I'd like to start fiscal NTT's fiscal year twenty nineteen's results announcement. Thank you very much for participating today despite your busy schedules. I am Fuji Qi from the IR office and will be serving as today's facilitator. First, I would like to introduce today's attending members. President and CEO, Member of the Board, Sawada Senior Executive Vice President, Member of the Board, Chimada Senior Vice President, Head of Finance and Accounting Department, Member of the Board, Hiroi Senior Vice President, Head of Corporate Strategy Planning, Member of the Board, Akutanbura.
Today's briefing will be conducted through audio live streamlining in order to prevent the studying of the novel coronavirus. The material that we use for the explanation, please refer to the presentation material that is posted on our company's IR website. On the first page of the presentation material, the items to be noted is listed, so we kindly ask you to read through them. Regarding today's schedule, first of all, from President and CEO Sawada, there will be an explanation of the outline of the results followed by the questions from the floor. Mr.
Sawada, please.
Thank you for your kind introduction. My name is Salada. Thank you for joining us despite your busy schedule. Before I share with you the financial results, I want to offer my sincere sympathies to those who were inflicted by COVID-nineteen and also whose lives were affected by the spread of this infection. Just to have said with the entity group, many employees were inflicted.
I hope that we will be able to see early recovery as soon as possible and it is our earnest wish that COVID-nineteen epidemic will be contained as soon as possible around the world. Then without further ado, based on the presentation materials, I would like to start my explanation. Let me start with page four. This shows you the fiscal year twenty nineteen consolidated results highlights. As for operating revenue, it increased operating income declined, profit increased.
And against the guidance, we have all achieved the guidance. In particular, when it comes to operating revenue, we have recorded the increase in three years in a row and we have reached record level as far as operating revenue is concerned. As for operating income, it fell due to a drop in Dokomo's mobile communication service revenue and also increased costs from reorganization of our global business. As far as profit is concerned, well, there was operating there was drop in operating income. Profit increased year on year from profit from valuation related to integration of ENET as a subsidiary firm.
So it is slight, but we were still able to record increase in our profit. As for EPS, we had share repurchase, so it increased 11 yen year on year. As for overseas sales, it increased 2.9%. We had 77,000,000,000 yen impact from foreign exchange. It's dollar based so it's not affected.
But as far as revenue is concerned, was very robust and very strong as far as income is concerned. At entity data, in Brazil, because of the changing external environment, we had a review of the business in Brazil. And also in order to minimize future costs, we've had impairment loss. And also we have seen some delay in the shift to more high value and profitable service. So as a result, we have seen a decline of roughly JPY 16,500,000,000.0 on this front.
Now as far as the impact of COVID-nineteen in fiscal year twenty nineteen is concerned, already in North America and in Asia, new orders for system integration has dropped. So there has been already slight impact in terms of profit. But on the other hand, there's also positive element such as declining our marketing costs domestically. So overall impact on a consolidated basis is quite slight. That is the current situation.
So please turn to Page five, the following page, please. On the top, you will find the contributing factors by segment for operating revenue. At first glance, data communication business and other businesses have recorded increase in their operating revenues. As for other businesses, they represent integration of Innate as a subsidiary firm and also data is because of very strong order taking. On the bottom, you find operating income.
With regard to mobile communication segment, because of the new rate plans, there was the impact from that. And also handset sales also declined. So it recorded a drop on a year on year basis. As for Regional Communication business, two years ago, back in fiscal year twenty eighteen, we had a loss from copper wire, but that is no longer the case. So therefore, income increased year on year in this segment.
As for long distance and international communication business segment, as for domestic and ICT communications business, it's very strong. But on the overseas side, we have seen increase in costs related to global business reorganization. So that's a negative. But on a year on year basis, we have seen increase of 3,400,000,000.0 yen increase year on year in this segment. Turning to Data Communication segment, I believe that NTT Data had already announced their financial results.
So revenue is very strong, their business size is expanding. But then there is now costs related to restructuring of business in EMEA and Latin America and also review of business operations in Brazil. So as a result, in this segment, we have seen a drop in operating income on a year on year basis. Let's now turn to Page six. This reflects the forecast summary of fiscal year twenty twenty as well as shareholder return.
As for fiscal year twenty twenty, which will end March 2021, we are likely to see some impact in relation to new system integration orders primarily outside Japan. Also, we see various types of services including handset sales will also be affected by
the impact
of COVID-nineteen. At the May, is a possibility that the declaration of state of emergency could be lifted. There is that possibility at the May. But still, we cannot predict the potential arrival of the second wave. So how long will this current situation last?
This will affect the level of services this will affect our level of revenue. So therefore, we have to base ourselves on this premise and we really cannot reasonably estimate the amount of the impact of COVID-nineteen. So therefore, we decided to postpone making financial forecast for fiscal year twenty twenty at this time. When it becomes possible to reasonably estimate the amount of the impact, then we would like to promptly announce the financial forecast. As for dividend, in response to COVID-nineteen, we have provided free of charge services to various customers.
We have also extended the payment due date. And we have taken various measures as well as customer return programs. We have to bear in mind basic policy of steady dividend increasing our efforts to take into consideration various stakeholders. Correction, in domestic COVID-nineteen, we have to make sure that we are mindful of various stakeholders. So therefore, bearing in mind the basic policy of steady dividend increasing our medium term strategy, we decided to increase our dividend by 5 yen per share from prior year to 100 yen per share.
So this represents increase in dividend for 10 periods in a row. As far as the business plan is concerned, that is the current situation. Let me briefly cover some of the topics. We have prepared some materials that covers the relevant topics. So let's go on to page eight.
On page eight and page nine, we listed the primary initiatives in response to COVID-nineteen. If I may summarize it, communications service that we are ensuring the stable services and we're doing that. And we have started images to support customers. And starting this month, the special fixed benefit payment which is given out by the local governments. We are providing RPA automated solution free of charge And we have received the request that 18 local governments would like to 128 local governments would like to use it.
And we have some educational supporting measures and towards the students subscribers under the age 25 and under the age of 25. We have implemented the measures to provide the data communications service certain services free of charge. And the school's online maintaining fees, we have implemented measures to provide that free to a certain time period. And page 10, please. The previous two pages with corona and page 10 is after corona.
The first is to respond to ongoing maintenance of social distancing and initiatives for establishment of a remote society. We like to provide various supports. We have support online administrative procedures and protect that through security solutions. The second is digital transformation, especially in the agriculture, construction and manufacturing industries, probably they will require remotization. Therefore, we would like to focus on this and also contribute to supporting the lack of manpower.
And we believe that there is going to be an environment that is going to increase the rise of block economies and value chain is going to become more important and with Mitsubishi Corporation, we are working on these changes to support the reshoring of industries and accelerate the five gs supply chain. And we would like to be able to use the renewable energies on our own. On Page 11 is showing the overview of medium term management strategy initiatives. I would like to skip the detailed explanation of each one of them, but I would like to point out two. And on that next page, I would like to point out one total of three points I would like to highlight.
First is the B2B2 XL project. There are only three train projects when the medium strategy has started, and now that is 66. And our target is achieve 100 by fiscal year twenty twenty one, and it is steadily progressing. And the second point is listed on the very bottom, which is the ratio of outside independent members of the board. We would like to increase it to 50% by implementing the executive officers' system.
We would like to vitalize the board of directors meeting and we wanted to have an efficient number of board members. Next is regarding the environment and energy vision. There are four points that are listed here. The target is zero environmental impact. Promotion of renewable energy, currently we're using 4.5%, but ten years from now, we would like to increase a portion of our renewable energy usage to 30% or higher by 02/1930.
Currently, we would like to have 30% of all the energy we use as a renewable energy and also the science based targets and the task force on climate related financial disclosures, would like to support it. And also, we will be considering issuing the green bonds. The way of thinking is that ICT, which is our core business, we believe that this can reduce the social environmental impact with the COVID-nineteen pandemic. We are actually in the midst of the actual social experiment, but we would like to have these new measures to Acetyl Root and we would like to digitalize as much as possible and also a plastic and also reduce promotion of thermal insulation power generation glass using photovoltaic technologies. This is a venture technology.
And the major third point is we will be establishing an environmental related laboratories, which was announced today. This will be done in July. Photosynthesis or lightning various things will be researched there. But it says here, ETHAR, which is International Fusion Energy Organization, 25 countries are in the member. And by 2025, they will be using
the first plasma.
So the experimental chamber management, maintenance control by using the ION technology, we have entered the comprehensive alliance agreement. And for ITAR, it is the first time that they entered such an agreement with a private company. So we are the first private Japanese company to have such an agreement. So together with the establishment of infrastructure, we will be working towards the zero environmental impact. Lastly, I would like to explain the numbers of the progress on medium term financial targets.
This is difficult to read, but it is actually in line with what have we have expected. That is all for my explanation. Thank you.
Thank you very much. We now like to take your questions. For those of you with questions, as we've already announced beforehand, you have to be registered beforehand and you have to be connected to the phone system. We would like to have the operator explain how we will be accepting questions. Thank you.
Now I'd like to start the Q and A session. If you have questions, please push 0 followed by 1. If you wish to cancel your question, please push 0 followed by 2. If you have questions, please push 0 followed by 1. If you wish to cancel your question, please push zero followed by two.
First, mister Masuno from Nomura Securities. Thank you. Masuno from Nomura Securities. Can you hear me? Yes.
We hear you. Thank you. My first question is about the fiscal year 2020, the plan already at Dokomo Energy Data. With regard to the business plan, they have not been able to determine that for this fiscal year. So I understand that it's a situation for the group as a whole.
But then as far as dividend is concerned, at DOCOMO data, their dividend remains flat. And the holding company, thought you would also have your dividend at flat, but then you announced an increase in dividends. So that's very positive for us. But within the entity group, entity holder company was able to demonstrate increase in dividend, but then that was not the case with DOCOMO and entity data. So what is the reason behind the difference between the positions taken with regards to dividend policy among the group companies?
Is it due to the difference in the outlook of each of the operations? Can you talk about the reason for the difference? Thank you for your question. In principle, NTT Wholesale Company is not a business operating company. We emphasize our net profit as a result.
As for the other two companies, their operating income was in the negative territory on a year on year basis as they completed the previous fiscal year. So therefore, they cannot even come up with estimates for the coming year. So it was very difficult for them to commit to increase in dividend. But then unlike business operating companies, entity holding company was able to able to in a position to return profit to the customers. So that is the difference, I believe.
I see. Thank you. So my next question. So impact of COVID-nineteen. Outside Japan, there has been some significant impact, but then on the domestic front, the sales costing decreased.
So therefore, it's likely that the impact will be slight in the Japanese domestic market. So against the backdrop, with regard to the medium term management strategy, you have set the EPS target. So based on the actual track record and based on the annual growth, you're talking about 9% growth. That would be the plan. But as things are the way they are right now, what additional measures do you think it would be necessary to achieve your medium term target?
Do you see such a need to take additional measures at the structure? Well, first of all, with regard to fiscal year twenty twenty business plan is concerned, we did gather the information and had discussions, but then we were not very clear cut when it comes to the prediction and estimate. Yesterday, entity data, mister Houma talked about this, but as far as entity data is concerned, some 500,000,000,000 yen of variables still remained. As for Entity Limited, about it's half the scale compared to Entity Data. So we'll be talking about JPY 200,000,000,000 to JPY 300,000,000,000 variables.
So in terms of system integration, at maximum 700,000,000,000 could be the potential impact although depending on although it does depend on the pipeline. But then in the recent, it seems the various countries are now beginning to reopen their economy after the period of lockdown and so forth. So the other concerns about the second wave and the potential third wave but the customers are now trying to see the solutions for digital transformation and to promote remote work and so forth. Then that if that is the case then in a positive fashion we can explore possible pipeline and projects. So that's the first point.
And secondly, NTT Holding Company back in April has also instructed diverse cost for fiscal year twenty twenty should be contained investments and cost to be contained for fiscal year twenty twenty. That notification was provided for Antio Holding Company to the business operating companies. So towards June, we have provided instructions for the operating companies to contain their costs. And third thing, capital investment. As natural progression, we're likely to be slow.
That is indeed the case. And also for those areas where we have seen drop in revenue, we also have to consider containing the level of CapEx. So when we announce our projection for fiscal year twenty twenty, we want to make sure that we can take efforts to improve our profit. That is our thinking at the structure. Thank you.
That is all from my side. Thank you.
Thank you very much. I'd like to take the next question. Next will be Merlinch, Japan Securities. Mr. Kidoshita?
Hello, this is Kidoshita. Can you hear me? Yes. Thank you very much. Please go ahead.
I also have two questions. First, for the COVID nineteen pandemic of the recent situation you showed it on page eight for the fixed communication service, the nighttime peak. Well, during the daytime, it's maybe from the beginning, it's not used that much, but the nighttime peak was the 10% and daytime was 50 to 60% increase. And under this situation, you may be enhancing the facility and network. But due to that, what is going to happen to the CapEx?
And also what you have mentioned before, depending on the revenue that you are going to control the CapEx. So through that control is that enhancement of for the enhancement, is that going to be insufficient? It's my first question. Yes. Well, as I have explained, the Internet, the traffic, backbone, or the network.
The way we think about those is we are conscious of the bath and we set the nighttime at the peak. So towards the regular traffic, we do have quite of a high level of capacity. And because of this situation, there's not many major events, so there's no burst that is occurring. So even during the daytime, there's no impact. And but on the other hand, if there's an increase at the nighttime, then we will face trouble.
But right now, it's only 10% increase. We are thinking about JPY1 billion of investment increase for the enhancement. But if this continues and depending on the region or the location, if there's differences or variances, we may have to increase the level by a notch. But from an overall perspective, it is within the amount that we can control. You said JPY1 billion investment, what are you going to invest towards?
The connection point, VPN devices that will connect with each customer server equipment. It will require those types of devices and equipment. Oh, okay. And if you increase it by 1,000,000,000 yen, you'll be able to cover the whole situation. Yes.
Looking at the current situation. Okay. Understood. But what we're concerned is that the second wave and the third wave comes and if there is a major spread as such, then we will have to respond that area is going to be larger. Another point is that the within alliance with Toyota, this time, you will be cross holding the shares with each other.
And depending on the way of thinking, it seems that what you're doing is going against the trend. But what is the meaning of this cross shareholding? By holding each other's shares, what kind of a benefit return do both companies have from each other? Well, as you say, the cross shareholding has become such a way. But basically, the project that we are trying to do together, it's not just at the Higashi Fuji project, but it is something for the global arena together with Toyota and NTT will provide smart city or provide support for creating smart cities.
And we like to make that into business. So it's for a long term and also the scope of it is very large too. So in a way, it is to show commitment to each other. And another point is that Toyota themselves actually take that pattern for alliance. In a way they invest in KDDI and with SoftBank they have a joint venture.
So within that situation, we are showing each other that we are both a more strategic partner than others to each other. So through this, it's not that we're going to put a stop on the liquidity of the shares or try to cover each other on the liquidity of each other's shares. Okay. Understood. Thank you.
Thank you very much.
Next question, please. Next from Davos Securities, mister Ando, the floor is yours. Thank you. Hello. Can you hear my voice?
Yes. We hear you. Thank you. Thank you for this opportunity. I would like to ask two questions as well.
My first question, it's on page four. You explained page four and you talked about the overseas operating income margin. You explained that, well, there was review of business environment in Brazil, you talked about impairment loss and also delay shift to value services. So impairment loss and getting a shift to high value services. Can you be more concrete?
What specifically are you talking about? I would appreciate your comments on that point. And also next, with regard to NTT Limited, I believe you're trying to pursue transformation streamlining as well as integration. But in the past three months, what has been the update of those efforts? And also inclusive of the impact of COVID-nineteen, what about the outlook for cost?
I think you'll be able to control the cost to a certain degree. But what changes are you noting in the recent on this front? I would appreciate your explanation on those points. Thank you for your question, Dan. So I talked about the change in external environment for Brazil.
That was already probably addressed by NTD data as well. But this relates to Soco simulator. We procured equipment and they were held as assets. But then the law in Brazil changed and that device could no longer be used. So we have to take that off this inventory.
So as a result, about JPY 5,000,000,000 had to be incurred to review the business. So there was JPY 5,000,000,000 loss. And also, I talked about minimizing future cost. Entity Security is a wholesale company, but already the goodwill has been depreciated at Entity Security. The thing is though, the sales is not all that robust at this moment.
So we want to reduce the assets and that was the instruction or put forth by our accountant. So JPY 4,000,000,000 shrinking of our assets and that took place. So in terms of a shift to high value added services and high profitable and more profitable business, I talked about the delay in the shift. In terms of NTT Limited and their business environment, North America and Africa, they are not all that positive at this moment. As for North America, already in the North America just selling a Cisco type of systems per se is no longer all that profitable.
So it's important that we migrate to managed services and security services which can be even more profitable. The thing is though, we are not yet there. We're not there yet. So that's what I described as so called delay in the shift to those services. The impact is roughly JPY 3,000,000,000.
And also we have JPY 3,000,000,000 negative impact from currency foreign exchange. So roughly JPY 16,000,000,000 is the negative impact in terms of the global business. So 5,000,000,000 yen 4,000,000,000 yen 3,000,000,000 yen foreign exchange. If you add that altogether, that's the situation. As for NTT Limited, you asked about the integration at Entity Limited.
In principle, well, there are many different elements, but we are trying to introduce IT within two years and that's on track as far as this particular item is concerned. But because of the impact of COVID-nineteen, there has been some delay especially when it comes in terms of changing the signage. For example, the regional companies, they have to change their name to NTT and since there are several 100 such companies, roughly maybe dozens or close to 20 such companies, they're changing the title or the name of the company has been deferred. And the regulators in those places are not yet all that active. So that is the reason for the delay and the change in the name and the title of the company.
Now as for the cost, this was covered in the first question. Since profit is going down, we are accelerating our streamlining efforts. So there is an incurred cost to pursue and accelerate streamlining. So that has been the positive. Now in fiscal year twenty twenty, which will end March 2021, JPY 20,000,000,000 decline in both facilities and human personnel are expected.
So therefore, we are controlling the relevant expenses. Thank you very much for that. Let me go on to my second question. Again, I apologize for asking a COVID-nineteen related question. NTT East West and NTT Communications.
What has been the impact of COVID-nineteen in those three companies aside from traffic? What has been the impact of COVID-nineteen for those three aforementioned group companies? I appreciate your explanation. Data DoCoMo, they've already explained the impact of COVID-nineteen performance. So, East, West and entity communications has been the net effect of COVID-nineteen for those three companies.
Thank you. I thank you for that question. Let me respond. As for entity East, West and entity communications, data traffic and phone traffic, it hasn't been that affected because of the fact that most of the systems involve flat rate charges. But when it comes to networks, in April, it's just there was a pickup in the demand for fiber.
But up until March, we really did not note much change. So we haven't really seen much movements there. The expectation is that maybe due to telework and working from home, hopefully the demand for fiber could increase. In April, you get a slight increase, but it's not exponential growth at this juncture. But the issue is system integration.
Entity East West, Entity locations, they have system integration business. So new orders for system integration. We don't see very active pipeline at this juncture. That is one source of concern. And also when we look ahead,
various
companies are now trying to reduce their costs and also they're trying to reduce their budget and that's pursuing streamlining. So communication services provided by entities East Western Communications, it could be that those companies would be coming to those companies to reduce the cost. That's a possibility. And but we're not yet able to estimate the potentiality of the scenario at this juncture. Thank you.
Thank you.
Thank you very much. We'd like to take the next question. Next will be Citigroup Security. Mr. Todo, please go ahead with your question.
Hello or good evening. This is Todo from Citigroup Securities. My first question is additional question related to Mr. Ando's question. First question, The overseas ICT business environment, when we think about that limited and also that data, the structural reform, what is the possibility of doing that?
Meaning that in Japan, teleworking is not progressing that much. So this COVID-nineteen to the ICT business, maybe we don't have to be that pessimistic. But for the overseas or international business, It's not that the ICT business was not going behind. So it seems that the BOP type of business will decline, so I'm concerned. And this may be part of the forecast of this fiscal year, but the possibility of structural reform, can you answer as much as you can?
Thank you very much. In data, data Japan business, recurring business is about 70%. For overseas, it's about 60% is what I hear. And basically, the orders that we have received up to this point is going to continue. That's the structure.
So within overseas SI business, the question is what happens to the new orders? As I had mentioned before, including the Japan's new orders, recently, I have not just split up data and explain it, but the annual sales is about JPY 500,000,000,000 when we look at the tradition. And there is the backlog of orders for data. And for the first half and second half that is going to turn into cash as we move along. So in that sense, for the data of the changes is limited.
For the limited side, about half of it is selling products. And of course, there's a lot of recurring on that side of the business too, but that sometimes will not reorder the product or they wanted to streamline the order or they will not place new orders. There's a possibility of such. So that is a bit dangerous. But in the subsidiary company, we have a company called Alcogen, which provides a service of teleconference and web conference and they are having a very strong performance.
March, April performance compared to the previous year, they are achieving large numbers. So it's a plus and minus in factors that can offset each other for the overseas unlimited business too. But when we look at the overall picture, of course, they're in a tougher situation than the Japan situation. Okay, understood. Thank you very much.
That was a good reference. The second is regarding free cash flow. From two years ago, when you compare two years ago and last year, and looking at the cash statement, it seems that the free cash flow has improved by large. I would like to know the background of it. Maybe there's accounting characteristics to it.
So I'd like that briefly explained. And regarding this fiscal year, I'd like to hear about your basic way of thinking or outlook as much as possible. This is Hiroi speaking. Firo san, are you talking about are you looking at the consolidated cash flow material and asking your question? Yes, I'm looking at BNS balance sheet, the free cash flow.
Yes, there are lot that is improving. However, the one thing or the one major reason is that if you look at the DOCOMO numbers, you will understand it. The working capital, there's no inventory assets has improved by large, that's one point. And also another point is that the handset compared to the previous year is not selling large, so the receivables have been downsized. So because of those impacts, final free cash flow, the working capital improvement compared to last fiscal year, this fiscal year, fiscal year 2019, it's actually working on an improvement of so if you look at the financial statement, if you look at the financial statement to cash flow, there's the share buyback, a little bit of impact on share buyback and also DOCOMO's share buyback has an impact quite a bit.
So we are financing that through borrowing. So the interest bearing borrowing on the right hand side, you'll see it increasing. So for the actuals, I understand. So there's no special reason. I mean that basically, the overall cash flow has improved is my understanding.
Well, one reason is that the handset sales is not doing so well. But for this year, how should we look at it? Well, this fiscal year, we are not announcing any forecast. So it's difficult to answer that question. But within the just ended fiscal year, something that I have to answer is that within the cash flow, if you look at the EBITDA numbers, it's worsening.
So the other areas other than EBITDA, the operating cash flow is improving. So the base, this is a qualitative way of explaining, DOCOMO and also regional telecommunications at the center are taking the lead. We would like to improve it so that they'll be able to generate a satisfactory level of cash. And because of COVID-nineteen, we don't have a clear vision of the future that much. But as the president CEO explained, we would like to control have good control and we just have to see the impact of COVID nineteen.
So it's very difficult for me to give you a solid answer. So can you forgive me with this? And just one more thing. Entity East and West, the business plan has been submitted recently submitted last fiscal year. So the effort is to lower it.
The business plan for approval the CapEx a level that's written in there regarding the COVID nineteen impact we are looking at in a flexible manner and respond in a flexible manner regarding Understood. Thank you very much.
Thank you very much. Next question, please. Next from Mitsubishi of j Morgan Stanley. Mister Tanaka. The floor is yours.
Mister Tanaka. Thank you. Tanaka here. Can you hear my voice? Yes.
Please go ahead with your question. Thank you. I would like to return to the topic of NTG Limited once again. Right Now I'm looking at the supplementary data page six. And we I'm looking at the group specific summaries.
So when we took a look at NTG Limited group for the period just ended, I'm taking a look at the operating revenue from second quarter onwards. And on a year to year basis, we see a quarterly drop on quarter on quarter basis. You mentioned the delay in the shift to high value services. But in real terms, sales at a phase where you're showing decline on a year on year basis, is that not problematic? How do you see the quarter on quarter sales trend?
Thank you for the question. Well, on a quarterly basis, I think it's more heavily skewed toward the second half. That is because a business a business structural reform costs are more expanded towards the second half. And also we talked about the cost for streamlining. We've had to bring forward the voluntary retirement programs in certain cases.
So that has also added some cost. And also, I mentioned earlier, but in The US and in Africa, some we are seeing areas whereby sales are not expanding. So that has come that has had some creeping effect. So that is why it seems as though there is a drop in sales, especially towards the second half. You're talking about profit, but what about you talked about profit, but what about operating revenue?
I'm talking about sales. On a quarter on quarter basis, it seems that the operating revenues are coming down. Does that represent the fact that sales are struggling? Is that the reason? Is that the only reason?
Or do you think that this is par for the course? Thank you, Shiroi for Finance and Accounting. Let me respond to your question. Yes, on a quarterly basis, especially for the fourth quarter, it seems as though that the operating revenue sales are decelerating. I know it looks that way.
But in the case of the fourth quarter, I think we have significant impact from the stronger yen. So that effect, that impact was there in the fourth quarter to begin with. And also as Mr. Sabad already explained, in places like North America and in other regions as well, system integration related revenues are slowing down. So I think that accounts for the 50% of the impact roughly speaking.
That is how we look at the situation. So as far as the currency is concerned is concerned, emergency emerging economy currencies indicates of former dimension data, they were very active and had sales in emerging markets. And those emerging economies currencies because of COVID-nineteen had become much weaker against the US dollar. So I think that also that was also a significant factor when we do a quarter on quarter comparison. I see.
Thank you very much. And also just one more point, if I could ask one more thing. In the past or even now, you're trying to pursue expand the cloud services for NTT outside Japan. In The US, you have the likes of Google's and Amazon's. So these companies are still growing.
So against the backdrop, NGC Group's cloud service, can they really be on par and compete with the likes of Amazon and Google? How confident are you if you can share with us your confidence? Thank you for the question. As far as the cloud is concerned, as Mr. Tanaka mentioned, well, a couple of years ago, various players were trying to tackle the cloud service.
And back then, we have the public cloud and the public cloud and there were many, many parties that were involved. So therefore, we were emphasizing this area. But in the case of public cloud, I think we have consolidated them to Amazon, AWS, and Google, I think, and Microsoft Azure. So there's a consolidation in the marketplace. So technical power, financing power, and the sales power and financial strength.
All of these factors came together. And in the case of the public cloud market, we see three major powerhouses. So we have to consider whether or we should take take on these players straight on. So rather we should engage our customers and offer a hybrid cloud combination of public, private and on premise clouds. So just depending on the depending on the request of the customers, that's what we're selling.
Now the private cloud part, we have the ECL that is being provided by NGT communications. But sometimes customers want AWS, Azure naturally. And we make sure that we're able to accept those inquiries and requirements. We also have the software to connect them to our system. So that being the case, we are seeing progress in our cloud business.
But we have seen shift in our directionality and our course. So it's it's not so much that we're brushing up our own cloud and trying to sell our own cloud cloud service only. Also, in relation to Microsoft, we have already begun alliance and cooperation with Microsoft. So our public cloud is now the public cloud is now being accessible to Azure. So we want to make sure that we are able to offer more higher value added services.
Thank you. Thank you for the response.
Thank you very much. We would like to take the next question. Next will be JPMorgan Stanley. Mr. Tanabe, please go ahead.
This is Tanabe from JPMorgan Stanley Securities. I have two questions also. Please go ahead. Regarding share buyback, there's no announcement regarding that. And without the forecast, maybe it might be difficult, but in the material, it says undecided yet and to be decided.
So as usual, you're just saying that you're not saying that you're not going to do it. So from last year, you have been planning. And within that process, what are you thinking about the share buyback and this COVID-nineteen situation? Has that changed your plan for share buyback is what I would like to know? And also given that the COVID-nineteen situation, once it becomes clear and you will be able to establish a forecast and let's say the performance is not doing so well and it's going towards deterioration against the forecast.
Are you going to not do a share buyback or it does contribute to the increase of EPS, so you're still going to conduct a share buyback? Can you please share your thoughts? Thank you very much. Basically, even though with the COVID-nineteen, the way we think has not changed. Globally, it seems that the share buyback has been actively conducted.
But as I have been explaining from before for us, our basic shareholder return is the continuing increase in dividend. And in order to continue that, the number of shares we purchasing it and canceling them, that is also linked to the shareholder return. So this share buyback and dividend is implemented as a set is how we look at it. And that way of thinking has not changed. But as you, Mr.
Tanabe mentioned, at this point, our business plan itself, we need to look at it at a higher probability and in a more rational stance. So once we get a clear picture and be able to do that, then we would like to make announcement. So if we're asked whether we're going to conduct a share buyback this year, we will probably like to respond it as we have been doing up to this point. Okay, understood. Thank you very much.
My second question is regarding the way of thinking of CapEx. Before, you were saying that for the fixed line services within Japan, it is within the control. But at the ended term, it seems that there's about JPY 100,000,000,000 increase. And even on consolidated basis too, there's about JPY 100,000,000,000 increase. So this fiscal year is a way of thinking.
The other businesses, if that is going to continue to increase or is it going to maintain as it is, probably Dokomo, they'll be able to control their CapEx, meaning that they won't be spending. So the basic way of thinking is flat is what I think. So depending on the the situation recovers, maybe you want we may want to accelerate your plans. So including this factor, is there going to be increase in CapEx somewhere else or is it going to decrease? If there are any plans, please share that with me.
Thank you very much. As I have explained to you, the network investment, entity East, West and DOCOMO's network investment, we look at it and set a target as a CapEx to sell number and controlling that number. And for this fiscal year, it's not that high and it's almost flat. And next year will be under 13.5% and that is the target. And as you have pointed out right now, whether there's others that are increasing or decreasing, the major point is real estate including overseas.
We created urban solutions. So if there's a good residence or property or office property, we like them to live actively. And another major point is the data centers depending on the demand. Well, with the COVID-nineteen, the deals are falling behind schedule. But for the other areas, SBC would like to make it into special purpose company or off balance the assets.
We like to use other companies' cash to and treat these assets. So for fiscal year twenty nineteen, urban development is increasing and DOCOMO, in order to start the commercial service of five gs, they have developed base stations, large number base stations, so they are spending a bit more. That is the fact. So as the overall outlook, that's maybe there's some things that will fall behind due to COVID nineteen, but your intention is to making it flat in terms of CapEx. Well, network investment would like to suppress it, But the total amount for DOCOMO in five gs, they're saying they'll spend 1,000,000,000,000 yen in five years, but we would like to lower than what it is, what they're spending currently.
But real estate and data centers, have other large assets and if we include that it will go up and down. So we will rather utilize other people's capital or cash and treat these assets. Okay, thank you very much. Understood.
Thank you very much. Next question please. Next from SMBC Nikko Securities, Chief Mr. Kikuchi, the floor is yours. Thank you.
Kikuchi here. I would like to ask the questions as well. So my first the first part of my question, this might actually overlap with some of the earlier questions. Please bear with me. So the impact of COVID-nineteen, your global business, do you think that this requires further resilience related measures?
And also have you been I suppose there's some potentially vulnerable areas of your business has not become visible as a result of COVID nineteen and also that is the case, what can entity holding company do against those against the situation? And if possible, in the past, the management of dimension date, There's some reports about the former management of Dimension Data. If you have any thoughts about that, I would appreciate it. That's my first question. Thank you for the question.
First of all, with regard to the impact of COVID nineteen, is there any need to review the business operations as a result of COVID-nineteen? It's not so much that this was triggered by COVID-nineteen. Originally, NTT Limited has been shifting or has been aspiring to shift to a more higher value added services. So remote and online solutions, this is very much amenable to what happened as a result of COVID-nineteen. So that being the case, the external environment was actually improved as a result of COVID-nineteen.
As far as the data is concerned, they're trying to pursue engagement then digitalization. That has been the policy which I have been requesting they take and that's the policy which they are following. So here again, digitalization of customers. This was also very much in sync with what's taking place as a result of COVID-nineteen. So it's not so much that we're changing because of COVID-nineteen.
With regard to the buyout, buyout. This is about Africa. This is not yet determined. She asked about the buyout of the but inclusive of this option where various options are being considered. In Africa, the there are some difficulties on a country by country basis.
So we need to carefully give this matter consideration. I see. So as far as Europe and US are concerned, North America are is concerned, You're not changing you're not considering any change to the US team's play. No. I have no such intentions.
In the case of Africa, the name of the mentioned data still remains in Africa. But aside from Africa, it's all been changed to NTT Limited or anti American so forth. So the name has been changed. So that is the situation. Thank you.
My second question. Today, you announced the personnel with regard to various entity groups. And also with regard to I know that you are delegating many of the decisions to the operating companies. But as far as NGO holder companies concerned was it, is there an intention behind the recently announced personal changes within the group companies? And also, I think during the March 11, there was a delay in the personal management.
What about this summer? Did she give special considerations for the personal management this summer round? As far as personal is concerned, is there any intention? It's very difficult is is there is there a clear intention? Very difficult to say.
Mister Yi, the senior executive vice president has been changed, has not been shifted to senior executive vice president for DOCOMO. Of course, I think we need greater coordination between the hotel holding company. That indicates Mr. Yi, senior executive vice president was responsible for global procurement and he has he's very skillful in various discussions with outside parties. I think he is appropriate.
Now as for the rest, you're probably familiar but at a certain timing because of the age consideration and so forth, we might seek to bring on a younger team. So that trend was properly considered by the various group companies. Thank you. Thank you.
Thank you very much. I'd like to take the next question. Next UBS Securities. Mr. Takahashi, please go ahead.
This is Takahashi speaking. I have one question regarding the COVID-nineteen impact for the major operating companies. We did receive an explanation of the impact for them. But for the other businesses segment, subsidiary companies, for example, is there a company that will be impacted largely? So the companies other than the major operating companies, businesses, can you give an explanation?
For the others segment, what we are most concerned and what we review all the time is the urban solutions, which is the real estate related, especially making urban development. We believe that moving forward that the real estate situation is going to change and before that, this March till April in Kyoto, we were scheduled to open three hotels. However, due to this COVID-nineteen situation, we had to postpone the opening. Originally, these hotels were going to be luxurious hotels with higher room rate. Even though the size is small, but it was going to be such a hotel, Meaning that this is not targeting a large audience.
And from the city of Kyoto, we received a comment that if it is such a hotel, we'll definitely like you to construct such a hotel. But as you know, the hotel industry are due to this situation, they're struggling. And also the tenants, for example, many there are many restaurants and they are struggling. And in addition to that, they are receiving request to lower the rent. So with that, several billion yen will be impacted is what we think.
Other than real estate business, we don't have to be that worried. Power business will not be impacted that much. ComWare finance. ComWare, they do little bit of external SI business, but it's not going to be largely impacted. And InfraNet, there is some delay of the construction work about it's a company about JPY 50,000,000,000 size.
So I don't think they will be impacted largely also. That's about it. Okay, understood. Thank you. Thank you very much.
Thank you very much.
Next question, please. Next, Morgan Stanley, MUSA Securities. Mister Tsutsaka, the floor is yours. Thank you. Tsutsaka here.
Thank you. I just have one question. Well, turning to your global business. We had the mid inter management strategy. In order to achieve the targets thereof, I think you need to maybe bold a change in your strategy.
That's my question. Do you think that that there's a need for bold change in your strategy? No. So as a result of COVID nineteen, Maybe you could use COVID nineteen to bring up a structural change against this environment. What are your thoughts about leveraging COVID nineteen to build a structural change to be more specific?
Right now you have about 20,000,000,000 sales and the profit is about half billion, even less than half billion at this juncture. In order to achieve the plan, then going forward, you need the increment of $5,000,000,000 in sales and also you also need to improve your profit by $1,000,000,000 in order to achieve the target. Right now, you are at $20,000,000,000 very little profit. So from this point onwards, know, to achieve the financial targets in the management strategy, how do you intend to achieve 5,000,000,000 sales and also 1,000,000,000 increase in profit? It seems to be quite inconceivable as a scenario as far as I'm concerned.
But do you intend do you think that do you intend to undertake bold strategy going forward? Thank you for your question. I'm not sure whether or not this would be equivalent to a so called bold strategy. But high value added service security data centers, they account for roughly 30% of our revenues. So by '23, we want to increase this up to 50%.
So 30% margin is they include services with high margins such as 15% to 20%. So how far can we include such higher profitable services? The remaining 70% to 80% of the sales don't have much margin. That's about I'm talking about entity limited here, but so the 70% of the sales I'm talking about, this probably is more or less to sales of physical products. So how can we shift to high value services?
So it comes down to the issue of personnel. So we have to consider the issue from the management side question as well. Now turning to NTT data, we have seen increase in personnel and outsourcing type of business. In the case of Everest, the margin is going down in these services. So how do we further reinforce governance?
That's what we have to consider. As for entity data, Senior Executive Vice President, Mr. Nishihata is going to return to the team. So I think that's in a sense very bold, something unprecedented for NTT data. But the keyword is management governance and shift to higher value added services.
So does that represent a bold business model? I'm not sure whether or that is a direct answer to your question, but that is the mentality that we have. I see. Thank you. I know that these things are not very visible right now.
And maybe it's very strange question for me to ask. But you're talking about lower margin business. It seems that you're involved in more or less lower margin business. And the business environment, if the business environment is dampened as a result of COVID-nineteen, then costs will come down. Sales might come down, but also costs might also come down.
So maybe doesn't have significant impact on bottom line. It's just the way you say things. Or do you believe that since you have 20,000,000,000 sales overseas, should we consider the risk that this could be a certain factor for the bottom line going forward? So how should we see the situation? Which of the scenario is more likely?
Well, as far as the operation is concerned, we're not just selling physical products. We are providing maintenance. And we're also offering management services, although maybe not, fairly advanced, but still we're offering management services. So just because of COVID nineteen doesn't mean that what we're doing is going to be disrupted. That is not the case.
But as you pointed out, there could be declining revenues. At the same time, the cost could also be coming down. Is that the case? I'm not sure whether or we can be all that optimistic. But we have parts that are recurring.
We were also selling physical products that may remain steady, but it could be that we may not see increase in demand in demand going forward. That might be the case. Have we have I responded to your question? No, that's fine.
Thank you
very much. Thank you.
Thank you very much. I'd like to take the next question. Are there anyone else who would like to ask a question? Those of you who have a question, please press 0 and 1. It seems that there are no other questions.
So with this, we would like to conclude the fiscal year twenty nineteen results briefing session. Thank you very much.