & D for IOWN in the Fiscal Year 2023 to accelerate the commercialization of IOWN R&D, including 6G. Since then, we will continue to invest capital to accelerate the commercialization for servers and digital twin computing.
　See page 7. The second initiative is "Data-Driven Creation of New Value". Aiming to strengthen the personal business, especially for individual customers, we will strengthen NTT DOCOMO's Smart Life business and aggressively invest more than 1 trillion yen in growth areas over the next 5 years. In addition to expanding and upgrading services in various fields such as finance, healthcare and medical, we hope to analyze various data obtained through these services to provide more personalized and optimal services.
　See page 8. Next is "Strengthening the Use of DX/Data in Society and Industry." We will use technologies such as AI, Robotics, IOWN, Digital Twin, and Security to provide solutions and platform services to our corporate customers on a global basis, transforming them into industries that support life and society. We will invest more than 3 trillion yen in this area over the next 5 years.
　See page 9. Next is "Expansion and Upgrade of Data Centers", which are important platforms for a data-driven society. In addition to further expanding the data center infrastructure of the NTT Group, which is currently the third largest in the world, we will promote further advancement by introducing IOWN technology. Toward that end, we will invest more than 1.5 trillion yen over the next 5 years to double the data center capacity from the current 1,100 megawatts.
　See page 10. The third initiative is "Achievement of a Circular Economy Society". We will promote green solutions realized through the combination of green energy and ICT and invest approximately 1 trillion yen over the next 5 years. We also plan to expand our renewable energy power generation business and realize a stable supply of power that is optimized and efficient for local production and consumption using batteries and EMS.
　See page 11. Next is "Creating Circular Economy-Oriented Businesses". In addition to renewable energy, we will promote the reuse of waste materials among various industries to achieve a sustainable society by recycling resources. In addition, by utilizing IOWN, 5G, IoT and AI robots, we will promote efficiency and value addition in primary industries, thereby contributing to industry promotion and regional revitalization.
　See page 12. Next, "Progression towards Net-Zero". Toward Fiscal Year 2040, "NTT Green Innovation toward 2040" aims to expand its scope to scope 3 in addition to scope 1 and 2 initiatives.
　See page 13. It's the fourth initiative, "further strengthen our business foundations". We would like to apologize once again for the inconvenience caused by the recent communication failure at NTT EAST and NTT West. Drawing on lessons learned from previous communications failures, we will enhance our social infrastructure by realizing resilient networks and systems in light of major failures and cyberattacks. In addition, we will strengthen our countermeasures against increasingly severe natural disasters. To achieve this goal, we will invest approximately 160 billion yen by Fiscal Year 2025.
　See page 14. I will now explain the second pillar, "Enhancing Customer Experience (CX)."
　See page 15. The fifth initiative is "Fusion of Research and Development with a Market-Focused Strategy". The R&D Market Strategy Division will be newly established in the holding company as an R&D organization that will combine and strengthen R&D promotion functions with marketing and alliance functions. In addition to strengthening product-out R&D, we will collaborate with customers and partners globally, from R&D to product delivery, and promote alliances with various partners.
　See page 16. The sixth initiative is "Strengthening of Services that Emphasize CX". We view all stakeholders as customers and partners, and we will promote customer experience first. By constantly improving and updating our services in an agile manner while staying close to the customer journey, we hope to provide new experiences and inspirations that exceed customer expectations and become the NTT Group of choice.
　See page 17. The third pillar, "Enhancing the Employee Experience (EX)," is explained.
　See page 18. This is the seventh initiative, "Open and innovative corporate culture". With a focus on the customer, we will continue to promote a culture of openness, collaboration, and trial and error, while continuing to strengthen diversity and inclusion.
　Then, see page 19. The eighth initiative is" Support Career Growth". We will support employees in their self-directed career development and expand human investment to support business growth. Based on the professional-based human resources system introduced in April of this year, we will support employees to obtain outside qualifications and enhance training menus in order to increase their expertise in 18 fields, as well as enhance career consulting functions to advise employees on career design. We will also provide support for total career development, including support for life events such as childbirth, childcare and nursing care.
　See page 20. Finally, the ninth initiative. "Global Benefits for Employees and their Families". In the event of an employee's death, expand the program to support a portion of the tuition of their children's education through college. In Japan, we have been using the fund since 1988 to support the tuition of education for children in the event of employee misfortune. For the approximately 150,000 employees of our group overseas, we would like to consider introducing a support system similar to the one in Japan, with the aim of applying it from the beginning of next fiscal year.
　See page 22. The medium-term financial targets are as shown. As I explained earlier, our goal is to increase EBITDA by 20% over Fiscal Year 2022. In the growth areas that will be the drivers, we will increase EBITDA by + 40% against the Fiscal Year 2022, and in the global businesses that we should focus on in the growth areas, we will individually set targets for overseas operating income margin 10% in Fiscal Year 2025. In addition, in anticipation of continued profit generation in existing fields, we will set a target of a 10% increase in EBITDA over Fiscal Year 2022 and a ROIC of 9% to improve capital efficiency.
　In addition, three sustainability-related targets will be set: the rate of new female manager promotion rate, greenhouse gas emissions, and employee engagement, based on the Sustainability Charter and the new Environmental and Energy Vision that have been announced.
　See page 23. Our efforts to strengthen our ability to generate cash for growth are outlined below.
　Then see page 24. Expanding the scale of investment to achieve further growth will increase the demand for funds, but we also want to pay attention to the efficiency of funds so that the level of Debt-to-EBITDA Ratio can be maintained and lowered by about double.
　Page 25. In terms of our basic policy on shareholder returns, we will continue to maintain a basic policy of continuously increasing dividends, while flexibly conducting share buybacks to improve capital efficiency.
　This concludes our explanation of our new medium-term management strategy.

Finally, we will discuss shareholder returns, stock splits and organizational changes. I will explain shareholder returns and stock splits. The Board of Directors today approved a dividend forecast of 125 yen per share for Fiscal Year 2023, an increase of 5 yen from the previous year. As a result, we plan to increase our dividend for 13 consecutive fiscal years beginning in Fiscal Year 2011. The Board of Directors also approved a stock split today. With an effective date of July 1, the NTT Group will make each share split into 25 shares, substantially reducing the number of investment units, creating a more investment-friendly environment for our company shares, and expanding the investor base across a wide range of generations that can identify with the NTT Group's sustainable growth.
　We will conduct an organizational review at the holding company. As I mentioned, we set up a Research and Development Market Strategy Division. Under the division we will establish Marketing Department and Alliance Department and the Research and Development Planning Department will be transferred. In addition, the Strategic Business Development Division will be abolished. Apart from this, the Public Relations Office will be separated from the Corporate Strategy Planning Department and established as the Public Relations Department, which will be directly controlled by the president, in order to strengthen marketing and promotion on a global basis. In addition, the Legal Office will be established within the General Affairs Department to strengthen legal and risk management on a global basis. In addition, a Sustainability Office will be established within the Corporate Strategy Planning Department to accelerate initiatives under the Sustainability Charter.
　That's all I have to say.

Q&A