Questioner 1

Q1What impact does changing the depreciation method have on income? Provide an estimate.

Changing the depreciation method for property, plant, and equipment decreased operating income by about 800 million yen in the First Quarter of the Fiscal Year ending March 31, 2017. However, overall, we expect to break even for the full Fiscal Year ending March 31, 2017, as stated in the guidance issued at the beginning of this fiscal year. This will be due to the effect of changing the number of years of depreciation along with changing the depreciation method from fixed-rate to straight-line. An increase of several billion yen in operating income is currently expected for the Fiscal Years ending March 31, 2018 and 2019.

Q2Reportedly, it is taking time to acquire Dell Services due to a delay in the paperwork. Did any serious problems or anything unexpected happen? Additionally, acquisition related costs of about one billion yen were charged in the First Quarter of the Fiscal Year ending March 31, 2017. Do I understand correctly that there will be no additional acquisition related costs in the Second Quarter?

The acquisition of Dell Services is not simply one takeover. It involves carving out each of Dell’s affiliations worldwide in consultation with Dell, which is currently ongoing almost as planned. It does not diverge from the plan established when we decided on the acquisition. The acquisition related costs are about one billion yen as of the First Quarter of the Fiscal Year ending March 31, 2017. They will continue to rise in the Second Quarter and are expected to rise after the closing of the acquisition.

Q3The acquisition costs for one billion yen as of the First Quarter of the Fiscal Year ending March 31, 2017 are not insignificant. Do you expect the costs to fall in the Second Quarter and onward, or do you expect them to increase at close at the same rate as in the First Quarter?

We are preparing for a smooth continuation of the business before and after the acquisition. This involves a wide range of tasks. That is why we do not think that the acquisition related costs will fall. We are not sure about the total acquisition related costs at this time, but will need to complete a wide variety of tasks for some time.

Q4Does the financial forecast for the full Fiscal Year ending March 31, 2017 include the acquisition related costs?

The financial forecast for the full Fiscal Year ending March 31, 2017, which was issued in May, does not include the impact of the Dell Services acquisition or the acquisition related costs. Thus, these acquisition related costs have become one reason for the decrease in income for the First Quarter. We will update the financial forecast for the full Fiscal Year ending March 31, 2017 after we close the acquisition of Dell Services, around autumn this year.

Q5Page 17 and later of the material on the financial results explains your company’s initiatives, for example, the launch of the BeSTAcloud, a core banking system for Aozora Bank, as well as an alliance with DENSO CORPORATION to focus on developing in-car software. Do any of these initiatives have a significant impact on the number of new orders received and sales?

We state numerical targets in each press release. For example, when we announced the launch of ANYSENSE, an IoT platform based on water and sewerage, we stated that we aim for 10 billion yen of annual sales from our overall IoT business in the future. However, it is quite difficult to show numeral targets in terms of how much the new service will contribute to sales. The ANYSENSE IoT platform, the alliance with DENSO CORPORATION, and the alliance with Netyear Group Corporation in the Omnichannel area are all examples of the initiatives stipulated in our medium-term Management strategies, "Game-changing Approach " and "Breakthrough Technology." These examples are important topics for us.

Q6You explained the alliance with DENSO CORPORATION with a focus on developing in-car software. Is this the first capital alliance for your company?

Yes, it is the first capital alliance for us. Our company and the Panasonic Group have invested in NTT DATA MSE CORPORATION, one of our subsidiaries. It operates as an IT partner of the Panasonic Group. NTT DATA MSE CORPORATION has many engineers specialized in embedded software, and DENSO CORPORATION took an interest in them. We created the capital alliance after DENSO CORPORATION acquired NTT DATA MSE CORPORATION shares, or 15 percent of its stake. Even after the sale of the shares, our company is the largest shareholder with a 45 percent stake. The three companies, our company, the Panasonic Group, and DENSO CORPORATION, will continue to our cooperation to expand the business in embedded software, which is has growing, high demand in the car industry.

Questioner 2

Q1While the acquisition related costs of for Dell Services are not included in the financial forecast for the full Fiscal Year ending March 31, 2017, you believe that the operating income results for the First Quarter of the Fiscal Year ending March 31, 2017 is within the scope of the assumption. What element has offset the negative impact for the acquisition related costs of one billion yen?

The negative impact of the Dell Services acquisition related costs was offset by increased profits from increased revenues in all segments, improved cost rates in the Public and Social infrastructure segment, and organic growth in the European regions in the Global segment. It is difficult to assert that we will continue to be in good shape in the Second Quarter of the Fiscal Year ending March 31, 2017 and onward. However, at this point, we still expect that operating income will be 105 billion yen, as forecast at the beginning of this fiscal year. We will announce our numerical targets in our medium-term Management strategies, which will include the impact of the acquisition, as well as the financial forecast for the full Fiscal Year ending March 31, 2017. We will announce them as soon as possible after the closing of the acquisition, probably around autumn this year.

Q2What is the reason for the significant improvement in cost rates in the Public and Social infrastructure segment compared to the same period the previous year?

One reason is that there was large percentage-of-completion-method projects with relatively low cost rates compared to the same period the previous year. This tendency will not always continue because there are a wide variety of projects. We will of course strive to improve cost rates through initiatives to increase productivity and manage projects successfully. At this point, we still expect that operating income will be 105 billion yen, as forecast at the beginning of this fiscal year.

Q3In global business, your company is continuing to implement a strategy for coverage and sales expansion. However, your company seems to lack acceleration in the rate of improvements to profitability. What issues do you have with your coverage expansion strategies, including the one to increase the number of new orders received? There is a tendency for profitability to improve in European markets, where you had issues. Your original target was for a profitability of 4-5 percent. What else do you think will help to achieve this profitability rate?

From the “price leadership” and “profit creation” points of view, one of our key issues in global business is to increase our share of sales in each country. It has reached a certain level, especially in European countries, for example, Italy, Germany, and Spain. We recognize that a low sales share in other countries prevents us from generating more profits.
The significantly large North American markets should have priority to improve our company’s local presence in each country. NTT DATA, Inc., our subsidiary in North America, would have had rather high operating margins if had excluded the cost of goodwill and PPA amortizations. We cannot be specific because the acquisition of Dell Services is not yet complete, but we are counting on creating synergy in the North American business.
As explained above, one of our main goals is to achieve organic growth by increasing our company’s local presence in each country. In addition, we aim to enhance our global business through mergers and acquisitions, as in the earlier example in which we strengthened the foundation of SAP business in Germany.

Questioner 3

Q1What is the reason for the increase in profits in the Public and Social infrastructure segment? You explained that low costs rates for projects for your existing clients contributed to an increase in profits. Do you think that this contributory factor may remain, unlike the temporary increase in profits from projects for utility industry that your company undertook during the same period a year ago?

Profits have increased due to the nature of the projects received from longtime customers in national government and telecom industry, as well as our local subsidiaries. This tendency will not always continue because there are a wide variety of projects. We will strive to increase productivity and manage projects successfully.

Q2A downturn in the wake of last year’s projects for utility industry is probably one reason for a decrease in profits. Do you think that your company overcame it, and finally achieved an increase in profits?

Yes, I do.

Q3In the Global segment, there would have been an increase in operating income if the one billion yen acquisition cost was excluded. How much of the increase in the operating income is due to the impact of changing EMEA’s accounting period? The prolonged accounting period should have contributed to the increase. Please let us know if any events show essential improvement. For example, perhaps there is a significant difference between EMEA’s January-March operating income and its April-June operating income.

The impact of changing EMEA’s accounting period on operating income before goodwill amortizations is only an increase of about 200 million yen. Other organic growth offset the negative impact of the Dell Services acquisition.

Q4You expect the acquisition related costs for Dell Services to rise in the Second Quarter of the Fiscal Year ending March 31, 2017 and onward at the same or higher rate as the First Quarter. To be more precise, what kind of cost do you expect?

Before the closing of the acquisition, the acquisition related costs are mainly attorney’s fee. These attorney’s fee will not occur after the closing. After the closing, there will be various other costs, including those associated with retaining employees, integrating systems, retaining clients, and branding. As I said earlier, we will announce our numerical targets in our medium-term Management strategy, which will include the impact of the acquisition, as well as the financial results forecast for the full Fiscal Year ending March 31, 2017 as soon as possible after the closing of the acquisition.

Questioner 4

Q1Regarding the impact of unprofitable projects on income in the First Quarter of the Fiscal Year ending March 31, 2017, please provide us with figures for both your company and subsidiaries, respectively.

There has been a deficit of 700 million yen, of which 500 million yen belongs to our company and 200 million yen to our subsidiaries, in the First Quarter of the Fiscal Year ending March 31, 2017.

Q2Please tell us the total cost of goodwill amortizations for the First Quarter of the Fiscal Year ending March 31, 2017.

We expect it to be about 15 billion yen for the full Fiscal Year ending March 31, 2017. The cost for the First Quarter of the Fiscal Year ending March 31, 2017 is about one fourth of that amount because a similar amount is charged every quarter.

Questioner 5

Q1Please explain the increased profits from increased revenues in the Global segment on a local currency basis by region with the impact of changing EMEA’s accounting period (consolidated financial results for the extra three months) excluded.

Details by region are not disclosed, so I will talk about the tendency.
Sales in North America have remained on the same level. There was a decrease in operating income due to the acquisiton related costs for Dell Services, bad debts losses, and so on. However, we are going to receive profitable orders in the Second Quarter of the Fiscal Year ending March 31, 2017 on onward. We expect the results for the full Fiscal Year ending March 31, 2017 to be as planned.
The impact of changing EMEA’s accounting period (consolidated financial results for the extra three months) was only an increase of about 200 million yen in operating income. There were other contributions from positive factors resulting from other organic growth. So, there will be a year-on-year increase in profits, even excluding the impact of changing EMEA’s accounting period. There were increased profits from the increased revenues, especially in Germany and Italy. We will try to continue this activity.
Everis is in good shape, with increased profits from increased revenues and strict cost controlling measures. We expect further growth.
Business Solutions has not produced outstanding performance but has shown steady growth. As explained earlier, we hope that the merger and acquisition of an SAP company in Germany will be effective.
For NTT DATA (CHINA) Co., LTD., there is a tendency for the appreciation of the yen against the yuan to contribute directly to its operating income as well.
APAC has not yet become a significant factor in the increase or decrease in profits.

Questioner 6

Q1You explained the alliance with DENSO CORPORATION to focus on developing in-car software. Is this in-car software for AUTOSAR? What is your focus?

Details cannot be disclosed at this stage, but we will develop in-car software to reach our aim for the next-generation automobile society. Our focus will be on in-car embedded software, which will contribute to the development of connected or self-driving cars.

Q2According to your explanation, your company has achieved good results in European countries. However, page 16 of the material on the financial results discusses bleak future prospects due to the impact of Brexit. What’s your opinion on the future of your company’s business in Europe?

We need to consider the following three major impacts caused by Brexit: 1) impact on business in the United Kingdom, 2) impact on business in European countries other than the United Kingdom, and 3) impact of foreign exchange fluctuations.
1) Impact on business in the United Kingdom is limited at this point because our company’s scale is unfortunately not large there.
2) Impact on business in European countries other than the United Kingdom is not very large at this time. We are now evaluating the future impact on our additional services, such as SI and BPO services. We are providing services in approximately 86 cities and need to continue monitoring to determine whether or not there will be any impact.
3) For the impact of foreign exchange fluctuations, we will see a more negative impact on our consolidated financial results if the depreciation of the Euro against the yen is prolonged. This is because our predicted exchange rate is EUR1 = JPY126 for the full Fiscal Year ending March 31, 2017. We do not think it necessary to review that exchange rate now, but we need to keep an eye on the future exchange fluctuations.

Questioner 7

Q1How much of the increase or decrease in your company’s selling, general, and administrative expenses are due to foreign exchange fluctuations and the impact of changing EMEA’s accounting period (consolidated financial results for the extra three months)?

Changing EMEA’s accounting period increased the new orders received and the net sales by about 20 billion yen. The combined cost for selling, general, and administrative expenses is 15 to 20% of net sales, which shows the extent of the impact. There has been a deficit of several hundreds of millions of yen in the selling, general, and administrative expenses due to foreign exchange rate fluctuations.

Q2We understand that exchange rates have no impact on the cost of goodwill amortizations. Will the appreciation of the yen diminish the value of operating income? Do you benefit from the appreciation of the yen against the yuan in China only, or in Japan as well? Please let us know your prospects for the full Fiscal Year ending March 31, 2017.

The appreciation of the yen helps to increase income because the cost of goodwill amortizations is reported as an expenditure. However, we expect an increase of several hundred million yen, which is not large.
Basically, the benefits from the appreciated yen against the yuan only apply in China. We expect an impact of 500 million yen per year for our overall business. We have not considered the impact of fluctuations in foreign exchange rates for the next year at this point. We will reflect these in our financial results when needed.