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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
We would now like to start the financial results briefing for the 3 months ended June 30, 2018, by NTT. Thank you very much for taking time out of your busy schedule to attend this meeting. I am Fujiki of Investors Relations. I will serve as the moderator. First, let me introduce today's attendants. First, Shimada, Senior Executive Vice President; Hiroi, Senior Vice President and Director of Finance and Accounting Department; Kitamura, Senior Vice President and Director of Corporate Strategy Planning Department. We also have members in charge from Corporate Strategy Planning Department, Finance and Accounting Department, NTT East, NTT West and NTT Communications. In today's briefing, we will explain using the presentation material posted on our IR website. Please read the cautionary statements on the first page of the presentation material. This briefing will be live streamed on our IR website and will be distributed on demand later. I thank you in advance for your understanding. Today, Mr. Shimada, Senior Executive Vice President, will first explain the overview of the financial results, then take questions from you. Mr. Shimada, please.
Thank you very much. My name is Shimada, the Senior Executive Vice President. I would like to share with you the financial results for the 3 months ended June 30, 2018. But before I start the -- I would like to start with Page 4 of the presentation material. This is the results of the first quarter. We were able to achieve increase in both operating revenue and operating income. And we were able to achieve the highest ever record for -- in terms of operating revenue and operating income on a first quarter basis. With -- we are off to a very strong start toward achieving our annual target and plan. Operating revenue increased JPY 44 billion year-on-year. This represents 8 years -- or 8 periods in a row of consecutive increased operating revenue. And this was driven primarily by increase in NTT DOCOMO and NTT DATA. And we were able to realize year-on-year increase in both domestic and overseas sales. With regard to operating income. This increased JPY 12.6 billion year-on-year, and this represents an increase in operating revenue for 4 periods in a row. There is significant contribution from DOCOMO's increase in operating income, such as improved cost efficiency, growth in DOCOMO [indiscernible] business and also increase in profits from smart life business. As far as the fourth -- the quarterly profit is concerned, this increased JPY 0.5 billion, representing increase of -- for 4 periods in a row, and this is linked to the status of the operating income as for overseas sales. And overseas operating income is, I believe this is self-explanatory. Due to the organic growth at NTT Communications, NTT DATA and Dimension Data, we were able to increase sales in a very robust manner. And also with regard to cross-selling order volume, we have received orders from manufacturing client in Europe, and we are showing very strong results. Please turn to Page 5. This shows the contributing factors by segment starting with operating revenue. With regard to the Regional Communications business, we see a downward trend, primarily due to the decline in fixed-line voice service revenue, decline of JPY 17.8 billion. But this is very much in line with our initial expectations. With regard to Long Distance and International Communications business, well, there is decline from voice service revenue. At NTT Communications, we are able -- due to the increase in operating revenue at NTT Communications and Dimension Data, we were able to realize growth. As for Mobile Communications, due to the increase in revenues from handsets sales, this was due to the growth of DOCOMO [indiscernible] business, we were able to realize an increase of JPY 43.1 billion in operating revenue. As for the Data Communications business, we saw increase in the business for both domestic and overseas markets, representing an increase of JPY 33.2 billion. As for Other business, at NTT Urban Development, in the previous year, they had enjoyed multiple sales of large-scale condos in the previous year. So that temporary factor was in existence in the previous year. And that being the case, this segment saw a decline in operating revenue. Let me now turn to the operating income. Starting with the Regional Communications business. On top of the drop in profit due to decline in voice service revenue, due to the leveling of workflow for improved efficiency. Expenses were skewed towards the first half of the year compared to the previous year, primarily in relation to facility maintenance cost. So as a result, there's [ an ongoing ] year-on-year JPY 9.3 billion year-on-year decline. But again, this is in line with the initial expectations. Long distance and International Communications business. On top of the decline of operating income at Data Communications because of the drop in voice service revenue, in the previous year, there was impact of one-off revenue. So that being the case, we saw decline in operating revenue on a year-on-year basis. But toward the second half, we are anticipating decline in expenses. At the end of the day, this is very much -- this progress is very much in line with the initial expectation.
With regard to Mobile Communications business, cost efficiency as well as growth in DOCOMO [indiscernible] business as well as increase in profit from smart life business contributed to increase of JPY 27.8 billion increase in this segment.
As for the Data Communications business, due to expanded business in domestic and overseas business, increase of JPY 2.9 billion year-on-year. Next page, please. This is the outline of the new medium-term management strategies. On June 26, President Sawada in his inaugural press conference, the outline of a new midterm management strategy was presented. One is support our customers' digital transformation and then accelerate our own digital transformation and leverage talent, technologies and assets and promote ESG management and enhance the return to shareholders to improve corporate value. So this will be the outline of the strategy to be presented in November. Now the areas in red, B2B2X model promotion and enhanced competitiveness in global business, drive digital self-transformation in domestic business, let me elaborate on these 3 points. Page 8, please. So let me talk about the enhancement of the global business competitiveness. We will establish a new global holding company. Since 2010, we've being enhancing the sales and marketing capability of group companies, and the global revenue has now increased to JPY 2.2 trillion. And we will enhance the group-wide service delivery capability and make entity more competitive and profitable in the global market. So this -- by this fall, we will establish a new global holding company under NTT and the name will be NTT, Inc. as shown in this presentation material. So we will establish this new global holding company and transfer NTT Communications, Dimension Data, NTT DATA, NTT Security and NTT i3 under NTT. With this, we will enhance the global governance and also incorporate the members with knowledge and expertise in the board member, so that we can incorporate their expertise into the management. And except for NTT DATA, we will consider integrating these businesses into 2 new businesses by the second quarter of fiscal year 2019. Now NTT DATA will continue to collaborate with other companies in the group while retaining its present management structure status as listed company and brand as the independent -- so independence and brand will be maintained. The location of this global holding company will be Japan. CEO will be Mr. Jun Sawada, President and CEO of NTT. Next, please turn to Page 9. Now this is the other enhancement of competitiveness in global business. We will establish NTT Global Innovation Fund. This will be mainly the technology area. We will have more active investment in high-growth areas. We will intensify our R&D activities by using global network of experts from advanced academic research institutions and venture-capital communities around the world to intensify our R&D activities. The name of the fund, temporary name, will be NTT Venture Capital, L.P. Location will be the U.S., and the size of the fund will be up to $500 million. And with that, we will accelerate the technology development speed in the global market and make this a technology fund, so that we can contribute to global innovation. Now the people who already have network will be selected as the management, those responsible. Now please turn to Page 10, other activities. We will promote B2B2X model. We signed with Yokohama City and Yokohama City University a new agreement on comprehensive collaboration on July 31. So this will be the third comprehensive collaboration agreement after Sapporo. With this, Yokohama has the -- was the first city in Japan to develop the plan to promote the utilization of public-private data, and Yokohama City University established its first Data Science Department in the metropolitan area. And therefore, in the various areas, including health, child rearing and social infrastructure in Yokohama City, NTT Group would like to support its transformation, digital transformation, to help realize the supersmart society in Yokohama. Now this will be the promotion of digital transformation. So on August 1, the holding, East and West and DOCOMO, DATA already had one before, but in the 6 group companies, we are establishing -- appointing CDO. We will work to further enhance the efficiency of business process and provide new value-added services. And in the NTT holding company, on September 1, we will establish the IT strategy office. We will further enhance the IT strategy and IT governance for NTT Group, boosting the digital transformation within the NTT Group, thereby achieve growth. That is all. Thank you very much.
Thank you very much. We'd like to take your questions. [Operator Instructions]
[Operator Instructions] From SMBC Nikko Securities, Mr. Kikuchi.
SMBC Nikko Securities, Kikuchi is my -- I hope you can hear me. Can you hear my voice?
Yes, we can hear very clearly. Thank you very much.
I'd like to ask 2 questions, if I may. First is about the Regional Communications segment. It seems that you meant -- I think under the business guidance, you are not expecting a growth in the revenue. So is this in line with expectation? Is actual situation very much in line with expectation? That's my question.
You should ask one by one.
Thank you. Shimada, Senior Executive Vice President. With regard to Regional Communication business, as you pointed out, in terms of operating income, I should say, in terms of operating income, as explained earlier, with regard to maintenance, we brought forward the plans for facility-related maintenance cost. So that being the case, there is a sudden -- slight decline in the operating income for the Regional Communications business. But this is very much in line with our expectation. So yes, we are progressing in line with our business plan. Thank you very much for that.
My second question. This is my last question. I would like to ask about the new global structure, if I may? This time around, you say that you're going to separate into 2 new businesses between global and domestic, and that NTT DATA will be treated separately. I would imagine that in reality, Dimension Data and NTT [ Communications ] data center business outside Japan will be integrated. And then the small subsidiary firms will also be integrated. So in reality, that's all that entails. And you are simply adding a new layer of structure. Is that the real situation?
As far as the domestic is concerned, I would imagine we are not going to touch that too much. And as for the global business, Dimension Data and NTT Communications data center will be brought together. Aside from that, there is not going to be a lot change even under the new global holding company structure.
Is this the ideal structure that you are envisioning at the group, that's my question. Or is this the ultimate goal you had in mind?
Thank you. Shimada, again. No, the idea of establishing the global holding company, the mission is as follows: For the time being, the overseas business excluding NTT Data will be reorganized. So NTT -- Dimension Data, NTT Communications overseas portion will be reorganized. And at the same time, the newly -- the new company that will be structured and NTT DATA's collaboration will be established. I believe that is the mission. So why did we decide to take this step? For one thing, at Dimension Data, they are the largest partner for Cisco on a global basis. And in relation to network integration, they already have very strong track record globally. On top of the SD-WAN managed services, in this new business domain, they are expanding their business. On the other hand, NTT Communications, as you're aware, their business is based on network and that they have also have data center. And so therefore, IT is the main business domain up until now. And likewise, they are now engaging SD-WAN and also managed services. So that type of business domain. There is some sort of overlap between the product portfolio. As far as the marketing and sales is concerned, we need to consider the optimal allocation. So it's not so much kind of impact on the overlap. We need to make sure that we are giving accounts -- our accounts the optimal structure and optimal structure and the coverage. So therefore, in each given area, we have local sales and marketing lines. And we want to expand the coverage in each given local market. At the same time, the product lineup and the portfolio needs to be integrated on a global basis. So that's the combination that we are considering. So at the end of the day, NTT Communications and Dimension Data in terms of [ IT ] infrastructure and managed services, that's their focal point. And in the case of NTT DATA, they cover all the way from advisory services up until the system integration. So if we could have very strong collaboration between these players, then we believe that we will be able to create an optimal structure. So that being the case, we want to make sure that we firmly address this particular step first.
So without entailing large, significant change, because although the title seems to indicate a significant change, although it should not entail significant change. That's the impression that I have. So may I take it that this is not much different from the various transformation you carried up until the previous year?
Up until the previous year? Well, for the past 3 or 5 years, we really did not see significant impact on the financial performance up until now. Our impression is that things are not going to change that much.
So you mentioned that for the time being. May I take it that, that you mean that this not the end goal?
I think at any given time, in terms of business operations, there is no final goal. So going forward, we want to make sure that we create the structure and with regard to brand, under the global holding company structure, what are we going to do in terms of the service, the plan and what are we going to do in terms of enhancing our overall presence, that will be our emphasis. Up until now, we had separate brands. But on the other hand, we were offering full-stack services, and we were also offering full life cycle services. So we want to make sure that we create [ a session ] which is more straightforward for our customers because we believe that, that will be a major factor to drive our growth going forward. So as far as we are concerned, this time around, well, up until now, we have also carried out cloud integration. But as far as we are concerned, naturally, this is something at the extension of that, but at the same time, we are stepping a new step forward bearing in mind the direction so far. Thank you very much.
Next is JPMorgan Securities, Mr. Tanabe, please.
This is Tanabe from JPMorgan Securities. I have 3 questions. Do you hear me?
Yes, we hear you.
So this is a follow-up from the last question. So my impression is that this company, in terms of financial results, there is not much change in the short-term perspective. And regarding the integration, Japan and abroad, it will be after the second quarter of 2019, summer. So it will be slowly integrated. That is my impression. So in the 5-year span, this DATA stuff will be integrated into this integrated company or this integrated company be listed. Are these part of your plan? If there is a possibility, if you could share with us?
This is Shimada speaking. So we said after summer of next year, but this reorganization will be done in the summer of next year after the preparation of one year.
So what kind of formation we have in mind?
Will be according to the environmental changes. We need to promote our business according to the changes in the environment. So for now, we will go ahead with what we have. So we will not have any predetermined thoughts or intentions when we move forward. We want to first set up and establish this new formation, new structure as we go ahead. Thank you very much.
By the way, as you integrate the structure, impairment or cost may be incurred. Are they incorporated into your financial results forecast?
This is Hiroi speaking. Thank you very much for your continued support. So the financial forecast, at the beginning of the year, it was not a decided matter. So these factors that may be associated with the integration, it is not factored in, in the initial forecast at the beginning of the year. But -- and we are still considering there are no factors that should be factored in the first quarter, so we have not changed the forecast. Thank you very much.
I'm sorry for the long question. One more question, if I may. Cross-sell order value, on a year-on-year basis, it's doubled. Now on a qualitative basis, it's fine. What is growing? And which areas, for example, for data customer, comm products, services are sold to data customers? Or any trend, notable trend, you could share with us?
This is Shimada speaking. So first of all, regarding cross-sell, NTT Securities -- Comm and Security or Dimension Data and Securities, these collaborations are progressing. And in parallel, Las Vegas Smart City deal, this was collaboration with Dell that is underway. In Europe, Data -- Dimension Data and comms are existing companies, collaboration is underway. So Dimension Data has 2 delivery centers in the world as consolidated into 2 and reducing cost. By consolidating these delivery centers, the delivery capability is improving. So that is another reason the cross-sell is increasing and supporting the growth of cross-sell. And therefore, in Europe and Latin America, these markets are growing steadily.
Next from Merrill Lynch Japan, Mr. Kinoshita, please.
Kinoshita from Merrill Lynch.
Yes, we hear you, sir.
I would also like to ask about the global business, if I may. Well, so you are going to set up a global holding company in between the holding company and the Opcos. And I would imagine that foreigners can also serve on the board. Under the NTT law, in the NTT holding company, foreigners cannot serve as members of the board or as directors. But going forward, this global holding company, could this company be listed? Is there such a possibility? Is that a possibility at all? Because if you want to recruit excellent foreigners, maybe you don't need to be a listed company or public company to attract talent. But providing stock and other incentives might be a possibility that you would consider. So do you have that in -- are you envisioning that possibility? Or is this totally out of context? Is this not being -- is this not considered at all? You simply see this global holding company as an organization that will simply integrate your business. Is that the only intention behind this new company? I would appreciate your thoughts. So is that inclusive of the possibility of offering incentives for possible new or foreign directors that will serve on the board? Is this a possibility?
Thank you. Shimada, again. Well, at this juncture, are we considering listing this company. That is not being considered at -- this is not being considered at this time. Now as we mentioned, as far as the members of the board, well, one of the reasons why we are setting up this global holding company is that in relation to the global business, we wanted to attract global talent with expertise. We want to have these people take part in our business. That's one factor behind setting up this company. So what about retaining motivation and incentive for this foreign talent? Dimension Data is a wholly owned subsidiary firm for NTT, and we actually used NTT stocks to offer option, full value option. That type of mechanism is already introduced. So even without shares that are listed, a similar structure has already been created. And this also applies to [ subsidiary ] firms under NTT Communications. We already have that track record. So that being the case, we believe that is a structure which will motivate, to be motivation on the part of the foreign talent. Of course, this is something that needs to be considered down the road, but inclusive of that, we like to consider these possibilities.
So you would consider a similar structure for executives for global holding company, creating a funds stock for directors, using NTT stocks for board members of global holding company.
Well, this certainly will have to be considered to down the road. I just simply cited that as one possible example. But that's one possible option. That's all I'm saying.
I see. Point taken. My second question is about your performance with regard to Long Distance and International Communications segment. Well, last year -- this is a question in response to the one-off income you saw in the previous year. But as far as this first quarter is concerned, how do you evaluate it? Of course, it's very difficult to gauge whether or not you're off -- or you're on the plan or you're off the plan just by taking a look at the numbers from the first quarter. But how do you evaluate the progress of the first quarter in relation to the Long Distance and International Communications business, simply a confirmation.
Thank you. Shimada. As I alluded to earlier in the course of my presentation, the first quarter this year, we saw some revenue -- temporary revenue in the previous year. So that being the case, on a year-on-year basis, this segment or this business saw a decline in the operating income. But then as you're aware, in the previous year, NTT America experienced the impairment, for example. That impact was there. So we will no longer have to see such expenses. And also in terms of operation cost, we are envisioning reduction in costs for the second half. With that being the case, we believe that this progress is in line with our initial expectation and plans.
Next is Daiwa Securities, Mr. Ando, please.
Could you hear me?
Yes, thank you very much.
I have 2 questions. First, on the global side. So you will have one company and put the reporting line into perspective. How much grip do you think you can realize? It's just a matter of nuance -- sorry, for a vague question, but this company, in the future, may form a segment and NTT Japan -- may have different corporate status as NTT Japan. Is that part of your expectation in establishing this company? So that's my first question.
This is Shimada speaking. So segmentation is not necessarily part of our plan yet. One purpose is to enhance the governance and improve the grip of our global business. As Ando-san mentioned correctly, Japan portion of data and the domestic portion of communications will be under this umbrella. So as one business segmentation, it is global. But there is a Japan domestic portion partially included. And therefore, the first purpose is to grow the global business and enhance our governance. So what you just mentioned will be further down the road. So a different corporate status.
Do you have image of having a further drive -- or driver for establishing this different corporate status? What do you mean by this different corporate status? Could you elaborate? Yes, for example, your competitor, SoftBank, has in San Francisco or the West Coast. The West Coast management are generating new things one after another, so dynamic. Will this lead to some dynamic moves that is different from what we see in Japan?
This is Shimada. So we must make this dynamic. So that is the intent this time. That's why venture capital innovation fund, this global innovation fund is established. And for R&D, we will have the [ seeds ] from this global innovation fund. Combine that with what we have in R&D and shift to that direction, to that side. So yes, it includes the factors that you just mentioned.
My second question is in your midterm plan, you mentioned that digital transformation will be promoted in Japan. If you could elaborate, give us more image on that, please. So one solution is cost reduction. Other than cost reduction, your drive for digital transformation, how could you come up with new service or scheme? I don't know but something that is visible or tangible for us. What is the image that you have for the future?
As you just correctly mentioned, regarding IT, we think it's the improvement of efficiency. The promotion of digital transformation is not just the cost side but also on the revenue side. So in our group companies, we have various data, structured data or nonstructured data. So in handling these data, the biggest challenge is format or the code that are the key. So by integrating or improving this, we can create new business from this new data. So we want to establish data-driven business.
Next question, from Goldman Sachs, Mr. Matsuhashi, please.
Matsuhashi from Goldman Sachs. I also like to ask 2 questions, if I may. The first question is this. It relates to the topic of digital transformation in the previous question. I'm not sure to what extent you are going to boldly pursue this digital transformation because the typical case we see out there is to see the cost/benefit and to progress slowly or just slightly or set aside certain budget for an enterprise-wide project. As far as NTT is concerned, if you're going to lead in this trend, then hopefully, it will not be on a very slight scale because if you end up pursuing transformation on a very slight scale, it will be disappointing. So let me ask bluntly. You're going to set up [ CDC ] and IT strategy office. How much budget are you going to allocate [indiscernible] service and additional cost? Are you going to set aside cost for different areas? If you could ask -- if you could respond as to how you intend to finance this cost.
Shimada here. Well, the establishment of the IT strategy office, how much budget are we going to allocate? I believe that was your question. As far as the IT strategy office is concerned, we do not consider setting aside a very large scale budget for this strategy office per se. Rather, what we want to do is to make sure that the IT and the digital section of the company and the group -- the directionality of these segments could be aligned. That was our intention. And by aligning that direction for IT and digital, we wanted to make sure that we proceed toward the same direction. That was more important. Now having said that, naturally, anything that is related to system will incur cost. And all the group operating companies independently, separately carried out these activities to date. And the IT systems, which were carried -- addressed separately, needs to be aligned to pursue a similar direction. We felt that this was necessary. But on the other hand, as I mentioned earlier, we are aiming for a data-driven business. That is going to translate to creation of new business, which means that this conventional mechanism would not work. We need something new, and we believe that some new investments will be required for that end. But it's not going to entail large-scale investment naturally. We will, first of all, start at the initial phase and then see what the impact of the initial investment is.
I see. My second question, it relates to the global cross-selling activities. Well, in the past, maybe not on every quarterly basis, you did disclose those numbers, and the first quarter cross-selling order volume is indicated. But then as you mentioned, this represents a year-on-year increase. But on the other hand, the order sale -- the order, which was disclosed by NTT DATA, was actually in negative territory on a year-on-year basis. So if you could explain what the situation is. So when you talk about cross-selling order volume, the question would have been to which, if you will, category is it contributing to? And also, if you're -- although you talked about positive cross-selling order volume, the first quarter result for NTT DATA was not all that strong, although they did explain they're anticipating large-scale contracts for the second quarter onwards. But there seems to be a gap between NTT DATA's number and the cross-selling order volume for NTT for the first quarter. So what are some of the challenges with regard to NTT DATA? I would appreciate your elaboration.
Shimada. With regard to cross-selling order volume, be it NTT DATA or be it -- correction, it's up in system integration revenue for Dimension Data and NTT Communications and NTT Security as well and naturally for NTT DATA. So there were -- it's very difficult to say of where the cross-selling order volume is categorized because it spreads across different companies. Now as you pointed out, the cross-selling order volume was not -- was like cross-sell for the first quarter at NTT DATA, and we're monitoring the situation. But in principle, the North American market needs to be closely monitored as we go forward, as you are familiar. In the North American market, it seems that the pipeline for the new projects are actually somewhat later than we had anticipated. But at the same time, the North American market, as you are familiar, is turning toward -- is shifting from outsourcing to insourcing. They're shifting to an insourcing-oriented business model. And also, in terms of digital, they're trying to hire in-house specialist for digital-related activities and they're -- and through that, they are improving efficiency. So that is the prevailing situation we see in the North American market. So that being the case, as far as the business model is concerned, we need to closely monitor how it evolves. We could have a challenge. But as far as the present situation is concerned, to the extent that we are aware of, we believe that the North American market will start to recover after the first quarter. But toward the medium to long term, we need to anticipate the trend and we need to shift accordingly.
Hiroi here. I would like to add, if I may. With regard to NTT DATA, if you see the order volume, although it's not very strong in the North American market. In EMEA, they're actually very strong, even offsetting the situation in North America. And also with regard to Dimension Data, the first quarter order-taking is quite positive. So for the NTT Group as a whole, in totality, I believe that overseas order volume is expanding in a very robust manner. That is our evaluation.
Next question is from Nomura Securities, Mr. Masuno, please.
Yes, this is Masuno from Nomura Securities. I have a few questions. So regarding the integration, first, the integrated company, I don't have a clear image yet, but Japan and overseas -- there will be 2 companies established, and Security and Dimension will be included. And the name is still unknown, but under a new name, there will be 2 new companies with new names. Is that the case?
This is Shimada speaking. Exactly, this overseas company and domestic company will be established, one each.
So Security was consolidated just the other day, but this will be integrated again? And brand -- I thought you said this brand will be integrated as well. Data, Europe is Europe and this data part may be different. But excluding data, the brand will be unified into one?
Yes, this is something we need to consider further going forward, but we are trying to unify. From -- it's not just from the corporate brand point of view, but from service brand point of view, we need to think of what to do. So that's one big factor.
I see. So Japan and abroad, there will be 2 companies. Then large customers that are doing business globally, they have business both in Japan and abroad and a line -- communication line and cloud. They have business in Japan and overseas in an integrated fashion. There are services, integrated services. So in cases that are -- in both Japan and abroad, how do you deal with such cases?
Yes, this is Shimada speaking. The frontline, the sales and marketing frontline and the facility part will have different format. So for example, the global multinational companies in Japan -- Japanese global multinational companies, CIOs are no longer in Japan. System network are supervised under the CIO who is not in Japan, the global company sales and marketing will serve as the contact point for such cases. Now if it is unified under Japan, then Japanese companies' side will serve as the contact point. And the way facility is held shall be considered going forward, but the facilities are separate between Japan and abroad. So Japan will have facility, and Japan global will have facility globally. And we will form a collaborative relationship.
So my image is -- I think it is better to integrate into one single company. What do you think are the pros and cons of having 1 company and 2 companies?
First, yes, as you correctly mentioned, Mr. Masuno, doing this with one company is one option, but Japanese companies' needs is slightly different from the global customers' requirements in terms of service quality, different in the Japanese market. So we thought it's better to separate and collaborate between the 2. So that is why we made this decision.
Thank you. My second question and my last question is, so until now, it was an integrated company; but going forward, global holding company. Under the current holding company, you are promoting global business and have produced -- producing function. But you will have another holding company under the current holding company. So what will the relationship be, the current holding company and the global holding company relationship, please?
The global holding company -- as I said earlier, the biggest mission of the global holding company is the realignment, restructuring and data collaboration. And with that, the development of global business, we will involve the global -- foreign management utilize their expertise and knowledge, and we think this is important. Unfortunately, under the law, we cannot have foreign nationals as the management of the current NTT Holding Company. So we want to utilize their expertise in the global holding company.
Yes, I understand the board part, but the actual frontline, I think there are many in the global side. So the frontline will be shifting to the global holding company side?
We need to think about it further and put things in perspective.
Next, from UBS, Mr. Takahashi.
Takahashi from UBS Securities. I would like to ask 2 questions, if I may. My first question is about the global business. Well, you're going to integrate. After you integrate these overseas subsidiary firms, what impact do you envisage for your financial performance, for example, in terms of cost reduction and so forth? If you have such calculations already, we'd appreciate that.
Yes, thank you. We will start considerations about the integration going forward. Naturally, we want to expand our revenue. And also -- we also want to reduce cost. We have to work on both sides. We will be aiming for both improving profitability and reducing cost. Of course, as far as the image is concerned, the idea will be [indiscernible] -- yes, we will pursue integration, I would imagine. To the contrary, when it comes to revenues and profit, we will have [indiscernible] location of sales and marketing team. So on that end, we are not envisioning that significant streamlining.
I see. My second question is about the fund. If I may ask, in the field of technology -- well, [indiscernible] intensified competition with people investing into the field of technology and the valuation is going up, as far as your attempts to create this innovation fund is concerned, what time line do you have in mind? What is -- how far ahead are you considering? And also, as far as the expected return is concerned, what is the indicator that -- or the benchmark that you'll be basing yourself upon in order to gauge the return?
Well, as far as this matter is concerned, this is matter to be discussed with the relevant fund managers. So I'm afraid we're not in a position to cite any specifics at this juncture. But as far as the time line is concerned, at minimum, anywhere between 3 years or 5 years, that is the image that we have. So where will we be investing in? Already up until now, we have been involved in venture-type activities to date. But when you consider the network or talent in places like Silicon Valley, they're able to generate new [ seed ]. And we believe that [ type of seed ] is possible. Based on such human network, it's quite critical. For example, when it comes to areas such as robotics and so forth, there are a lot of familiar names out there. But if -- in nonbusiness-related areas, we believe that there are potential [ seeds ] that could really contribute to our business in the future. Or [ seeds ] that could actually help us to expand the scope of our business. So that's the expectation we have in this front.
I see. So as far as the management team is concerned, you will be aiming for people with strong careers and people with human network. So you are going to create a team based on talent outside your group. Is that what you have in mind for this one?
Yes, that is correct, sir.
Next is Mitsubishi UFJ Morgan Stanley Securities, Mr. Tanaka, please.
Yes, this is Tanaka. I just have one question. In your briefing, you talked about long distance and international business. You said there's one-off event the previous year and that is why the profit is down this year. So could you elaborate and the amount of this impact? That's all.
Yes, this is Hiroi speaking. We had some asset disposal last year, and this impact of asset disposal was JPY 3 billion or so. And other than that, the one-off event were customers system were introduced and there was initial cost incurred. So this pushed down the profit of the first quarter. But if we exclude the other impact and look at the base profit, then it is not far off from our forecast. It's not -- it's in line with our plan.
I do not know about this initial cost to introducing customer system. What is that?
Customers system is transferred, and this cost to transfer customers system is incurred.
Next, from Citigroup Securities, Mr. Tsuruo, please.
Well, there are a lot of questions directed towards the global business. Maybe it's like really nitpicking, but I do apologize. I think as far as a direction is concerned, it's a very positive sign. But I would like to ask some questions with the negative flavor. My first question, you talked about cost reduction and also synergy for revenues. At what time do you believe that you'd be able to share with us some quantitative target, for example. For example, the Medium-Term Management Strategy that will be announced in November, are you going to be able to share with us some thoughts as a major -- as one of the major pillars for this new medium-term plan in fall?
Thank you. Shimada here. Well, next fall -- this fall, I should say, are we able to share with you the plans for cost reduction or any positive from this new holding company? It would be difficult to share with you any quantitative details at this juncture, at the fall. As we head towards next summer, we'll be coming up with a concrete design. And probably after the New Year, we'll probably be coming out with some implementation process. So we needed to work out the numerical details as we observe the progress of this program.
I see. Point taken. The next question. So it seems that the next year will be a quite moving period. Could this potentially be a risk for speedy business at NTT DATA? For example, if NTT wants to engage in a large-scale acquisition, this could be deferred because of this new structure. Or when you consider possibility with synergy collaboration with other up countries -- companies, could these push up costs, for example? So because you're taking it slow, there could be some negative, and the nonentity group shareholders for NTT DATA could be negatively affected. Are you going to give special consideration for that possibility?
Shimada here. So with regard to Dimension Data, NTT Communications, both of these companies have roughly 20,000 employees, if you will. So therefore, trying to organize this structure in 1-year period is by no means slow-paced. Actually, implementing this process in 1-year period -- well, maybe what Mr. Tsuruo's concern is your commercial thinking it might seem slow. But then as far as we're concerned, we are making a maximum effort to pursue this program. So within 1-year period, we want to organize this situation and create a robust output. We want to create a structure that will allow us to put out a robust output, and we want to create this situation as soon as possible. Now based on that, could there be implication for NTT DATA? We will attempt to pursue these initiatives so that there will not be such negative implication for NTT DATA.
I see. As far as the year is concerned, as I said, I realize that this entails a lot of people. So I have to take your point. But the intention of my question is that the -- for NTT DATA shareholders, is everything fine? I hope I did not sound too impolite.
I take your point. Thank you very much.
Next is JPMorgan Securities, Mr. Tanabe, please.
Yes, I'm sorry. I'm asking the question for the second time and time has exceeded. So I will be brief. So are you talking about the outline of the medium-term strategy plan? One market expectation is NTT Urban development. It is listed? And so it is [ discounted ] on the assets that they have. So will you keep this company listed? Or the utilization of this asset on a medium-term perspective, what is your plan?
Yes, this is Shimada speaking. The utilization of the real estate or property, group-wide [ CRE ] promotion is focused. So we have [ CRE ] Committee in the group. The facilities are being downsized. So we have -- we are freeing up the space. So we will need to utilize the potentiality of this real estate. So the Urban Development function and facilities -- [ NTT ] facilities, such as energy or air condition, HVAC-related or new smart building, for example. The such know-how will be incorporated to maximize the potentiality of our real estate.
Next, from Nomura Securities, Mr. Masuno.
I neglected to ask this question. The group holding company, there is like a mission, is the collaboration with NTT DATA. I believe that was your statement. So the current collaboration -- so what is going to be different? The difference in terms of your collaboration with NTT DATA under the new structure and under the current structure, what's going to be the difference in terms of collaboration with NTT DATA?
Shimada here. Well, NTT Communications, NTT DATA, NTT Security, Dimension Data and NTT i3, these 4 units -- or correction, actually, NTT Communications, Dimension Data, NTT Security and NTT i3, all of these units will be collaborating further with NTT DATA. And with the reorganization, it means that with one single unit, they'll be able to pursue collaboration with NTT DATA. That's the scheme which we are creating. So in that regard, the very -- we'll be able to shift from a very complicated structure we have today to a more straightforward picture from this point onwards.
Point taken. Up until now, you created the different committees, such as for investment, human resources and sales and marketing. I believe you created such a committee. So [indiscernible] virtual organization to real corporate structure and you'll be [ certain ] to a real corporate-to-corporate relationship. Is that -- is my understanding correct?
Will everything transfer -- will everything change to something between corporate to corporate? But I think what you mentioned is the general direction that we're headed to.
Time is running out. So we would like to have the next question as the last question, Merrill Lynch Japan Securities, Mr. Kinoshita, please.
Yes, this is Kinoshita speaking. I'm asking the second question just very briefly. I am sorry about the global holding company question again. For this global holding company, what kind of organization do you plan to establish, of course, with the board? Will there be business corporate planning or the staff division where you will gather the [ seconded ] personnel? So under this name of holding company, what additional functions do you plan to have under this global holding company? That's my first question.
Yes. This is Shimada speaking. The staff function of global holding company will be something we have to consider more going forward. But basically, we will not have 2 heavy staff function here. Rather, as I said earlier, 1 big mission of this company is reorganization, realignment. So we need to first have a firm grip of the realignment. So the big mission is to make the final decision. So the global holding company will have CEOs of related companies and utilize the foreign nationals who have expertise and make decisions. So that is the most important mission. The promotion of the realignment will be each company's mission. Of course, we will not have 0 staff, but that is our basic stance.
And one more question, my last question. In Nikkei newspaper, a rather awkward question, but it says that with this realignment, comm -- NTT comm's consumer business will be transferred to DOCOMO. That was the article on Nikkei newspaper. Is this something you will continue studying the possibility of?
Now we have no plan of doing that.
Thank you very much for the question. With that, we would like to close the financial results briefing for the 3 months ended June 30, 2018, for NTT. Thank you very much again for your attendance.