Nippon Telegraph & Telephone (NTT)

Thank you for joining us. I'd like to start the presentation of the fiscal year 2023 third quarter results for NTG. My name is Hanaki of the Investor Relations Office, our office of NTG. I'll be the facilitator today. I'd like to introduce the attendees from our side. The President Member of the Board and Senior Curriculum Vice President, Mr. Hirui. Executive Officer, City Vice President, Head of Finance and Accounting, Mr. Nakamura, Executive Officer, City Vice President, Head of Corporate Strategy Planning, Mr. Hattori are the attendees from our side. Please be advised that today's meeting is being broadcast live. At a later date, we're planning to have on-demand based distribution over the web. Please take a look at the Investor Relations website for the presentation materials to be used for the meeting today. Also, please, you'll find comments with regard to future legal statements on page one of the material. We would like for you to read to that page. Thank you. So today we'd like to invite Mr. Hiroi to talk about the outline of the financial results, after which we'll take questions from the floor. So, Mr. Hiroi, the floor is yours. Thank you very much. My name is Hiroi. Thank you for attending today. Before we start, the presentation, I would like to express our sincerest and deepest sympathies toward those people who were affected by the Note of Minnesota Earthquake 2024, as well as to their families. We sincerely hope for the earliest possible recovery and reconstruction of the affected area. NTT Group intends to continue to make efforts toward the recovery and restoration of the affected areas. So let me then start the presentation of the fiscal year 2023 third quarter results. Please turn to page four. This is the outline of the financial results. Operating revenue increased. Operating profit declined year on year. Operating revenue reached new record high level as the third quarter. Operating profit and profit recorded increased for the third quarter on a standalone basis, although on a cumulative basis they have recorded a decline. As for operating revenue, revenue from electricity business declined 190 billion yen since Enet curbed their power purchase due to the rise in procurement cost. Integrated ICT business segment and global solution business recorded increase in revenue. So operating revenue increased 144.3 billion yen year on year up to 9,716.9 billion yen. Now, of this increase, impact from currency was roughly 120 billion yen. As for operating profit, regional communication segment faces challenges related to fiber net ads and voice traffic because COVID-related demand has run its course. There is also increase in cost related to removal of unnecessary assets for the purpose of streaming assets. So operating profit went down 34.6 billion yen year on year to 1,486.2 billion yen. As far as the annual plan is concerned, There were some unexpected costs such as cost related to security from disaster. And so going forward, these costs are expected to increase. So we expect the facilitation of cost reduction measures. So we'll also be zooming down non-core assets. So therefore, we'll aim to achieve increase in operating profit portfolio, which is the target for the consolidated plan. As for profit. This declined $21.4 billion to $1,011.1 billion due to drop in operating profit and increase in interest payment. As for EBITDA, EBITDA declined $16.2 billion to $1,571.7 billion due to decline in operating profit. Please turn to the next page that shows you some figures by segment. Let's start with integrated ICT business. Enterprise business, smart life business, and consumer communication business all recorded an increase in revenue on a year-on-year basis. Now, as for operating profit, there was decline in smart life due to some reactions to the new factors in the previous year. However, there was increase in profit in enterprise business in line with increase in revenues and also due to increase in consumer communication business based on cost efficiency. Operating profit increased year-on-year. As for regional communication segment, as was mentioned earlier, on top of declining fixed-voice revenue, we also expect most of the increase through slimming down of non-core assets will be reflected during the fourth quarter. So operating revenue and operating profit both decline year on year during the third quarter. As far as the end of plan is concerned, as I mentioned earlier, Achieving the target for regional communication segment will seem challenging since disaster recovery cost is expected, but we'd like to cover the cost as much as possible through the reduction of non-core assets and cost reduction measures. So we would like to make efforts so that we'll be able to cover any decline in this area. Let me now turn to global solution business segment. There was increased year-on-year due to increased revenue in the public finance and enterprise sector here in Japan. Also, we saw increased global businesses as well. So, therefore, operating revenue increased year-on-year. There was impact from currency to the fact of $100 billion correction. That's for operating revenue. There's this increase due to structural transformation and also impact of increased revenue. So that indicates we were able to record increase in operating profit in this segment. As for the other segment, as I talked about earlier, operating revenue declined near as ENET curbed the power purchase due to rising procurement costs. So revenue from electricity business went down. As for profit, this declined because of the impact from ENET. So therefore, we saw decline in profit because of the impact in terms of the probability of the electricity business. Now, for the quarter onwards, we will continue to monitor the situation very closely. And let's make sure that the profit from electricity sales will be minimized, will be maximized. And we'll be able to make sure that we'll be able to minimize any impact for the market situation. Now, let me turn to this page. Let me talk about the outlook for operating profit for fiscal year 2023. During the first and the second quarter, primarily in the regional communication segment, we saw a decrease in profit year on year as per active cost was necessary in order to reduce assets. But we saw steadfast improvement in profit in each quarter through cost reduction measures. So by each quarter, we're seeing improvement. So third quarter results, the third quarter recorded increase in profit year-on-year on a standalone basis. During the fourth quarter, we expect base profit to expand due to expansion in growth areas and further cost reduction. We also expect increase in profit through reduction of non-core assets. So while the situation remains challenging with expenses for disaster recovery, we will anticipate the consolidated profit target. Let me now turn to topics, page eight.

We will use this in order to realize distributed data center. Well, within this fiscal year at NTT group, major data centers will be connected via APN within this fiscal year. Furthermore, from 2024, this will be further expanded to cover the regional data centers so that we can construct what is called distributed data centers. leveraging the properties of APN by connecting data centers located in remote locations in real time, it becomes possible to utilize them as if it would operate as a single data center. Next, on page nine, I would like to explain our new initiatives undertaken jointly with Tokyo Electric Power Holdings, or TEPCO Group. We entered into agreement with TEPCO Power Grid to establish a new company. In the Inzai-Shiroi area of Chiba Prefecture, we plan to develop a data center aiming to launch service in the second half of 2026. Also, with Tokyo Electric Power Company Holdings, we established a limited liability company in November 2023 to operate a battery storage business in Tsumagoi-Gunma Prefecture. We will aim to launch service in 2025. We will continue to utilize the assets and know-how pertaining to the power and telecommunications business that we respectively own and aim to create new value and realize a sustainable society. Next, let me turn to page 10. This is our new initiatives in the area of new green transformation. We created a new solutions brand called NTTG to strengthen initiatives in the GX field. Also, we launched a green energy business integration platform to help renewable energy producers with their GX initiatives and establish a new platform. And in addition, with respect to the visualization of platform for CO2 and other emissions, we successfully increased the number of suppliers introduced in the platform to around 1,000 companies aiming to realize carbon neutrality up to Scope 3. Next, on page 11, Let me explain here how we are supporting the areas affected by the Noto Peninsula earthquake. We restored our communications service and conducted some 300 on-site visits to evacuation centers, including non-designated centers, to provide mobile phones, Starlink and Wide Star II service, Docomo satellite phone service. As a temporary public telephone for disaster cases, we provided pre-installed type phones in 171 locations and additional portable satellite equipment in 23 locations in response to the request of the evacuees. Furthermore, for those staying in the shelters for a long period of time, we started video service and online medical consultation service to care for their physical and mental health. Going forward, we will work together with the local governments and create consultation desks to address the concerns and challenges of evacuees and those affected by the disaster. This shows, on page 12, this shows the number of our shareholders. Let me share with you the number of shareholders as of December 31st after the stock split. The graph on the right shows the number of shareholders as of December 31st. After the announcement of the stock split, the number of shareholders increased significantly, and compared to the level of March end, it has increased to 1.7 times. Those under age 40 quadrupled. So as you can see, the age composition also diversified as a result of the stock split. On page 13, this is the progress. of our actions in the medium-term management strategy implementations. I won't go into details, so please read them through by yourselves. That's all for myself. Thank you very much for your attention.

We now like to go on to the Q&A session. For the questions, for those of you who have registered in advance and who are connected to the web conference system right now, if you have any questions, please use the raise hand button on top of the web conference system. If you wish to cancel your question, please push the raise hand button once again. When we designate the questioner, please, we'll be calling out your name as well as your affiliation. We'll ask you to unmute your microphone. When we ask you to do so, please unmute your microphone. As there'll be response from our side, please remain unmuted until the question is over. So we're not allowed to take questions. From Nomura Securities, Masano-san, the floor is yours. Mr. Masano, please, from Nomura Securities. Thank you. Can you hear my voice? Yes, we hear you clearly, sir. Thank you very much. I would like to ask several questions, if I may. For the profit for the fourth quarter, you mentioned earlier that the situation is very difficult, but you are likely to aim at achieving the aim. Are you talking about the regional communication segment? Are you talking about consulting bases? Are you talking about being able to achieve the target for this particular or for the overall consultative basis? If that's the case, you need an increase in profits if you are to achieve the consultative target. How do you intend to increase your profit by this much? In which segments are you intending to increase your profit? I appreciate your explanation. Now, of course, I would mention there's going to be 6 billion in profit from the sales of real estate at entities. Can you please explain how you intend to increase your operating profit between the fourth quarter? Thank you for your question. Yes, we're talking about consolidated as well as regional communication segment overall. So I think both in regional communication segment and consolidated basis, we want to achieve the target. But then, of course, there is a difference in nuance when we talk in the case of the regional communication segment, Yes, we will be carrying out sales of real estate, but yes, the foundation remains very difficult and challenging. Of course, we want to achieve the target in the regional communication segment, but the situation is very harsh still. On a consolidated basis, yes. Of course, it depends on how much recovery we can make in the regional communication segment, but there are other segments which are available, so hopefully we'll be able to drive an offset any decrease to other segments. So we want to make sure that we achieve the target on a consistent basis at the end of the full year. Thank you. Okay, thank you. What about this sale of proceeds, process of sales of real estate? How much amount are you anticipating? Will that, as a part of the third quarter, or will all the impact from the sales of real estate be reflected in the fourth quarter? You only have two months left until the end of the year. I cannot give you concrete numbers, but yes, part. Yes, we are making preparations. Some of the profit was realized during the third quarter, but most will be reflected during the fourth quarter. Yes, that's how you should understand the situation. Okay, thank you very much. Next, let me ask the following. You talked about additional costs. Also, during the press conference, there was mention about of roughly disaster recovery-related costs. They talked about costs for security costs. Will that be mostly this year? Most of them will be selected to be next fiscal year. So these temporary costs, what are your thoughts about the temporary costs? Thank you for the question. Yes, we cannot prejudge the outcome. We cannot be complacent. The situation remains so fluid. Now, going forward, we need to respond to various customers' requirements. And so it's up to the situation pertaining to the customers' requirements. So how much impact will there be? We're not yet sure. That is not visible at this moment. But having said that, with regard to this matter on hand, there's likely to be many potential negative impacts from the current circumstances. So enterprise business revenue is likely to be affected because there's going to be some reduction in the transactions. That is likely to be reflected both in this year as well as in the next fiscal year as well. Also, there are many temporary costs as well. For example, we need to address customers' needs. We need to talk to those customers, and we're not sure what will happen, but there might be cases where we need to make some payment of cost. So how can we fund these costs in a reasonable manner by the end of the fiscal year? So depending on that, the profits for the fiscal year and next fiscal year will be affected, but I think it is still to make a concrete response on this matter. Thank you very much. Thank you. What about the upside? I'll talk about some of the upside elements. The energy during the fourth quarter is likely to be not affected by the unique special factors. So you're likely to drive profit in the fourth quarter. Integrated ICT business, enterprise business, and integrated solutions business is doing well. So that is likely to have positive impact for the fourth quarter. Also NTT Limited. data center-related asset sales will be reflected in the fourth quarter, so you're likely to enjoy proceeds from the sales. So can I talk about the upside, which can cover the downside? Can you talk about some of the upside elements as well? Okay, thank you for that question. Yes, as you pointed out, Mr. Massano, for us, we have some growth business, such as integrated ICT business. That's part of our growth business. And also global solution is also another growth business for us. As far as Tocomo is concerned, They're doing very well in terms of smart life business. They're doing very well in terms of the smart life and enterprise business, and they're trying to drive the growth in both of these elements. On the global front, as we pointed out, the data center sales proceeds is likely to kick in during the fourth quarter. So through all these elements, we're likely to reinforce our profit. Also, DX is doing very well here in domestic markets. And we're doing well in terms of revenue profit from DX here in Japan, so we hope we'll be able to add on further operating profit from this business. So through that, we'll be able to make recovery in the consolidated basis and achieve the consolidated profit target at the end of the day. Thank you. That's all from my side. Thank you.