NTT faces profit challenges, eyes growth in ICT and data centers By Investing.com

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In their fiscal year 2023 third-quarter earnings call, NTT (ticker: NTT) reported mixed financial results, with an increase in operating revenue but a decline in operating profit. The rise in revenue was attributed to the performance of the Integrated ICT and Global Solutions segments, while the Regional Communication segment struggled. NTT’s operating profit suffered due to the challenges in the Regional Communication segment and the costs associated with asset removal. Despite the expected difficulty in net profit for the fourth quarter, NTT is optimistic about achieving its full-year profit targets through various strategic initiatives and cost reduction measures.

Key Takeaways

• Operating revenue increased, while operating profit declined in the third quarter.
• The Integrated ICT and Global Solutions segments drove revenue growth.
• Challenges in the Regional Communication segment and asset removal costs impacted profit.
• NTT plans to enhance full-year operating profit by disposing of non-core assets.
• Fourth-quarter net profit is anticipated to be tough.
• NTT is undertaking initiatives like new data centers and battery storage businesses.
• Shareholder numbers have risen post-stock split.
• Real estate sales are expected to contribute to fourth-quarter profit.
• Ongoing cost reduction efforts are in place, focusing on asset management costs.

Company Outlook

• NTT aims to counterbalance Regional Communication segment declines through other segment growth.
• The company is optimistic about meeting mid-term plan targets.
• NTT is focusing on cost reductions and the development of its IOWN initiative.
• A share buyback is possible, with no capital allocation restrictions under NTT law.

Bearish Highlights

• Regional Communication segment faces revenue decline and slower growth in optical fiber net additions.
• PSTN to IP network conversion impacts both regional and NTT Communications negatively.
• Profit outlook for the fourth quarter is challenging across segments.

Bullish Highlights

• Growth potential in Integrated ICT and Global Solutions segments.
• Positive impact expected from data center sales and DX business.
• Anode Energy’s electricity business expected to generate steady profit due to legal framework.

Misses

• Fluctuations in retail business and electricity demand may affect Anode Energy’s profitability.
• Data center investments are a prolonged process, with future growth required to recoup investments.

Q&A Highlights

• Discussions between NTT Holding Company and NTT Data focus on expanding the data center business.
• Investment capacity differences between NTT Holding Company and NTT Data are being evaluated.
• The importance of a holistic view of the business structure was emphasized for market valuation.

NTT’s earnings call highlighted the company’s resilience in the face of profit challenges, with strategic initiatives and cost reductions paving the way for future growth. Despite some segments performing below expectations, the company’s diverse portfolio and focus on areas such as data centers and integrated ICT solutions provide a balanced outlook moving forward.

InvestingPro Insights

In light of NTT’s latest earnings call, the following insights from InvestingPro provide a deeper understanding of the company’s financial position and market performance:

InvestingPro Data:

• Market Capitalization: NTT’s market cap stands at a robust 101.8 billion USD, reflecting its significant presence in the telecommunications industry.

• P/E Ratio: The company is currently trading at a price-to-earnings (P/E) ratio of 13.03, which adjusts slightly to 12.84 when looking at the last twelve months as of Q2 2024.

• Revenue Growth: NTT has demonstrated a revenue growth of 5.25% over the last twelve months as of Q2 2024, indicating a positive trend in its earnings capability.

InvestingPro Tips:

• NTT has shown a commitment to its shareholders by raising its dividend for 20 consecutive years, and even more impressively, maintaining dividend payments for 33 consecutive years. This could be a reassuring factor for investors looking for stable returns.

• Despite these positive aspects, analysts are anticipating a sales decline in the current year, which aligns with the challenges mentioned in the article regarding the Regional Communication segment.

InvestingPro offers a total of 11 additional tips for NTT, which can provide investors with a comprehensive analysis of the company’s prospects. For those interested in exploring these insights further, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.

Full transcript – Nippon Telegraph (NTTYY) Q3 2023:

Takuro Hanaki: Thank you for joining us. We’d like to start the presentation of the fiscal year 2023 Third quarter results for NTT. My name is Hanaki of Investor Relations Office. I’d be the facilitator today. Allow me to introduce the attendees from our side? Representative member of the Board, Senior Executive Vice President, Mr. Hiroi; Executive Officer, Senior Vice President, Head of Finance & Accounting, Mr. Nakayama; Executive Officer, Senior Vice President, Head of Corporate Strategy & Planning, Mr. Hattori are the attendees from our side. Please be advised that today’s meeting is being broadcast live. At a later date we’re planning to have on-demand based distribution over the web. Please take a look at the Investor Relations website for the presentation materials used for the meeting today. Also, please, you’ll find comments with regard to future-looking statements on page one of the material, like free to read to that page. Thank you. So with that we would like to Mr. Hiroi to talk about the outline of the financial results after which to the questions from the floor. So Mr. Hiroi, the floor is yours.

Takashi Hiroi: Thank you very much. My name is Hiroi. Thank you for attending today. Before we start the presentation, I would like to express our sincerest and deepest sympathies to those people who were affected by the Noto Peninsula earthquake 2024 as well as to their families. We certainly hope for the earliest possible recovery and reconstruction of the affected area. NTT Group intends to continue to make efforts toward the recovery and restoration of the affected areas. So let me then start the presentation of the fiscal year 2023 third quarter results. Please turn to page four. This is the outline of the financials. Operating revenue increased. Operating profit declined year-on-year. Operating revenues reached new record high level as to third quarter. Operating profit and profit record increased for the third quarter on a standalone basis, although on cumulative basis they have recorded a decline. As for operating revenue, revenue from electricity business declined 120 billion yen since NTT curbed their power purchase due to the rise in procurement cost. Integrated ICT business segment and Global Solutions business recorded increase in revenue. So, operating revenue increased to 144.3 billion yen year-on-year, up to 9,716.9 billion yen. Now of this increase, impact from currency was roughly 120 billion yen. That’s for operating profit. Regional communication segment faces challenges related to fibers net app and voice traffic because COVID-related demand has run its course. There is also increasing costs related to removal of unnecessary assets for the purpose of streaming assets. So operating profit went down 34.6 billion yen year-on-year to 1,486.2 billion yen. As far as the annual plan is concerned, there are some unexpected costs such as cost related to securities of cost, particularly from disaster, so going forward these costs are expected to increase. We expect sizable additional cost but just we would also be coming down non-core assets, so therefore, we will aim to achieve increase in operating profit for the full year, which is the target for the consolidated plan. As to our profit, this declined 21.4 billion yen to 1,011.1 billion yen due to drop in operating profit and increase in interest payment. As for EBITDA, EBITDA declined 16.2 billion yen to 2,571.7 billion yen due to decline in operating profit. Please turn to the next page, this shows some figures by segment. Let’s start with integrated ICT business. Enterprise business, smart life business and consumer communication business, all recorded increase in revenue on a year-on-year basis. Now there was — as for operating profit, there was decline in smart life due to some reaction due to the impact in the previous year. However, there is increase in profit and it is a business in-line with increase in revenues and also did increase in consumer communication business cost efficiency, operating profit increase year-on-year. As for regional communication segment, as it was mentioned earlier, on top of declining in fixed voice revenue, we also expect most of the increase [Indiscernible] of non-core asset. It will be reflected during the fourth quarter. So operating revenue and operating profit, both declined year-on-year during the third quarter. Now as far as the annual plan is concerned, as I mentioned earlier, achieving the target for regional communication segment will seem challenging since disaster recovery cost is expected. So we would like to recover the cost as much as possible through the reduction of non-core assets and cost reduction efforts. So we would like to make efforts so that we will be able to recover any decline in this area. Let me now turn to global solution business segment. There was increase year-on-year due to increase in revenue in the public, finance and enterprise sector here in Japan. Also we saw increase in global business as well, so therefore operating revenue increased year-on-year. There was increase — there was impact from currency to [Indiscernible] yen, 120 billion yen correction. And also operating revenue, there’s increase due to structural transformation and also the impact of increased revenue. So that being the case, we were able to record increase in operating profits in this segment. As for the other segment, as I talked about earlier, operating revenues decline year-on-year and it’s curved the power purchase due to rise in procurement costs. So revenue from electricity went down. As for our profit, this declined because of the impact from NTT. So therefore we saw a decline in profit because of the impact in terms of the profitability of the electricity business. Therefore the quarter onwards, we will be continuing to monitor the situation very closely to be able to make sure that the profit from electricity sales will be maximized. It will be — we will make sure that we’ll be able to minimize any impact of the market situation. Now, let me turn to this page. Let me talk about the outlook for operating profit for fiscal year 2023. During the first and the second quarter primarily in the regional communication segment, we saw a decrease in profit year-on-year as per active costs was necessary in order to reduce assets. But we saw steadfast improvement in profits in each quarter through cost reduction measures, so by each quarter we’re seeing improvement. So third quarter results, the third quarter recorded increase in profit year-on-year on a standalone basis. During the fourth quarter, we expect base profit to expand due to expansion in growth, areas of further cost reduction. We also expect increase in profit through reduction of non-core assets. So our decisions remains challenging with expenses for disaster recovery, we will introduce the consolidated profits target. Let me now turn to topics, page eight. IOWN APN, we will use this IP IOWN APN in order to realize our distributed data center. While within the fiscal year, at NTT group, major data centers will be connected via APN within this fiscal year. Furthermore from 2024, this will be further expanded to cover the regional data center so that we can construct what is called distributed data centers. Leveraging the properties of APN, by connecting data centers located in remote locations in real time, it becomes possible to utilize them as if it would operate as a single data center. Next, on page nine, I would like to explain our new initiatives undertaken jointly with Tokyo Electric Power Holdings, or TEPCO Group. We entered into agreement at TEPCO power grid to establish a new company. In the Inzai-Shiroi area of Chiba prefecture, we plan to develop a data center aiming to launch service in the second half of 2026. Also with Tokyo Electric Power Company Holdings, we established a limited liability company in November 2023 to operate a battery storage business in Tsumagoi in Gunma prefecture. We will aim to launch service in 2025. We will continue to utilize the assets and know-how pertaining to the power and telecommunications business that we receptively own and aim to create new value and realize a sustainable society. Next, let me turn to page 10. This is our new initiatives in the area of New Green Transformation. We created a new solutions brand called NTTG in order to strengthen our initiatives in the GX field. Also, we launched the green energy business integration platform to help renewable energy producers with their GX initiatives, and establish a new platform. And in addition, with respect to the visualization of platform for Co2 and other emissions, we successfully increased the number of suppliers introduced in the platform to around 1000 companies aiming to realize carbon neutrality up to scope three. Next, on page 11, let me explain here how we are supporting the areas affected by the Noto Peninsula earthquake. We restored a communication service and conducted some 300 onsite visits to evacuation centers, including non-designated centers, to provide mobile phones Starlink and Widestar II service, Docomo satellite phone service. As a temporary public telephone for disaster cases, we provided pre-installed type phones in 171 locations and additional portable satellite equipment in 23 locations in response to the request of the evacuees. Furthermore, for those staying in the shelters for long periods of time, we started video service and online medical consultation service to care for their physical and mental health. Going forward, we will work together with the local governments and create consultation desks to address the concerns and challenges of evacuees, and those affected by the disaster. This shows — on page 12, this shows the number of our shareholders. Let me share with you the number of shareholders as of December 31, after the stock split. The graph on the right shows the number of shareholders as of December 31. After the announcement of the stock split, the number of shareholders increased significantly and compared to the level of March end, it has increased to 1.7 times. Those under age 40 quadrupled. So, as you can see, the age composition also diversified as a result of the stock split. On page 13, this is the progress of our actions in the medium-term management strategy implementation, so I won’t go into detail, so please read them through by yourself. That’s all from myself. Thank you very much for your attention.

Operator: We now like to go on to the Q&A session. [Operator Instructions] From Nomura Securities, Masuno san, the floor is yours. Mr. Masuno, please from Nomura Securities.

Daisaku Masuno: Thank you. Can you hear my voice?

Takashi Hiroi: Yes, we hear you clearly, sir.

Daisaku Masuno: Thank you very much. I would ask several questions, if I may. The net profit for the fourth quarter, you mentioned earlier that decision was very difficult but you are likely to aim at achieving the aim. Are talking about the regional communication segments? Are you talking about consolidated basis? Are you talking about being able to achieve the profit target for this particular regional communication segment or for the overall consolidated basis? If that’s the case, [Indiscernible] increase in profit is necessary if you are to achieve the consolidated target. How do you intend to increase your profit by this much? Which segments are intended to increase your profit? [Indiscernible] Now of course, I will miss this [Indiscernible] profit from the sales of real estate at NTT’s [Indiscernible]. Can you please explain how you intend to increase your operating profit during the fourth quarter?

Takashi Hiroi: Thank you for your question. Yes, we’re talking about consolidated as well as regional communication segment, overall. So I think both in regional communication segment and consolidated basis we want to achieve the target but then, of course, there is a difference in nuance, which in the case of divisional communication segment, yes, we will be carrying out sales of real estate, but yes, the base — the foundation remains very difficult and challenging. So, with that, of course, we want to achieve the target in regional communication segment but the situation is very harsh still; on a consolidated basis, yes. Of course it depends on what recovery we can make in any region of the communication segment but there are other segments which are available, so hopefully we’ll be able to drive and offset any decrease to other segments. So we want to ensure that we achieve the target on a consolidated basis at the end of the full year. Thank you.

Daisaku Masuno: Good, thank you. What about this sale proceeds — processes of real estate? How much amount are you are anticipating? Well, that — was that part of the third quarter, will all the impact from the sales of real estate be reflected in the fourth quarter? You only have two months left until the end of the year.

Takashi Hiroi: Right. Again, I can’t give you concrete numbers but, yes, part — yes, we are making preparations. Some of the profit was realized during the third quarter, but most will be reflected during the fourth quarter, yes, that’s how you should understand the situation.

Daisaku Masuno: Okay. Thank you very much. Next, let me ask the following. You talked about additional cost. Also, during the press conference, there was mentioned about the billion yen of roughly [Indiscernible] related cost. They talked about cost for — security costs, will that be mostly this year? Most of this is likely to be in next fiscal year? So these temporary costs, what are your thoughts about the temporary costs?

Takashi Hiroi: Good. Thank you for the question. As we cannot pre-judge the outcome, we cannot be complacent and this issue just remains still fluid. Now going forward, we need to respond to various customers requirements and so it’s up to the decision pertaining to the customer’s requirements. So, how much impact will there be, we’re not yet sure, we cannot — that is not visible at this moment. But having said that, with regard to this matter on hand, there’s likely to be any potential negative impacts on the current credit circumstances. So enterprise business revenue is likely to be affected, because there’s going to be some reduction in the transactions. That is likely to be reflected both in this year as well as in the next fiscal year as well. Also, there are many temporary costs as well. For example, we need to address customers needs, we need to talk to the various customers and we are not sure what will happen, but there may be cases where we need to make some payment of cost. So how can we finalize this cost in a reasonable manner by the end of this fiscal year? [Indiscernible] profit for this fiscal year and next year will be affected but I think it is still premature to make a concrete response on this matter. Thank you very much.

Daisaku Masuno: Thank you. What about the upside? [Indiscernible] some of the upside elements. The energy during the fourth quarter is likely to be not affected by the [Indiscernible] special factors, so you would like to derive profit in fourth quarter. In the Integrated ICT business, Enterprise Business and Integrated Solutions Business is doing well, but it’s not good to have positive impact for the fourth quarter, also NTT limited. Data center related asset sales will be reflected in the fourth quarter, so you’re likely to enjoys proceeds from the sales. So can you talk about the upside? You can cover the downside. Can you talk about some of the upside elements as well?

Takashi Hiroi: Okay, thank you for that question. Yes, as you pointed out, Mr. Masuno, for us, we have some growth business such as integrated ICT business, that’s part of a good business and also global growth solution is also another good business for us. As far as Docomo is concerned, they’re doing very well. In terms of some [Indiscernible] business, they are doing very well. In terms of Smart Life and Enterprise business and they’re trying to drive the growth in both of these elements. On the global front, as I pointed out, the data center sales proceeds is likely to kick in during the fourth quarter. So through all these elements, we are likely to reinforce our profit. Also DX is doing very well here in Japan domestic market and would be well in terms of bringing profit from DX here in Japan. So you have to really add-on further operating profit from this business so on through that we are able to make recovery in the consolidated basis and achieve the consolidated profit target at the end of the day.

Daisaku Masuno: Thank you. That’s all from my side.

Takashi Hiroi: Thank you.

Operator: Thank you, Mr. Masuno. Now we’d like to move on to the next question. SMBC Nikko Securities, Kikuchi san, please begin your question.

Satoru Kikuchi: Thank you. I also have two questions. Related to emulation to — Masuno asked some questions, this may be somewhat overlapping. So on page six regarding the streamlining of your non-core assets, meaning that this will be the real estate disposal for NTT East and West mainly, or are there any other assets in mind? Like, for example, data centers, I don’t think you will call it non-core, so the disposal of data centers may not be indicated by this, is that correct?

Takashi Hiroi: Well, yeah, so it’s all about interpretation, actually. So mainly when it comes to the streamlining of our non-core assets, it’s basically about not only, you know, NTT East and West, but it relates to non-core assets for each business, so basically it’s about real estate disposal. And data center as sales, for this matter, data center businesses, currently our core business, we are focusing on that, so it’s just part of the reshuffling of the portfolio. So we will pre-dispose them as part of that, so it’s about how to count the profits as a result of that.

Satoru Kikuchi: Okay. So just as a reconfirmation, it’s basically about real estate, so you don’t really refer to any different type of assets such as receivables, for example. So it’s basically a real asset that you’re talking about here, is that a point — is that the case? That’s the point of confirmation.

Takashi Hiroi: No.

Satoru Kikuchi: So on the page six, it doesn’t really make sense here. About 60 billion yet or so, it sounds like this is about 60 billion yen, is that the size — the right size that I can think about.

Takashi Hiroi: Well, I think real estate, you can interpret that this is basically real estate and rather than trying to size this bar here of profit, well, it’s very difficult for me to comment on the detail numbers, so please allow me not to make any comments regarding that matter.

Satoru Kikuchi: Okay. So, thank you. So, the second question regarding regional communications business, on a consolidated basis, that is going to have a very difficult impact and in the first half, you recorded a decrease in profit for regional communications. Going into next fiscal year, do you think that the situation will come back to the level before COVID-19 so the decline from voice revenues will be covered by the cost reduction? Would it be possible to achieve that or do you think this after COVID situation many things have changed and therefore do you think the situation will remain tough in the next fiscal year onwards as well? And also related note PSTN will now be converted into IP network, so that will be completed by the end of this fiscal year, I believe so. If you have foreseen the impact on the business, please let us know, this relates to regional communications, I believe and also and NTT communications also. So, if you can also comment on the magnitude of that impact that will be appreciated.

Takashi Hiroi: Well, first of all, regional communications business, the structure of this business is that [Indiscernible] rightly pointed out with COVID-19 remote worker became a commonplace and, of course, the net additions of the HIKARI business was quite favorable, and in the beginning, in the early part of COVID-19, the voice revenues expanded. So, that was a positive impact coming out from COVID, but this is no longer the case. The positive impact has already disappeared. So, as you already pointed out, things are going to return to the pre-COVID situation, the HIKARI net additions, actually, when you look at the trend, the growth has decelerated even before the level before COVID-19, so we will have to review the cost structure so that we can take initiative so that we can achieve a sustainable growth. So, for 2024, we will step up the initiatives in order to achieve that target. And as you know very well the net additions of optical fiber has slowed down in terms of the growth pace, so if that has deceleration in growth that will have a negative impact in next fiscal year, so the revenue growth will be slower. So, therefore, we believe 2024 will still be a very difficult timeframe for us, so NTT East and West will have to make study actions in order to address this issue. And in addition, regarding PSTN migration, yes, PSTN migration, thankfully, as of January, as of the New Year, we were able to switch over without any accident at the New Year’s timeframe. And this PSTN migration impact, the specific impact from PSTN migration, I cannot comment on the numbers but I think you are already aware, regional communications positive impact to some extent. And NTT communications site, NTT communications, because the network cost position will change and therefore that will have a negative impact on NTT communications. Well, for this in the integrated ICT business segment, the negative impact will be absorbed with the integrated ICT business. So that is the backbone of our business plan or profit plan going forward.

Satoru Kikuchi: Thank you. That’s all for myself.

Takashi Hiroi: Thank you.

Operator: Thank you. Next question, from Citigroup Securities, Tsuruo san, the floor is yours. Mr. Tsuruo of Citigroup Securities.

Mitsunobu Tsuruo: Thank you very much. This is Tsuruo.

Takashi Hiroi: Your voice is a bit faint. Can you try again?

Mitsunobu Tsuruo: Thank you. Tsuruo from Citigroup Securities. Thank you very much for this opportunity. I’d like to ask my first question, I’d like to ask about cost reduction. I’d like to confirm about the outlook for your cost reduction going forward? Based on the [Indiscernible] material, were you able to confirm the pace of cost reduction, 45 billion in the first quarter, so there’s the cost — so there’s a cost reduction. So can you give us a breakdown of the cost reduction for each quarter, but if you could give us a rough image. Also, page six, you expect further cost reduction, so can you talk about some upside or increase in cost reduction. That’s my first question. Thank you.

Takashi Hiroi: Yes, thank you with regard to cost reduction. With regard to NTT East and West, we have a cost reduction menu. So should we respond on this point?

Mitsunobu Tsuruo: Isn’t this about cost reduction for overall company in relation to the mid-term plan? I thought that’s what these numbers implied. Isn’t that the case? Of course, whichever is fine. I leave it up to you to respond to this question, sir. Thank you.

Takashi Hiroi: Okay, thank you for that. Point taken. Well, basically NTT East and West and Docomo group are the main players involved in this picture. At NTT East and West, they are involved with the maintenance of facilities, those are asset managers cost, which they’re trying to reduce. So expense to vendors as well as maintenance cost, they will continue to make efforts to reduce these costs. So that is NTT East and West. As for NTT Docomo (OTC:), they have a variety of different cost reduction measures at this moment, especially in the recent they’re trying to improve the cost structure. In the past call centers [Indiscernible] regions are not being consolidated and also support for various agents are now being consolidated or not being reduced because the centers are also being consolidated. So these cost reduction measures are now ongoing as well at Docomo. So, that is like a positive contribution to the picture.

Mitsunobu Tsuruo: Thank you. Can talk about further cost reduction measures that is mentioned on this page? In terms of mid-term plan stability, there’s an upside to the cost reduction. Is there any upside for the fourth quarter in terms of further cost reduction against the mid-term plan target?

Takashi Hiroi: Well, as far as the fourth quarter is concerned, the cost reduction menu which we had already envisaged, we want to implement these measures in such as manner. So yes, there’s going to be further contribution of cost reduction during the fourth quarter because of that. So that’s how you — and I have a suggestion that there might be a shortfall, that’s the case, as I mentioned earlier, we’ll be covering that through sales of real estate. So let’s make sure that we covered the situation at the end of the day.

Mitsunobu Tsuruo: Okay. Thank you very much for that. Let me turn to my second question, this is a more broad question about the capital allocation. The entity law is now being discussed in various forms and I think stage by stage the discussion is progressing with regard to share buyback, but is it possible to have increased flexibility with the good share buyback in the light of [Indiscernible]. also recently? Can you talk about the CapEx simulation to IOWN as well, and that is the new project. So can you talk about the basic principles about the CapEx going forward? I appreciate your comment. Thank you. That’s all for my question. Thank you. If you could respond, please.

Takashi Hiroi: Okay, thank you. With regard to NTT law discussion and the share buyback, I just think there is a direct link between these two elements. So with regard to capital allocation, there is no resistive element with regard to capital allocation set forth under the NTT law, that is not a recognition. But what was the allocation talking about, for example, in terms of other — in terms of business law and under NTT law, there is no restriction pretending to capital allocation, because that goes beyond our parameters. And there is no restriction pertaining to various scalable transaction, so, as far as we’re concerned, we don’t see any problems pertaining to the current law and we want to continue on with the share buyback in line with the current policy. Let me see, what was the other question you raised?

Mitsunobu Tsuruo: Yes, it’s about IOWN.

Takashi Hiroi: Yes, thank you for the clarification. Yes, we are very much focused on development underway in the context of IOWN. So we have a company called NTT Innovative Device and this is a company which was established and we are making capital introduction there. And they’re making various investments for R&D. So that being the case, we want to continue to pursue development based on this structure, there’s no change in our policy. Now, did you want to ask about impact from NTT law? I don’t think there’s any impact from, Tsuruo san, with regard to NTT law. So they got the CapEx overall. With regard to IOWN, we’re working on IOWN 2.0 and IOWN 3.0. We’re proceeding with device development in this context and so we are trying to use — rollout new APN. We will make investments into those areas, so are actively continuing to make investment in these IOWN related projects. Now, having said that, with regard to CapEx, we’re going to expand our CapEx and we’re going to invest equity investment in these areas. Naturally, we have to consider the impact on profit on a short-term or medium-term basis. It’s important that we have sustainable profits generate structural. It is important that will be able to generate profit while we continue to pursue R&D, so please understand that that is our position.

Mitsunobu Tsuruo: Okay. Thank you very much.

Operator: Thank you. Moving on to the next question, which will be from Daiwa Securities, Mr. Ando, the floor is yours.

Yoshio Ando: Can you hear me?

Takashi Hiroi: Yes, we hear you. Please begin. Thank you.

Yoshio Ando: This is a detailed question, actually two questions, so sorry. Regarding regional communication segment, for the fourth quarter, three months, standalone profit, this is — you just returned to the same level of last year, you just managed to do so. In the second half of the year, I think — in the first half of the year, you struggled in terms of the profit vis-a-vis the last fiscal year. So what’s the reason behind this recovery? And in the fourth quarter, can we expect a further improvement? Of course, there’s another earthquake impact but the general trend, excluding the impact of real estate, can we confirm that we are on the recovery trend and can see further improvement. And in the first half of the year, you talked about the system renew and also evacuating the building from their land and did they make a positive contribution to the performance? And also the system integration revenue has started to show some increase, is this sustainable? So from the outside point of view, those are things that stand out to me, so if you could comment and analyze these factors that will be appreciated.

Takashi Hiroi: Well, for regional communications business, if you look at it, to be honest with you, the revenue trend has not really changed that much. Cost side rather, expenses and also the write-offs, those have been suppressed, so that’s the big picture. Actually, the write-off has been controlled and also on the expenses side, as you rightly pointed out, the internal system expenses has been increasing, but all included, we have been able to absorb this with other elements, especially on the facility related expenses. So we have been able to work on cost reduction and that has paid out. So if you could appreciate that way, that’d be appreciated. The solution revenue is expanding and of course all the companies are now making efforts to increase their revenues in this front. Usually in the third quarter to the fourth quarter, the revenues are on the uptrend, on the increasing trend in the usual circumstances, but we will like to maintain this current level and all the companies are striving towards that goal. But whether that is sustainable? Well, of course, there are fluctuations quarter-to-quarter, that is the general trend. That’s it for myself. Thank you.

Yoshio Ando: And my second question, East and West, their profit level this fiscal year seems to be challenging according to your explanation, but you’re trying to cover that up well with the performance of other companies. Which part is going to grow? On a year-on-year basis, it’s conspicuous that the other business on the fourth quarter — in the fourth quarter was negative previously, but this is going to turn positive this fiscal year in the fourth quarter. So that I think is the fact that behind this recovery, but the other business, other segment, maybe this is real estate, so I think it might be possible for you to generate profit, but energy, you are going to control that business. So sorry for this very, very detailed question, but what can we anticipate in this field?

Takashi Hiroi: For the others segment, for the profit income, the urban solution has a big impact. Actually, this is a real estate business and Anode Energy is also having a big impact. Urban solution for this term, because this is — they’re going to expand a cyclical business and therefore the revenue is expanding, profit is expanding, and also in the fourth quarter, this trend will be maintained. On the other hand, Anode Energy, well, in the beginning of the presentation I touched upon this, the baseline profit in its electricity business, because of the legal framework and this is operated as a framework, so therefore, the profit can be steadily expected and be generated on a steady fashion to NTT, mainly the enterprises and these users. When it comes to the retail business to these enterprises and other general customers, there will be fluctuations in profit and that is becoming larger than before, the fluctuations becoming larger than before. As for the entire year’s business, we secured the energy in the beginning of the year and that price is actually fixed at that point, but as we run the course of the year, the electricity demand fluctuates and then if there’s extra energy, we will just sell these electricity to the market, and that could potentially be positive or potentially be negative depending on the circumstances. In 2022, we were able to achieve a huge significant positive performance but this fiscal year, we were not able to achieve a significant positive upside. And there is a possibility that this will turn negative this fiscal year depending on market circumstances, so getting into the fourth quarter, we still believe that this will perform unsteadily and we have to anticipate some instability here.

Yoshio Ando: So this other segment, profit outlook will be challenging in your view.

Takashi Hiroi: Yes, the other segment in the fourth quarter, to some extent, we will have to say that this is challenging, I think you can interpret that way.

Yoshio Ando: Thank you.

Operator: Thank you very much. Next question from Mizuho Securities, Hori san the floor is yours. Hori san from Mizuho Securities, please.

Yusuke Hori: Thank you. My name is Hori from Mizuho Securities. I have just one question, if I could once again ask about the global data center business outlook and your operations. I would appreciate your thoughts about the operation of your global data centers. Now the global operating companies, their stake is roughly about 55%, NTT DATA has roughly 55% in the global data center business. But with the domestic data center it is more complicated and the cases of NTT Limited it is not evolved, but outside Japan, it’s mostly related to NTT Limited. Today you talked about data center today, also last year and last fall, on NTT [Indiscernible], you gave a presentation about data center. NTT Data was not involved, although it is the main player. NTT Global Business Center had and also [Technical Difficulty] if it needs the operating global [Indiscernible] that should increase if the data center is provided, it is not going to improve, so therefore, you’re not going to have a good valuation by the analysts. This was [Indiscernible] and I think even if you want to proactively address this, if you want to do this based on NTT Data’s balance sheet, because [Indiscernible] weakened or so, because of the interest rate went up in the US, [Indiscernible] instability. In the case of NTT’s balance sheet, I think you have more capacity compared to NTT Data’s balance sheet. So, maybe NTT Holding Company should be more active in making investments compared to other group operating companies. And if you want to catch up to Equinix (NASDAQ:) [Phonetic] and the reality, should you not make more active investment that you seek appear eventually. So who’s the main player in this picture? It’s not yet clear? Well, the issue continues down the road, so if you create a more streamlined structure for data center business that is more clear to those of us who are outside to your group is to be listened to NTT data’s presentation, this is [Indiscernible] interesting. They don’t stick to it right now, but they’re willing to have discussions with NTT on this matter. So for the NTT, what is your position with regard NTT Data center? What is the best structure in terms of your data center business for the group as a whole? That’s my question. Thank you.

Takashi Hiroi: Yes, thank you with regard to the promotion of data center business, what is the relationship between NTT Holding Company and NTT Data, I think that is your question. So, to get that one first, NTT Data and NTT Holding Company will always discuss very closely and make sure that both of us are able to expand and grow our data center business. So, for this very big — so therefore for this very lofty goal we are always in discussion on a daily basis. As you pointed out, for NTT’s base balance sheet, just there is room for further investment. With regard to NTT Data’s balance sheet, such investment could be quite a burden. So there could be bricks on any investment with NTT Data with regard to data centers. So with regard to NTT Data and so for the investor community as a whole, of course, it is relevant, but how we see the business that needs to be explained. So on a single year basis, we provide you with PL and then you focus on the bottom line for a single year PL. But with regard to data center investment, it is going to be a prolonged process. So in the initial phase of the investment, as I pointed out, yes, we discussed it quite intensively, interest rate as well as depreciation and amortization, it is true that there are some burdens in the initial phase of the investment and today this is a big business. However, future growth, we cannot be complacent when it comes to — we cannot relax when it comes to investment in data center. So it’s important that down the road, we actually recoup the investment as we go further down the value chain of datacenter investment. With regard to how we see data segment, we see this as several segments based on system integration, which shouldn’t be the case. We should not be focused on just one single segment, we should see this as an asset owning department. So we are very — we are more broad based company. And as we see the company in a holistic manner, we cannot realize growth, so I think that — I hope that the marketplace will also see our business structure in that manner. If you can value our business in that manner, we’ll be very grateful. We can give us for the understanding. Have I responded to your question?

Yusuke Hori: Yes, we take note of your comment. Thank you very much.

Operator: Thank you. Are there any other questions? [Operator Instructions] All right, then seems that we have exhausted all the questions. So we would now like to finish this presentation session at this juncture. Now we would like to continue with the NTT Docomo presentation. So participants if you could kindly stay on the connection and stand by Thank you. Thank you very much for today.

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