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August 9, 2023
Akira Shimada, CEO and Representative Member of the Board
Toshihiko Nakamura, Senior Vice President and Head of Finance and Accounting
Akitoshi Hattori, Senior Vice President and Head of Corporate Strategy Planning
I will explain the financial results for the first quarter of fiscal year 2023.
Please refer to page 4. As for the consolidated results for the first quarter, operating income increased year-on-year, operating income decreased, and net income increased. Operating revenues and net income reached new record highs for the first quarter.
Operating revenue increased by ¥42.2 billion year-on-year to ¥3,111.1 billion, mainly due to higher sales in the comprehensive ICT business segment and the global solutions business segment. Of this increase in revenue, the impact of foreign exchange is about ¥40 billion.
In terms of operating income, upfront costs to improve operational efficiency and enhance security through large-scale system upgrades in the regional communications business segment increased.
As of the first quarter of this fiscal year, profit decreased by 28.7 billion yen from the previous fiscal year to 474.7 billion yen, mainly due to an increase in electricity costs.
Although we have not disclosed our plans for the first quarter of the fiscal year, we are working to achieve the NTT consolidated plan, which is expected to result in an annual increase in earnings and profits.
Net income increased by ¥7.2 billion year-on-year to ¥375.8 billion, with gains on stock sales covering a decrease in operating income and an increase in interest expense. EBITDA was ¥838.5 billion, a decrease of ¥18.9 billion from the previous year, mainly due to a decrease in operating income.
Please refer to page 5. Revenue and profit by segment.
The overall ICT business segment increased year-on-year mainly due to higher sales in the corporate business and Smart Life business. Although there was a decrease in profit due to the acceleration of growth investment in the Smart Life business, profit increased year-on-year due to the increase in profit in the corporate business and cost efficiency in the consumer communications business.
In the regional communications business segment, revenues decreased year-on-year as of the first quarter due to lower fixed-voice revenues, a round of demand for remote work for optical services, higher upfront costs due to the renovation of large-scale procurement and financial systems, higher upfront costs for security enhancements, and higher electricity costs. Both revenues and profits are generally progressing as expected, and we will work to achieve our annual plan to increase revenues and profits.
In the Global Solutions business segment, sales increased year-on-year mainly due to domestic sales in the public and corporate sectors, as well as the impact of foreign exchange rates. Although there was an increase in profit due to the increase in sales, there was a decrease in profit from the previous year due to an increase in overseas business integration costs and an increase in growth investment. Progress is generally as expected, and we expect annual sales and profit to increase year-on-year.
In other areas such as real estate and energy, revenues and profits decreased year-on-year mainly due to a decrease in electricity revenues at Ennet.
Please refer to page 7. First, we established NTT Innovative Devices Corporation which develops, manufactures and sells photoelectric fusion devices, and NTT Green & Food, Inc., which cultivates and sells fish on land, as part of our efforts to realize the new medium-term management strategy announced recently. As a strategic company in the human capital field, NTT Business Associates Corporation and NTT Learning Systems Corporation are integrated as NTT ExC Partner Corporation. Through these businesses, we will create new values.
Please refer to page 8. Let me explain about shareholder returns. In order to improve capital efficiency and enhance shareholder returns, the Board of Directors today resolved to purchase up to 200 billion yen of treasury stock.
Please refer to page 9. As for the past changes in treasury stock, we acquired approximately 5.5 trillion yen of treasury stock over 24 years, starting in 1999 and ending at 200 billion yen this time. EPS has risen accordingly.
Please refer to page 10. As for the status of the number of shareholders, there has been a lot of interest in the recently announced stock split, so we will report the status of the number of shareholders at the end of June. A comparison of the number of shareholders at the end of fiscal 2022 and the number of shareholders at the end of June 2023 after the announcement of the shareholder split shows that the number of shareholders, which had been on a slight upward trend, increased by 18%. We believe that the stock split may have garnered interest in NTT's stock investment.
Since the number of shareholders will be counted every quarter, the status of the stock split effects from July 1, 2023 will be reported again when the second quarter results are announced.
Please refer to page 11. You can see the progress of our new medium-term management strategy announced recently since May 2023.
In a recent TV program, Akira Amari, member of The House of Representatives, who is expected to lead the LDP's review team on the government's planned sale of NTT shares, including the possibility of complete privatization, said the government would gradually sell the shares over a long period of time to avoid an impact on stock prices. What is your take on this?
As our company is in a neutral position regarding the evaluation of the government's sale of NTT's shares, we believe that it is acceptable whether the shares are sold or held continuously.
However, if the shares are sold all at once, it may affect the stock price, so we have repeatedly said that we would like to ask to consider keeping the impact on the stock price as low as possible. Our company is very grateful that Amari stated that he would like to reduce the impact on the stock price by selling NTT shares over a long period of time.
I believe that discussions are about to begin, but it would be appreciated if they could consider measures that would not affect shareholders.
As NTT Law stipulates the disclosure of R&D as a duty, would the current NTT Law have an impact on IOWN?
As for the NTT Law, there are items that should be reviewed considering the era we are in. The obligation to disclose research and development is a law that was established to prevent monopoly in the era of telephone.
In light of recent economic and security issues and international competition, I believe these provisions are a challenge.
For example, the number of landline telephone subscriptions was 13.5 million at the end of 2022, but the number of subscriptions has decreased by about 1.5 million every year, so we will end up with 10 million subscriptions in the next few years. Since we are still in deficit, the burden on business management will increase. I think it's about time to start discussing how we're going to deal with landlines in the future. I think it's very important to have these discussions.
What was President Shimada's reaction to the start of discussions on the NTT Law and what kind of discussions does he expects from the ruling party?
This discussion originally came up in the Special Committee on Defense Budget, so I recognize that it is basically about financial resources. It is up to the ruling party and the government to consider what to do with the financial resources.
However, there is talk of the complete privatization of NTT. Since the NTT Law has been in place for a long time, some aspects of the law have not matched the current era. I think that discussion should be had to that point, and I recognize this as a good opportunity.
Is there are any cases where the international competitiveness is hindered by the government holding stocks?
Not many companies are owned by the government, so I think we can be seen as government related company. However, there is no specific case that this has had an impact.
Instead, I recognize that the legal obligation to disclose technological development itself poses as a challenge when a strong economic security is a factor when competing internationally.
What is your view on regulating certain companies by law?
We operate our business in free competition, so I think it's better that there are no laws regulating specific companies.
When I think about economic security problem, we are in an era to consider what kind of rules should be made for telecommunications carriers, electric power providers, and companies that support the infrastructure of the economy, rather than protective regulations for individual companies.
What kind of hindrance do you have in terms of research and development disclosure?
In this era, we often develop products in partnership rather than independently. There are some cases, partner companies refuse to cooperate because they are concerned about disclosure obligations.
Overall, I believe that the absence of disclosure obligations will strengthen our company's competitiveness.
Regarding the landline telephone business, are you looking at withdrawal in the future?
Given the decline in the number of subscriptions, there will be issues such as management and maintenance of facilities, so we need to consider alternatives such as optical fiber phones, wireless landlines, or mobile phones somewhere.
If the large facilities of the telephone station can be eliminated, the town can be redeveloped. However, the redevelopment will be a very long-term project, so we will have to hold various discussions with this timeline in mind.
Today, NTT announced a share buyback of 200 billion yen, but is it realistic that NTT will buy back government shares over time?
It's up to the government to figure out how they're going to sell their shares.
However, we have bought about 5.5 trillion yen of our own stock in the past 24 years, so I think we can take it as an option. In addition, if the government's NTT shares are to be sold over a long period of time, there is a debate on whether to acquire its own shares or put them on the market, but I think this is a safe scheme from the viewpoint of shareholders. Our company will cooperate to the best of our ability.
If the NTT Law is revised, there will be more options for possible restructuring of the NTT Group. What is your current view?
I think you are asking about NTT EAST and NTT West, but NTT EAST and NTT West provide services not only for NTT Group companies, but also other carriers as well. Currently, the various rules related to NTT EAST and NTT West are designed to maintain the market, so I don't think we can assume that we will change them during this discussion.
The NTT Law also regulates the scope of operations of NTT EAST and NTT West, so I think there will be some discussion on this point, but I don't expect the rules of business operations to change.
With regard to the reorganization, I think the conclusion depends on if everyone recognized that the cost efficiency of the overall telecommunications market and the benefits to the public welfare would be improved if NTT EAST and NTT West became one company, or if the public welfare is better in the current form than if they became one company. Therefore, I think it depends on future discussions.
Under the NTT Law, foreign directors cannot be appointed to holding companies. What are your thoughts on this?
The rules of the NTT Law stipulate that a foreign national cannot become a director or auditor of a holding company, but considering global business, the knowledge of a foreign national is of course very important, so if there is any discussion about revising the NTT Law, I would like the provision to be reviewed.
I believe that foreign capital regulations will be governed by the Foreign Exchange Law, but this is not just an issue for NTT, and I think it would be good to consider it broadly from the perspective of how Japan's infrastructure business is viewed in terms of economic security.
If it is necessary to rewind landlines as a result of the review of universal service, costly efforts such as the development and implementation of IOWN may overlap. What is the medium- to long-term outlook and scenario?
First of all, we don't estimation of how much it will cost to rewind a landline phone at the moment. However, I would like to think about how to cover the total amount of cash from the viewpoint that the copper wire that has been wound may be sold, and redevelopable real estate may be created by winding, especially in urban areas. Furthermore, I would be grateful if we could create a new business.
NTT DOCOMO introduced the new pricing plan in July 2023. What was your initial assessment of the plan and how will it impact future revenues?
In July 2023, NTT DOCOMO launched new pricing plans, "eximo" and "irumo". We'll have to wait and see, but I've heard from NTT DOCOMO that the influence of port out has been positive.
For example, "irumo" was introduced with the intention of competing with competitors' second brands, so I hope to see this effect and answer this question again next time.
I understand that "irumo" is a second brand competitor but is there any risk that lowering ARPU will lead to a decrease in revenue or profit?
I think we have to take a closer look at the situation going forward. Looking at how customers are using the service, the number of people who are watching the video is increasing. Of course, I think "irumo" is a good plan for customers who are satisfied with a small amount of data, but I think more and more customers will choose "eximo" or "ahamo" for those who have a habit of watching videos in their spare time.
So overall, I see more people moving to higher capacity plans and I don't see ARPU going down. In this first quarter, ARPU was 3,990 yen, a little less than 4,000 yen, but I am not worried because I think it will exceed 4,000 yen for the year.
With regard to NTT DOCOMO's financial results, the Smart Life business saw a decline in profit. What are the factors behind the decline?
The annual plan for NTT DOCOMO's Smart Life business is to increase sales and profits. In the first quarter, the system burden related to the d-card and the upfront investment in NTT CONOQ were incurred, and we expect the recovery to continue in the second quarter and beyond.
We have not disclosed our original plans for the first quarter, but we are generally on track.
What are your thoughts on NTT DOCOMO's position in discussing the NTT law, taking into account its current market share?
NTT DOCOMO's market share is not so different from that of competitors, so we should compete in the same environment. They have competition on the main brand, but they lose on the second brand, and NTT DOCOMO has a history of losing market share.
The holding company will also support NTT DOCOMO in order to regain market share, as the company has launched a new pricing plan, such as "ahamo," and has begun the second phase of its counter-offensive measures, such as "irumo," launched in July 2023.
NTT EAST and NTT West are also used as lines that support the base stations of mobile carriers. Could you tell me if this affects the discussion of the NTT Law?
I don't think it will have much effect. Currently, NTT EAST and NTT West are both offering the line to NTT DOCOMO and the competitor on the same terms. The rules themselves are basically unchanged, and our company believes that they should not be changed. I believe that NTT EAST and NTT West have an obligation to create the same environment at a high level in order to grow their mobile business in Japan.
There has been a lot of research on generative AI, but will you continue to invest in the metaverse and Web3?
We will continue to invest in the Metaverse and Web3. In particular, with regard to the Metaverse, we believe that NTT DOCOMO and NTT CONOQ are obligated to provide new experiences to our customers in order to realize the virtual venue of the Osaka, Kansai Expo 2025, so we would like to strengthen our efforts.
With regard to Web3, we will continue to develop the platform gradually from this year to the next.
We already provide AI to overseas customers, such as pharmaceutical companies, wind power generation companies, and cosmetics companies. NTT Data is also taking the lead in expanding the PoC environment with customers in Japan.
In addition, NTT plans to announce its own development of LLM from the end of October to the beginning of November 2023. In anticipation of corporate services, we would like to launch services that are enhanced by adding LLM functions to the AI that we have been providing, including speech recognition and image processing, so please stay tuned.
Was there an impact on the number of users and company performance related to the issues of DOCOMO's communication quality?
First of all, we sincerely apologize for the inconvenience regarding the communication quality of NTT DOCOMO. As announced by NTT DOCOMO recently, the four areas in Tokyo (Shinjuku, Shibuya, Ikebukuro, and Shinbashi) have largely improved on communication quality except for the platform at Shibuya Station. There is a plan in place to install antennas on the platform at Shibuya Station in September, so I think this will improve the communication quality.
The reason for the communication quality issue this time is, since post-coronavirus pandemic, there was a change in communication usage such as increase of video viewing, and we think that the prediction for this scenario was a little naive.
We are now monitoring points across the country other than the priority areas in Tokyo, and we are working to improve the quality of our products in a way that is consistent with the customer journey.
I believe that NTT DOCOMO's biggest selling point is its high communication line quality, so we will continue to invest and take actions to maintain our stance.
We also believe that issue this will have little impact on our company performance. I think I received encouragement towards NTT DOCOMO, so I will do my best to meet the expectations.
NTT Group Medium-Term Management Strategy
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
NTT is the first telecommunications operator to become a member of global initiatives to make smarter use of energy, “EP100” and “EV100” (Oct. 2018)
Established a council to promote secure digital economy together with multi-national companies
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