
NTT DATA Corporation / Earnings Calls / May 16, 2021
Ladies and gentlemen, my name is Honma, Representative Director. Firstly, thank you very much for your participation for this briefing session despite your busy schedule. As we still live with COVID-19, please allow us to hold this session online. For today's session – this is the agenda for today's explanation. Firstly, let me show the highlight of the financial results for the fiscal year ended March 2021. Last fiscal year, we were hit by COVID-19 and the customers curved IT spend or suspended or reduced projects. However, we appropriately conducted our business operations and compared to our guidance released last August, the negative impact was smaller than expected and the results remain solid. As for new orders received because of the year-on-year decline due to large deals in the previous fiscal year, we had a decline however larger sales in domestic business in net sales, we had the larger businesses and we resulted in 32 consecutive year revenue growth. For operating income, structural transformation was conducted and we controlled unprofitable projects and we had an increase in profits. Now let me explain year-on-year variance by segment. First, new orders received. In the public and social infrastructure, in the fiscal year 2019, we had the larger ideals, so there was year-on-year decline, but because of the projects from the central government, we were on par with fiscal year 2019. In the financial segment, there was a substantial increase because of project wins from financial institutions. Enterprise and solution, even though there was an impact of COVID-19, which was relatively high, we won retail and services related projects and the result was on par with fiscal year 2019. Businesses outside Japan were strongly hit by COVID-19. In North America, there were large deals in the previous fiscal year, so there was a year-on-year decline. On top of that because of the COVID-19, there was a substantial decline. As for EMEA and Latin America, there was a large deal in Spain in the fourth quarter of fiscal year 2019, so there was a year-on-year decline and also there was the COVID-19 impact. Next, let me talk about the situation with net sales. Public and social infrastructure segment for central government and the telecom sector, we have increased sales. The financial segment from a wide variety of financial institutions, we were able to increase sales. Enterprise and solution segment, especially in the manufacturing sector, there was COVID-19 impact leading to reduction or suspension of projects and there was a decline after the third quarter. However, because of the larger sales in the retail and services sector for the full year, we learned it on par with the fiscal year 2019. North America, COVID-19 and FX impacted net sells; however, acquisition related business increase led to the same level as fiscal year 2019. EMEA and Latin America, Italy performed solidly, however COVID-19 derived reduction and suspension projects leading to the same level as the previous fiscal year. Finally, let me talk about the situation with operating income. Public and social infrastructure segment revenue grows plus control of unprofitable projects led to substantial increase. Next, the financial segment, control of red projects led to incremental profit. Enterprise and solutions segment, since third quarter, the negative gap has been reduced, but because of the COVID-19 issue and the ratio has been deteriorated leading to a decline. North America, in order to prepare for future, structural transformation was conducted, so such costs and COVID-19 impact led to a substantial decline. EMEA and Latin America, there was a decline because of the COVID-19. However, there was effect of the structural transformation conducted in the prior year and the cost was reduced leading to incremental profit. Next slide and onwards explain details by segment, therefore that's the highlight of the financial results for fiscal year ended March 2021. Please jump to Page 12. The final year of the current mid-term plan is the fiscal year ending March 2022, so let me explain the forecast for that fiscal year. First, business environment, due to COVID-19 business environment is dramatically changing. Last fiscal year, even under harsh environment due to COVID-19, we have been able to successfully demonstrate resilience. For this fiscal year too, we do expect continued uncertainties. However, as we finished the current mid-term plan, we are striving for carrying out strategies that we have been working on. Next, this is the forecast for the fiscal year ending March 2022. This fiscal year is expected to see the negative impact of the COVID-19, but under the new business environment, we are going to work on profitable growth. And this shows a comparison between the current mid-term plan and forecast. Consolidated net sales ¥2.36 trillion consolidated operating margin 7.6%, EBITDA percentage oversees 6% and we are aiming to achieve over 80 companies of customer base. Next detail of the forecast, first new orders received. In the financial segment, there were fewer large deals in the financial segment, so there we are expecting a slight decline. As for net sales outside Japan business restructuring is expected to reduce net sales, however, larger sales in Japan, we are aiming to achieve 33 consecutive year revenue growth. For operating income towards the next mid-term plan, we are going to accelerate investment and in the last fiscal year we conducted structural transformation and we expect benefit and also the cost will be reduced, so substantial increase is expected to reach ¥180 billion also we are – to improve profitability and we are aiming to achieve 7.6% of operating margin because of such substantial increase for net income for the first time, we are expecting to cross the ¥100 billion mark. Finally, annual dividend per share, because of such an increase consolidated cash flow is expected to grow. Therefore, our forecast is ¥19, ¥1 up per share. Now let me explain the variance by segment. First, new orders received. As I explained earlier in the financial segment, there were large deals. So we expect year-on-year decline, so we are expecting reduction of ¥100 billion year-over-year, but for other four segments, thanks to renewal projects and also the new deals we are expecting to have incremental new orders received. Next net sales, in North America in order to promote a shift to profitable business domains, we have a plan for divestment, so we do expect some temporary decline. However, for other four segments, we are expecting increase in net sales. Finally, operating income forecast. Towards the next mid-term management plan, we are going to accelerate investment while increasing profits in Japan and we are aiming to achieve substantial increase overseas. In North America, we conducted structural transformation in the last fiscal year. So we are – to improve profitability and we will reduce costs and we are expecting to achieve large increase and we are aiming to achieve 7% in EBITDA margin. In EMEA and Latin America, under the next mid-term plan, we are planning to achieve 7% EBITDA margin and we are going to execute investment for EMEA group integration, including brand unification. There are some downside factors. However, we have reviewed underperforming businesses in the previous fiscal year and also we will not expect such temporary costs. Therefore, we are expecting large increasing profits. Next, let me talk about the progress against the mid-term plan. Please jump to Page 25. Under the current mid-term management plan in order to achieve the global third stage, we have been working on initiatives towards profitable growth at the global scale. And this shows a big picture of the current mid-term plan. Under this plan, in order to provide greater value or maximize value for clients as a courage to change initiatives, we intensively conducted these four strategies. Strategy one, building on strengths and improving the way of competing against the peer first accelerating global marketing, developing digital offerings and building more CoEs. With these three pillars we have accelerated global collaborations. This shows one example of Global One Team. For European telecom sector, we worked with NTT DOCOMO and we won multiple 5G related projects. The second initiative example Digital Strategy Office, or DSO, was newly created and we developed global offerings. So far 15 projects have reached a stage to provide services, contributing to business expansion in each region. Third, building more CoEs, or Center of Excellence, we have accumulated cutting edge technologies and roll them out. This shows an example of agile DevOps. We continue to nurture subject matter experts contributing to project wins in Japan and abroad. Next strategy two, delivering greater value for clients based on regional needs. First, this is an example from the public and social infrastructure segment. As Grid Skyway, we work with typical group and set up new business using drones. This is an example in the financial segment for financial institutions and enterprises. In addition to banking services, we have been providing services to support management. This is another example in the enterprise and solution segment. For Kirin factories, we have been providing analytics services using IoT technologies. Another example in North America, for a large environmental services company, we have been providing analytics services using Snowflake. Another one from EMEA and Latin America for a giant oil company everis, solutions for gas station have been provided. Next, strategy three unleashing our employees' potential that maximizes organizational strength. We developed people programs and changed systems and also we will form the work style and also reinforce governance. And this is an example of work style reform using digital. This enables sharing of insights and know-how at a global scale by introducing cutting-edge mechanisms and we have been leveraging these for proposal activities and know-how rollout. The fourth strategy is reinforcing group collaboration with NTT Group. In each region or in advanced areas, we have been leveraging economies of scale to promote collaborations. We work with Mitsubishi Group Corporation for their food subsidiaries by providing demand prediction. By using this mechanism, we have been working on this food distribution DX used by retailers, wholesalers, and manufacturers. This is another example with Toyota. In connected car, we have been conducting joint research such as big data analytics. In fiscal year 2020, in the mobility services arena, we signed the business alliance with Toyota Connected. Furthermore, we have been – as one entity group, we have been aggressively working on smart city concept. Under the mid-term plan for ESG oriented management, we set up a goal to contribute to the achievement of ESGs. In fiscal year 2019, we have identified 12 key ESG issues and we have been working on initiatives to contribute to societies through businesses as well as corporate activities. This shows initiatives and contributions for businesses, not only in Japan, but also in North America and Europe. We have worked on various initiatives for social contribution. Going forward, we are going to work on green. In last fiscal year, climate change action promotion committee was set up. Continuously, we will push forward initiatives to reduce carbon dioxide. Last year, we launched the TradeWaltz. By leveraging blockchain technologies, we have digitized trade data across industry, so that it can reduce paper and also improve operation efficiency. This contributes to carbon dioxide reduction. Next, let me talk about our responses to key issues. First, let me talk about our accomplishment of unprofitable projects and preventive measures. We have reinforced this initiative since 2019. And in fiscal year 2020, we successfully reduced unprofitable projects significantly. Next improvement of profitability abroad. In North America because of the COVID-19, since last fiscal year, the structural transformation was conducted ahead of the plan. Shifting to digital oriented business domains continuously, we are to increase digital and consulting businesses and also we will promote initiatives to enhance digital talent and the transformation to business domains, so that we can achieve 7% EBITDA percentage in this fiscal year. Next EMEA and Latin America, thanks to accomplishment of structural transformation. We were able to win digital deals and those will be reviewed talent portfolio and underperforming businesses and we were able to identify a pathway for improvement of profitability. For future, we are going to work on global brand unification and also integrated operation of a multiple operating companies. Let me compare against the current mid-term plans goals. In Japan, the performance has been trending solidly while abroad it is hit by COVID-19. Therefore, we are continuously working on reform for recovery and growth, consolidated net sales of ¥2.5 billion is expected to be achieved in the fiscal year ending March 2024. In Japan, we are going to increase growth in investment and we sustain profitable growth. And in overseas, we are going to accelerate structural transformation, so that we can further improve profitability. As for EBITA percentage – seven percentage goals, North America is expected to hit it in March – in fiscal year ending March 2022 and EMEA is expecting to achieve in the fiscal year ending March 2024. Finally, let me talk about the directions for the next mid-term plan. This shows the business environment surrounding NTT DATA. COVID-19 is accelerating DX and also we are seeing the global trend of de-carbonization. Towards the global third stage, we are going to capture these changes and we believe that we need to upgrade the current mid-term plan to the next level. In the digital arena, we are going to realize DX for the whole society by cross sector collaborations. And in the green area, we are going to implement green innovation based on IT and co-creation of value model. And this shows the vision of what we want to be as NTT DATA by leveraging strengths of technologies and long-term relationship. We are aiming to realize new society with digital and green. And this shows some specific vision of new society using digital that we are envisaging. Administrative services will be sophisticated. Therefore, we are striving to realize connected one-stop society, where all the administrative and other services and procedures can be complete. As for achieving carbon neutrality as one NTT DATA, we are to leverage eye on digital twin computing technologies. We have started PoCs to shape the future town. Under the next mid-term plan, as you can see here, we are going to focus on three dimensions of Japan, abroad and global strategies, and we are going to reinforce stronger collaborations. Going forward towards the global third stage with IT and the power of digital, we are going to – we are aiming to contribute to shape a new society, so that we can be recognized as a truly trusted global company. Before conclusion, let me mention about the media coverage in relation to the company in March. And I know that this has caused concerns and inconveniences occurred to you. And let me take this opportunity to extend my deepest apologies. On this matter, on the 9th of March, we have him involved external experts and set up a special investigation committee. And this committee is currently conducting the investigation to reveal the facts and the correlations as for the future steps. Once the findings become available, we are going to share those publicly. Next slides and onwards, explain key topics and numerical data. So please allow me to skip those details. This concludes my presentation. Thank you very much for your attention.
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