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

Thank you for waiting. Thank you very much for gathering despite your busy schedule. At the same time, I would like to apologize for such a short notice. From now, we would like to start the press conference. But before that, I would like to explain today's agenda. This conference consists of 2 parts: for part one, this is a joint press conference of NTT and NTT DATA about the overseas business alignment; for the second part, NTT is going to explain about additional investment in NTT DATA. For each part, dedicated Q&A session is going to be allocated. So you are kindly advised to ask questions relevant to each topic. With that, we would like to start Part 1, joint press conference of NTT and NTT DATA. Today, both NTT and NTT DATA at respective Board of Directors Meeting have resolved to combine the overseas business of NTT Inc., a wholly owned subsidiary of NTT into the NTT DATA Group's overseas business. We have just disclosed information in a timely manner at TDNet. And also steps are being taken to post information as appropriate at respective corporate website. Let me introduce presenters for today. At the left-hand side, from Nippon Telegraph and Telephone Corporation, President and CEO, Mr. Jun Sawada; and to your right, NTT DATA, President and CEO, Mr. Yo Honma. I am from PR of NTT DATA. My name is [ Koiwai ], serving as EMC. Two CEOs will make a brief presentation followed by Q&A, and is scheduled up to 2 p.m. for 1 hour. Including remote attendees, we would like to take as many questions as possible, so we will take a question per person. Now on this matter, from NTT Group, based on the global business strategy, Mr. Sawada is going to make a brief presentation. Over to Mr. Sawada.

Thank you very much. This is Sawada from NTT. Thank you very much for attending today's briefing despite such a short notice. And I will first explain the background in the purpose of strengthening our global business. And this will be followed by Mr. Honma, President and CEO of NTT DATA. And please move the slide forward. So NTT Group as a player capable of providing applications and IT infrastructure has grown its global business to about JPY 2 trillion. Since the establishment of NTT Ltd., which was the summer of 2019, since then, we have promoted a business shift to digital and in high value-added services and structural reform, focusing on low profit businesses and an overhead. And then overall, as a result, the overseas operating margin is expected to grow to about 6% level in fiscal 2021. So it used to be 3%. But last year, in 2021, we saw a massive growth. And as a holding company, in 2023, the midterm financial target, which is 7% and which is within our range. Next slide, please. And to further expand our global business, we must need to respond to diversifying needs of the customers, and then there are a lot of changes happening around us. So at the global level, we need to respond to a dynamic in social and business changes to this end. There are 2 points: the first, that we need to strengthen our global governance. And then especially, we need to enhance our capability for business users. And these are the 2 key points that we have been thinking about. And specifically, it is necessary to bring together the global human resources of NTT Group, and then promote a strong autonomous management under the leadership of -- leadership with experience in the global and local management. And also, we want to realize a stable earnings structure by diversifying financial risks while expanding the business portfolio. So enhancing our global capabilities for business users, we want to establish a system capable of providing a full stack of service offerings. So that we can be perceived as the value partners for our customers. Move to Slide 4. In this slide is rather a busy slide, but this talks about the NTT Group's, the global strategies as a whole. B2B and then B2B2X and highlighted in blue. And this is the main part, and NTT DATA and NTT Ltd., are currently working on these business -- user businesses. And NTT DATA made a proposal to our company for the combination of the NTT DATA and NTT Ltd., overseas businesses. And then based on this proposal from NTT DATA, the discussion took place between 2 companies which led to the conclusion that the aligning NTT DATA entity limited overseas businesses and then growing the NTT DATA Group as a global digital company for business users, would drive the growth of the entire NTT Group. So that's all I have. And now I would like to ask NTT DATA, President and CEO, Honma-san to give us a detail.

Thank you, Mr. Sawada. The next step that Mr. Honma will take the podium to present NTT DATA business strategy. Over to you, Honma-san.

Good afternoon, everyone. I am Honma from NTT DATA or despite your extremely busy schedule, thank you very much for gathering for today's conference. Earlier, the President of NTT just announced that -- as he announced, in order to enhance IT services competitive edge, we have decided to combine the overseas business. As for the background and objectives, I would like to take you through based on this agenda. First, changes in business environment. societal trend changes include preservation of global environment, more things connected and changes in individual consumption and lifestyles. The broader adoption of IT digital has dramatically changed business activities as well as individual consumption and lifestyles. Therefore, the issues and needs that businesses must address are increasingly becoming complex and diverse. At the same time, the underlying factor behind such change is an advancement of technology. Services using all sorts of theater have become sophisticated. In order to shape a new society into the cloud and such connectivity-related technologies are becoming more important. Furthermore, securely collecting and analyzing information on things and people behavior to enable use of data across businesses and verticals. Expectation to realize such data-driven society has become greater. Next, let me explain the NTT DATA's growth direction. Starting fiscal year 2005, during the global first stage period, we increased global coverage followed by the global second stage from fiscal year 2016, where we established a global brand. Currently, in order to reach the global third stage, we have been working on our initiatives to be trusted by clients around the world. Under the new midterm management plan from fiscal year '22 and '25, we have set the target of realizing a sustainable future by creating value for future and connecting diverse people with technology so that we can help -- we can realize together with the clients to realize a sustainable society. Over the long term, we have built trust relationship with clients with deeper domain expertise on clients' businesses and with advanced technological skills, we have an ability to create to build the system. At the same time, we support diverse enterprise systems and vertical infrastructures. We have an ability to connect people, businesses and society, and we have been contributing to help clients grow business and address societal issues. In order to realize sustainable society, we need to increase these capabilities. We have an ability -- by combining, we have an ability to create an NTT Ltd. ability to connect. We will acquire new competitive edge so that we can provide new value for clients and society. Next, let me now explain what we are aiming through this combination with NTT Ltd. The combination between our company and NTT Ltd. is to take place in October in 2022. With this combination, we will evolve into a company that can provide a total converged services, covering IT and connectivity. This combination will increase our net sales to around JPY 3.5 trillion with employees totaling around 180,000 globally. And the overseas net sales is expected to represent around 60%. Regarding the NTT Ltd. business overview, you can see this slide. The net sales is around JPY 1 trillion, and it provides services for 75% or more Fortune Global 100. The company provides IT infrastructure and associated services including data centers, network, cloud and edge in order to drive further growth of the overseas business under united unified strategy, we will combine the strength so that we can help clients grow their businesses and contribute to addressing societal issues. To be more specific, services to help business transformation, we will sophisticate businesses to harness data. And also, we will create and grow 5G and IoT related businesses. At the same time, social innovation platform to address societal issues, we will create and grow smart related businesses. And also, we will leverage NTT's IOWN technology to provide innovative services globally so that we can help shape future sustainable mechanisms. Next, let me talk about the business combination structure. On October 1, 2022, with a ratio of 55% owned by our company and 45% owned by NTT. We are going to establish the overseas operating company. This joint investment will accelerate strategic and tactical aspects in collaboration to drive further growth in overseas. The objective is to promote 1 NTT business and also strengthening further collaboration in our R&D area. At the same time, we will consolidate human resources related to overseas business across the NTT Group so that we can build even stronger global governance structure. Also, we aim to shift to a global management system with global headquarters and region-based operation units. And in July 2023, under NTT dealers holding company, we are planning to establish a Japanese business operating company. As a global headquarters for those Japan and overseas operating companies to provide a business in accordance with local needs and regulations, we are going to facilitate the mechanism -- the structure. Finally, let me explain about the joint investment ratio. For the operating -- for the overseas operating company, based on the initial valuation we take 51% and NTT is to take 49%. After such joint investment, we will acquire partial shares owned by NTT at this overseas operating company. With cash consideration, resulting in the ratio of 55% and 45% for NTT DATA and NTT, respectively. This concludes my presentation. Thank you very much for listening.

So we will provide an explanation on the NTT's acquisition of NTT DATA shares. And continuously the representative member of the Board and President and CEO Mr. Sawada will stay on the podium, and I will be the moderator [ Kudo ] of the PR office.

So this is the acquisition of NTT DATA's shares. So in order to increase the collaboration with the NTT DATA, basically, we would like to make an additional investment. So 60 million common shares and the amount of the acquisition is up to JPY 100 billion, and this is going to take place through market transactions as a plan. So for the existing shareholders of NTT DATA, in order to avoid the dilution, we are going to take this market transaction approach. By doing so, for fiscal year '23, the EPS target is JPY 370 in the year. However, because of this movement -- so integration cost is going to be required for fiscal year '22 and '23. So we want to take more holdings in NTT DATA so that we can enhance collaboration. So it's around JPY 100 billion. So it's going to be a lot of part of the 2% level. So currently, 54%. So I think it's going to be around 56% or 57% holding in total. So this -- that's all from my side. [Statements in English on this transcript were spoken by an interpreter present on the live call.]