NTT Data Group Corp

DUS:NT5

Earnings Call Transcript 2019-Q2

[Yo Honma, executive]

I am CEO and President, my name is Honma. Despite your busy schedules, thank you very much for coming to attend these briefings. Now I would like to talk about the outline for the financial results for the fiscal year ending March 2019.

Firstly, let me talk about the highlight for the second quarter's results. All in all, as you can see on the screen, domestic businesses continued to perform strongly, plus EMEA and Central Latin America increased the size of business. So against all measures, year-on-year performance was positive, and against the full year results, we are making good progress.

As for new orders received, it indicates year-on-year decline in Public & Social Infrastructure segment. But Financial and EMEA and Central Latin America had a good order take and it was year-on-year positive. Especially, EMEA and Central Latin America achieved significant growth in the second quarter, maintaining good performance.

Turning to net sales. Centering around Enterprise & Solutions segment, domestic businesses continued to perform solidly, and EMEA and Central Latin America achieved organic growth. As a result, year-on-year sales grew further.

Operating income was partially impacted by unprofitable projects, but net sales growth increased profit. And as a result, it was positive against the previous fiscal year. Next, let me talk about the status against all measure -- each measure.

First, new orders received. Public & Social Infrastructure segments looked a large drop against the previous fiscal year, but it's because of the large order taken in the previous fiscal year. So it's in line with our original expectation. For the Financial segment, they have taken good orders for the banks and it is performing strongly. And in Enterprise & Solutions segment, NTT DATA MHI Systems was established in October 2017’ by consolidating its results, they are growing business for manufacturing sector. And North America posted a drop against the previous fiscal year, but the health care-related large contracts and orders from the new customers are coming in, and the pipeline continues to be on the recovery trajectory. So I think innovation investment and initiatives and enhanced sales capability have yielded results. Going forward, by turning pipeline into actual projects, we are planning to -- we would like to increase new orders received. And EMEA and Central Latin America, all of 3 operating companies are performing strongly, and especially they are winning projects in Europe.

Next, net sales results. In Public & Social Infrastructure segment, our services for central government agencies and telecom sector increased the size of the business and it is continuing to perform strongly. And the Financial segment, even though there was a drop against the previous fiscal year because of the reactionary pull, there's an increase in sales for corporate and financial institutions. So they are keeping the same level as previous fiscal year and the performance remains solid. And the Enterprise & Solutions segment, same as new orders received. There's a benefit from consolidating a subsidiary, but the sales are growing for manufacturing, retail and other wide range of sectors. In the North America, there's -- because of the decline in new orders received in the previous fiscal year, there's a drop; however, it is as expected. Compared to the first quarter, the second quarter started to see an end of downward trend. So by increasing new orders, we would like to bottom out its performance. For EMEA and Central Latin America, centering around everis and especially in Europe, our sales are growing, achieving organic growth continuously.

Next, operating income. Sales grew in Enterprise Solutions (sic) [ Enterprise & Solutions ], EMEA and Central and Latin America, and they are posting increasing profit. And Financial segment remains flat as last previous fiscal year. Public & Social Infrastructure had an impact, thanks to more sales. But because of the unprofitable projects, it's in line with the previous fiscal year. In total, unprofitable projects amounted to JPY 7.4 billion, the majority of which is the additional provision for losses of unprofitable projects happened in Public & Social Infrastructure segment. So we are going to make all our efforts to prevent from posting additional provision and mitigating those losses. There's a drop in North America segment, but by controlling costs and reducing PMI cost, the level is as the previous fiscal year. It is on the improvement trajectory and we continue to control costs going forward. And by improving sales, we would like to improve profit as well.

Next, let me revisit the Mid-Term Management Plan status progress. So firstly, we would like to review the objectives of the Mid-Term Plan. NTT DATA: ASCEND "Rise and Grow our Global Brand" is the slogan for this plan. Targeting in fiscal year 2018, we are planning to achieve JPY 2 trillion or over in consolidated net sales and increased post-adjustment operating income by 50%, excluding investment in new fields compared to fiscal year 2015. And here is where we are against those objectives. As you can see here, so after we finalize the Mid-Term Plan, both net sales and operating income are making good progress continuously. In the fiscal year -- in this fiscal year or fiscal year '18, we would like to achieve these objectives, which is the final year of the Mid-Term Plan. In order to achieve further growth, large-size markets and markets with high potential growth are essential for us to increase business. North America and European markets are large; however, our market share is relatively low, small. So by promoting M&As and building up our strengths, we are planning to increase the business size.

Let me give you a specific example in Game-Changing Approach. We are providing Zengin Telecommunication System, which we provide for the Japanese banks payment clearing network. So since 1973, when system was cut over, without interrupting transactions, we have been providing services. And by doing so, we have built trust relations with our customer. And on the 9th of October 2018, More Time System was cut over and the Zengin users can now transfer and deposit 24/7 throughout the year. By taking advantage of our understanding on customers' businesses, we created value for the social infrastructure, which is a large-scale project.

Next example is a case where we leverage our state-of-the-art technology to offer new value for the customers. 2020 Tokyo Olympics and Paralympics are approaching and airport users are increasing, and smooth navigation inside the building is necessary. This is a first time for domestic airports to use geomagnetism in navigation system, which was released on the 20th of September for the Narita Airport. With GPS, historically, it was difficult to identify indoor precise location. But with geomagnetism, a high-precision indoor location can be identified, even inside the building. And this indoor positioning technology is very strong with the GiPStech, which is a startup company outside Japan. By working this company, we have realized its services. Going forward, by sophisticating these services, we would like to roll out these services for customers with public transportation and a large-size facilities so that we can grow our business.

This is the example from one of our subsidiaries in Japan. So in recent years, businesses are stepping up their efforts in working start reform. And in order to achieve better efficiencies in automating business processes, we have been providing product and solutions, which have been our focus. And the key examples include intra-mart, a business process improvement solutions, and Biz integral, which is a cloud-ready EPR (sic) [ ERP ] package. And these are well received. As of September 2018, over 6,500 companies have adopted these products.

Going forward, by working with 200 partners nationwide, IoT, RPA, AI and other digital-related technologies are to be leveraged so that we can help clients increase business and create corporate value. And that's going to be our focus.

Next, this is example in the North America. NTT DATA Services was awarded the 7-year large-size BPaaS contract from the health care payer in U.S. This company has been providing health care insurance services for nearly 50 years, and this is a new customer. NTT DATA Services has strengths in Application Management Services in the health care insurance area as well as BPO and infrastructure maintenance management operations, and such extensive track record was well recognized.

And let me share another example in Europe. Vodafone Italy launched Ho, which is a second brand, and we have designed and built business and also processes as well as architecture. Within just 8 months from consideration phase, the service was cut over and we have received a high recognition by the customer, responding to the market trend and the speed we helped client tackle business challenge, and this is one of the key examples in digital-related projects.

Next, let me talk over our initiatives in breakthrough technology. The first one is production technology innovation. Digital era requires a wide variety of insights. NTT DATA is trying to consolidate and leverage insights at a global level and we created common global research platforms to help clients deal with digital agenda. In specific, faster development is enabled by agile development platforms and customer experience is to be pursued by designing a technology. And in various fields, blockchain technology has been adopted, and in those fields, we have been accelerating collaboration at the global level.

Next, let me talk about the breakthrough technology. As you can see here, in order to help clients digitize, we have defined digital focus areas which are technological fields, AI, customer experience, security and other fields. In those areas, we are going to refine the strengths so that we can provide best solutions for customers to help clients help create the innovation for the customers.

So this is the final case study. So in order to transform business process, AI can be leveraged. And this is one example. So our subsidiary in America, NTT DATA Services, have a health care archiving solution. And this is a PoC that they have conducted. Traditionally, radiologists were doing diagnosis based on medical images. But in this PoC, they use AI. Compared to the traditional way, it has enabled comprehensive diagnosis.

Going forward, we are going to look at the differences in disease by country, region and roll out the solutions at the global level.

So from the next page and onwards, it includes business topics and numerical information, so I would appreciate if you could take a look at it later.

This concludes my presentation. Thank you very much for your attention.