Earnings Transcript for 6701.T - Q4 Fiscal Year 2023

Takayuki Morita: Good afternoon. Thank you very much for your participation today. I will now explain the financial results for FY 2023 March along with the forecast for FY 2024 March. This will be the agenda for today. First, the financial results for FY '23 March. Page 5 shows the summary of the financial results. Revenue was JPY3.313 trillion and increase in all segments. Year-on-year, this was a growth of 10%. Adjusted operating profit was JPY205.5 billion. Details will be explained later, but aside from Network Services, all segments increased. Adjusted net profit was JPY138.6 billion. Impact from tax expenses was approximately JPY30 billion yen versus last year. And if we exclude this, it effectively increased. Page 6 shows the main indices along with performance by segment. Revenue, adjusted operating profit and adjusted net profit were all higher than the January 30 forecast. Details of each segment will be described later. Now to Page 7. This shows the fluctuation of adjusted operating profit. I will use FY '22 March as the baseline to explain. In FY '22 March, one-time profit of JPY10 billion from asset sales was acknowledged. In FY '23 March, a one-time profit of JPY11 billion was attained. Next, in Q4, JPY5.5 billion was acknowledged for structural reform, such as global 5G cost structure optimization. As for macroeconomic environmental change impacts, forex fluctuation was a positive JPY16.5 billion. Component shortages were resolved from the second half of the year and onwards and year-on-year, a positive JPY4 billion. Intellectual property income was attained in Q4 of last fiscal year as well as Q3 of this year and on an annual basis contributed to a positive JPY7.5 billion. Operations improved by JPY11 billion. Domestic IT segment advanced fairly. Enterprise saw JPY14.9 billion. And Public Solutions business saw a JPY7.5 billion improvement. On the contrary, Network Service business was minus JPY13 billion. Based on these results, operating profit for FY '23 March was JPY205.5 billion. From Page 8, I will explain each segment, starting with Public Solutions business. For revenue, the market situation surrounding SMEs have bottomed out and we continue to see a growth trend. Public and healthcare are increasing steadfastly as well, and all in all, a growth of 3.2%. Adjusted operating profit, due to an increase in revenue as well as cost optimization, saw plus JPY6.7 billion. Page 9 is Public Infrastructure business. Revenue grew by 6.8% due to increases in business for satellites and defense. As for adjusted operating profit, on top of an increase in revenue, non-performing projects were contained and overall an increase of JPY8.1 billion. Page 10 shows our Enterprise business. Revenue increased 6.9% due to strong trends in all domain, including financial, manufacturing and retail services business. Adjusted operating profit, due to revenue increase, enriched offering menus as well as enhanced profitability through strengthening of SI project risk management, improved JPY15.9 billion. Operating profit ratio has advanced to 11.9%. Page 11 is Network Service business. Revenue increased despite investment restraints among domestic and overseas telecom carriers. Intellectual property income attained in Q3 also made a positive contribution. On the next page, I will describe the adjusted operating profit. Here on Page 12, I will use the results from FY '22 March as a baseline to explain the changes in profits and losses. Change factors up to Q3 have been explained during previous financial announcements. For Q4, due to revenue expansion, business operational improvements were JPY12.8 billion. Further, to improve profitability, JPY3.3 billion for structural reform and JPY1.4 billion to streamline assets were acknowledged. There was also a negative JPY5 billion impact for IP income. And all in all, that gave us a profit of JPY24.7 billion for Q4 and, for the full year, JPY24.1 billion. Next, Page 13 is Global Business. For revenue in Netcracker's OSS/BSS as well as acquired company software related business for digital government and digital finance along with a favorable trend for major domains such as submarine systems uplifted revenue by 20.8%. Adjusted operating profit increased JPY16.6 billion due to progress of business portfolio transformation and improved profitability in major business domains. Page 14 illustrates free cash flows. Operating cash flows increased JPY34.5 billion due to an increase in adjusted operating profit. Inventory was increased by JPY60 billion because of component shortages in FY '22 March, and, as planned, in FY '23 March, this was resolved. But to prepare for longer procurement periods and mitigate component risks, another JPY34.5 billion has been added. Year-on-year, this is an increase of JPY85 billion. Because of a large increase in revenue, working capital balance has increased and accounted for a minus of approximately JPY115 billion. Operating cash flow total year-on-year is an increase of JPY4.6 billion. As for investment cash flows, expenditure decreased by JPY13.8 billion. This is due to a decline in spendings for M&A activities. All of this taken into account year-on-year free cash flows increased JPY18.4 billion, totaling JPY102.5 billion. Page 15 is the status of our CCC. FY '23 March saw an increase in large projects where upfront expenditure was made and, on a normal business operation basis, a deterioration of six days year-on-year is the result. However, these projects lead to future intake. And when excluding such projects, CCC is on par with the previous fiscal year. Long-term large projects will increase in the future as well, so we will continue to promote improvement activities, such as securing advanced payment fees. Page 16 shows the status of our investment securities. Back in April of 2020, we decided that the policy be zero holdings and, as explained to you previously, we have steadily decreased the volume. Among the investment securities for listed stocks as of end of 2021 March, 108 shares, and by 2023 March-end, this became 33 company shares, a decline of 70%. For FY '23 March, the same level as FY '22 March, JPY19.6 billion was sold and the total amount sold since 2021 March-end is JPY135.4 billion. Non-listed stock excluding alliance shares have dropped to 137 from 207. Page 17

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