Nippon Telegraph and Telephone Corporation (NTT)

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Nippon Telegraph and Telephone (NTT)

Q1 2014 Earnings Call

August 05, 2013 4:00 am ET

Executives

Kazuhiko Nakayama

Hiroki Watanabe - Chief Financial Officer, Chief Compliance Officer, Senior Executive Vice President and Representative Director

Yoshikiyo Sakai - Senior Vice President, Director of Finance & Accounting and Director

Hiroshi Tsujigami - Senior Vice President, Director of Corporate Strategy Planning Department and Director

Hiroo Unoura - Chief Executive Officer, President and Representative Director

Analysts

Hitoshi Hayakawa - Crédit Suisse AG, Research Division

Daisaku Masuno - Nomura Securities Co. Ltd., Research Division

Tetsuro Tsusaka - Morgan Stanley, Research Division

Ikuo Matsuhashi - Goldman Sachs Group Inc., Research Division

Yusuke Ando - Daiwa Securities Co. Ltd., Research Division

Hiroshi Yamashina - BNP Paribas, Research Division

Presentation

Kazuhiko Nakayama

We would now like to start the financial results announcement for the 3 months ended June 30, 2013. Thank you very much for taking time out of your busy schedule to attend the meeting. I am Nakayama from Investor Relations office. I will be the facilitator of this meeting. Let me first introduce the participants today. Watanabe, Senior Executive Vice President; Tsujigami, Senior Vice President and Director of Corporate Strategy Planning Department; and Sakai, Senior Vice President and Director of Finance and Accounting Department. We also have those in charge from Corporate Strategy Planning Department, Finance and Accounting Department, NTT East, West and Communications. They will participate in the Q&A session when necessary.

Next, the explanation will be done based on the presentation material, which is also posted on the IR website. Disclaimer on the forward-looking statements and projected figures in the material for today's meeting, and Q&A is on Page 1 of the presentation material. Please take a look. This meeting is distributed live on our IR website and also distributed on-demand later.

First, Watanabe, Senior Executive Vice President, will explain the financial results and then take questions. So Mr. Watanabe will first explain, please.

Hiroki Watanabe

Thank you very much. My name is Watanabe, the Senior Executive Vice President. I would like to share with you the first quarter results. Please take a look at Page 2 of the presentation material. As you can see, in terms of operating revenue and operating income, that they remain unchanged from the previous fiscal year, and we made a very strong start to meet the annual operating income target of JPY 1.23 trillion. As for overseas sales, it increased JPY 38.7 billion up to JPY 20.67 billion, and for the first time, exceeded 10% of consolidated operating revenue. As far as percentage of sales to overseas corporations are concerned, results increased to 37%.

As for network services, we've made efforts to increase user base in a steadfast fashion. And also cost reductions in relation to fixed line and mobile access network has also progressed 50% through the medium term plan and it has made a bit strong start.

As far as shareholder returns are concerned, well the annual plan is JPY 250 billion, and at the end of July, we already repurchased JPY 153.1 billion worth of share buybacks. So as you can see, we made a very strong start in our financial results. Going forward, we'll continue to effective marketing and sales of our network services. We'll make efforts to reduce cost in a steadfast fashion. We'll also make efforts to increase our global cloud services.

Next, please turn to Page 3 of your slide. I've already talked about the highlights of the first quarter, highlights in the previous page. Now on this page, I would like to talk about the net income. As you can see, for net income, because of the reduced interest burden, this increased by JPY 10.2 billion on a year-on-year basis, up to JPY 166.7 billion. And this represents a record high first quarter net income in the last 5 years. Also, as we explained when we announced our business plan, the impact from redevelopment of Otemachi to just circa JPY 60 billion will be reflected in our fourth quarter results.

Next, please turn to Page 4 of your slides. I will give you the contributing factors by segment. Starting with the regional communications segment, as with efforts with cost control, we've been able to increase our operating revenue by JPY 22.7 billion on a year-on-year basis. The copper to the home market has matured and in line with that, sales of FLET's Hikari is stagnant. Net additions remain at 220,000. However, we are exploring the SME market and expanding discount services. As a result, we'll be securing demand, and we hope that we'll be able to achieve the target. As for long-distance and international communication segment, NTT Communications overseas [indiscernible], as I mentioned Data's revenue expanded, so therefore, operating revenue for the segment increased by JPY 13.7 billion.

As for operating income, we've been able to increase this to JPY 3.8 billion through increased efficiency improvement. Mobile communication and telecommunication segments was already explained by the individual subsidiary firm but let me just give you highlight of the segment. In terms of the operating income for mobile communications segment, because of efforts to increase reliability of the network which was implemented at previous year, as well as the breaking forward of LTE base station expansion, depreciation increased. And also there was increase in retirement loss due to the suspension of 2G services. So therefore, the operating revenue declined by JPY 21.4 billion. However, with our cost control efforts, we remain in aim to achieve our annual target. As for the telecommunications segment, due to the impact of unprofitable transactions, operating revenue declined by JPY 7.7 billion, so therefore, order placement is still strong, so therefore, we believe it's possible for us to secure annual operating income target.

Read the rest of this transcript for free on seekingalpha.com