We would now like to start the briefing of NTT's fiscal year twenty nineteen third quarter results. Thank you very much for attending today despite your busy schedules. I am Hujiki from the IR office and will be facilitating today's session. First of all, I'd like to introduce the attendees for today's briefing. Mr.
Shimada, representative director, senior executive vice president, Hiroyi, member of the board, senior vice president, head of finance and accounting department Mr. Kitamura, member of the board, vice president, head of corporate strategy planning department. Moreover, persons from corporate strategy planning, finance and accounting, NGT East West and NGT Communications are also attending today. Today's briefing will be based on the presentation material that is posted on our company IR website. On the first page of the presentation material, the disclaimer is stated.
So please go through them. Today's briefing will be streamed real time on our company's website and later available through our website. Today's schedule, first of all, Senior Executive Vice President, Mr. Shmada will explain the outline of the results followed by taking questions from the floor. Mister Shimada, please go ahead.
Thank you very much. Shimada here. I would like to share with you the financial results for the nine months ended 12/31/2019. Please turn to page four of material. Page four.
Let me first start with the operating revenue and operating income. Operating revenue increased, but operating income declined. Operating revenue was $8.868862000000.000 yen, and this increased 67,500,000,000.0 yen. This is we reached the record third quarter levels. And for three years in a row, both domestic and overseas revenue increased.
As for operating income, it was 1,450,000,000,000.00 yen, which represents 76,700,000,000.0 yen decline year on year. On top of the drop in DOCOMO's income from decline in mobile communications service revenue because of the cost reduction related to consolidation and reorganization of global business, operating income declined year on year. We're making efforts so that we can actually exceed the annual plan. As far as the net profit is is concerned, it is 706,900,000,000.0 yen, which represents 4,800,000,000.0 yen increase year on year. As far as the net profit is is concerned, while operating income declined due to valuation gain from consolidation of entity, a subsidiary firm.
We realized increase in net profit year on year. As for overseas sales, it was $14,700,000,000 representing $700,000,000 increase year on year. As for overseas operating income margin, it was 2.5%. We are representing point six point decline year on year. As for our operating income margin is concerned, overseas operating margin went down due to growth investment for digital offering, delaying shift toward high value added and high profit margin service, and increased costs related to brand reinforcement.
As but we see slight improvement compared to the second quarter. As far as the quarterly profit plan is concerned, we do not disclose this. We're making effort actually, we're exceeding the plan the plan. Please turn to page four please, page five. Page five.
As far as operating revenue is concerned and operating income, I would like to explain if I may. With regard to mobile communications segment, this was already announced by DOCOMO. There was decline in operating income. Hence, with mobile communications service revenue and cost reduction, actually exceeds our plan, and we're making efforts so that we can actually exceed the annual target. As far as regional communication business is concerned, the upside there is the upside is that there is no longer the copper wire related loss which was recorded in fiscal twenty eighteen and achieved increase in operating and operating income year on year.
This is in line with our initial target, and we're making efforts to achieve the annual plan and exceed annual plan. As far as long distance insurance or communication business is concerned, while there is a robust growth question. In There's drop in operating income from costs related to reorganization of global business. Achieving the target may be somewhat challenging. However, we want to bring forward the timeline for a structural reform at Entity Limited.
As far as data communication business is concerned, well, there is robust growth in the size of the business both domestically and outside Japan, operating income was flat due to increase in growth investment as well as restructuring related expense for EMEA and Latin America. We're making efforts so that we can achieve the annual target. As for page six onwards, so we talk about topics. Just one highlight that I would like to make. And please turn to page seven.
Today, we announced the collaboration with Tokosentry Corporation on leasing a new field. This is covered in the press release. And the we're going to transfer lease leasing business to joint venture with Circus Century. That represents roughly 1,300,000,000,000.0 yen assets and liabilities of 1,200,000,000,000.0 yen. This will continue transfer to to joint venture with TC, which means that we'll be able to strike 1,200,000,000,000.0 yen worth of liabilities from our balance sheet.
And at the same time, we're going to be acquiring 10% of Tokyo Century stock. That was that was already announced as well. So that's all for my presentation. Thank you very much. Thank you very much.
Then we now like to take questions from the floor. As we have already indicated, we will take questions from those who have already registered beforehand and those who are connected to the phone conference system. I would like to invite the operator to explain to you how we can accept questions from now on.
I'd like to start the question and answer session. For those of you who have questions, please press 0 and 1. If you'd like to cancel your questions, please press 0 and 2. Now, I would like to start the QA session. For those of you who have questions, please press 0 and 1.
If you want to cancel your questions, please press 0 and 2.
From JPMorgan, mister Tanabe. The floor is here, sir. Thank you very much. Tanabe from JPMorgan. Thank you very much.
Just one question. I would like to ask this question. With regard to NGT Limited, it's about the status of NGT Limited. If we focus on third quarter alone, it seems that you're in the net the positive territory. So as you have pointed out consistently, I think they are actually trending toward the guidance which you have consistently set.
But if you could give us an update as to the status of and the limited against your internal plan. And also there's a fourth quarter remains and you have to achieve $48,000,000,000 in order to achieve the full year target. What is the outlook for achieving the full year target as you head toward the fourth quarter? I would appreciate your insight. And also, if you can give us a qualitative assessment.
What about the how do you see the progress of the integration so far? So update on the status of integration. Thank you very much, Shimada here, City of Connecticut vice president. I would like to respond to your question. So let me respond to the question cited by mister Tanabe.
As you pointed out, mister Tanabe, compared to the second quarter, the third quarter is now in the positive territory. We are seeing profit. On a cumulative basis, we still have 1,300,000,000.0 yen deficit, but it seems as though the numbers indicated in the third quarter, we're seeing improvement. But then having settled this, it doesn't mean that the all the expenses are reflected evenly from quarter to quarter. So let me share with you the current situation for this quarter.
So so transition to entity brand and also reorganization, this is in line with the plan. And around the world, entity brand mark is now going to be deployed. Now what we're tackling right now is this three things that we're tackling. And the first and the biggest point is actually streamlining and rationalization. We want to make transition to high profit high margin business.
Of course, we have to recruit talent, but at the same time, it's important that people with skills. We have to streamline people with outdated skills. And although at the same time, we have to address overhead as a result of integration because we must send down overhead as a result of integration. So in fiscal year twenty nineteen and 2020, over the two year period, we have the plan to address the situation. So I think 2,500 will be the subject, if you will, for streamlining.
That is the plan. And also for 2019, for fiscal year twenty nineteen, we want to bring forward the delivery of this plan as much as possible. And our understanding is that this is something that we'll tackle in fourth quarter. So we want to implement 7075% of the plan by the end of the full year. So therefore, there's going to be temporary cost that will be reflected in fourth quarter, it is likely.
Now up until the third quarter, I would say that 11,000,000,000 cost was incurred up until the third quarter for reorganization purposes. And also during the fourth quarter, perhaps the same level of cost could possibly arise. And also at the same time, on top of this, the second point that I would like to share with you. So we want to make transition to high profitable business, high margin business such as and we're trying to structure a expert sales team that can handle such high profit and higher margin service. And, also, we are also carrying out educational programs, training programs so that we can switch to these different set of skills.
And so we are revisiting ways in which we actually measure the employee base. For SD one, for example, network service is very well received by our customer base. We have such services, so we want to reinforce that furthermore. And the third point, data centers that it makes tremendous contribution to the profitability. We see very strong appetite for data center.
So therefore that indicates we want to bring forward the timeline for CapEx in data centers so that we can reinforce this program this year. So that indicates the progress of CapEx is quite advanced. So Frankfurt, Berlin, Madrid, such places in Europe and also in The United States, Virginia, Phoenix and also Mumbai in India. In these places, we want to reinforce our data center business. So these three points, it's important that we implement this in a safest manner as we have planned.
And by doing that, then we believe that we'll be able to achieve a recovery. That is all. Thank you very much. Thank you very much. If I could just clarify and confirm, it's about the cost.
So cost required for reorganization purpose. You mentioned 11,000,000,000 for up until the third quarter. You mentioned that 11,000,000,000 for the fourth quarter as well. Well, I cannot give you the accurate numbers with regards to streamlining and rationalization. To what extent are we going to able are we able to to implement by the end of this full year?
This will dictate to the cost. It could be that some of that program will actually take place in the following year. But we hope that we'll be able to do as much this fiscal year so that we'll be able to contribute to a turnaround in the next fiscal year. So so this is a possibility that there could be a large of one one off one off large expenses during the fourth quarter. Well, if things progress in a smooth manner, it is likely that similar level of cost per year could be reflect and recorded in the fourth quarter.
Thank you very much for that.
Thank you very much. I'd like to take the next question. Citigroup Securities. Mister Thrill, please go ahead. And thank you very much for the question opportunity.
My name is Thrill from Citi Securities. The first question is that, let me confirm the progress up to the third quarter against the internal plan, the progress on a company wide basis, how is it as one division? As you have explained, NGT Limited, NGT Communications division seems like they're slightly struggling. However, the overall progress, how is it? The reason why I ask this is because looking at the operating income up to third quarter, it was 5% decline.
Full year, it's close to be 9% decline. That's the guidance. So it seems that the progress, even though there is a reduction in the profit, how is it right now? This is Shimada speaking. As you, mister Turo pointed out, the progress is going at a satisfactory level.
Docomo? The current new rate shift as DOCOMO has already announced, overall, it is progressing satisfactory. Actually, it's slightly behind than the initial expectations. And due to that, we are having a positive profit or upside. And regarding NTT East and West, the cost reduction is progressing as planned, and we are expecting a further increase in profit.
And as you have pointed out, of course, this is a plan that regarding NTT Limited through rationalization, we like to front load it and there are some costs related to that and for NTT data as they have already announced, fiscal year twenty twenty one EBIT margin, they're aiming for 7% and they're strengthening their businesses. Therefore, they would like to put importance on the midterm. Therefore, this fiscal year's cost related to measures to be implemented. They would like to implement that to respond to the new businesses and also replace the personnel and they want to strengthen the foundation. And thinking about that, it is a tough situation but hopefully, we like them to bring it up to their plan numbers.
So at this point, they are progressing at a satisfactory level. Thank you very much. And my second question in regarding this year, we have already passed that ten months plus. So regarding the next fiscal year, put aside the numbers. Well, having said that you have a midterm target already set.
But looking at the various results, positive and negative factors, if you can summarize that for me. Well, the business plans are going to be established moving forward from now, so it's hard to share with you details. However, regarding NTT DOCOMO, this year is the bottom. And from now on they're planning to increase and regarding entities and west they are aiming for further increase in profit Therefore, these areas are quite stable. As for the global business for NTT Limited, as I mentioned before, this year, they would like to accelerate the pace of the rationalization.
Therefore, next fiscal year, the burden they have to bear is not going to be reduced is what I think. However, in order to roll out a new business, they will have to have an appropriate hiring of new talent. Therefore, still there are some risks that exist regarding NTT data. If they're able to fully prepare this year, I believe that next fiscal year onwards they'll be able to have a stable growth. Therefore, in the overall picture, I believe we'll be able to be on the growing pay path.
Thank you very much. Well understood.
Thank you very much. We'd like to take the next question now. Next from Dura Securities, mister Ando, the floor is yours. Thank you very much. Ando here.
Thank you for taking my question. I would also I would also like to ask two questions. My first question is this. Well, with regard to the fourth quarter well, correction, up the progress of profit up until the third quarter, when it comes to regional communication business, it seems to be quite high. So progress to end plan is quite strong.
But you have not revised your projection for the full year. Do you believe that you'll be able to end the full year on such on such a strong note for the regional communication business? If that is the case, then what are the factors? And what do you actually envision for the results in terms of the end of the full year? Thank you.
Shimada here. Yes. So regarding regional communication business, primarily NTD, Stone West, as far as this this segment is concerned. In principle, we believe that the current trend will continue as we had told the end of the year. But at the same time, there are several expenses that are being incurred reflecting our policy.
For example, in relation to urban solutions, we have to actually take down certain buildings in order to spur urban solutions. So inclusive of that, we have to consider the outlook. I think we have to take on what is needed so that we can drive and create the base for future growth. But as far as the overall general trend is concerned, we believe that the current trend will continue. I have responded to your question, hopefully.
Oh, thank you. So you talked about the current trend. Do you believe that the strong trend will continue? So do do we you you said what you mean? Yes.
I think the positive trend and the positive situation will continue. That is what I meant. Thank you very much for that. My second question is about the global business. I know that through reorganization of the internal structure, you're trying to reorganize the situation.
But when you consider, your strength is in the managed services and also data centers. The competitive so the perspective of competitive competitive competitiveness of your strength, has that perspective really changed? Do you believe that the competitiveness has actually strengthened? So can you talk how do you intend to respond to this changing situation being mindful of the state of your competitiveness in these areas? Thank you.
Thank you very much. First, with regards to network related services, SD WAN will be the core of our global business going forward. And so the differentiation of our technology in this segment and also the operational capability in this area, these are very highly received by our customer base. So that being the case, I believe that we are indeed more than sufficiently competitive in this area. In terms of managed services, we have high expectation for potential growth.
But then in order to realize scalability, we need talent that can support that. So we need to recruit such talent. And also, we need to secure human resources that I believe will be the key factor from now. But as things stand, we are very much in line with our plan as far as the competitiveness over the data center business is concerned. Well, Equinix and the there are global we are competing with them globally with players such Equinix and so forth.
So that being the case, we are carrying our capital investment at a very risk pace. Well, they're carrying a capital investment at a risk pace, so we need to catch up with them. So this year, we have indeed increased our investment in this area. But at the same time, while we need to expand our footprint, at the same time, we need to improve the capital efficiency, investment efficiency into facilities, for example, translating some of the buildings into REITs inclusive possible sell offs. We also need to transition to a different model.
Thank you very much. That is all. Thank you very much for that.
Thank you very much. I'd like to take the next question. Are there anyone who have questions for the those of you who have questions, please press 01. For those of you who have questions, please press 01. Nomura Securities.
Mister Masno, please go ahead. Hello. This is Masno speaking. Can you hear me? Yes.
We can hear you. I have several questions. First of all, I'd like to ask from NTT East and West. NTT East looking at their actuals, the system integration business is doing quite strongly, performing quite strongly. So if we go into the fourth quarter like this and if they can come out with a profit level as they did last fourth quarter, I think it's a satisfactory performance.
But for the fourth quarter, there's always some measures to be implemented. But if there's something unique about NTT East, or is it alright to just think that it is going to go as planned? Please comment about NTT East first. This is Shimada speaking. First of all, regarding NTT East, we're not thinking anything unique or special.
However, as I have mentioned before, the removing the real estate property, and this year is the Olympic and Paralympic games. So there will be some costs related to responding to these games. Of course, this is not going to be a large increase in cost. That is our understanding. Okay.
Then next about NTT West. Looking at accumulative nine months profit, it has already reached a high level. In the fourth quarter, they made a loss last year. So based on the company's plan, if they don't make a large loss, I think that they are performing in a satisfactory level. So any comments on NTT West?
Well, NTT West, they have a disposal of the real estate or property is what I have heard. But other than that, I understand that there's nothing else. Understood. So regarding NTG East and West, next year, they will continue cost reduction and you will be expecting a satisfactory level of a profit. But are there any drivers for the two for the next fiscal year?
This is Shimada speaking. Well, basically, regarding NTT East and West for the fixed line communications business, it's going to continue to decline. So we need to work on further promotion of improving efficiency and we are working on the digital transformation projects now. So bonding to the improving deficiency of the personnel side by surely implementing automation, we'll be able to reduce the cost. Of course, the new agriculture or forestry or esports businesses are something we are taking on a new challenge.
However, these are not immediately going to provide us with a large profit. The initial years are not going to be like that. So first is to steadily progress and cost reduction. Okay. I think you're going to stack up the cost reduction by the assured procurement or the integration of the system of entities and West.
And as the government council is discussing, discussing the universal service being able to partially provide that wireless or mobile, what is going to happen in the future? For the system side, the NTD East and West by integrating them and having it shared, I will be able to achieve additional transformation and that is going to surely provide us with certain outcomes. Are you utilizing wireless system for the fixed line service for disaster measures. If we can use this for this as a disaster measure, it is going to contribute to a quite of a large cost reduction. However, the discussions regarding that relates to the revision of the law itself.
So it is going to take a certain amount of time. So this year, let's say there is a revision of the law and after that there are some government ordinances that that still need to be revised also or established. Therefore, to see the actual result of this, we believe that it's going to take several years still. Oh, and is it the shared procurement And regarding that, of course, we will see some benefits generated from this. It seems that there are some criticism towards this.
However, to begin with, when the regulations were established initially, the environment has been totally changing. So for the wholesale provision of the service, they'll be able to reduce the cost. So we would like to be able to surely that to be used. Okay. Thank you very much.
And regarding the global business, you have some integration costs that appeared and it's about 50 75% would be completed this year. Next year, there's about 25. So there's 11,000,000,000 and 11,000,000,000 total 22,000,000,000 of structural reform costs. There's 22,000,000,000 in total, but this cost part next fiscal year is going to be quite reduced. Is that how I think?
So I just wanted to confirm that with you. Shimada again speaking. You are right. This fiscal year's structural reforms, it's not just streamlining a rationalization, but we'll be able to surely expect the benefit from rationalization. Whether that's going to go into fiscal year 2022, this is something we need to look into the details to the year end.
But for sure, just the personnel side, fiscal 2021, it's about $250,000,000 worth of benefit. And for the other cost reductions, already, we have achieved about we already have a plan of 100,000,000. So what we see for the near future is that as for fiscal year twenty one will be 350,000,000 US dollars worth of cost reductions will be surely completed. Can I confirm the $350,000,000? So that's including that the 22,000,000,000 yen that you're spending this year is going to be removed from that.
Okay. So in net terms, there's about $120,000,000 worth of a cost reduction that we can expect. Yes. You are right. Okay.
Understood. And last question regarding investment towards a growth area. You were talking about the data center business previously, and it seems that the demand is quite strong. So turning that into a reach, around when are you going to start to do that? First of all, I'd to ask about this point.
Putting the data centers into the reach or selling the reach, data selling the data center is something we are thinking of, but in order to further grow not just using our own capital, but also use a third party capital so that we'll be able to accelerate this business than originally planned. These are the measures that we can think of. So it's either structured into a REIT or sell them. Constructing the data centers and when we have a full data center with customers, turning that into a reach or selling it is where we'll gain the most profit for the development cost that we have spent. And we already have such a property.
So at what timing this will be done? Well, we cannot lose against our competitors. So we need to think of our positioning in terms of the competitiveness and think of the appropriate party to sell or structuring it into a reach. So in these terms, we are already in a situation to be able to do that next year, but we would like to cautiously consider this. Okay.
Lastly, the improvement of ROIC or securitization of assets. At DocoMo starting from next fiscal year in full scare, you will be securitizing the receivables and also the lease liabilities you'll be working on off balancing it. Are there any other assets that will come under the scope? Well, Docomo's receivables, finances, and leasing business. Anything other than those two?
The data center turning into a REIT, I think that could be considered. But are there any cluster of assets that will fall under this scheme? Well, see just speaking of what we hold now, as you, mister Massino, have pointed out, data centers, real estate and real estate, especially the real estate business overseas. We have been selling them and gaining developing development profit. So that type of a real estate business will become one of the candidates.
Sorry. Sorry. This is Hiroy speaking. If I may add, Alison, our company, there are some unnecessary expansion of the working capital and there are assets that we're not using. So those type of assets, if we sell them, and it's not that we are gaining a lot of revenue from that.
They're just pressuring the So we like to sell them off quickly. So the credit card of Dokomo credit card receivables of Dokomo. And, of course, I don't know how this receivables or securitization program is going to become, but that is expanding. So these things will become a candidate.
And in the business, there's a long term fixed assets that generating revenue. But if we remove them, there are some assets that have a negative impact on the profit side. Therefore, the assets that have liquidity is something that we would like to determine and sell off the ones that have a low level of a revenue. And that is the precondition or the assumption that we make for this. Okay?
So urban development from four or five years ago, Boston and London, cities in all in overseas like Australia, they are doing something like that. They have assets. So if you can make a profit out of that, those are properties. And if it matches the conditions that you have just shared with, that you might be working on that. Well, already the property in London, we have sold that off and we have gained capital gains from that.
So we have been doing such a thing up till now and we would like to further accelerate these type of efforts going forward. Thank you very much. It was long, but thank you.
Thank you very much. Next question, please. Are there any other questions? If you wish to ask a question, please press 0 followed by 1. If you wish to ask a question, please press 0 followed by 1.
Next question from UBS Securities. Mister Takahashi, you have the floor. Thank you very much. Takahashi from UBS. I would like to ask one question, if I may.
So it's about NTT Limited. You talked about streamlining and rationalization cost. You said you talked about the cost involved. On the other hand, though, what about this progress How do you see the current sales figures?
And also, as you head toward the full year target, what is the current situation? If you could please share us if you could please share with us your update and your thoughts. Thank you. Thank you. Shimada here.
As far as sales is concerned well, as far as this fiscal year is concerned, there has been significant impact from the foreign exchange. Exchange. So our overseas sales volume has increased by 39,200,000,000.0. However, there's been impact of foreign currency in the order of 61,500,000,000.0 yen. So if you exclude that impact, the operating revenue should have increased by a 100,000,000,000 yen.
So so as far as sales are concerned, it's very robust and very strong. That is how we see it. So has there been any what has there been any, if you will, gap, if you will, in in terms of how you forecasted the competitive landscape? Well, as far as the competitive landscape is concerned well, how can I put it? Have have we made any if you missed projections, if you will, in terms of the how the competition played out?
But as I mentioned earlier, with regard to the data center business, we have seen even greater appetite. There has been greater inquiries and greater inquiries with regard to data center. And the competition against the backdrop is responding to those increasing increase in interest. So it's important that we we match our delivery in line with the demand out there. So with regard to sales and with regard to order taking is concerned, I think we still have a very positive environment to this.
Thank you very much. Appreciate it. Thank you very much. We would like to take next question, please. Next question from Dawa Securities, mister Ando.
Mister Ando, you have the floor. Thank you very much. I know that this my second round. Just one question, if I may. It's about the equal pay equal equal work equal pay that is going to be introduced.
So in your company, how are you responding to the introduction of this new system? And how do you see the potential impact on the cost? If you could just share with us some thoughts about this, I would appreciate it. Thank you. Thank you very much.
Shimada here. Let me respond. So EcoWork, EcoBay, as far as how we we respond to this matter is concerned, actually, as far as two years ago already at that stage, we have had significant discussions with our labor union. And actually, for example, every fiscal year, for each fiscal year, with regard to welfare, we welfare and benefits, we've actually tried to eek equalize those that are offered to regular workers and non regular workers. And also when it comes to the end of the year, with regard to benefits, we are trying to discuss and revisit these these issues together with members of our labor union.
Actually, when it comes to the core matters, the core section, for example, housing and such, right now, there has been a discrepancy saying the court precedents and the court decisions. So, therefore, it seems that there's a gap as to how there's a gap, if you will, in terms of the court court decisions up until now. So the so once the government issues its direction, then we need to reorganize. But is there a likely so that we can prevent sudden increase in cost as a result of introduction of equal pay, equal work and equal pay, it's important we try to absorb the cost. And also in line with the reduction in the personnel, we try to absorb any relevant cost.
So it's important that we try to we have make make make efforts to absorb such increase. So just because equal work, equal pay is introduced, doesn't mean we don't expect significant surge in cost out of the blue. Thank you very much.
Thank you very much. I'd like to take the next question. Are there any more questions? For those of you who have questions, please press 0 and 1. For those of you who have questions, please press 0 and we would like to conclude the briefing session of the fiscal year twenty nineteen third quarter results.
Thank you very much.