Nippon Telegraph and Telephone Management Discusses F3Q2011 Results - Earnings Call Transcript

| About: Nippon Telegraph (NTT)

Nippon Telegraph and Telephone Corporation (NYSE:NTT)

F3Q2011 Earnings Conference Call

February 4, 2011 03:00 AM ET


Koji Ito – IR

Hiroo Unoura – Senior EVP and Director, Strategic Business Development


Atsuo Takahashi - Mizuho Securities

Tetsuro Tsusaka – Barclays

Makio Inui – UBS

Hisataka Soejima – AllianceBernstein

Daisaku Masuno – Nomura Securities

Shinji Moriyuki – Nikko Cordial Securities

Daisuke Oshidari – JP Morgan

Koji Ito

Thank you for waiting, ladies and gentlemen. Thank you for joining us despite your very busy and demanding schedule. We’d now like to begin the presentation of the financial results for the nine-month ended December 31st, 2010 by NTT. I’ll be serving as the moderator. My name is Koji Ito with Investor Relations Office.

I’d like to introduce the participants from our side. Senior Executive Vice President, Mr. Unoura; Director of the Corporate Strategy Planning, Mr. Watanabe; Director of Finance and Accounting, Mr. Kobayashi.

Next, we’d like to confirm the materials which have been distributed to you. You will find two sets of materials. One is the copy of the slide presentation entitled, “Financial Results for the Nine-Month Ended December 31st, 2010” and the second is the more voluminous white-colored material.

Now with regard to the forward-looking statements and projected figures contained in the reference material as well as in the Q&A session, please refer to the disclaimer information on page two of the material. We ask that you take a look at this disclaimer information. Also, today’s proceedings will be broadcast live. Also, in addition, the recorded video will be available and uploaded at the Investor Relations website at a later date. It will be available on on-demand basis. We hope that you will understand.

As for today’s program, we intend to have about one hour and half for today’s presentation meeting.

And, now, I’d like to invite Mr. Unoura to give you the highlight of the financial results, after which, we’d like to take your questions.

Hiroo Unoura

Thank you very much. Unoura is my name. Thank you for joining us despite your very busy and demanding schedule. I’d like to provide you with the outline of the financial results for nine-month ended December 31st, 2010.

Operating revenue increased 17 billion Yen on year-on-year basis and reached 7,542.7 billion Yen. The drivers are as follows. One, in relation to the mobile phone that the growth in the base of customers who subscribed the value plan has become much lower, and also the level of decline in fixed line telephone services have become smaller. So the drop in voice service revenue was contained at 219.2 billion Yen.

Second, there was increased marketing and sales of FLET's Hikari as well as increase in packet ARPU for DoCoMo, so therefore IP service revenue increased by 171.3 billion Yen. Also, mergers and acquisitions by NTT Data and also increased provision of fiber under IRU which was won by NTT East has contributed to pitching up the system integration revenue by 32.9 billion Yen.

And, the fourth, is that the upper layer subsidiaries such as NTT Plala and other subsidiaries have contributed 55.2 billion Yen in terms of other operating revenue. As for operating income, it increased a 117.2 billion Yen year-on-year basis and reached 1,065.3 billion Yen.

The reason are as follows. A decline in procurement cost for handsets as well as more efficient distributor commission. So DoCoMo was able to realize 55.8 billion Yen increase in its operating income. Secondly, due to the lessened impact from actuarial gap and decline in personnel expense as well as in other expenses, NTT East has seen 24.9 billion Yen increase and NTT West has seen 24.2 billion Yen increase in their operating income.

Next, as far as the full-year forecast is concerned, as for operating revenue as DoCoMo has already explained, in the fourth quarter, we anticipate decline in its interconnection charges as well as a decline in their handset revenues. So as a result, on a consolidated basis, we anticipate 41.4 billion Yen decline in its fourth quarter – correction, 41.4 billion Yen on the full-year basis. However, at the end of the fiscal year, we will be reflecting 70 billion Yen worth of revenues from Dimension Data which is equivalent to two months. So if we factor this in, we believe that the operating revenue will end up being positive.

Now, as far as operating income is concerned, as you’re aware, the third quarter results have been very strong. So it goes without saying that the full-year projections which we announced at the first half which was 1.180 trillion Yen can be achieved. So we’ll continue to make efforts so that there might be an upside at the end of the fiscal year.

Next, let me turn to contributing factors by segment, starting with regional communications business. As for operating revenue, while there was decline in voice service revenue, on top of IP service revenue, system integration revenue also increased, so therefore operating revenue increased by 16.2 billion Yen on a year-on-year basis.

As for operating expense, due to decline in headcount as well as an lessened impact due to depreciation of actuarial gap, expenses declined by 33.6 billion Yen on a year-on-year basis. So operating income increased by 49.9 billion Yen on a year-on-year basis.

As for long distance and international communications business segment, while the subsidiary firms’ profitability is improving, due to decline in voice service revenue as well as IP service revenue, operating income declined by 10.1 billion Yen on a year-on-year basis.

Turning to mobile communication business and data communication business, I think you have already heard those numbers.

And, as far as other businesses are concerned, NTT Urban Development and NTT Finance have experienced increase in their profitability, so therefore other businesses has increased by 27.5 billion Yen on a year-on-year basis.

Next, let me talk about NTT East financial results, if I may. In the third quarter, in terms of operating revenue, the decline of 57.7 billion Yen in voice service revenue was more than offset by 62.5 billion Yen increase in IP service revenue, so therefore operating revenue in the third quarter for NTT East actually increased by 13.3 billion Yen on a year-on-year basis. Also there was lessened impact from actuarial gap, depreciation, and personnel expense decline. So operating income increased by 24.9 billion Yen on a year-on-year basis.

As for NTT West, the decline in voice service could not be offset by increase in IP service revenue, so therefore NTT West operating revenue for third quarter declined by 9.7 billion Yen. However, due to more efficient expenses and lessen impact of actuarial gap, operating income increased by 24.2 billion Yen on a year-on-year basis.

Now, as far as the full-year projection for NTT East and West are concerned, the third quarter results were very robust and strong. So for the fourth quarter, we anticipate some impact from increased recovery related expenses to torrential rain as well as very heavy snowfall.

And, also we are considering selling a provision for point programs, so therefore we do not want to talk about specific operating income level we anticipate on a full-year basis for NTT East and West. However, we hope that there will be an upside at the end of the day.

Next, let me turn to NTT Communications financial results. In the third quarter, voice service revenue declined by 21.2 billion Yen. IP service revenue and solution service revenue also declined. So, therefore, there was decline of 30.8 billion Yen on a year-on-year basis. Although efforts were made to cut back on cost, operating income declined by 12.6 billion Yen on year-on-year basis and went down to 65.2 billion Yen.

Now, as for full-year forecast, solution service revenue is expected to make a recovery. So therefore full-year projection for operating revenue and operating income remains unchanged. We’ve already announced NTT Data and DoCoMo, so we will not talk about this today.

Let me go on to page nine. Here is the details of difference between consolidated operating income and the total operating income of five major subsidiaries. Consolidated operating income was 1065.3 trillion Yen. Total operating income of five major subsidiaries was 992.9 billion Yen. The difference between the two of about 72 billion Yen was mainly due to the total operating income of other subsidiaries other than the five major companies of 65.2 billion Yen.

In addition to profit increases by NTT Urban Development, NTT Finance, like I mentioned earlier, NTT Communication subsidiaries included under other companies improved in profits, resulting an increase over last year.

Next is on cash flows. The operating cash flow was about 81.4 billion Yen increase year-on-year, but with acquisition of Dimension Data and Keane, investment cash outflows increased and free cash flow was minus 52 billion Yen. And our financing cash flow due to less redemptions of long-term debt in corporate bonds and in addition fund raising for acquisition, financing cash out was 359.9 billion Yen, less year-on-year at 37.5 billion Yen.

Please turn to page 11. On the transformation of business structure, IP and solution and new business accounted for in the third quarter 64% of total revenues. Business structure is transforming smoothly.

Next, I’d like to talk about the number of subscribers for broadband access services that is on page 12. Fiber net adds in the three months of the third quarter was – although in the home alliance mass merchants sales was strong, capturing the echo point sales opportunities, but net adds was 480,000 less year-on-year.

In the third quarter year-to-date, net adds in East Japan was 820,000, West Japan was 650,000, with a total of 1,470,000. NTT West trended favorably to the plan, while NTT East found it quite difficult.

Finally, page 13, FLET's Hikari or fiber. Due to more optional services such as Hikari-denwa or optical IP telephony, remote support and so on, ARPU continued to increase in NTT East Japan by 120 Yen and in NTT West Japan 90 Yen year-on-year.

This is all for my presentation. Thank you.

Question-and-Answer Session

Koji Ito

We would now like to take your questions. When you ask a question, please wait for the microphone to brought over to you. We ask you to please state your name and affiliation, please. Then, if you have any questions, please raise your hand. Any questions? The gentlemen in the third row from the front, please.

Atsuo Takahashi - Mizuho Securities

Thank you for explanation. Takahashi from Mizuho Securities. I have one very broad question, if I may. As with – as is the case with the financial results and based on your comments, we get the sense that you have a very bullish outlook going forward. So my question is this, in relation to NTT East and West, you talked about FTTx services becoming breakeven for the next fiscal year, and also the decline in the analog related services, it seems that be much slower. So do you believe that you have indeed bottomed out in terms of your performance?

If that is the case, then the business plan – business operation plan which you intend to submit, do you anticipate increased profitability for NTT so as to be contained in that business operation plan submission?

Hiroo Unoura

Thank you. Let me respond to that question. For this fiscal year, operating income for NTT for East and West, we believe that there is an upside to 65 billion Yen for NTT East and 37 billion Yen West, which was already revised.

Now, breaking even for fiber in fiscal year 2011; go back in 2008, we had a loss of 150 billion Yen in 2008 and 90 billion Yen in 2009, so compared against that, the financial profitability for fiber indeed has been improving over the years. So we see the strong performance. And when we take a look at the most recent performance for NTT East and West, it is likely that in the next fiscal year, for both East and West, we will be able to improve further in terms of profitability for fiber.

So we hope to incorporate that in our business operation plan to be submitted.

Atsuo Takahashi - Mizuho Securities

If I could further add; on a consolidated basis, when we take a look at the fixed line services, I believe this year you will have a number of roughly 200 billion Yen. So can you give us a picture for the next fiscal year? Can you talk about the consolidated fixed line services revenue projection?

Hiroo Unoura

200 billion Yen was the peak operating income and that was back in the fiscal year 2004. I think you’re coming very close to that.

Atsuo Takahashi - Mizuho Securities

So in terms of the long distance segment do you believe that you’re also back to normal?

Hiroo Unoura

Let me respond to that question. I think you talked about NTT Communications. If we include NTT Communications, it’s very difficult to say anything final. That is because, as far as NTT Communications is concerned, their legacy business profitability is declining very rapidly. So, therefore, fixed line services, if we based our ourselves on our conventional definition is very difficult to give you any definitive outlook.

As far as fixed line services are concerned we hope to give you a clear picture when we announce the full-year results in May. Now, as far as the segment is concerned, as far as the long-distance and international communication business is concerned, we will be incorporating Dimension Data. So long-distance and international communication business going forward will reflect Dimension Data. So if that is the case that is clear to have a very strong increase in revenue.

Koji Ito

Thank you. Next question, please. The question in the second row please.

Tetsuro Tsusaka – Barclays

Yes, my name is Tsusaka from Barclays. This year you’re trending above the forecast and right now 1.18 trillion in operating income you expect. If no disturbances in other countries accompanies, I think you will be close to 1.2 trillion Yen. And you might say I’m rushing. But considering the profit increased factors of next fiscal year and looking at your company this year so that all – I think if all the companies can increase in profits and the regional companies are increasing profits next year, if the data and fixed lines and data – NTT Data and NTT DoCoMo are increasing profits, then March 2013 midterm plan final number is something you will be close to 1.3 trillion Yen. If you are on the upside to the forecast and if next year all the companies achieve increasing profits, then you will more or less achieve the midterm plan one year ahead of time. I think time is reaching as such an environment is reaching as such, can you give me a comment on this as a consolidated business management?

And then, my second question is, you say that outlook is bright. You might say that such a detailed dig-in is unnecessary, but in the case of this fiscal year NTT East and NTT West regional companies access charge or interconnection charge might go up and down, and in following year it might not happen. There can be these detailed factors. But still you are saying that outlook is bright, how come? What is the reason for bright outlook? Is that in the case of broadband you are seeing growth, however the growth might be, the pace of the growth, might be the same year after year, and increasing top line might be the same trend year after year. However, on the other hand, legacy side, access charge might come down, and this might be a concern. But if you consider into all these factors and consider that NTT East and NTT West are fine, is that your message?

Hiroo Unoura

I would like to respond to your questions. Certainly, the upside of the performance in NTT East and NTT West and this year’s consolidated operating income 1.18 trillion, and we’re thinking we can sufficiently achieve this target. But that's trend. What will be – or we will be putting together a business plan for the next fiscal year from now on? We would like to factor in these trends. 1.3 trillion Yen, the plan, our target for fiscal year 2012, can we accelerate, achieve this target one year early? I don’t think that we are trending as strong, but we are quite eager at advance, accelerate our pace in our business plan. But performance is improving in NTT East and NTT West.

On the other hand, somewhat NTT Communications mainly have difficulty in legacy income. But if we include both NTT East and NTT West and other subsidiaries, fine. SI and data, at the end of first half, downward revised the forecast. We want to see recovery, but SI industry we do not have this ability of the industry as yet.

Considering all the factors together, DoCoMo – even if DoCoMo made a certain improvement, 1.2 trillion Yen, how far can we be on the upside compared to 1 trillion Yen? This is going to be the perspective for next fiscal year, but actual amount is something we have to develop from now on. But our stance is as such.

And then, to respond to your second question, NTT East and NTT West; next fiscal year we want to maintain the profit increase trend. In this year, yes as you point out, NTS cost is different, went up slightly, may not be fully sufficient to upset the traffic reduction. IRU was special demand boom this year. But as the basis, NTT East and NTT West, we are seeing tendencies of certain improvements. That is for true. Therefore, these strengths we won’t sufficiently offset the negative factors and we feel we can. This is how we feel, thank you.

Unidentified Company Representative

And to add to compliment from my side, in your question you mentioned – like you mentioned in your question, I don’t want to account all the detailed negative factors or the – all the negative anxiety factors, but we can see we can make further improvements going into next fiscal year. NTT East and NTT West, this year we had IRU and access charge one-off factors.

Consolidated basis compared to last year, NTT Finance and NTT Urban Development, compared to – relatively speaking compared to last fiscal year we are seeing improvements. We will have another relook at the one-off factors of this fiscal year. And after having looked at that, we would like to make a plan for the next fiscal year and in those stat maybe in May. Please consider that our stats today is bullish.

Koji Ito

Next question, please. The gentleman in the center of the room, third row from the front.

Makio Inui – UBS

Thank you. Inui from UBS. My question may overlap with that of the previous questionnaire, but you might scold me for getting ahead of myself. But as far as the projection for NTT East and West is concerned, we have about 200 billion Yen combined operating income expected.

Now, Mr. Unoura, I’ve had a series of discussion with you Mr. Unoura. Now, operating margin of 5%, operating margin of 5% you mentioned that this is mentioned that you hope to achieve in not too distant future. Of course, it depends at the level of operating income, the revenue at that time. But I think you mentioned that operating income of 20 billion Yen and 5% operating margin. So 100 billion Yen is about to be exceeded by NTT East and West, but how long will it take for NTT East and West to double its operating income, what image do you have, what do you envision as a timeline? Of course we don’t want you to stop there, but if NTT East and West combine can reach a 100 billion Yen, why not 200 billion Yen, and when?

And also you talked about possible bringing forward achievement of the medium-term strategy. Comparing as the time that their plan was announced, it’s true that the trend of the operating income seems to be much stronger for NTT East and West. Now as for subsidiary NTT DoCoMo for example, the 900 billion Yen plan which it’s set, I think this is also in conjunction – this is partly the backdrop of your 1.3 trillion Yen operating income.

Now, NTT DoCoMo, it has lost as a result of mobile number portability. But against the backdrop, DoCoMo put out a plan of 900 billion Yen and we as analysts have a sense that this is – this was a bit of a stretch. But right now the circumstances are such that NTT DoCoMo has very strong fundamentals and they should be able to reach 900 billion Yen, that’s my personal view.

So in conjunction with your medium-term target of 1.3 trillion Yen operating income, what about DoCoMo? Are you going to be comfortable with the 900 billion Yen operating income at DoCoMo, since NTT East and West has worked so hard, are you going to also encourage DoCoMo to actually increase from their 900 billion Yen operating income target, are you going to say this is the – not the ceiling but the minimum. So what is NTT Holding Company’s position vis-à-vis DoCoMo? So in conjunction with the 1.3 trillion Yen consolidated operating income target, what position will you take against DoCoMo?

Hiroo Unoura

Very difficult questions to respond to. So let me start with the operating income margin or operating margin of 5% for NTT East and West. I think this will service an assumption for our target of 1.3 trillion Yen consolidated operating income in fiscal year 2012. If NTT East and West could not achieve that, then the other subsidiary firms should also make their contribution, so that we could achieve consolidated operating income of 1.3 trillion Yen. So the time line which we have on a consolidated basis is fiscal year 2012.

Now having said that, NTT East and West are regulated companies. So there are cases whereby they will not be able to make such a smooth progress. But I think the basic position is that they will continue to make efforts to achieve this target. It’s not just about NTT East and West. I think NTT Group as a whole will have to utilize broadband and improve its profitability.

So NTT East and West exceeding operating margin of 5%, naturally we hope to attain that, but that is not going to easy to obtain. So the Group as a whole inclusive of the upper layer services will have to make efforts to increase its operating margin.

Now in that conjunction, DoCoMo has put out a target of 900 billion Yen. So as far as I’m concerned, I sincerely hope that DoCoMo indeed achieve that target and hopefully there will be an upside. We will not hesitate to see such an upside.

Koji Ito

Then, the person at the very front, please.

Hisataka Soejima – AllianceBernstein

My name is Hisataka Soejima. I have two questions as well. The first is, this was an article on Nikkei newspaper speculation – the source is not your company, but according Nikkei at the end of the year what I felt was FTTH the way you sell fiber, I think you are going to enter a different new stage. This is how I felt.

In the past, you have been selling push-style with incentives, but at a different stage you might be thinking selling in a pull manner, is this the right way to look at how you’re going to market? And if you’re going to sell in a pull manner, can you go like you are today or you have to clear issues inside the company, and have you been making discussions inside the company to clear the issues? That was my first question.

Second question, finally all the noisy discussions are over and you are able to think – look at things more in a positive manner, that’s how I’m hoping. But from an investor perspective so that your company be changing more and is taking up lot of challenges, how can we check as an investor that you are changing, what is the hint to watch out for?

Hiroo Unoura

I would like to answer the first question. One, a 15 million – a little less than 15 million fiber subscribers are what we have and how to expand this user base. Yes we need to enter into a new stage, we have such an awareness; yes we do. And interconnection charge discussions are taking place on hand. But as far as we’re concerned in NTT East and West, there are people, users who do not use fiber for Internet. And there are light users as well.

How to attract them is the starting questions for us to tackle, and more variety of tariff schemes is something we are considering specifically. Pricing; pricing strategy, sales strategy, are the things we have to consider in order to enter into the new stage. In addition, in utilizing our network for other business such as education by ICT is something we announced this week. This type of using a tablet handsets or tablet devices is something that kept – that we think there is an opportunity for education.

And 711 and city and urban development organization people, with them we have been talking about using fiber device to develop the market for those people who are so-called shopping refugees. This will be another stage for utilization of our network, surprising and utilization of the network from both sides we would like to go ahead like you mentioned or you suggest.

Unidentified Company Representative

I would like to respond to the second question. I feel your question and I understand this was also a comment, very thankful – I find it very thankful. In the past one year, in a sense where business some matters were not forward-looking to the investors, there were discussions that were rather setbacks for investors. But, finally, the discussions are about to conclude. We see the situation.

This sense over the past one year, we had to be more on a defensive stance. As you’re aware, market environment in the market, a paradigm shift is taking place within this, “How is NTT Group going to show its presence in the paradigm shift in the global competition? How is NTT itself is going to show our growth strategy?” This is going to be very important.

As for the basic framework, we do have the image established, but service strategy and market strategy are things we have to more specifically send out positive messages to you. I think we are entering into an important phase, and being able to send out such messages, and by sending out such messages we hope will prevent any further discussions to take place several years from now on. This is how we think. Therefore, all at once or at a proper timing we do not have the confidence to say something that will clearly topple things upside down. But was the market shifting significantly, what is NTT’s intention as to our position, we would like to continue to send out our messages.

Hisataka Soejima – AllianceBernstein

In a place like this, maybe it’s going to be my last opportunity to make a statement or a comment. This is going to be my farewell comment. But considering your past – maybe you are a bit more assertive, if you consider yourself to be more pushy and assertive, then you will be more in line with other people in the society, please be aggressive in speaking out.

Unidentified Company Representative

Yes, the pro-regulation discussion might take place not just in access area, but we might see more regulation discussions. We want to continue to send out messages so that other players will feel anxious about NTT, thank you.

Koji Ito

Thank you, the gentleman in the front row, please.

Daisaku Masuno – Nomura Securities

Masuno from Nomura Securities; I have two questions if I may. My first question, this relates to fiber. In order to increase the penetration of the medium term, you have to involve light users as well, you mentioned. I just wanted to confirm the total impact that this could have. Based on report, I think it was said that you might be considering usage-based pricing structure, so that you could attract light-end users. I think this would represent an excellent idea.

At the end of the day, if you focus on both ARPU and the subscriber base, I think this will lead to a total upside. So I think usage-based billing structure is one avenue that you should pursue. Is that what you’re contemplating? That’s one point that I wanted to confirm.

And secondly, globally the tablet devices are enjoying very strong penetration, and I’ve been talking to DoCoMo. On the corporate side, I think you have the linkage between DoCoMo and NTT Communications or linkage between other Group companies and offer solutions and cloud computing services and also devices and offer security in a packaged fashion to the corporate sector. So I think such a structure is important. So within the Group, do you believe that you’ll be able to create a cross-sectoral, cross-functional project or structure going forward to address the corporate market? That's my second question.

Hiroo Unoura

Thank you. Let me respond to your first question. In terms of increasing the penetration of fiber, offering more accessible pricing structure, you talked about quasi flat-rate services. Yes, these are options which we’re considering.

Now, as far as our position is concerned, offering accessible and reasonable pricing for first-time users then they will be able to use very interesting contents and also devices. And if they joined then I think there is an opportunity to actually upgrade their ARPU. So you have ADSL users and light-end users right now that are potential customers. So therefore we hope that we can indeed increase the overall subscriber base. And as far as specifics are concerned, NTT East and West, I’m sure we’ll be making official announcement at an appropriate stage, but that is the philosophy which we employ.

Let me respond to your second question. As I talked about in the previous question, the basic philosophy is this, as far as expanding the corporate sector or the corporate market is concerned, you mentioned that there is a need to create a Group-wide structure. In the era of cloud computing, I also believe that that is indeed the case. It is important that NTT Group as a whole be able to enhance this competitiveness and we’re indeed having internal discussions about that.

So as I gave a hint earlier, the service strategy and market strategy, they will have to be considered on a Group-wide basis. And we need to be able to address the fast globalizing market, “What kind of player do you want to be in this new rapidly globalizing corporate market?” It’s important that we communicate our message. Thank you.

Koji Ito

Then, next person please. The person in the fourth row, please.

Shinji Moriyuki – Nikko Cordial Securities

My name is Moriyuki from Nikko Cordial Securities. Basically I have two points. The first point is to Mr. Unoura. I asked this question at the end of the first half results. Dimension was acquired you set out the global strategy and Dimension will be the core of global strategy. And I ask whether Dimension people will be promoted to the headquarters as Directors. And the response was, we will consider at an early stage. There is NTT law, at this stage, will make it difficult, but globally to be a group of company, such ideas should be considered proactively, any movements here, is my question – my first question.

Hiring overseas Directors can introduce new ideas, you can also develop more business overseas, easier to acquire companies overseas. That was my first point.

And then second point, and then returns to shareholders, as you have already announced the cancellation of treasury stock and then share buyback after that. That is one way, but another way is dividends. In dividends, do you have any thoughts about next fiscal year? For the time being is your program just treasury shares? Correction – is your program just share buyback?

Hiroo Unoura

I would like to respond, Dimension Data – in relation to Dimension Data, Directors in the holding company – well, sorry I do not really recall. As you point out, according to the NTT law today the Directors have to be Japanese, what to do about these laws in one issue. Considering the present day law, unfortunately for the holding company itself, we cannot have a foreign person to be a Director. But within the Group companies they can become Directors. These are things we should be thinking about in the future.

And globally, what to do about management? At this stage, this is the biggest thing for me right now. In the sense, what to do? I would like to explain my present day thinking. One key basic point is HR – HR management. For HR management, throughout the whole Group, we will have HR Committee covering the whole Group. Inclusive of companies we acquired, we want to have better HR management. This is what we feel we should be committed in.

And then, secondly, in this cloud computing era for us, to deploy globalness, those companies we acquired and those companies NTT Communications acquired and those companies NTT Data acquired, we need strategic consistency, which means we also need a Strategy Committee. The center of Strategy Committee, I’m sure will be Dimension Data.

And then responding to your second question, returns to shareholders; especially dividends, we are well aware that there are strong hopes and expectations from the shareholders and investors. As I have been saying for shareholder returns, dividends will be the center. There has been no change in this idea. However as you are aware, last year we have conducted the first cancellation of the treasury stock and our buying out the government health shares, this is the urgent theme for now. Already budgeted, but considering the current political condition when can we implement? We have slight anxiety. In the sense, the most urgent thing is share buyback in relation to share cancellation. This is going to be the probability. After going through this we want to achieve certain conclusions about dividends and I hope we can announce dividend matters to shareholders.

Koji Ito

All right. Next question, please. The gentleman in the second row, please.

Daisuke Oshidari – JP Morgan

Oshidari from JP Morgan. I have two questions if I may. I wanted to ask a question, inclusive of Dimension Data, system integration industry is struggling. But NTT Communications and NTT Data, shouldn't something structural be done about these two companies? Are you going to wait for this struggling industry to recover? I'm sure that is not the case. So I think somehow or other, as the holding company of NTT, I think you must make efforts to somehow improve the situation for these two companies. Any strategies or prescriptions you might have in mind? Can you give a hint? And as you talked about Dimension Data being the core player, but what's the timeline and how do you intend to do this? Can you be more specific in terms of your timeline? And that's my first question.

Now my second question. As was covered in the series of questions, it is true that NTT East and West have improved. But shouldn't you communicate more aggressively about the improvements witnessed at NTT East and West? After the first nine months up until the third quarter NTT East and West have seen upside in its profitability, and yet you still do not change your full-year projection. The mentality and the position of the NTT management, something has to be done. I know that if you announce an upside, I'm sure the market will respond. They will respond to good news but you don't put out those good news.

Now all the sell-side analysts in this room, “Yes, great numbers.” But that's the only comment we can make. And we want to have an upside for the full-year projection, but then if there is no surprise, then we end up seeing a very conservative projection. This is the cycle which has repeated. That's why your share prices are struggling, ranging between 3,500 Yen up until 4,000 Yen. That's been continuing for the past year and maybe even two years. So that being the case, what is your position? Isn't it time for you to change your mentality? If the profitability – if fiber is going to break even, then the way Investor Relations information is disclosed and the way in which management respond, shouldn't they be changed?

Hiroo Unoura

Let me turn to your first question. I mentioned at the outset that I cannot say anything definitive at this juncture, it’s just based on rules. NTT East and West must submit its business operation plan in the beginning of March every year. That’s the time when they announce the numbers. I’m afraid that is the timeline which must be followed. So that is why we don’t want to announce something right now, and then make the announcement of figures once again in the beginning of March. We don’t want to have such a repetitive disclosure.

So as far as I’m concerned – well, we announced the third quarter results in the beginning of February. And in a very short time when the business operation plans are submitted we might be – witnessed to be – we might be seeing as being conservative, I do not believe that this is a desirable timeline. I’m afraid that is the structure that is in place unfortunately and we have to meet that.

So as far as the submission of business operation plan for the next fiscal year is concerned, we have to set certain assumptions. And I know it is not appropriate for me to say so in a forum such as this, but the figures we announce in February and the numbers or the projection which we have to put out in the beginning of March, and the financial results and the financial projection which we must announce in May, I hope that as we trend toward May, you will be able to make your own assumptions and we do hope that you’ll place your analysis primarily based on the numbers we announced in May.

Sometimes our business operation plans are revised in May. We hope that that is not the case this year. We don’t want you to think that the numbers we announce in May constitutes a surprise. So that’s my response to your second question.

And let me turn to your first question. Maybe down the road, time might come for us to talk about our structural organization and about our structure. But in the meantime, we have to deliver products and services to the global service market. I think the actual products and services we offer to the global service market is more important in the cloud computing era various players are trying to differentiate themselves. So NTT has started out as a telecom operator, but in the cloud computing era, what products, what specific services can we offer.

I think that should take the precedence over any other issue, so therefore at the risk of repeating something which might sound to be somewhat ambiguous. But our service strategy, our market strategy that has to be formed and continue to enhance our structure. I think that is what is important here.

So once we have something more tangible as a way of direction for the future, maybe at that time the discussion might evolve to a more structural or organizational debate, but we have not yet finalized a timeline or schedule. But that’s the flow that we will have to follow.

Then, for example, in the case of system integration industry, this is type of services or this is the type of products being offered by NTT Group, and this could actually throw fireworks into the system integration industry.

Daisuke Oshidari – JP Morgan

And at what time do you believe you will be able to offer such services which will cause a stir in the system integration industry then?

Hiroo Unoura

Well, I think be it systems – be it services or be it products, it’s not going to be completed at one goal. Of course, the sooner the better. It’s important we’ll be able to present something to our customers and this is the big issue. So once we’re able to offer such strong proposals to the customers, then I’m sure the results will follow. So we want to be able to deliver products as soon as possible.

Daisuke Oshidari – JP Morgan

What about the features of such products?

Hiroo Unoura

Well, security might be one aspect. And in the cloud computing environment, virtualization, and also orchestration – orchestration is going to be required. So we hope that NTT Group strength can be projected in those areas. We hope that we’ll be able to offer some explanation until we offer our full-year results. Thank you.

Daisuke Oshidari – JP Morgan

Then I look forward to your announcement in May. Thank you.

Koji Ito

Then, next person. Anyone? There seems to be no further questions. Therefore, upon this, we would like to conclude today’s presentation meeting. Thank you very much for today.

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