Questioner 1

Q1Page 27 of the Company Presentation (Additional for Global [Factors of increase and decrease Operating income]) shows 1.8 billion yen as the increased factor of an operating income due to the impact of unification accounting period. I understood that this was the figure for not only the Global segment but whole NTT DATA. Is this correct?

Yes. Exactly.

Q21. According to the full-year forecast for the fiscal year ending March 2018, we have estimated a post-merger integration (PMI) cost for the former Dell Services at 15 billion yen. Was 4.8 billion yen posted for the first quarter as scheduled?
You mentioned that the PMI progressed steadily according to the plan. Could you tell us about when the PMI will be completed?

The PMI cost posted for the former Dell Services for the first quarter was in line with expectations.
Additionally, the acquisition of the former Dell Services from Dell Inc. took the form of what is referred to as a “carve-out,” a scheme for acquiring a business unit of a company. This takes time as we must undergo a complicated integration process involving, among other things, a transfer of IT systems to our systems.
The PMI is scheduled to be completed in the first quarter of the fiscal year ending March 2019.
As scheduled, the system utilization agreement with Dell Inc., we intend to integrate as early as possible, so the PMI is desired to be completed by that time at the latest.

2. Is the scheduled completion in the first quarter of the fiscal year ending March 2019? Is this under control?

Yes, it is.

3. I understood that the PMI cost for the former Dell Services for the fiscal year ending March 2018 will not exceed the 15 billion yen mark announced in May. Is this collect?
Apart from this, regarding the remaining 10 billion yen or so for this fiscal year, could you present estimated expenditures on a quarter-by-quarter basis?

The expenditures are currently projected to be within the range planned now.
I understood that we cannot answer the question on estimated quarter-by-quarter expenditures now because we are supposed to manage progress on an annual basis, however, we will expend carefully and promptly expenditures for the first quarter in your question were somewhat large in value, since after a business merger between the former Dell Services and the former NTT DATA, Inc. in April 2017 and a unification of operations as NTT DATA Services, we recorded expenses for: i) developing the organizational structure in the form of an integration of headquarters business units, etc.; ii) conducting relocations, etc.; and iii) optimizing human resources, etc. The IT-related cost in the first quarter, accounting for most of the PMI cost, was spent in an amount equivalent to approximately one-fourth of the full-year plan, so IT-related cost will also be likely to spent at the same pace in the second quarter and thereafter.

Q3As for new orders received in the first quarter, I have understood that those from the manufacturing industries for Enterprise & Solutions expansion. On which can the expansion be seen on a non-consolidated or subsidiaries basis? If on a subsidiaries basis, please specify the business area in which they operated.
With respect to new orders received in the first quarter, you mentioned that the large-scale projects could be acquired in the Public & Social Infrastructure segment. Could you tell us about what were the sizes of the projects approximately? I would also like to tell us about other factors for the expansion.

Subsidiaries engaging in outsourcing business for the manufacturing industries were a factor for the expansion of manufacturing industry in Enterprise & Solutions. The expansion was also due to the relatively strong performance of, among others, NTT DATA SBC Corporation (the former Sharp Business Computer Software Inc.), etc., which had conducted some M&A transactions in the previous fiscal year.
Among large-scale projects in the Public & Social Infrastructure segment, the largest one was a renewal project worth approximately 15 billion yen. Another factor for the expansion was new orders received of several billion yen each.

Q4As for the revision to the depreciation method, I understand that there is a negative impact on the income of the NTT group for the fiscal year ended March 2017 and that the revision will positively affect the income from the fiscal year ending March 2018. Did the revision positively affect the income in the first quarter? Could you also tell us about the impact for the fiscal year ending March 2018 as well as from the next fiscal year onward?

We recorded some amount of depreciation more in the first quarter of the fiscal year ended March 2017, an effect of about 1 billion yen in that quarter. This has resulted in operating income in the Financial segment improving this fiscal year. The change of depreciation method, having largely ended in the first quarter of the fiscal year ending March 2018, is unlikely to occur from the second quarter onward.

Q5It appears that the first quarter income would have grown approximately 17% year on year if the effect of unification accounting period is excluded. However, the full-year forecast for the fiscal year ending March 2018 says income is likely to grow only marginally compared to the previous fiscal year. In light of the full-year forecast, how do you see the results of the first quarter of the fiscal year ending March 2018?

The overall performance was in line with, or slightly above, the plan. While we progressed steadily in Japan, it is hoped that our overseas performance will improve from the second quarter onward.

Questioner 2

Q1According to Page 25 of the Company Presentation (Additional for Global [Factors of increase and decrease Net sales]), the impact of unification accounting period represented a factor for lowering net sales of EMEA by 19.2 billion yen. Is this correct? If so, the accounting period change will have the effect of raising net sales for the fiscal year ending March 2018 by approximately 60 billion yen compared to the previous fiscal year. I remember that, at the Company Presentation meeting for the fiscal year ended March 2017, you talked about the effect of raising net sales by approximately 90 billion yen and operating income (before goodwill amortization) by approximately 3 billion yen compared to the previous fiscal year. Will this impact of unification accounting period occur from the second quarter onward?

In the fiscal year ended March 2017, EMEA conducted 15-month accounting treatment by unifying accounting periods into those ending in March each year. As a result, EMEA net sales will decrease year on year for the fiscal year ending March 2018 in an amount equivalent to three months’ worth of net sales. Hence, we specified 19.2 billion yen in net sales reduction impact.
At the Company Presentation meeting for the fiscal year ended March 2017, we said that unification accounting period would have the effect of raising net sales by approximately 90 billion yen. We said so to give you an idea about the expected extent of the impact in comparison to an ordinary 12-month accounting period. With the exclusion of EMEA experiencing a 19.2 billion yen net sales reduction effect, the effect will actually amount to approximately 80 billion yen solely for everis and the former Dell Services, which will each be subject to unification accounting period in the fiscal year ending March 2018. This portion, approximately 80 billion yen, was previously estimated at approximately 90 billion yen in net sales increase effect. This effect, albeit somewhat lower than originally predicted, is still within the scope of expectations.
Because we completed unification accounting period in the first quarter, the effects will not change in value from the second quarter onward.

Q2For the first quarter of the fiscal year ending March 2018, the EBITA margin of the Global segment stood at 4.1%, which gives the impression of being extremely low, frankly speaking. I suspect this is the actual level of your company’s performance despite your prior statement that the former Dell Services enjoyed a relatively high level of profitability. If there is any special factor or factors depressing the EBITA margin, please explain.

Under the full-year forecast for the fiscal year ending March 2018, we estimate an EBITA margin of 6.1% for the Global segment, which is slightly lower than the full-year forecast. Nevertheless, the Global segment tends to properly post profits from the second quarter onward and particularly in the second half of each fiscal year. This means the EBITA margin of 4.1% for the first quarter of the fiscal year ending March 2018 was not a figure to be seen with much pessimism. We wish to recover the EBITA margin from the second quarter onward, raising it to 6.1% for the fiscal year ending March 2018. For the fiscal year ended March 2017, the EBITA margin for the first quarter stood at 3.0%, but ended up coming in at 4.7% for the full fiscal year, meaning the figure for this fiscal year is trending at a pace of past years.

Q31. What was the approximate level of the real-term EBITA margin of the former Dell Services?

First, the former Dell Services’ EBITA margin can be ascertained on a totally standalone basis for the periods up to the unification accounting period impact in February to March 2017. The figure cannot be identified on a standalone basis from April 2017 onward since the former Dell Services was merged with the former NTT DATA, Inc.
For the February to March 2017 period, the former Dell Services posted 44.1 billion yen in net sales and 2.5 billion yen in EBITA with the EBITA margin coming in at 5.7%. This was slightly below the 6% to 7% mark we had previously expected of the former Dell Services. However, based on our experience of monitoring the financial results of companies acquired in the past, we know it takes some time for an acquired entity’s operations to take off immediately after acquisition. Given that the first quarter was a period immediately following the integration of our North American operations, the EBITA margin figure was within the scope of expectations. From the second quarter onward, we will strive to recover profits under the new post-integration North American platform.

2. To confirm numbers, am I right in understanding that the impact of accounting period unification in the former Dell Services took the form of net sales of 44.1 billion yen and EBITA of 1.3 billion yen that are shown on Page 25 and Page 26 of the Company Presentation? While this represents an EBITA margin of 2% to 3%, does this mean your efforts in the PMI resulted in the performance looking worse than what your company can really do?

The figure of 1.3 billion yen shown on Page 26 of the Company Presentation was operating income (before goodwill amortization) after purchase price allocation (PPA) amortization. Although figures were not shown in the Company Presentation, EBITA amounted to 2.5 billion yen.

Q4Did the first quarter results see any effects of unprofitable projects? Please explain the proportions of the amounts that occurred on a non-consolidated basis and a subsidiaries basis.

Unprofitable projects were extremely limited in value and the effect totaled approximately 500 million yen.
Non-consolidated accounts and subsidiaries each represented about half of the amount that occurred.

Questioner 3

Q1Please tell us about your overseas performances by region or company.

First, net sales in North America were more or less flat compared to the previous fiscal year with exclusion of the effect of unification accounting period and the consolidation of the former Dell Services as growth momentum began to weaken somewhat from around the second half of the fiscal year ended March 2017. Although the EBITA margin in North America stood at 5.2% for the first quarter, we aim to achieve a level slightly above that for the full fiscal year. Thus, we will seek to grow profits from the second quarter onward.
Net sales in Europe as a whole grew by approximately 10 billion yen as three companies (EMEA, everis, and Business Solutions) each recorded sales growth of several billion yen or so with the exclusion of the effect of unification accounting period. Although EBITA was more or less flat or declined somewhat, it is projected to gradually recover from the second quarter onward, so EBITA for the first quarter was within the scope of expectations.
Net sales in APAC and China, albeit still small, grew with EBITA in these regions being more or less flat.

Q2Please tell us about the trend of new orders received in North America on an organic basis with the exclusion of the former Dell Services.

As mentioned before, it is not possible to identify numbers separately from April 2017 onward. Suppose the former Dell Services from April 2017 onward accounted for about three-halves of the two months’ worth of identifiable accounting period change impact. Then, the performance of the former NTT DATA, Inc. was more or less flat compared to the previous fiscal year. Thus, both the former Dell Services and the former NTT DATA, Inc. were seemingly more or less flat in new orders received, net sales, and EBITA compared to the previous fiscal year. We are working hard on the steady transition of existing customers as well as PMI, and intend to expand business activities under integrated operation toward the second half of the fiscal year ending March 2018.

Q3Was the first quarter operating income affected by expenses related to the acquisition of the former Dell Services? If any effect is to occur from the second quarter onward, when will it take place?

In our view, operating income will not essentially be affected for the fiscal year ending March 2018. If any effects were to be occurred, it would probably be quite small in value, and we plan to achieve the operating income target in spite of the effect.

Q4As you mentioned, the revision made in the fiscal year ended March 2017 to the depreciation method had the effect of raising the first quarter profit of the Financial segment by 1 billion yen or so year on year. Am I right in thinking that no change effect will occur on depreciation from the second quarter onward on a year-on-year basis?

Although overall depreciation is bound to go up or down according to the investment activities of projects, there will essentially be no effect of the depreciation method revision from the second quarter onward, in our view. As our overall progress has been in line with the annual plan, we think no significant change will occur.

Questioner 4

Q1The gross profit margin for the first quarter of the fiscal year ending March 2018 declined year on year, seemingly affected by such amortization of PPA in the former Dell Services as is recorded under cost of sales starting from this fiscal year. Please explain real-term change in the gross profit margin with the exclusion of such effect.

As you are aware, the first quarter saw PPA amortization posted under cost of sales come in at approximately 3 billion yen, causing the cost of sales ratio to rise. Although Japanese domestic operations did not experience any significant changes as a whole, the overall cost of sales ratio rose due to the business model of the former Dell Services, consolidated in the Global segment from this fiscal year on a full-fiscal-year basis, involved a relatively high cost of sales ratio, and the first quarter saw the former Dell Services account for a high proportion of the overall operations. The business, however, unit has a low ratio of selling, general, and administrative expenses, making us think that the operating income margin will be in line with original expectations.

Q21. As you mentioned, the Global segment was projected to recover from the second quarter onward in the fiscal year ending March 2018 with the first-quarter results being more or less in line with the projection. Why was the EBITA margin so low for the first quarter of the fiscal year ending March 2018? Although I can understand that the former Dell Services in a PMI process showed a somewhat low EBITA margin, I suspect other regions were also low in general. The competitive environment in North America probably intensified somewhat from the second half of the previous fiscal year. Please tell us how improvement will be made from the second quarter onward.

Our North American operations were in a somewhat challenging situation since we are working hard on the PMI as discussed before and customers were cautious in placing orders. The PMI itself, however, has been going well, probably bringing about a recovery from the second quarter onward.
In Europe, our business operations continued to expand steadily. However, we were in the process of recruiting employees toward launching projects associated with the business expansion, and thus such efforts did not bring about profits in the first quarter. From the second quarter onward, however, profits will likely be generated.

2. Please describe the state of competition in North America with rival firms. In Europe, what projects newly require employees for launch purposes?

In North America, competition was admittedly intense with players fiercely battling to win orders for projects in various business categories. However, our overall business did not shrink in size as we see, which enabled us to post net sales and EBITA that were more or less flat compared to the previous fiscal year. We think our near-term challenge is to properly push forward with the PMI for the former Dell Services even under such circumstances.
In Europe, we acquired some large-scale projects as briefed on at the Company Presentation meeting for the fiscal year ended March 2017. However, advance costs were incurred for recruiting employees, providing subsequent training, and so on, so profits for the first quarter declined slightly. We will be able to compensate for a decline of that degree since such projects will likely deliver profits from the second quarter onward and the profit decline for the first quarter was in the order of several hundreds of millions of yen.

Q3I understand that Japan Pension Service postponed the renewal of National Pension System including a tender as well. Please brief us on the current situation. Even in the event of your company winning an order after several years, will it take the form of a data communications service contract, causing net sales to be posted over multiple fiscal years and having only a limited effect on single year earnings?

As for National Pension System, we provide a contract system development service such as for process control and personal number control. The government publicly released a request for information (RFI) concerning the operation and system optimization project for public pension service before gathering relevant information. In this regard, we would like to refrain from answering in detail, including the contract format. This, however, will be an extremely large project, so we intend to work hard on it.

Questioner 5

Q1As for the large-scale project that you explained in the Public & Social Infrastructure segment new orders received, did it involve a renewal project? If so, did sales fall compare to an equivalent project in the past? Although I am supposed to consider provision of the service in question will begin after some time for the time being?

It was a project on the basis of a renewal project. However, we would like to refrain from answering about the approximate level of sales involvement.
As for the timing of service launch, this project, being a large one, will not launch the service from this or next fiscal year.

Q21. My question concerns the global competitive environment. I understand that you, due to currently working on the PMI, have not been very successful in winning orders for projects in North America when significant growth is being achieved there by players using cutting-edge technologies such as AI and Fintech. Is there any business model gap between such cutting-edge technologies-based business and the steady business of the former Dell Services? Approximately when will you complete the PMI and begin to win orders for global large-scale projects, a merit of globalization?

The competitive environment in North America has intensified as you are aware. Customers have been expecting a great deal of the Company concerning their digital operations, process changes for their business, and their new service launches. The former Dell Services had originally been a provider of long-term BPO and ITO services such as in the healthcare field, etc. Thus, while steadily delivering existing services to customers, we intend to solidly win business, based on existing customers, in highly competitive domains in which to tap into cutting-edge technologies.
As for large global projects, we have been smoothly expanding car-related business dealings with German carmaker Daimler AG, as we probably highlighted in the past. We have been expanding this type of business project seemingly due to the fact that we have put in place a structure in which to provide support to customers not only in North America but globally.

2. When will likely win orders for global largescale projects and multi-region projects in this coming years? Is the organization unlikely to do so for the current fiscal year as you will focus efforts on the PMI? Are you likely to win such orders this fiscal year?

We have built a structure in which to provide far-reaching support while properly engaging in business operations locally. Moreover, we rigorously seek to win orders for large-scale projects through which to provide support to customers on an entire Global basis. A team charged with managing global accounts, installed in the headquarters, is also working to discover prospective projects. We desire to end up the winner to acquire (more) orders for projects by continuing steadily to provide customers with proposed solutions based on our global business.