Nippon Telegraph & Telephone (NTT)

Thank you very much for attending today despite your busy schedules. We will now start the briefing on NT&T's financial results for fiscal year 2020 second quarter. I'm Fujiki from the IR office and will be serving as today's facilitator. First, I would like to introduce today's attending members. Mr. Sawada, representative member of the board and president. Mr. Shimada, representative member of the board, senior executive vice president. Mr. Nakayama, executive officer, senior vice president, head of finance and accounting. Mr. Tanayama, executive officer, senior vice president, head of corporate strategy planning. In view of preventing the spread of COVID-19, today's briefing is held via live voice streaming. Please refer to the presentation materials posted on our company IR website. On the first page of the presentation materials is point to be considered stated, so we kindly ask you to read through them. Now, Mr. Salada, president of the company, will explain the financial results outline and take your questions later.

Without further ado, Mr. Salada, please. Thank you very much. So I would like to base my presentation on the presentation material entitled Financial Results for the Six-Month End of September 30, 2020. I'll be very brief in my presentation. So please turn to page four of the material. This shows you the fact that we saw a decline in operating revenue but increase in operating income for the second quarter. Yes. So we saw a decrease in operating revenue, but increase in operating income. We made very strong progress in the second quarter, but as the situation is unclear with the second wave of COVID-19 hitting primarily Europe and the United States, we will not be changing the annual guidance at this juncture. And also with regard to operating revenue, due to decline in Docomo's handset sales, and also decline in overseas system integration revenue due to COVID-19. Operating revenue declined by 178.2 billion yen year-on-year as for operating income. While there is decline due to COVID-19 and there is increase in Docomo smart left business, the question as for operating income, while there is decline due to COVID-19, There is increase in document smart life business and profit improved global business profitability. So operating income improved from negative 7.6 billion in the first quarter to positive 25.8 billion year on year in the second quarter. As for overseas, top line has dropped due to COVID-19, but margin has improved by 0.7%. This is due to streamlining effect. Now, as far as the second quarter results are concerned, the impact of COVID is negative 130 billion on revenue and negative 20 billion for profit. That is the impact of COVID-19 for the second quarter results. Please go on to page five. This shows you the contributing factors by segment. The top shows the operating revenue and the bottom column indicates operating income. The red part shows the areas that are declining and the blue part shows the areas that are increasing. So as for mobile and data, you're probably familiar with the results already. As for regional communication business, yes, there is decline in both operating revenue and operating income, but then due to strong net sale, net ads rather, in fiber sales, and also there's increases of serious revenue. So for the second, on a second quarter standalone basis, both entities must enjoy increase in both operating revenue and operating income. As for regional communication, they have a guidance of increase of operating, increase of operating revenue and operating income. So they're making strong strides to achieve this annual target. As for long-distance and international communication business, it may seem as though the operating revenue has dropped significantly, but then it's just that at NTD Limited, the accounting method has changed. In other words, recognition of revenue for straightforward supply sales and maintenance has been shifted from reflecting and recognizing total amount to posting that amount. That has impacted 50 billion. There's also 14 billion yen impact from COVID-19 on currency. So the operating revenue dropped by 114.5 billion yen. However, as for operating income, which is a structural reform, they have been very favorable. So they were able to post increase in operating income at the end of the day. Let's turn to the following page, page six, please. This shows you the medium-term debt levels. We wanted to clarify that for your reference. So let's start from the... Left-hand side, 4.7 trillion yen. That is the amount of interest-bearing debt at the end of fiscal year 2019. Debt ratio is about 50%. Debt to EBITDA ratio is approximately 1.5-fold. So very, very clean. And we'll be spending 4.3 trillion yen for bridge loan, rather, to acquire entity locomotive. And this may increase up to 9 trillion yen. However, please bear this in mind. The target for debt will be set at $6 trillion. And we want to make sure that since EBITDA for our company is $3 billion, so therefore we're considering up to $6 billion, that the ratio of 60%, that's lower than the average of 80% for single A ratings. So that is the target that we want to set. As you know, we have spun out leasing business. So therefore, we've been able to off balance 1.1 trillion in debt. And also, Docomo's credit receivables, enhanced receivables, they will also be securitized. So 1 trillion over next four to five years. Right now, 0.7 trillion is very clear. So these are probably expected feasible. The actual increase in debt will be 2.2 trillion yen. So if the target is 6 trillion, it means that the amount of debt we need to repay would be only 0.9 trillion yen after the math. We take a look at the average free cash flow for the past three years. It's roughly 0.9 trillion. And we can generate... And also... paid out dividends of 0.3 trillion, which means that we are able to generate 0.5 trillion in cash every year. So we believe that we will be able to implement both share buyback and also increase enrichment of shareholder return and also be able to repay in a planned manner while we carry out the required investment for the growth. So we believe the 0.9 trillion debt can be repaid over the next couple of years, maybe over the next four to five years. So as a result, We believe that for this fiscal year, we will be able to realize shareholder correction and share buyback as part of a shareholder return program. Now, as for the good, there will be no goodwill from the transaction to make Docomo into a whole new subsidiary firm. So let's talk about share buyback. For the past two years, we have carried out 250 billion yen worth of share buyback every year for the past two years. So that being the case, As we have consistently mentioned, we believe that we are able to continue shareholder return as we have done in a consistent manner and still be able to make repayments. So we want to implement that as for APS. Toward the year end, we're headed toward the year end. So we believe that considering the operation, we'll be able to increase one yen at this juncture As for topics, there are three. One is to create initiatives to create a remote world. We have created a new service brand called The Remote World. This is a new title brand. And I want you to do seven services. And I hope that you'll take a look at this later on the second.

The second is the own media door. We will be preparing that. The R&D forum. It will be held remotely. So November 17th, the R&D forum's situation or exhibition, to be able to view that, we are going to digitalize that. Of course, this is going to be a place where people other than NTT employees can attend, and it will be a 3D media. And so the people can experience the remote world online. And next is regarding the progress of the midterm management strategy. There are several of them, and I would like you to take a look at all of them later on. But three points here. First is a promote B2X model, and it has reached 88. Our target is 100 next fiscal year, so we are in line with our plan. And the second point is that The satellite offices, actually, station facilities are converging to satellite offices. We will have employees come here. In October, we have converted Noborito. And in 2020, 10, and by fiscal year 2021, we would like to convert 50 of them. Lastly, ESG-remated matters, we have received the Climate Change Initiative approval for SBT. And we have announced it today together with the National Institute for Quantum and Radiological Science and Technology in order to have a field demonstration of nuclear fusion energy. We have signed the alliance and partnership agreement today. That's all from myself.