NTT, Inc. (9432) Earnings Call Transcript & Summary

[Interpreted] We will now start the briefing session of NTT financial results for the 6 months ended September 30, 2021. Thank you very much for participating today despite your busy schedules. I'm Fujiki from the IR office, and I will be today's facilitator. It is nice to speak to you today. I would like to introduce today's attending members. Mr. Sawada, representative member of the Board, 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. Taniyama, Executive Officer, Senior Vice President, Head of Corporate Strategy Planning. Today's session's voice audio will be streamed live on the Internet. This will also be distributed on-demand basis on a later date, so we kindly seek your understanding. After this session, NTT DOCOMO will hold its briefing session regarding their results. So please attend this session also. Today's presentation materials are posted on our website under the title Presentation Materials. On the first page of the presentation materials, points to be considered are stated. So we kindly ask you to please read through them. After this, Mr. Sawada, our President, will explain the outline of the results and others, followed by opening the floor for your questions. Mr. Sawada, the floor is yours.

Thank you very much for joining us today. My name is Sawada, the President and CEO. I will give you the highlights of the consolidated results for the first half of the year. Please turn to Page 4 of the material. This shows you the consolidated results status. We saw year-on-year both operating revenue and operating income increase and profits at a new record high level. That is the situation. As for operating revenue, due to increased NTT DATA, operating revenue increased by JPY 176.3 billion. Operating income -- there was a decline due to impact of review of the accounting system in the previous year at DOCOMO, but due to increased revenue and various OpCos such as NTT DATA as well as the cost reduction efforts, operating income increased by JPY 700 million, up to [ JPY 1009.3 billion ]. As for profit, this increased by JPY 134.3 billion. And saw an increase year-on-year. So both operating revenue and operating profit exceeded our expectation. As for overseas, overseas sales increased year-on-year due to increases in system integration. So we saw both increase in operating income and operating profit and operating revenue. Now Page 5 talks about the percentage of change in revenues and profit on a quarterly basis over the last couple of years. [indiscernible] 2018, we maintained increase both increase in revenue and income. Green on the bottom, this shows increase in revenue but profit decline. This is for 2019. This is due to the reduction in billing plan at DOCOMO. 2020 shows the impact of COVID-19. We have to make a recovery from that. And we made a -- we were able to revert to increase in both revenue and income during the year. As for 2021, this is indicated in red. In the second quarter, we saw an increase in profit. So we're now back on track to a decrease of both operating income and operating plans. So we are very much in line with our initial expectation. So therefore, as for the recent situation is concerned, as far as the first half is concerned, we actually exceeded our initial business plan. Turning now to Page 6. This shows you -- the contributing factors by segment, top shows operating revenue, bottom shows operating profit or income rather. So as far as the downward trend is concerned, this is in DOCOMO, but as for other segments -- correction: it's not DOCOMO. DOCOMO and long distance and international communications, but other sectors shows the increase in operating revenue and operating income. As for mobile, asset sales revenues are increasing. So we now see upward trend in operating revenue in the Mobile Communications segment. As far as the profit is concerned, it was JPY 27 billion impact from the review of the point plan. So we also seeing [indiscernible] real increase in factor-related investment and also increase in R&D. So as a result, on a year-on-year basis, this went down. However, there was JPY 35 billion decline in the first half -- in the first quarter. It's only JPY 5 billion in the second quarter. So things are improving. And as far as the Regional Communication segment is concerned, we focus on fiber, we see increase in service revenues. So again, increase in revenue and income due to cost reduction. As for long distance in the international segment at NTT Limited, there was increase in structural transformation cost, and also there's a semiconductor shortage impact. This has had impact on decline in handsets -- on equipment sales as well as maintenance service revenue. So that is where they are experiencing a decline in both revenue and operating income. As for data, I think they have already announced their plans last year -- just yesterday. Five topics, I'll be very brief in highlighting the topics. First relates to establishment of a sustainability charter. For the first time, we are setting a sustainability charter on a global basis. So we've created -- so this is a broad concept that includes SDGs, ESG, CSVs. This is a certain norm. And we have we have set our principal Self as We. As we have already announced, we've already announced the Environment and Energy vision with new management as to our transformation policy. On top of these policies, we've also announced our human rights policy as well in conjunction with the aforementioned vision. Let's skip Page 9 and go on to Page 10. Here, we talk about our thinking behind the policy of Self as We. There are three topics: ensuring the coexistence of nature and humanity, improving prosperity for all people and cultures and maximize the well-being for all. Please turn to Page 11. We have set 30 activities for them, especially 3 is what I would like to point it out, carbon neutral and [ in the culture ] is promoting the B2B2X under the human rights, promoting recruitment, training and education diverse human resources and women's advancement in the workplace. And these will be -- indicators will be reflected in the executive compensation. Page 12 is explaining about the segue of thinking regarding the human rights policy. Page 13, second topic. The Japan Rugby is going to be changed to Japan Rugby League One. After a title partnership, we will be supporting them as the sponsors. And on Page 14, this is the third topic is showing initiatives to create a remote world. There are 3 points. NTT East, Thin Telework System and NTT West, elgana business chat, NTT Business Solutions, elgana Business Chat and Maina Pocket service, which has a combined identification, verification and My Number card from NTT DATA. And on Page 15, we're showing the progress regarding the medium-term management strategy initiatives. It's in detail. So if you can look at the red letters, the “OriHime, the Avatar robot have been implemented and have had the remote control. It's moving under 20 [indiscernible]. So it's [ 120 ] of the regular delay is what we were able to realize through this. And using that method, we wanted to apply it to the eSports, which is network game, and we are working on it. And [indiscernible], we wanted to control the latency, and we have developed that technology and wasn't the case for IOWN. There is a possibility that we will be able to come out with this technology to be applied. And globally, [ NTTD ] EMEAL. Including the Latin America, we have established a new company and we would like to promote migration. And as for strengthening of our new businesses, together with MUFG Bank and Osaka Gas Companies, total of -- and others, total of 8 companies. We created a renewable energy fund in September. At the very bottom, enhancement of corporate value. We have issued NTT Group green bonds. And today, it was resolved in the Board of Directors meeting at Tokyo Stock Exchange's new market classification, we will be selecting a prime market. And also complied -- and comply and commit of the items and the revised corporate governance code. And lastly is about the cancellation of the treasury stock. It is going to be 7.15% of the outstanding shares prior to cancellation. And we will cancel 279 million shares. That is a [indiscernible] Now I would like to take questions.

With regard to your questions. We are taking questions, only those who have registered in advance events and those who are connected to the phone conference system as we speak. We'd like to invite the operator to explain how we're going to accept your questions from now on.

[Operator Instructions] From Daiwa Securities, Mr. Ando.

I would like to ask two questions. The first relates to overseas. Well, NTT DATA has announced very good performance, I have heard. But what about other parts of your global business? What is the situation? If you can give us some wrap-up or view of the overall global business situation? What about Dimension Data? What about the former Dimension Data? What about added value services? What about the impact of COVID-19? What about the impact of shortage of semiconductor? There are several perspectives that one could take. So if you could please give your assessment of your global business? I would appreciate it. That's my first question.

Okay. Thank you for your question. Let me talk about NTT Group Global business. NTT DATA Group and NTT Ltd. These are the two contributors to our global business. As for NTT DATA Group, as you're aware, they are doing very well overseas as well. So that being the case, for example, the impact of COVID-19 is really felt more or less by NTT Ltd. And also the shortage of semiconductor is also being felt by NTT Ltd. So the portfolio for NTT Ltd. and the service lineup of NTT Ltd., for example, relates to sales of [ commit ] sales and offering maintenance services and also offering -- for example, offering network-related services and offering simplified system integration services or offering Arkadin video conference system that -- very strong sales last year, but this year in reaction to that the sales have been lower this year. So therefore, NTT Ltd. value-added services are increasing. But because of semiconductors and COVID-19 they are faced with significant negative elements. So that being the case, they're now in the negative territory. The impact is not in the negative territory as far as NTT Ltd. is concerned. I would like to invite [indiscernible]

Yes, I would like to have numbers. Okay, then the numbers. As for NTT Ltd. for revenue, negative JPY 12.4 billion as well as added value service, as Sawada mentioned, they're doing very well. So for [key negative ], yes, there is there, plus JPY 26.2 billion is the impact we see. Now for [indiscernible] a sales and also maintenance. Here, the COVID-19, JPY 20 billion impact. And also supply chain impact related to semiconductor JPY 20 billion. That has very [indiscernible] JPY 39 billion negative is what we're experiencing. So at the end of the day, added value is in the positive territory. But I'm afraid the negative in maintenance sales and equipment sales is exceeding in terms of the negative impact.

What about the achieving overseas margin target for the management strategy for the global service?

Okay. Well, as we plan the numbers, NTT Ltd. is going to face very difficult situation in this fiscal year. But having said that, they are now further carrying on additional streamlining that will -- they have the plan to pursue even added streamlining. So therefore, for the analysts, you're saying that we should be completing our structural transformation. I know that, that is your expectation. But there are some things that we have to carry out in conjunction. So to refresh the situation, NTT DATA is doing very well. NTT LTd. is extremely -- various efforts. And we want to maintain the target for the overseas margin without any change. So that's what we want to do, by combining efforts of these two companies.

Okay. Let me now turn to my second question. It's about fixed line business. In particular, NTT East and West, considering they seem to be doing very well. Also, as revenues are concerned, they're driving growth year-on-year. So what are the factors that are contributing to the very strong performance at NTT East and West, if you could explain, please?

Okay. Well, to give you the overall picture, yes, there is the impact of COVID-19, but IP/packet service revenue increased. So that's one thing. And also, as far as profit is concerned, we -- the accounting system, when it comes to air conditioning, useful life treatment has changed. So that has had a very slight positive impact as well. And for cost reduction, this is an ongoing program. And also at NTT East, they've also disposed several buildings. And also, orders related to Olympic Games have also expanded. And so Mr. Taniyama, numbers that you can share, please go ahead.

Okay. Let me give you the numbers. Taniyama here. As for East JPY 30 billion increase in operating revenue on both sides. Both East and West has increased IP service revenue, JPY 60 billion impact from increase in IP service revenue. And also as for positive other factors -- other positive factors in the case of NTT East, Olympic became a positive contribution, system integration in particular. So for NTT West, call center such as Marketing and [indiscernible], enjoy positive increase as a result of call center business. So that has had -- so that has also had positive impact. Operating profit situation, Mr. Sawada has already explained, I believe.

Next is from Mitsubishi UFJ Morgan Stanley Securities, Mr. Tanaka, please go ahead with your question.

I have two questions, so I would like to ask one by one. First of all, for NTT Ltd., this time in the first half, the structure reform spending amount and the effect or the outcome of that, what are the numbers for that?

This is Taniyama speaking. In the first half, the structural reform expense is JPY 11 billion and the impact from that is JPY 5 billion. However, JPY 11 billion -- this is an JPY 8 billion increase compared to the previous year.

Understood. So in that sense, and annually it's JPY 28 billion. So it means that in the second half, you'll be using more of the expenses. So how is it going to progress in the third quarter and fourth quarter?

For the first half, as I have mentioned, we spent JPY 11 billion, and it's behind the schedule. However, we have prepared to use the set JPY 28 billion throughout the year. And for the positive impact from that, we are seeking JPY 18 billion.

And regarding NTT Ltd., I would like to ask additional detailed questions. Due to the shortage of semiconductors, the communications equipment such as routers, the sales of that are being stagnating, I do understand that. But the maintenance of revenue is, I think, what you have mentioned. What does that mean can you elaborate more?

Well, originally, Dimension Data, their business was to resell the Cisco routers or HP's equipment. And then after that, they were receiving the maintenance business. So it's a sales and maintenance business that they were conducting. And there's a shortage of semiconductors. So there's actually no product. So they cannot actually provide maintenance for those products.

Meaning that the components for our maintenance is lacking?

No, there's something -- well, we cannot sell the product itself that uses semiconductors. So we cannot sell the maintenance that was sold as -- with the products.

Okay. Understood. Second question is the cancellation of the treasury shares is what you have announced. And I believe that there will be some overhang that will be generated as a result of that. Therefore I believe that you have already had thorough discussions with the government. And can we have an expectation for the next fiscal year? And -- in addition to responding to the overhang, are you thinking of doing something within the open market. Can you share your thoughts regarding that or comment on that please?

This is Shimada speaking. First of all, regarding the overhang, if you do your calculation, it's about JPY 300 billion. If the government makes the decision, that size will be about JPY 300 billion, and they'll be able to sell JPY 300 billion of the overhang. And at that time, as usually, we are purchasing it outside the open market. But we are making it in a way that the general public can also participate. Therefore, if such situation arises, we will need to think of something. Regarding the share buyback, we would like to consider looking at the overall picture.

This is Nakayama from the finance and accounting. I think you have asked about the timing. And regarding that, it will all depend on how the government will record the budget. Therefore, at what time, what is it going to be like, is something that we will have to wait after the government will make their plans and decisions. We will be responding to that accordingly.

Next question is from [indiscernible] Securities.

I would like to ask two questions as well. They might be somewhat similar in nature, but I will ask them lumped together. So this time around, you talk about the progress. You mentioned that you are exceeding your plan, but you did not change your full year guidance despite the strong performance. Why is it that you did not revise your full year guidance? Do you anticipate towards the second half some uncertainties or do you expect the additional costs that will have to be incurred during the second half? Is that the reason why you have not changed your full year guidance? That's my first question. My second question. When we take a look at the overall trend, NTT DATA seems to be doing very well and they're off offsetting the negative of NTT Ltd. So for the full year, from an outsider's point of view, I think have a safety net that you can work with. Now as for DOCOMO, you have not changed the full year guidance of increase in operating profit for DOCOMO. So when not leverage that? When do spend money? Why not allow DOCOMO to grow up to acquire additional customers? What is the sort of NTT Holding? Does NTT Holding wants DOCOMO to acquire new customers actively? Do you want DOCOMO to hang on to the full year guidance of increased operating profit? That's my second question.

Okay. Thank you for your questions. Well, when we take a look at the most recent performance, NTT DATA, DOCOMO or East and West, is they're all doing very well. But as you are aware, energy cost has been increasing. So enterprise customers are affected by the increase in energy prices. For NTT DATA, they have very large scale customers. And these customers are planning DX. So I imagine that an upward trend. And as for overseas and global, this includes NTT DATA. The COVID-19 situation is not as well as here in Japan, especially the situation in Europe is not all that positive. So as we head towards winter, what will happen, that is the second element we have to bear in mind. Third is the impact of semiconductors. This is very deep rooted. Now in principle, the effect is primarily seen at NTT Ltd., but will that have impact the enterprise customers for NTT East and West and, we are not still clear on that. So we have to watch and monitor the situation for some time before we can make any upward revision in our full year guidance, that is the backdrop. So having said all this yes, things are very well. Are we going after acquiring new customers? In principle, DOCOMO, we will maintain or should maintain its plan of increase in operating income on a full year basis. That is our thought as the holding company. Really, we want them to protect their base but also go after new customers as long as that is the situation.

Next, SMBC Nikko Securities, Mr. Kikuchi.

This is Kikuchi speaking. What was discussed before regarding the overhang? It is this timing, so probably the direction is that it is going to incorporate in next fiscal year's budget. On the other hand, your company, the cash flow, you have made NTT DOCOMO wholly-owned subsidiary. And after that, it seems that the cash flow way of usage throughout the year is very close to the limit. And if you allocate JPY 300 billion for the share buyback, you have all the framework of JPY 200 billion to JPY 300 billion share buyback, I believe that you are going to continue that plan. Is that including the overhang of the government side? Also, I just wanted to confirm that. And as for the dividend, this fiscal year, it's a JPY 5 increase in our dividend. And compared to the past track record, it seems that the degree of the increase is small, but you have a strong performance and you're able to bring in 100% of DOCOMO's profit. So you have an increase in profit in next fiscal year, the number of shares outstanding. If you cancel the treasury shares, there will be a less number of our shares out in the market. If that is so, I thought that maybe you can increase the dividend more slightly. So the share buyback and the dividend. Regarding this backdrop, can you elaborate more?

Thank you very much. Basically, every time, as I have been mentioning, continuous increase in dividend is our basic policy for dividend. So when there's a momentum of the increasing profit trend, of course, we would like to consider that. That's the way of thinking regarding dividends. And as for share buyback, after wholly owning NTT DOCOMO. And on the other hand, in line as the plan, generating cash at the same time, we are repaying our interest-bearing debt and conduct share buyback is something that we have been conducting. So the efficiency of the cash usage, the real estate data center or credit receivables; we would like to thoroughly control that. And we also like to improve efficiency of working capital are the efforts that we have been conducting. Therefore, I don't -- we don't think it is like one framework, but we would like to further expand the share buyback. Several years ago, we conducted share buyback both from the government overhang and the open market. And of course, we want to reflect that to the total return ratio. And so we would like to see what the total return ratio will be. So I cannot comment in detail but it's not that because there's no government overhang that we're not doing any. So please understand that point.

My second question is related to the previous Q&A. And it's regarding NTT Ltd. How long are you going to conduct structural reform? I think everybody is thinking that so next fiscal year, next, next fiscal year. What is going to happen, to begin with? As the business structure itself, is it difficult? Is it becoming more difficult? And structural reform, is that going to disappear next year? And once that is completed, as a company, it might end up being a smaller sized company is what I think. So next year and next, next year's NTT Ltd. outlook, if not possible, can you show it in numbers, for example, next year, you'd like to increase it by JPY 20 billion or such? If there are some specific numbers, can you share that with us?

Thank you very much for your question. So in that sense, we don't have any specific numbers yet. However, in the medium-term plan, of course, we have created the numbers that exist. So in that sense, a several JPY 10 billion level achievement is the commitment that we have. And if I may comment regarding the structural reform initiatives. The mature feeling is that not just for NTT Ltd, but NTT DATA's outsourcing model in the future is going to come within the scope of the structural reform initiatives, meaning that NTT Ltd. is going -- doing that in a faster speed because the market is moving in a faster speed. But the conventional IT cloud infrastructures within the new cloud and new IT system, the migration is happening in a very high speed, different from Japan. Unless we replace the people, we'll not be able to respond to the new solutions that come out. So the structural reform continuing means that the change in the market is very rapid, and we are responding to that change accordingly is how I'd like you to understand that. And us, ourselves, we would like to continue that within NTT Ltd. and NTT DATA, respectively. And at this point, it is true that we don't have any specific number allocated yet.

Next question is from Nomura Securities, Mr. Masuno.

I would like to ask about DOCOMO and NTT Communications. JPY 100 billion synergy in the first phase, what is the current situation? I would like to ask about these two points, if I may, in the course of my question. In the first half, both NTT Communications, domestic business and DOCOMO saw increase in revenue but decline in profit, but through structural reform, you want to generate profitability, I think that is a phase you are in. But the industry overall corporate enterprise network demand is very strong and solution business is expanding. So therefore, profit should be increasing against such backdrop. So what are you doing in the face of the industry trends? Maybe NTT Communications could do more against the backdrop of the current industrial environment. And also in January, I understand that NTT Communications will become subsidiary firm. And for the second quarter, you have functional separation. That is what you have announced. So the -- you mentioned JPY 20 billion over the 2-year period. If that is the case, in what form will this JPY 20 billion synergy will come -- be generated? I know It might be difficult for you to forecast the 2 years in time, but if you could just give us an image of how this synergy will be realized.

Yes, in terms of the integration between DOCOMO and NTT Communications, especially the enterprise business, Well, DOCOMO been focused on mobile. So therefore enterprise business will be [indiscernible] NTT Communications to trends. First is software introduction will be progressing, especially as a network service, but demand is increasing, but the overall volume is coming down. And second relates to mobile. So we have to combine these two factors. So up until now in the NTT Communications was actually behind the rest of the pack in this area. So therefore, it's in point that they work on this -- so that is one trend we need to work on. And the other is cloud. So cloud is -- so Microsoft Teams or the Salesforce, these services are very popular. But again, the volume, the per unit value, it's not that large, but there is demand for this step of service. So therefore, we have to add voice service on top of that and also add security on top of that. We are trying to partner with Microsoft on a global basis in this market segment. So if we can combine mobile in the back in this packet, then this will be very strong. As far as synergy is concerned, about 2 weeks ago, when we explained the [indiscernible] management strategy, I think we touched upon the same topic. I think this is more heavily skewed towards the second half of the program. JPY 100 billion in -- JPY 200 billion in 2025. I would say that this will probably -- the synergy will probably begin from the second half of fiscal year 2022. So this year, synergy is not going to be felt that much this year. Next year, it will be more concentrated to the second half of the year. That is what is -- so the -- we want to make sure we employ various policies to generate synergies, but the synergy will be more heavily skewed toward the second half of the overall program. I hope I have answered your question.

I see then, if DOCOMO had enterprise segment and they're combining that with the NTT Communications, what is -- how do you see business environment for the enterprise business if you combine these two teams?

Well it be add the [indiscernible] JPY 1.6 trillion. If you exclude that, well, KDDI, I believe there's a set of JPY 1 trillion in SoftBank, this [ side ] about JPY 700 billion. So as far as the business environment is concerned, before we can talk about business environment, we really have to make effort. And the sentiment it's not very bad because the demand for human services is very strong. IT services, there's strong demand. But having said all this, but the per unit value is not all that large. That is the situation, I believe, as far as this market segment is concerned.

I see. Okay. If I could follow up. So half of the synergy has to come through its sales, right? But what type of sales are you looking for in the form of synergy?

Well, first of all, we want to pursue cross-selling opportunities. So DOCOMO customers and NTT Communications' customers. If you combine the two, there will be overlaps, but there will be customers that will be owned independently by these two companies. So first of all, the overall subject or the overall target customers will be expanding as a result of combining these two teams. And also this might help NTT Communications even more. But the solutions offered by NTT Communications, we can add mobile components on top of that. So that is the second element. And the third element, the value might not be all that large. But the fixed mobile conversion services that are offered by other competition, this cannot be offered by DOCOMO so that's the third strength. So that being the case, as far as the products and offerings are concerned, we're able to enrich that. So the customer -- expanded customer base an enriched offerings. And lastly, we -- in the case of SMEs, both companies, again, are lagging behind. So if we could offer DX to mobile-based services to SMEs, we could approach that, then this would actually lead to opportunities. So that's the third element. So this is an area where we were able to have inroads, and we want to change that.

The next question is from Credit Suisse Securities. Mr. Eguchi.

This is Eguchi from Credit Suisse Securities. This is related -- and a follow-up question regarding NTT Ltd. The outsourcing model, you said it is struggling. So the competitive environment such as AWS or with the Indian-affiliated companies, the competition is now becoming severe. Can you share with as your views, the future views on this?

The outsourcing model may start to struggle. That is for NTT DATA. As the AI technology evolves further, instead of having outsourcing offshore, there will be more patterns where that will be done through AI. So the outsourcing that will increase the value added is the shift we need to make. So in that sense, the personnel or the solution lineup that we need to have is going change. Therefore, the outsourcing model will also become the -- within the scope of structural reform. Not -- it's more data than limited.

Okay. Understood. So the global delivery model, I think, is what you're going to review based on this. So in India, if my memory is correct, you have about over 10,000 of engineers. So the effective utilization of a dose personnel is something that you need to think for the future, too. Is that the correct understanding?

Yes. It's not that we are going to immediately do so. But in the long term, we believe it's going to change that way.

So Mr. Sawada, in the long term, the global business, I believe, is going to become one of your main pillars. However, in the last several years, it seems that you're implementing initiatives behind the actual situation and you're actually reactive than proactive. So I thought that maybe the changes are going to be more difficult to make. But do you have a specific timing of where you will catch up?

What I want you to understand is that in 2010, we have acquired Dimension Data. And in the United States, we have acquired teams. It was over 10 -- several years ago. At that time, only JPY 100 billion or JPY 200 billion was the revenue or sales of overseas, and that is close to JPY 2 trillion. So within tens of years, we have doubled the business. How are we going to expand the revenue of the overseas business is what we have been putting our efforts in. But what we are struggling right now is to increase the profitability of the overseas business, and we have made a focus of shifting over to the profit several years ago. So in that sense, the structural reforms or strengthening the governance and various management being involved more and we have close to about 600 companies overseas alone, but each brand was separately operating and within the last several years, we are integrating and consolidating these brands. So they are -- we are doing all this at the same time. So it seems that the structural reform is being reactive. But if we don't do that, we cannot move on to the next step. The technology that we can take the lead. We need to actually pioneer or calculate that market to grasp that. So in that sense, we are lacking the capability there. However, we are putting our efforts in now so that you can expect more from what we're doing now.

Next question is from Goldman Sachs Securities, Mr. Tanaka.

Tanaka with Goldman Sachs. I have one broad question. So about NNT Ltd. Well, I'd like to confirm the short-term demand situation. The margin has slowed down, I believe. Maybe I thought it was just a further percent by the previous year, but the network it seems you want to expand, I'm sure. That's what you mentioned in the first quarter by strengthening your network. So network -- but the EV network is slowing down. So yes, there's an impact of semiconductor. Is it just due to one-off factors such as semiconductor? Is this organic? Can you talk about your outlook for the demand situation? How you see the demand situation for NTT Ltd., especially for their added value services, how do you see the situation?

Thank you for your question. First, as far as revenue is concerned yes, it does seem as though it's not growing. That is due to the external environment that the semiconductor and COV19. We also changed the accounting about the reporting of their revenue. So telecom maintenance services, only a part of that is reflected. So the revenue side, we don't factor or can enjoy exponential growth like we joined in the past as for network service revenues. Last year, the growth of Arkadin was very strong last year, but that part, there was a very large contract, and that element is no longer there for this fiscal year. Now for Arkadin, the web conference and video conference technology sales. This is also subject to structure transformation. So new SDN is in the picture. And also intra enterprise network, and so for NTT, that's offered by NTT Global Network Services. This is recognized as #1 by Gartner. We are global #1 -- globally #1 in this area. So its value is not that large, but we can show steady growth as far as [indiscernible] is concerned. So overall, we're still in the upward trend. We're going to make efforts to further expand this. I would like to invite my colleagues to offer any additional comments. Mr. Taniyama.

Yes. data center and managed [indiscernible] as the value-added services. But as you pointed out Arkadin, this is cloud communication, that part and network part, we're seeing some slight problems right now. But the part -- we're trying to increase the pipeline. So therefore, for the first half, yes, although we were not able to concrete results, but we want to make recovery toward the second half that we're working on that. As for cloud communication, as I mentioned, we'll be carrying a structural transformation. So we believe that in the second half, we'll be able to see recovery and improvement point onwards.

Could I ask a follow-up question? So this is a temporary factor. And things look challenging because of the temporary factor, but the demand situation itself is not [indiscernible]. You're saying that you see growth potential for value added services. Is that how you see this situation?

Yes, that is how we see the situation. But this is a very competitive market. So we have to expand the market. We have to expand our pipeline. Against this competitive landscape that is what we're working on.

And I want to ask about NTT DATA. Any cross-selling or collaboration with NTT DATA? Is there progress on this front? If you could share that, I would appreciate it.

Well, with regard to Microsoft-related services, we're discussing working together. And also with regard to SAP, we want to work -- we're discussing working with NTT Data and when it comes to SAP. So when it comes to telephonic and carrier -- telecom carrier related to system integration, this has now been done by NTT DATA. This relates not so much for NTT Ltd., but using DOCOMO's tech technology, maybe there is room for partnership and collaboration. So these are discussions which we're engaged in right now. But in principle, through cross-sell, we want to work through cross-selling. And also NTT DATA DX solutions, we should add product on top of that. When it comes to data centers, yes, they're doing a lot of good sales. So we want to enhance this area as well.

Citi Group Securities, Mr. [indiscernible].

Sorry my question is in the last part of the question, so I may ask you about detailed numbers. The first is regarding NTT Ltd. I'm looking at the supplementary materials full year NTT Ltd. numbers. So I have one question there. Mr. Sawada at the beginning, you said that we need to step -- one step deeper into the structural reform. And you mean that the restructuring -- structural reform expense is going to increase to JPY 28 billion. And for the operating -- for sales, for others, there are the telecommunications equipment. In the first half, it is showing a decline, but it seems that in the second half, it's going to recover. The overall forecast, you have not changed. So you have not changed these numbers over here either. So at this point, moving forward, how would these numbers look like is what I would like to know.

Thank you very much regarding the structural reform question. We are going to be making the plan from now onwards. So in that sense, it is going to increase. So Therefore, at the bottom part, there will be the pressure on the profit or the final profit. We will see that pressure. But of course, we would like to see the positive effect of the structure reforms immediately. So we are going to plan that number. And regarding the full year figures, Taniyama, can you share?

As for the full year, the original plan, the COVID-19 impact was up to the first half and for the second half, impact of COVID-19 is going to show the recovery was the base or assumption of the plan. Therefore, there is more weight on the second half in terms of performance. And as mentioned before, however, the COVID-19, the impact remains more in Europe and also the semiconductor supply chain, probably it's going to be resolved within the fiscal year. Therefore, we need to keep a close eye on those situations. However, on the other hand, what we have conducted in the first half, which is the structural reforms, that positive effect, is going to start to show in more specific terms and also in numbers in the second half. Therefore, the operating income is where we would like to start accumulating.

Sorry, my second question is regarding numbers also. This is regarding share buyback. You have a wholly owned NTT DOCOMO. And from there, you said that you will conduct a JPY 250 billion of share buyback every year. And you said that you may have the share buyback from the government as a overhang. And when we think about the amount of overhang, it will be equivalent to JPY 300 billion. So in that sense, next fiscal year, a share buyback, how should we look at it? Is it going to be -- the most bullish calculation will be JPY 550 billion? That's possible. But as a reality, realistically speaking, it seems that it's not going to be so. And maybe this is a question I'm asking you to read between the lines, but I would like you to once again explain this part.

First of all, I will answer that question first. I think it's better to read between the lines. I think even in the past, we didn't have this JPY 550 billion of a share buyback. So simply adding it, I don't think that's the correct. But Mr. Nakayama, do you have any comments?

Well, first of all, the free cash flow is about JPY 1 trillion on hand and JPY 400 billion for dividends and the remaining JPY 600 billion, how are we going to use that is what we think every year. And when we think by fiscal year, individual fiscal years, how much of the allocation is going to be for what we're looking at the balance. But as Mr. Sawada explained previously, selling the assets, and we are working on becoming asset-light. Therefore, of course, we don't know how to respond what the government is going to decide at this time. So we only can make decisions depending on what the situation will become is the only answer I can provide with you. In the past, responding to the government, and there were some issues and it was not a JPY 200 billion, JPY 300 billion level of share buyback, but there was a year that we conducted about a JPY 500 billion level of share buyback. However, we need to take a look at the bigger overall picture and make the decision. So prior to doing so, we're not going to be able to share the specifics with you.

Next question from UBS Securities, Mr. Takahashi.

Mr. Takashi from UBS. I just have one question. It relates to the billing policy at NTT DOCOMO. Mr. Sawada, what are your thoughts about DOCOMO's billing policy?

In particular, there was an announcement economy MVNO. But I think DOCOMO myself, they're saying customer first. And also they have a large user base that is more suitable for this type of billing plan.

So do you believe that this policy alone would be sufficient for you to compete with your competition. First all, whether not your billing plan would be sufficient to compete with the others. So Mr. Sawada, what are your thoughts?

Thank you very much for your question. Well, first of all, it's not so much of a straightforward reduction of billings, right? It's about adding value, it's all about convincing the customers, providing service package that will be convincing to the customers. That is the important thing. So we are -- our concern is this is, of course, the billing question is -- has to be considered there was interruption. But what about customer service, response to our customers? We have to constantly brush up our response to our customers. And having done all that, and then it is important that we constantly scrutinize the prevailing situation. So Mr. Takahashi, you asked your question about DOCOMO. If we believe that there is a need for new services beyond a certain threshold, then we hope that they will put out such service as soon as possible or if they believe that they should add value for the time being that they should do so bearing in mind the preventing situation. If they want -- and I think efforts to expand their partner MVNOs is also important. So I think we have to take a look at the overall picture, but be sure to take various policies, consider various policies. That is my position. So just because they seem to be losing, should they come up with newer cheaper [indiscernible]? No, that is not my position whatsoever as far as DOCOMO is concerned.

I see. If we look back over the past situation, initially, they took away this [ attitude ], but at the end of the day, the go ahead was forced to reduce their pricing. That was -- that was a frequent recurring situation for DOCOMO in the past. So when you consider the past trend, this is -- yes, you have to consider the profit. So turn to the holder company is forced to make a very difficult position because you want to safeguard profitability. But the long-term perspective, there's a need to take proactive measures beforehand. Any thoughts?

Well, from the standpoint of marketing, as you pointed out, what type of service is required for each of those companies? I think we should have multiple diversified offerings for different segments. The issue is the lead time. You have to reduce the lead time after you make the decision and launch your product. So it's not just about your pricing policy. Even if you lead the market, they'll be catching up, so you have to take countermeasures. So you have to work based on a moving target. That is what you should work on. That is my wish for DOCOMO. Also, if I could add further with regard to the handsets. We won something that goes beyond smartphones as soon as possible. And also when it comes to services, they should be more converged services, involving health and medicine, we're getting to these areas. So sources should include all these essential sectors and offer added value to our customers. So once you have that, then I believe that you'll be able to expand your customer base more strongly, you'll be able to improve your ARPU. I hope they can be realized their marketing. That is my wish for DOCOMO.

[indiscernible] Research and Consulting, Mr. [indiscernible]

In the United States, there was an infrastructure build that has a path about JPY 30 trillion level of investments will be made into the market with what is reported. So towards old infrastructure, the country is committed to replace that, to improve their competitiveness as a country is what is going to happen moving forward [indiscernible] to be some impact on your business or your company through that.

Backing up the telecommunications environment, if the United States government is going to spend money there or not, I think it's difficult to think that they will be spending that. However, IT or digital transformation, in order to move that forward, if the government is going to allocate budget for that, then NTT DATA's America, it will be a positive impact for them. On the other hand, the semiconductor manufacturing plant, including the supply chain, bringing it back to the United States, that trend is becoming stronger. And for us, we only manufacture a small volume of semiconductors, but in the future through IOWN, with Intel and Broadcom that our partners, if we collaborate with our partners, that will suffice is what we think. But directly to IT or telecommunications, I don't think there is going to be any positive direct impact.

Do you think that there's going to be some impact for Japan moving forward?

As a country, Japan, the supply chain is almost disappearing from our country. Therefore, from the economic security, especially semiconductors or the other essential medical-related supply chain. I think there's going to be movement to bring it back to Japan. So the infrastructure in the United States, if they're going to move towards the infrastructure development using that close to JPY 30 trillion budget. If we're just going to watch it without doing anything, we are going to fall behind. But even though they're the United States, Japan needs to put an effort to keep the supply chain existing within the country.

I believe these are all the questions we have received. If you want to confirm whether or not there are any additional questions from anyone else. Any other questions? [Operator Instructions] Since that there are no additional questions with this, I would like to complete the presentation and financial results by NTT Holding Company. Thank you for joining us. We would now like to continue with the session by NTT DOCOMO. Please remain connected. We will now continue with the session involving NTT DOCOMO. Thank you for joining us today. Thank you very much.