NTT,Inc. FY2027 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥3.62T
• Operating Income: ¥425.15B
• Net Income: ¥284.17B
• EPS: ¥3.38

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

NTT delivered a solid FY2027 Q1 with double-digit top-line growth and modest profit expansion, underpinned by broad-based segment contributions. Revenue rose 10.9% YoY to ¥3.618tn and operating income increased 4.9% YoY to ¥425.1bn. Net income attributable to owners improved 5.8% YoY to ¥274.8bn, with basic EPS of ¥3.38. Operating margin came in at 11.8%, down approximately 67 bps from the prior-year quarter as cost growth outpaced revenue. Net margin was 7.6%, compressing roughly 36 bps YoY on a higher effective tax rate (32.6%). EBITDA reached ¥877.6bn (24.3% margin), and OCF/EBITDA of 0.65x indicates soft cash conversion this quarter. Earnings quality is nevertheless supported by cash from operations of ¥574.5bn, which exceeded net income by 2.09x. Free cash flow was negative ¥98.9bn as capex and investment outlays (¥673.4bn investing CF) outstripped OCF, consistent with ongoing network and data center investments. Financial leverage remains elevated (D/E 3.59x), though interest coverage is solid at ~6.0x, reflecting resilient earnings and manageable financing costs. Segment-wise, Integrated ICT remained the core profit engine, Global Solutions accelerated, Regional Communications was steady, and Others (real estate/energy) showed strong growth. Equity-method income rose to ¥23.5bn, adding to profit stability, and comprehensive income benefited from favorable hedge and FX translation effects. Working capital dynamics were mixed: receivable collections were strong, while inventories increased and other items consumed cash. Guidance appears achievable with revenue and operating profit tracking near standard Q1 progress, and net profit slightly ahead. For the remainder of the year, execution hinges on sustaining margin discipline amid capex intensity and maintaining healthy cash conversion.

Profitability Analysis

ROE is 2.7%, decomposed into Net Margin 7.6% × Asset Turnover 0.076 × Financial Leverage 4.59x. The largest driver of YoY change is margin compression, as operating margin slipped ~67 bps to 11.8% on faster personnel and expense growth relative to revenue. Higher taxes (tax burden 0.652) also modestly weighed on bottom-line conversion. Interest burden remains benign (0.991) with interest coverage near 6x, indicating financing costs are well controlled despite leverage. The margin pressure appears tied to growth investments (headcount, network, and systems costs) and mix (expansion in lower-margin solution areas), suggesting partial structural elements; however, operating leverage from scale and integration synergies in Global Solutions can offset over the year. Cost governance will be critical as SG&A and opex rose faster than revenue. Asset turnover remains low, consistent with a capital-intensive telco/data infrastructure model, and is unlikely to change materially near term. Overall profitability remains in the “good” range by industry benchmarks on operating margin, but ROE is constrained by a large asset base and high equity capitalization.

Growth Assessment

Revenue grew 10.9% YoY to ¥3.618tn, led by Global Solutions and steady Integrated ICT expansion. Operating income rose 4.9% YoY to ¥425.1bn as scale benefits were partially offset by higher personnel and expense lines. EBITDA advanced to ¥877.6bn, supporting growth investments in networks, systems integration, and data centers. Segment growth breadth is healthy: Global Solutions outperformed on revenue and profit, Integrated ICT expanded, Regional Communications stabilized, and Others delivered double-digit growth. Equity-method income increased to ¥23.5bn, indicating robust affiliate contributions. The Rule-of-40 lens is less applicable for telco; growth is being balanced against capital intensity and margin management. Outlook-wise, Q1 progress is broadly in line with full-year guidance on revenue and operating profit, with net profit slightly ahead, suggesting modest upside if cost controls tighten and cash conversion normalizes. Execution risks include wage and energy costs and competitive pricing, but diversified profit streams provide resilience.

Financial Health

Equity ratio is 20.8%, reflecting a leveraged but typical balance sheet for a national carrier with banking and lease liabilities included. Current ratio is approximately 0.49 (current assets ¥11.48tn vs current liabilities ¥23.20tn), which would be a warning in most sectors; here it reflects telco/banking funding structures with large deposits and short-term borrowings, but it still warrants monitoring. D/E of 3.59x is high and merits caution, though interest coverage around 6.0x indicates satisfactory debt service capacity. Long-term borrowings declined by ¥226.6bn while short-term borrowings rose by ¥769.6bn, modestly increasing maturity concentration; liquidity management should ensure sufficient buffers against refinancing risk. Lease liabilities total ~¥1.17tn across current and non-current, and defined benefit obligations are ¥715.5bn, both manageable relative to scale. There are no specific off-balance sheet obligations highlighted in the provided data. Overall solvency relies on stable, recurring cash flows and access to capital markets; funding costs and tenor discipline are key watchpoints.

Notable B/S Changes

Cash and cash equivalents: +¥465.5bn – liquidity increased on positive net cash flow despite negative FCF. Accounts receivable: -¥524.4bn – strong collections supporting OCF. Inventories: +¥91.2bn – build consistent with device procurement and project work-in-progress. Property, plant & equipment: +¥136.1bn – ongoing network and data center investments. Goodwill: +¥64.7bn – recent acquisitions; monitor integration and impairment risk. Short-term borrowings: +¥769.6bn – higher reliance on short-term funding; watch refinancing exposure. Long-term borrowings: -¥226.6bn – shift in debt tenor toward short term. Other current financial liabilities: +¥210.0bn – higher near-term financial obligations. Banking deposits (current): +¥411.9bn – growth in banking operations liabilities.

Cash Flow Quality

OCF was ¥574.5bn versus net income of ¥284.2bn, yielding OCF/NI of 2.09x, a positive indicator of earnings quality. Cash conversion (OCF/EBITDA) was 0.65x, soft for the quarter, reflecting working capital outflows and capex timing. Working capital movements included strong receivable collections (+¥543.5bn), higher inventories (-¥104.9bn), and other items (-¥38.0bn); no clear signs of aggressive working capital management are evident. Free cash flow was -¥98.9bn due to investing CF of -¥673.4bn (notably ¥630.3bn for PP&E/intangibles/investment property and M&A-related outlays), consistent with capital deployment in networks and data centers. Dividends paid were ¥215.9bn in the quarter; while not covered by FCF this quarter, ample OCF and financing access support distributions. Sustained improvement in cash conversion and capex efficiency will be important to fund both growth and shareholder returns without elevating leverage.

Dividend Sustainability

Full-year DPS guidance is ¥5.4 against EPS of ¥12.1, implying a payout ratio of about 45%, which is sustainable by benchmark. Quarterly OCF of ¥574.5bn against capex/investing outflows of ¥673.4bn produced negative FCF, but the company’s recurring cash generation and access to financing accommodated the ¥215.9bn dividend payment. With EBITDA scale and stable earnings, dividends appear supportable if cash conversion trends toward historical norms and capex stays within plan. Total return ratio is effectively the same as payout ratio given negligible buybacks in Q1.

Risk Assessment

Business risks include Margin pressure from rising personnel and operating costs amid competitive pricing in mobile and enterprise solutions, Execution risk in large-scale IT integration and data center projects within Global Solutions, Regulatory and pricing regime changes affecting telecom tariffs and wholesale access, Commodity and energy price volatility impacting network operating costs.

Financial risks include High leverage (D/E 3.59x) increases sensitivity to funding costs and refinancing conditions, Soft cash conversion (OCF/EBITDA 0.65x) heightens reliance on external funding during capex peaks, Maturity mix shift toward short-term borrowings elevates near-term refinancing needs, Defined benefit obligations and lease liabilities add fixed-charge commitments.

Key concerns include ROIC of 2.8% trails a 5% benchmark, indicating capital efficiency headroom, Current ratio below 1.0 reflects structural funding but narrows liquidity cushion, Inventory build and capex intensity pressure near-term FCF, DSO flagged at 507 days suggests collection cycle complexity tied to installment receivables and sector structure.

Investment Implications

Key takeaways include Top-line growth of 10.9% YoY with operating income up 4.9% demonstrates resilient demand across segments, Operating and net margin compression (≈67 bps and ≈36 bps, respectively) requires renewed cost discipline, High-quality earnings signal (OCF/NI 2.09x) offsets weak cash conversion (0.65x) in the quarter, Leverage is elevated, but interest coverage near 6x and diversified cash flows underpin credit profile, Guidance tracking is broadly on plan with net profit slightly ahead of standard Q1 progress.

Metrics to watch include Cash conversion (OCF/EBITDA) recovery toward ≥0.9x, Capex trajectory vs plan and resulting FCF, Operating margin trend in Integrated ICT and Global Solutions, Leverage metrics (D/E and interest coverage) and debt tenor profile, Receivables and inventory turnover dynamics.

Regarding relative positioning, Within Japan telecom and integrated ICT peers, NTT maintains scale-driven earnings resilience and diversified profit drivers (mobile, fiber, SI/data centers), but shows typical sector leverage and capital intensity. Margin profile remains competitive, while cash conversion volatility and high leverage warrant a more cautious stance versus asset-light IT service peers.