Nippon Telegraph and Telephone Corporation (OTCPK:NTTYY) Second Quarter 2022 Results Conference Call November 8, 2022 2:00 AMm. ET
Participating companies
Takuro Hanaki – IR Manager
Akira Shimada – President and CEO
Hiroi – Senior Executive Vice President
Nakayama – Head of Finance and Accounting
Taniyama – Head of Corporate Strategy Planning
Conference Call Participants
Daisaku Masuno – Nomura Values
Satoru Kikuchi – SMBC Nikko Securities
Mitsunobu Tsuruo – Citigroup
Hideaki Tanaka – Mitsubishi UFJ Morgan Stanley Securities
Yusuke Okumura – Okasan Values
Yoshiyuki Kinoshita – BofA Values
Yusuke Hori – Mizuho Values
Yoshio Ando – Daiwa Securities
Takuro Hanaki
Thank you so much for coming in combination today despite your busy schedules. From now on, we would like to begin NTT’s briefing on the current quarter of fiscal 2022 monetary results. My call is Hanaki from the IR office, I will be the Facilitator today.
To begin, I would like to introduce the members on stage. Representing Board Member, President and CEO, Shimada; Representative Member of the Board of Directors, Senior Executive Vice President, Hiroi; General Manager, Chief Financial and Accounting Officer, Nakayama; Senior Executive, Director of Corporate Strategy Planning, Taniyama. Today’s briefing is broadcast live. We plan to publish it on our online page at a later date, so we ask for your understanding beforehand. Regarding the explanation of today’s fabrics, please refer to the fabrics presentation posted on our IR online page. On the first page, the issues to be aware of are listed, so pass it on as well. President and CEO Shimada will explain the highlights of the financial effects followed through questions and answers from the room.
President Shimada, move on.
Akira Shimada
Buenas tardes. Thank you for joining us at the moment of the monetary results of the quarter. So let’s start with page four of the document, please. Operating cash at creation increased, operating profit decreased, and profit creation increased year over year. Operating cash and profit hit a new record in the current quarter. Now, operating cash generation increased by JPY 398. 5 billion year-on-year to JPY 6,286. 2 billion due to cash accumulation at NTT DATA and NTT Limited. Now, of that accumulation, foreign currency accounted for 135 billion yen. In terms of operating profit, although there was a positive effect of the building in cash, it was not enough to cover the building in the electrical energy load. Therefore, the operating source of cash inflow fell from 12. 7 billion yen to 996. 5 billion yen. Now, since the first part of the year, we have taken load relief measures to cover the emerging load of electrical energy and we intend to realize the benefits of those measures in the current part of this year. Therefore, we must achieve our annual goals through those methods. As for the benefit, it is accumulating by 20. 8 billion yen year over year to reach 696. 6 billion yen due to the one-time positive impact similar to corporate tax. On the foreign operating margin, it increased via 1. 1 issuances to 5. 8% due to earnings build-up driven by build-up in operating cash source at NTT DATA and NTT Limited, as well as relief of charges through structural reform in NTT limited. So that’s the situation.
Now let’s move on to contributing things through the segment. Starting with the embedded ICT segment. Well, there has been a negative impact of price cuts in the customer segment. It was offset by a cash accumulation from Enterprise and Smart Life activities. As a result, revenue and operating profit increased in this segment. In the Regional Communications business segment, operating cash inflow and source of operating cash inflow decreased due to last year’s only positive no longer applying and also due to unforeseen electricity load buildup. We will drive forward our charge relief program and generate cash inflows from systems integration and expansion activities so that we can meet our annual forecasts of increasing operating cash inflows and operating cash flow. With respect to the Global Solutions business segment, In the case of NTT DATA, as operating cash inflows continue to grow on the back of strong demand for digitization due to expansion investments for construction and also in part due to under-allocation beneficial in Japan, improved operating cash inflow and operating profit declined. As for NTT Limited, the operating cash inflow and operating cash source in construction due to the construction of cash in the construction of value-added facilities, as well as reduced prices through structural reform. Again, overall, this saw a buildup in operating cash inflow and operating source of cash year over year. As with other real estate and energy, construction operating cash due to NTT strength business construction and top strength business money reflect top application values. uncooked materials.
Now let me touch on some of the items on the agenda, I’d like to introduce you to number 5. Turn to page 7, higher starting salaries for new graduates. I would like to explain this matter. In order to recruit more highly professional talent, NTT Group’s major domestic companies are expanding the popular starting salary beginning in the fiscal year of April 2023. We will also begin providing salaries commensurate with inconsistent performance levels on hire. Page 8 talks about the news: the revision of the payment formula for normal employees. This will take position from next April. We will therefore not have a salary formula with promotions based on a lack of consistency. On page 9, I will then explain how to start a new business in the human capital box. We will create NTT HumanEX Corp. in December 2022. We will create a new company that uses human capital insight analytics to provide end-to-end support from consulting to formula integration. Building on NTT Group’s insights into pioneering human capital reforms, we will leverage NTT Group’s workforce insight infrastructure and AI analytics to help reform the taste for teamwork. corporate, creating an environment and achieving a greater commitment for the professional progression of employees. Next page please. Next, I will explain the generation progression that enables high-speed wireless underwater communications. As a generation that will enable robust high-speed underwater acoustic communications, we have developed 2 technologies: spatio-temporal equalization generation and ambient noise immunity enhancement generation. We have implemented a generation that suppresses the effect of delayed waves caused by sea surface relief and marine biology noise in a shallow water domain about 30 meters deep and performed with Passed a transmission test with a transmission speed of 1 megabit per second, which is more than 10 times the traditional speed under water over three hundred meters away.
We apply this generation to make underwater drones controlled wirelessly. In the future, we will perform a box demonstration for practical use and aim to be used in the inspection of port facility infrastructure and the fishing industry for the marine environment for aquaculture.
Page 11, please. The review of the draft medium-term control strategy is presented here. However, I am going to 3 main projects. In order to further promote the XR business of the NTT Group, NTT DOCOMO presented the activity of the new company NTT QONOQ from October. As announced last May, based on our business integration plan of NTT DATA and NTT Limited, NTT DATA Inc. It’s not last year, it’s this year. Based on our business integration plan of NTT DATA and NTT Limited, NTT DATA Inc. was established as an overseas trading company under NTT DATA in October. At NTT East and West, to further build demand for Hikari, they plan to reduce the wholesale value of Hikari’s wholesale service in fiscal 2023.
And see page 12. In order to boost capital and shareholder returns, at today’s board meeting we made the decision to buy back our shares for a total amount of up to 150 billion yen. That’s all from me.
Q&A session
A-Takuro Hanaki
Thank you very much, Mr Shimada. We would now like to move on to the consultation and response session. We will first answer inquiries from members who are here on the site. We will also respond to inquiries from others who are connected to us. remotely. We will be there to answer inquiries from other people connected to the telephone formula who have registered in advance. Therefore, we would like to start with the members who are there. Wait for the handset to be brought to you. Raise your hand if you have any questions. State your call and partnership and continue with your consultation. So, let’s start with the gentleman in the front row.
Daisaku Masuno
Masuno de Nomura would Securities. Me like to ask you about the effects of the current quarter. Only the 3 months of the quarter of the moment, you can concentrate on 3 months. Can you give us an answer for each of those lines of business for those 3?months at the moment quarter? Let’s start with global solutions. NTT DATA has already announced the effects and, on a quarterly basis, NTT DATA, we knew there was in terms of cash compared to NTT Limited when we look at this figure compared to the current quarter last year, their margin changes seems to be going down, the profit turns out to be going down, maybe because the profit was so high the year before. How do you see the breakdown by the moment part of the year?How do you see Global Solutions progressing in the current part of the year?How do you plan and expand your effects for the Global Solutions business segment in the current part of the year?And then I wanted to ask you about regional communicationsafter you answered my inquiry about global solutions.
Akira Shimada
Let me start with NTT Limited. This time we already have plans for the moment part. Yeah, we’re still slightly down to the prospects at the moment and the main driving force for that is this. We call such facilities similar to formula integration. Sales of facility-incorporated formulas were affected by shortages of semiconductors. The pipeline is being built. The pipeline has grown. Towards the end of the year, 27 billion yen has not been accumulated at the end of September, and I think the scale will be around 170 billion yen at this time. However, cash income has been affected. Therefore, this means that no benefit has been realized in relation to those cash receipts. This is why the benefit for the quarter time was not successful in our plan. Now aside from that, in the case of value-added facilities, we’ve already released the numbers that we’ve noticed in the expansion of knowledge intermediate businesses, sales are up 160%. So we are seeing a very powerful expansion physically in the intermediary activity of knowing. And while we don’t disclose the next figure, relative to the full year pipeline, roughly 90% of the full year pipeline has now been translated into cash for the knowledge midstream business. So, from the 3rd quarter, we may have to increase investment in the middle knowledge sector, because we will not be able to meet the demand of the visitors. This is the scenario with our intermediate knowledge business right now. So I think we want to be aware of several issues. The first is the sale of mobile phones, sale of appliances; we were not able to progress as much as we had hoped. So that’s the problem.
Daisaku Masuno
If I could move to the Regional Communications business segment for only 3 months, the profit turns out to be declining. This is probably affected by electricity, I imagine. You discussed that in the current part of the year, you need to introduce a power program and you will be able to absorb the benefits. Can I take this as the correct assumption?
Akira Shimada
The setting varies between NTT East and NTT West. In the case of NTT East, in terms of benefits, last year we had the Olympic and Paralympic Games. So there was a transitory effect that was about 15 billion yen in terms of cash inflow. Therefore, revenues were affected. So it’s a downward trend in cash and also because of the buildup in electric power prices, operating income also went down because of those things. Now when it comes to NTT West, the benefits schedule is more skewed towards the timing part. So in the case of — due to emerging electricity prices, we have to take that into account. Also last year, albeit another, we also had another transition thing, a unique transition effect for NTT West. Due to COVID-19 our call center business has been affected so this no longer applies this year. Therefore, it has a negative effect on the operating result and the accumulation of electrical energy was not covered by the benefit program. But as far as the program is concerned at the moment, we have a plan. If we are able to meet the benefit plan in the current part of the year, we believe we will be able to meet the full year forecast for accrual of operating profit and operating income.
Takuro Hanaki
So the gentleman in line.
Satoru Kikuchi
SMBC Nikko Securities, my call is Kikuchi. I have two main queries. The first considerations are NTT Limited. This is a small continuation of the consultation just raised by Mr Masuno. This quarter’s structural reforms have forecast 38 billion yen. The first quarter was four billion yen. So, in the current quarter, how much did you spend and in the current part of the year, how much more do you plan to spend?Originally, he had planned 38 billion yen. But looking at how the first trimester unfolded, it turns out that it’s a bit behind. Do you really want to spend everything or do you want to go higher, that’s what I’d like to know?That is the first consultation. And also when it comes to the knowledge center, you are likely to have higher revenues, so your profits are also higher. And you make a lot of investments up front and I think the initial charge is probably heavy. expanding too?
Akira Shimada
As far as structural reforms are concerned, in the first part of the year, in fact, we have not even been part of it. Probably about 40% is the right kind to understand. Therefore, in the current part, about 60% of structural reform spending will be recorded. As I said before, we would like to withdraw from unprofitable countries or services. And also lately we use outsourcing in the delivery domain or air zones. Therefore, those operations paint for greater efficiency. As a result, workforce optimization will incur costs for the current part of the year. And the year when the low profitability of services, especially cloud services, we diminished it to look like equivalent stocks. But the two topics I’ve discussed right now are going to be busier in this part of the year. And also in relation to the knowledge center, thanks to everyone’s efforts, sales continue to increase.
And as discussed earlier in terms of won orders, we have originally already won 90% of the orders we had planned at the beginning and we also have a lot of pipeline. So, in that sense, capital investment, we probably have to spend more in the current part of the year and also for the next fiscal year. It turns out that they still do not feel the effect of a recession and even in Europe they still do not feel the effect of the recession. So, a little more continuously, you have to invest, that’s what we think. So, in that sense, making investments on our own right now is actually going to be tied to upcoming returns. And in fact, we have a lot of hyperscale contracts, so the contract length is pretty short. As a result, we have a backlog of low-risk contracts. Therefore, even if we make our own investments, we would like to further expand the business.
Satoru Kikuchi
And on structural reform, I don’t know if you deserve to talk about the detailed figures. However, you said you have higher through around 40%. So, in the current quarter, it made about ten billion in structural reforms. So if you carry that, structural reform in the current quarter last year was about 3 billion yen. So, limited, burdened benefit structural reform, says in terms of benefit that it’s improving. Is it okay to think this way or is it the means of knowledge that determines the numbers?
Akira Shimada
Well, spending on structural reform last year was about 44 billion yen. What we did in the first part was only a quarter of that and the current part was 3 quarters of that. So this year compared to last year, in the first part of the year we spent more. Therefore, this amount is absorbed and reflected in the existing profit situation. The benefit is the plan and the explanation is that the business of selling appliances is not going well, but the others are in line with the plan.
Satoru Kikuchi
So in the current component of NTT Limited, it is recently part of NTT DATA Inc. , so you may not be able to extract the numbers from the current component. So, the first component of 10 billion yen, the temporary component of 25 billion yen is the operational source of the revenue plan after subtracting structural reforms. That won’t change.
Akira Shimada
No, that will change. Well, changed. But whatever the delay is in the first part, they will make up for it in the moment part: they have to catch up on the moment part.
Satoru Kikuchi
On my question at the moment. Heading into the next fiscal year, what will be the accrual of costs, things or things of income relief?He discussed what he was looking for, to review the salary amounts and also the amount of expenses. He said new graduates, however, I think that, in general, the younger generation will be affected by that. I don’t know which age organization this will affect. But in the total organization, I think they don’t come with workers, but they have a number of workers in the organization of the younger generation. So it looks like it’s going to be a big expense. Will this become something that will decrease profitability? And for NTT East and West, the total selling price, you said it would reduce it and lead directly to relief in the matter of profits. So, for the next fiscal year, how much do we deserve to wait for the increase in the popular starting salary?
Akira Shimada
We said young people, but the bottom line is the second- or third-year employee. Therefore, the drivers of charge increases are only. . . It’s not that important. It’s pretty small and probably wouldn’t even succeed in a billion yen. . So, I don’t think I want to worry about it. And also what was his query: the relief in wholesale value. As far as reducing wholesale values is concerned, it is not yet known when we will do it because NTT East and West have not yet decided. But depending on the timing, the degree of effect will change. This time, conventionally, if we do that, it will be the fifth time next year. We’ve done this four times in the past. Therefore, it will most likely be the same point of relief.
Satoru Kikuchi
So the net additions were so bad in the last few years for FTTH, so I think it won’t be such a big reduction.
Akira Shimada
Well, our intention is to reduce the wholesale price and have participating partners to further promote sales.
Takuro Hanaki
Another question? We will pass the user in the 3rd row in the back section.
Mitsunobu Tsuruo
Tsuruo from Citigroup Securities. My first query is this. Share buybacks for 50 billion yen. Enjoy the announcement of the percentage buyback program. The [adjustable] source of revenue is about three hundred billion yen, of which 50 billion yen will be allocated to percentage buybacks. Can you specify how successful you are at this amount? So this year it exceeds JPY 500 billion and I think the actual balance will probably exceed JPY 500 billion. Are you going to accumulate, are you going to use the remaining capital for the dividend?As far as possible?
Akira Shimada
Well, thanks for the question. In the next two years, of the last two years, this year represents, I think, the year in which we will carry out the highest buyback rate to date. Having said that, I believe that the percentage return rate will be 77%. But having said that, we need, we don’t need to increase the rate of going back to that extreme. We have to look for a more solid build on the back of the percentage. That being the case, we felt that this was the point that suited us. To be absolutely frank, I think the existing point is quite appropriate. With regard to our mind about an imaginable accumulation in the dividend, I think we have to monitor the progress of our trading functionality as a total and we also have to see: monitor the progress of the operating result and on that basis we will make our decision In any case, within the framework of the existing medium-term control strategy, We will seek as a fundamental policy the accumulation in the dividend. Therefore, this policy remains unchanged. This is my answer.
Mitsunobu Tsuruo
Therefore, I will not ask about the percentage of the next fiscal year. Let me turn to my question of the moment, which is about the speed and speed of your charge-reduction efforts. During the quarter, 87five billion yen, an improvement from about five billion yen last year. But compared to last year, the speed of load relief has slowed down. I don’t know how he will make the announcement. So is there a chance that load reduction efforts will be delayed due to value pressure?Can you share with us how you see the challenge?Does it have an effect on its overall functionality for the group?I would appreciate your comment.
Akira Shimada
Well, thanks for the question. As you pointed out, the speed of load relief is not slowing down. We need to continue to monitor and lead burden relief efforts. But there is also the effect of emerging electricity prices. For example, in the case of NTT East and West they have to absorb such price accumulation and will also have to make further rate reduction efforts to absorb this rate accumulation. So this is back to what I discussed earlier. As far as the measures concerned are concerned, I believe that the measures will be more loaded or skewed towards the current part of the year. So, we hope to be able to cover the building with those – we hope to be able to cover the building and, in fact, we would like to make an effort to lower prices in the current part of the year to absorb those prices.
Takuro Hanaki
The middle row from the front, please.
Hideaki Tanaka
Mitsubishi UFJ Morgan Stanley Securities, my call is Tanaka. I have 3 questions. The first is similar to NTT Limited. Structural reform spending has already been mentioned. The effect of structural reform in the first quarter was about 7 billion yen and this has effect or effect in the first part of the year in total, how much was it?And the acquisition of equipment, at the industry level, it turns out that the scenario is improving a bit, that’s how I feel. However, I would like to ask you again about your prospects. I think it has its pipeline, but do you think it will be resolved in the fiscal year?
Akira Shimada
As far as structural reform on an annual basis is concerned, about 9 billion yen is what we expect for this year. Reform in the line of benefits.
Hideaki Tanaka
The first half, how much?
Unidentified corporate representative
What Shimada explained is that the structural reforms of this fiscal year and there was an effect from last year, the first quarter, 7 billion yen and the current quarter, on a cumulative basis, 14 billion yen. This is a total from last fiscal year and this fiscal year and the total is 14 billion yen. And on an annual basis, it will be about 20 billion yen.
Hideaki Tanaka
So if the first part is 14 billion yen and the annual base is 20 billion yen, it seems that the speed will slow down in the current part of the year.
Akira Shimada
Well, what we did last year from the third quarter, will be the same amount. So, compared to last year, the effect is not going to show much. So what we’re doing now is structural reform, we’ll see that effect in the current part of the year. Therefore, on an annual basis, it is 20 billion yen and the next fiscal year only thinking about another 12 billion yen.
Hideaki Tanaka
Next fiscal year 12 billion JPY more additional.
Unidentified corporate representative
And indeed, the scenario of semiconductor supply, appliance purchases or appliance sales will be affected. The semiconductor industry is a scenario that you see in the part of the moment, the quarter of the moment, as I explained to you, it is starting to increase, which means that the number of products that can be manufactured in the supplier aspect for NTT Limited, Cisco’s offer, how much will who recover? Everything depends on that. At least the existing scenario has not returned to the point we want. But the part of the moment will start to get even more powerful. At this point, it is not clear if we will be able to respond to all the accumulated pipelines.
Hideaki Tanaka
Well, NTT Limited is the distributor of Dimension Data days?
Akira Shimada
Well, in that sense, it’s a company that buys the most, so I can’t share the content with you, but we already see the offer that suits that position.
Hideaki Tanaka
At the time the consultation considers human capital, this company HumanEX. These are recommendations and formula solutions, that’s what he mentioned. But for the skill of this company, will it come from NTT DATA and other group companies?Suing AI corporations or are you going to use think tanks or incorporate other skills?
Akira Shimada
This NTT HumanEX Corp will be comprised primarily of HR skills. Human resources consulting, we have the commercial subsidiaries of NTT. So, let’s implement the skill from there in this company. Therefore, the composition of the Zero Trust formula in this part, we will also use the communication capabilities of NTT. Therefore, on the online front, NTT HumanEX other people will paint and scenes, various resources within the organization will be put to intelligent use. And, of course, the sales channel, we would also like to leverage the sales channel of the organization.
Hideaki Tanaka
My last and third query relates to page 11 regarding the medium-term control strategy where you talk about promoting the IOWN progression implementation plan, i. e. the coherent virtual signal processing circuit and optical device, as discussed here. When will this have a positive effect on P?
Akira Shimada
Well, in terms of that area, at the end of this fiscal year, the 400-gigabit packaged product is what we expect to launch as a product at the end of the fiscal year. It will be supplied on a giant scale from next fiscal year. Starting in 2025, we would like to have a 500 gigabit product, excuse me, 800 gigabits. It’s for an express purpose, so it’s not something we’re going to see suddenly increasing demand. Therefore, the IOWN – for the photoelectronic photonic product changed AP and the time to supply the APN, then the volume of this will accumulate. Therefore, we would like to have more expectations from that moment on. And for other detailed information, in the forum R
Takuro Hanaki
We would now like to answer questions from members who contact us online.
Operator
[Operator Instructions] Okumura-san of Okasan Securities.
Yusuke Okumura
Okumura from Okasan Securities. I only have one question, that is NTT Limited’s operating income. In the current quarter, I think there was a drop of five billion yen on an annual basis compared to last year. It was discussed that the structural transformation charge has a negative effect of 8 billion yen. But on the other hand, there is also the merit of structural reform and the amount is equivalent. So what are the points if excluding structural reform, the profit will be four billion yen. Therefore, we cannot visualize the positive contribution of construction in value-added facilities at NTT Limited. Can you tell us about the positive effect of construction in value-added facilities on operating profit?
Unidentified corporate representative
Well, the plan was. . . We had about 3600 million yen because the plan was 10000 million yen, so that’s the amount we charged. So, in principle, as I mentioned earlier, we want to concentrate on appliance sales. Sale of appliances does not advance compared to the plan. That was 50% of the impact. The intermediate business of knowledge was therefore a positive contribution, which was able to offset the negative factors. So that’s the equation here.
Yusuke Okumura
Value-added facilities, therefore, definitely contribute to the operating result. But in the case of the others, the other component is in decline. So, overall, the operating result is in negative territory. Yes, that is how it should be understood.
Operator
According to BofA Securities, Kinoshita-san.
Yoshiyuki Kinoshita
Here Kinoshita, BofA Securities. Regarding the part of accrual of charges, if it is imaginable, I would like to know in figures. The cost of electric power in its filing documents on page 18, says the accumulation of electric power expenses. It says JPY318 billion overall about the group. According to the group, what percentage comes from the accumulation of electrical energy annually?What effect will this have? In numerical terms, I would like to know if it is imaginable.
Akira Shimada
The accumulation in electric power rates in the first part of the year has an impact of 30 billion yen. So, about 40% of the accumulation occurred in the price. And the part of the moment will probably be on the same level. Therefore, on a general annual basis, this is about 60 billion yen of cargo accumulation, which is how it can be perceived.
Yoshiyuki Kinoshita
And adding that, as for the plan at the beginning of the fiscal year, well, at this time last year, the value of electric power increased. Electric power, you weren’t paying much attention or internally, if it’s in the 60 billion yen diversity that you think can be absorbed right now. However, in the future, if the value of electric power increases further, will it be enough to put measures in position at that time?
Akira Shimada
Well, first of all, when we planned for this fiscal year, we expected a 20% increase, but right now it’s 40%. Therefore, it has twice as much as we originally expected. So let’s say the annual base rises through 60 billion yen and we expect 30 billion yen, but we haven’t forecast 30 billion yen. So we have to absorb that component by expanding the power on the load side. As for the fiscal year, the fiscal year we have a contract and of course there is also the question of the fuel value adjustment, but we will probably liquidate about 40%. However, for the next fiscal year, we are lately negotiating the contracts and beyond the contractual scenario of this fiscal year, the environment becomes more severe. What I say with the same harshness is not that the price increases, but that, classically, we can have a long-term contract. But recently, with the electric power companies, having such a contract becomes difficult. So when it comes to the plan for the next fiscal year, we need to pay special attention to that. And compared to next year’s business plans, we want to think about how much can be absorbed by reducing fees. Electricity values, well, next year or next year for about 2 years, they will probably continue to rise, so we have to manage them carefully.
Operator
Next from Mizuho Securities, Hori-san.
Yusuke Hori
My call is Hori from Mizuho Securities. Je would ask about NTT Limited. Now, NTT Limited, do you have any figures related to the current effect of foreign currency on NTT Limited independently?So, revenue from appliances sales and also the construction of value-added services. I need to identify those numbers as much as possible.
Akira Shimada
Well, if you take a look at the documents that have been leaked, there is more knowledge in the leaked documents. In total, the proportion of value-added facilities among total sales in the first part is approximately 232. 23 billion yen, representing an increase of 28. 6% annually. Of that total, media accounted for most of the growth, 124 billion yen. This is the average number of knowledge. So there is an accumulation of 40. 52 billion yen year after year. That’s 67% of the year-over-year backlog. Now, on the other hand, when it comes to gadget sales, 320 billion yen is the turnover, which is a buildup of about 27 billion yen. This represents a cumulative score of 9. 3%. But the year before, due to the effects of COVID-19, sales themselves were very low. So I guess it’s a reaction to that. However, it has not yet returned to the point we expected. This is how the stage deserves to be interpreted.
Yusuke Hori
So I’m looking at the figures broken down into the supplementary data, but what about NTT Limited?How will foreign currency affect NTT Limited on an individual level during the first part of the year?
Akira Shimada
Let me answer. A total of JPY 62 billion represents the total foreign exchange effect for NTT Limited in the first part of the year.
Yusuke Hori
Now let’s move on to the knowledge center. In the case of NTT East and West, I suppose they have been particularly affected by electric power. In the case of NTT Limited’s knowledge center, you sign bilateral contracts, so I guess you’ll end up under long-term load stress as well. . May I say that electric power will not be a negative thing that drives up NTT Limited’s prices in the long run?
Unidentified corporate representative
Well, when it comes to the knowledge center, it’s based on consumers. In principle, 50% of consumers are hyperscale consumers, so the remaining 50% allows us to transmit the cumulative value of electrical energy to consumers. , consumers will assume the charge for electricity. In the case of large commercial consumers, many consumers were able to pass the charge to consumers. But with regard to the contract with Asia, adding electric power, we have covered it in the contract. and also applies to some contracts in Japan. With respect to such contracts, when the contracts are extended, we hope to be able to pass on the accumulation in the electric power charge to consumers. That is our position at the moment. We will be able to pass on a significant portion of the construction in electric power charging to consumers, and that is the case with NTT Limited.
Takuro Hanaki
Again, we would like to get questions from the room. For those of you who have a question, raise your hand. The third row in the center.
Yoshio Andō
My call is Ando from Daiwa Securities. I have two questions. The first considers the current quarters of the company: the evaluation of earnings expansion from the point of view of the holding company. NTT Limited is a bit short or East and West are affected by the value of electricity. But other than that, comparing the progress of DOCOMO and other corporations is what I’d like to know.
Akira Shimada
First of all, regarding NTT DOCOMO regarding their customers’ business, well, you can ask them from now on. But in the current quarter, there were some seasonalities, which is 4,080 JPY in terms of ARPU, and in the year aspect, it’s probably going to go down. And as for the number of subscribers, MNP this year is steadily advancing. Therefore, in this sense, the client companies have lower profits, but we are seeing signs of moving towards the recovery trajectory. And for the business side of the business, the feedback from visitors is very good. Therefore, the expectations of the visitors are quite high. So, against the expectations, offering mobile answers is something that is also required for communications, so we can have expectations in that regard. And as for the Smart Life business area, thanks to the effort from the monetary aspect, they are experiencing an increase. And for the rest of the businesses they are also experiencing an increase. The only one that is a bit scary is DOCOMO Denki, DOCOMO electric power. All your electricity contracts have been covered. But for the next fiscal year, problems still remain. And on this point, I would like you to ask Mr. II later. They want to revisit this year’s plan and probably maintain this year’s number of visitors. And in relation to NTT East and West, as I mentioned before, it is as you explained. So towards the middle of the moment, we want the paintings to cut to charge.
Yoshio Andō
For NTT East and West that electricity, is it on the right track?
Akira Shimada
Yes, we do.
Yoshio Andō
And for Global Solutions?
Akira Shimada
Knowledge of NTT had unprofitable business. But in general, there is a strong additional demand. Therefore, sales are strong. So, the Global Solutions business is the engine of expansion, the engine of expansion. So we are not so worried about NTT Limited. As I explained before, the telecommunications equipment sales business has been affected lately. However, at this time, the margin is small. So getting them to increase the potency is something we can do as well. Therefore, not everything is necessarily bad. Well, of course, the more we sell, the better. But if they can sell, we can respond in a way that doesn’t sell with other measures and initiatives. So I that in the environment, they will also be able to carry out this type of initiative. And as far as NTT Anode’s other businesses right now, they have — they’re running the business at an acceptable level. They are also expanding their sales of Tokyo Gas and other components, which NTT Anode is necessarily promoting on their behalf so that they can secure the supply of electricity. Therefore, they are constantly expanding. For the real estate business, urban responses have noticed their turnover and operating source of profit decline. So by excluding the component that they transferred to Anode, they accumulated their earnings and profits.
Yoshio Andō
The timing factor is to arrive with electric power and infrastructure, maybe not so much in Japan, but globally, there is some impact. So, just in terms of worthwhile development strategy, how much effort are you going to put into it?I would like to know how you think not only about electric power but also in the United States. I have the impression that the prices of the body of workers are in an easy scenario to build. So how do we think this is worth building?
Akira Shimada
Well, when it comes to the product of the devices, the overlooked ones, it’s in an established position at that point of building value. For telecommunications devices, network devices or servers, we have quite a large volume that is imported, so the effect of that is all that is going to be felt from now on and we also have to take that into account. How can we respond to inflation? According to next year’s plan, how much can we absorb? Is this something we want to look at? And when it comes to workforce spending, the challenge that Japan has is that workforce spending is not increasing. However, staff prices suddenly add up. I don’t think such a thing can happen. This internal inflation that we’re experiencing here if it gets to the point of Europe or the United States, then we’ll probably have to raise wages and salaries accordingly. But the CPI has not risen that much. So the CPI plus an accumulation in the body of workers’ prices that will maintain or increase worker motivation is something we want to think about, but it’s not going to be a sudden accumulation. Well, in the United States, body of workers or electrical energy expenses, sundry expenses accumulate. Therefore, you will have to bear the decline in profits. But if you can increase the value, it will be fine. But you in a position have measurements in a position for this direction. For overseas corporations where we delight in a building on workers expense body, so we will ask the visitor to pay for it. We can pass the value of the service so that we do not have the amounts on the company’s side because we will absorb it.
Takuro Hanaki
Are there any other questions? Thank you. If not, with this, we would like to conclude the provision of quarter currency effects for the time being for NTT. NTT DOCOMO will continue to provide its monetary effects, so please contact us a little more. Thank you for your participation. Thank you so much.