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

Thank you very much for joining us today despite your busy schedules. We will now begin NTT, Inc.'s financial results briefing for the 9 months ended December 31, 2025. I am Akaishi from the Investor Relations department and will moderate today's session. First, let me introduce today's 3 speakers. Hiroi, Senior Executive Vice President; Nakamura, Senior Vice President and Director of Finance and Accounting Department; and Hattori, Senior Vice President and Director of Corporate Strategy Planning Department. This briefing is being live streamed. Please note that an on-demand webcast will be available at a later date. Today's session will primarily focus on Q&A. For materials related to the financial results, please refer to the presentation materials available on our IR website. We also disclosed the notice regarding revision of full year consolidated earnings forecast today, so please take a look. We will now proceed to the Q&A session. Please register questions in advance. Those who have preregistered, we will take questions from the web conference system. [Operator Instructions] We will now take questions.

From Nomura Securities, Mr. Masuno.

This is Masuno from Nomura Securities. I have two questions. The profit plan for the overall company, how we should look at it? Last year, around this time, I did ask about it because it was -- it ended lower than the plan, and this time, you're going to revise downwards again. So next fiscal year, at the press conference held before, DOCOMO, they want to improve the efficiency of the average revenue of the sales promotion. So I think the premise should be that the situation is going to continue for a while. And for the network quality improvement, there's going to be depreciation as well as the disposal expense that will come out. So I think you should make a plan that is more aligned to the reality. What do you think about that?

This is Hiroi speaking. The revision downwards of the guidance this time that we have conducted, we have been causing tremendous trouble to our shareholders, and we really take this seriously. And as you have correctly pointed out, regarding the trend of the business performance, continuance from last fiscal year, the performance has not been strong. And we deeply apologize for that. And as you pointed out, Mr. Masuno, how we plan and how we run the business, maybe it's better that we should do it in a more conservative way is probably what you have. And what you have pointed out, we will -- like to take it in as it was stated. And as soon as possible, we would like to come up with a thorough plan for next fiscal year that can be trusted by our investors. Having said that, the situation from last year, this year and towards next year, there are some areas that have the possibility that is going to change. Well, you will be having the briefing session with the DOCOMO after this. So at that time, I believe that there will be some explanation provided to you, and you will probably be asking the question. But on the revenue side, ARPU bottoming out, we are starting to have visibility of that. Telecommunications will compare to our competitors. The mobile telecommunications business compared to the competitors. The billing plan revision. The timing was late. That is why our bottoming out plan timing was later than them. But we are starting to see signs that it is going to bottom out. Therefore, that is a positive factor in terms of the business performance going forward. On the cost side, what are we going to do when the competitive environment becomes even more severe? We would like to create the plan that is going to be more aligned to the situation and thoroughly make the plan. That is all.

My second question is related to the overall direction. The group companies on the individual basis have the direction they want to go. The data, the press conference said it's like digital AI. DOCOMO said the finance, they want to create -- they're going to create a holding company, et cetera. And for the holding company yourself, you have the quantum computing is what you are talking about. So as a group overall, the vision 3 years from now, 4 years from now, what is that going to be? For example, in the industry, there's a strategy option that you will concentrate on AI or you're going to improve your financial positioning and do more investment? Or you're going to have AI implement in all businesses and have AI combined with mobile? I can understand the strategy of each of the operating companies. But as of the holding company, as a company-wide perspective, how do you look at things 3 years, 4 years from now?

Thank you for that. This is Hiroi speaking. In the future, what we envision is that within -- we are operating our business based on our medium-term management strategy. So the strategy that is in that plan, what we -- the strategy we have is not that deviated from the medium-term plan. And we're saying we're going to make proactive investment in the growth area for JPY 8 trillion. So digitalization, data center investment and just smart light business in DOCOMO, reinforcing the personal business, we are going to allocate our cash as well as more investment in those areas, and we have been doing that. However, the return becoming visible towards the investment that we have made, that coming visible timing may be slightly behind what we have expected. However, regarding the investment towards growth, we would like to really continue it. And the total business performance, it is not doing as or as expected regarding that. Compared to the starting point of the medium-term management strategy, the business model that we have a planned is not reflecting the existing situation. So we would like to rebuild up the -- especially DOCOMO's business. And regarding the growth investment that we have shown you at our medium-term plan, we would like to continue that investment and actually accelerate the return that we can enjoy. And the -- we have revised downward this time. So there are some difficult points regarding the leverage and others. So of course, we would like to give a close eye on those factors and continue the business operation.

Next, SMBC Nikko Securities, Kikuchi-san.

Kikuchi speaking. I have two questions. This year, we have only 2 months left. And so I think you are working on -- being in line with the plan. For next fiscal year, I'm sure the numbers are not ready yet, and you will not refer to any numbers but want to know the general direction of each company. What is your view, Hiroi-san? Of course, I know that it will not be a commitment. So for example, in DOCOMO, I will ask the question again next in the next session, but network expense will increase next year. But overall, we will try to improve. In DATA Group, I think it's strong generally and I think it's about finance, data center capital cycling, how we should look at the profit there and what to do with East and West and overall. So if you could just give me the general direction, I'd appreciate it.

Thank you for the question. So it's difficult to answer because it may imply things for next fiscal year. But generally speaking, as you mentioned, Kikuchi-san, DOCOMO, data and regional communication, my take or my general impression, I'd like to share with you. First, for DOCOMO. We want this year to be the bottom performance to improve. So improvement of the performance will be the key point. And whether we can do that has not been decided at all at this point, but we hope the financial results will improve even by a little margin. By maintaining the pace of sales, we will improve efficiency. So to repeat myself, DOCOMO sales, the strengthening of sales, the outcome will be the subscribers and our ARPU trend. I think we have some silver linings. So we want to build on top of that. And next, regarding data, AI, cloud, in many areas, market is growing. So now that it is a wholly owned subsidiary, we want NTT DATA to continue growing. Data center will be one key point. But overall, financial leverage is still difficult. So in terms of the expansion of data center, we will use outside capital to grow. That will be one key point. And next, NTT East and West. The optical consumer base, the demand remains strong. So we are pursuing our investment and strengthening our sales. So this robust demand for optical will be captured as we run our business. And enterprise business in East and West are growing now. We have giga school and other solution type businesses and network is now connecting data centers. And so we're seeing various types of enterprise demand. So we will capture them to grow strongly. At any rate, the details will be fleshed out going forward.

My second question is -- I don't know if I can take this seriously as I listened to you earlier, but the President said in the Q&A about IOWN, you said you are still in the price negotiation on IOWN, President Shimada said, so -- the product. Are you already at that stage? Are customers already at that stage? So you are now price -- negotiating price? And if you come to an agreement, you can announce something. Is that how much you've progressed already? Are you already at that stage?

Well, this is about business. And we have the counterpart. And so under our sales strategy, we will refrain from saying anything in specific terms, but we want to commercialize in FY '26. So the message is correct. So there are concrete business progressing. But at this point, I would like to leave it at that.

A while ago, 3 months ago in IR/PR Day, you said that in Q4, the commercial samples will be released, I think you said. That remains unchanged based on your current forecast.

Commercial samples, We have business negotiations with our customers, and we use the material. We have the material already available, and we use that to be more specific on the terms and businesses. Thank you very much.

Next, from Daiwa Securities, Mr. Tokunaga.

This is Tokunaga from Daiwa Securities. I have two questions. The first is regarding the strategy for DOCOMO's share. In order to not lower the shares, one option you can take is inorganic, invest or have an alliance or partnership with MVNO or have a low price plan on the Internet. I'm sure that there are other options other than inorganic. But for your company, instead of doing that, you want to acquire subscribers and organically maintain your share. Is that better is what you think?

Well, regarding the increase of the subscribers, how we will do that? We always pursue various options. In fact, you said inorganic. So within our past various transactions, how to apply inorganic options and regardless of the scale being small or large, we have been doing such a thing. in the past. So it's not that we are ignoring that option or we are not going to take that option. However, if we were to do such a thing, there is the situation of the counterpart that we have to consider. And also, when we acquire it, we need to look at the price at it. And it depends on the condition at that time. Therefore, for us, looking at the market now, acquiring customers of subscribers in an inorganic way, we are thinking the organic way is what we need right now. But that's why we're doing this. But as an option, of course, that still exists.

My second question may overlap. But when we look at your interest-bearing debt in your financial positions, with the data acquisition, the leverage went up. But when you want to conduct your strategies for the individual operating company, how much of an investment facility room that you have in looking at the current financial situation? How much of it do you have is what I would like to know?

Well, regarding this fiscal year, the interest-bearing debt currently is becoming larger. And as you have pointed out, EBITDA multiple is deteriorating. Regarding this fiscal year, wholly owning NTT DATA occurred, and we had to use a large amount of cash. That was the situation we had. And regarding the investment, as I have mentioned before, under the medium-term management strategy, we were thinking of JPY 8 trillion investment in the growth areas. Therefore, regarding the increase of investments, that was already incorporated in our outlook. Well, DOCOMO acquired a bank this time and others as well or reflected. But what you have to recover is EBITDA. The invested amount towards the growth areas. The return I did mention is slightly delayed. But of course, there are investments that are showing effectiveness already. But the foundation business that we have, the cash flow of those or the EBITDA of those or the cash generation capability of those foundational businesses is lower than when we created the medium-term management strategy is what we're facing right now. So if improve this part, the EBITDA multiple is going to start to improve. However, in various aspects, of course, we have to maintain our credit rating as well. So the depending on the degree of the improvement of EBITDA multiple, how we are going to accelerate our investment, I'd like to do it in a way that we do not damage the trust from our investors by controlling it.

I just wanted to confirm, the investment towards the growth area, there's still room for DOCOMO and NTT DATA?

We are still in the growth market. Therefore, in that way, regarding the very promising investments, we would like to thoroughly do that. And in a way that even though we do that, we can still maintain the trust of our investors by having thorough control in the financial position.

Next, Goldman Sachs Securities, Tanaka-san.

This is Tanaka from Goldman Sachs. This fiscal year and next fiscal year, I have one question each on the financial results. DOCOMO and DATA will be next. So I have a question on East and West. This year's -- how we can look at the financial results this year. Q3 operating profit was up. So on a quarter basis, up and down, it was up and then down, the Q3, East and West year-on-year profit increase. Was there a one-off factor included? And if you look at the breakdown, legacy business decline seems to be smaller. Was there a change in the trend? So that's my first question.

Thank you for the question. This is Nakamura speaking. One-off factor, no large one-off factor. But if you look cash-in timing at some differences, so it's about accounting treatment, universal service subsidy, the way it's posted was changed. So slight change, but largely, it is as usual. We will follow up on this later, the details.

Legacy business, any changes in the trend of legacy business? And if there are no large one-off factors, then including the cost restraint, you are now in recovering the mild profit recovery trend. Next year, price will increase. But is that the general trend now, underlying trend?

Thank you, Nakamura speaking. Tanaka-san, you are right, no change in the trend. So it is now trending stably.

My second question is, has been raised a few times. But once again, the revision of the medium-term plan is necessary, I think. So as much as you can say, what are you discussing in revising your medium-term plan? In the past discussion, you will keep the direction of the growth investment unchanged, but the way you think about profit and M&A, anything you can touch on the discussion that you are having right now?

Thank you. Hiroi speaking. I may repeat myself, but the medium-term plan may need to be partially revised. Yes, you're right. So we are now discussing internally. But at this point, I don't know how the discussion will turn out. We have to look more in detail in each company. But at this point, the large medium-term framework, we -- the direction of investing for our future growth will be maintained. The key is how we can show this growth. That is the key to our discussion. If I could leave it at that, I would appreciate it.

Next, from Okasan Securities, Mr. Okumura.

This is Okumura from Okasan Securities. Can you hear my voice?

Yes, we can hear you.

I have two questions. The first is related to the operating income guidance for next fiscal year. This is just confirming the answer towards Kikuchi's question. So you are having the policy or direction to aim for increase in profit? And the increase and decrease -- sorry, the effect after selling the data center, I want to know what's the impact is going to be.

You're talking about the next fiscal year's business performance? And it's difficult to give you any specifics. But generally speaking, of course, all the time, we like to aim for an increase in profit, meaning that we want to respond to your expectations. Therefore, as a very basic policy, of course, we have that. However, having said that, within each business segment, how that is going to come about, the details of that is something that we will be narrowing down from now onwards. But as I have been mentioning from before, regarding NTT DOCOMO, your concerns exist, is what we are aware of. So for us, too, we need to surely show you the path towards a recovery, and we are quite aware of that.

My second question is maybe related to that is the asset sales, what are your thoughts regarding selling assets? Last several years, the real estate sales of NTT East and West and NTT DATA center sales and the recently DOCOMO towers. So more than from the perspective for growth, but it seems that you're making the decision of asset sales to fill in the gaps of the business performance. So moving forward, with the holding company taking the lead to dispose the dormant assets and others, what are you going to do with the assets? Are you going to show that, your direction to the investors? Can you talk about that?

Thank you very much for your question. The way we think regarding the asset sales, to simplify everything and it's narrowed down to one way of thinking, that is not the case. There are various ways of our thinking because we have a lot of real estate on hand. Conventionally or historically held assets, especially in NTT East and West, regarding those type of real estate, it's -- the basic thought is how we can utilize that and use that to generate cash is the way we think about those assets. So of course, the telecommunications, equipment and network facility type of a real estate, it's making money through the businesses, utilizing those real estates. But the real estate, if it's not utilized fully by us holding it, we sell it to a real estate company or development company, and we decide that it's better for us to maximize the value of the real estate that is idle or dormant, then we will sell that. So those type of assets in the past till now, we have been selling those type of assets. But regarding the telephone telecommunications facilities, regarding the facilities that we are trying to consolidate, of course, we're trying to improve the network itself, we would like to sell those assets ahead of time, consolidate the telecommunications facilities, open up that real estate and actually hand it over to the buyer. So this type of transactions it's a way of thinking as well. So all this is based on the way of thinking that we would like to utilize these real estates in the most efficient way. But the way of thinking towards the data center is slightly different. There is a very strong demand towards the data centers, and we would like to increase the investments towards these data centers. However, as you have been asking, EBITDA multiple is becoming quite high. Therefore, at this part, how can we expand the data center business is -- from the perspective of how, we can conduct the capital recycling for the data centers. So for the data centers, partially, we will be selling it and acquire the new opportunities for the data centers is what we're doing now. So basically, maximizing this enterprise value is why we're doing these things or selling the real estate. It's not to fill in the gaps of the business performance. Maybe as a result, it may seem that way, but that is not the final goal of us, selling off the assets. I hope you understand it in that way.

Understood. Sorry, it was quite a rude question towards you.

We do not have any more hands raised, then it's about time. So we would now like to close the financial results briefing. We will next move on to NTT DOCOMO session. So please stay connected. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]