NTT Data Group Corp

DUS:NT5

Earnings Call Transcript 2020-Q2

[Yo Honma, executive]

Good afternoon. I am Honma. Thank you very much for attending our briefing today despite of your busy schedule. Now I will explain the overview of the result of the second quarter.

First, our view of the result of the second quarter as a whole company. And as of the end of the second quarter, all in all, we were able to make further progress year-to-date and surpassed the figures posted in second quarter previous year. And especially for orders received, we -- if we exclude the impact of foreign exchange rate, all segments grew after Q1. That resulted in approximately JPY 150 billion increase at all company level. And major growth was seen in public and social infrastructure and the North America segments due to large-scale projects we won.

Net sales also increased in all segments. If impact of currency exchange rate is removed, enterprise and the solutions remained robust, especially for operating income. Despite the cost increase due to midterm plan we announced in May, net sales increased and the decrease in our PMI costs after the acquisition of former Dell Services contributed to profit increase.

Now I will explain each segment, how the figure changed. First, let's look at the orders received. On a year-on-year basis, Public & Social Infrastructure segment posted a major increase due to larger scale and other projects awarded by central government ministries in Q2. And for financial segment, we had to post a negative figure here. This is related to multiple large-scale projects already ordered in the last fiscal year. However, the businesses for cooperative financial institution we received in this quarter has mitigated these negative figures to a certain extent. We see steady increase in orders for enterprise and solution.

North America won another large deal in second quarter and has recorded major growth for 3 quarters in a row. EMEA and the LatAm growth was moderated due to foreign exchange rate impact compared to Q1 results. However, we are seeing steady growth in this segment.

Next, net sales. Public & Social Infrastructure was impacted related to services for government ministries are ordered -- already ordered in previous fiscal year, but sales for utility and the telco clients expanded, which drove the net sales increase. For financial, sales continues growing steadily driven by -- mainly by services for financial institutions.

Enterprise Solutions segment remains robust for multiple factors such as sales increase for services for manufacturing industry. Consolidated sales increased by the company [ patient ] acquired last year and organic growth of CAFIS businesses.

In North America, we -- with expanding business scale by M&A, sales grew on a local currency basis. However, it resulted almost on par with Q2 previous fiscal year.

EMEA and the LatAm segment continues growing and mainly led by Spain.

Next is about operating income. Public & Social Infrastructure increased in profit due to sales growth and a decrease in the amount of loss from unprofitable projects. Financial segment and Enterprise & Solutions both increased in profit for sales growth.

North America posted profit increase due mainly to a decrease of PMI cost. EMEA and LatAm has been a steady progress in business restructuring, backed by our midterm plan. However, the related costs pushed down the figures to post a loss in Q2.

From next slide and on, I'd like to explain the progress of midterm plan. This shows the outline of our midterm plan. We aim to realize growth with quality on global scale based on consistent belief and the courage to change.

In current midterm plan, we thoroughly address these 4 strategies as courage to change, so that we can maximize the value we deliver to our clients. And the strategy number one is to expand the global digital offerings. The aim of our strategy, number one, is to build our strength and to improve the way we compete. To be more specific, first, we said the industries we focus and the Global One Team is organized per selected industry in order to build a strategy on global industry, global accounts and global offerings. And then Digital Strategy Office, or what we call DSO, sets to promote development of offerings for the targeted fields on the global level. And so our digital business will expand.

Also, our R&D organization will be globalized, and center of excellence, or COE, will be enhanced to support development and deployment of the offerings. By these measures, we will be prepared to compete with emphasis on our global and the digital capabilities.

For the acceleration of global marketing, we have established Global One Team to deliver advanced services to global clients in an integrated manner. This team has already been working on multiple industry categories. And these charts show the industries where we are objectively evaluated as strong according to an external rating company. We are aiming to be a top player in each of the areas where we are good at and where we want to grow as we target to achieve a global overall top 5 status in the end.

Specifically, we have built Global One Team for these industries: automotive, banking, insurance, health care, telco media, retail and so forth, where we have already built our strength. For each industry, global strategies across the regions will be built in order for us to deliver advanced services to clients around the world.

And from this page and on, I will introduce our offering strategies and some customer cases. For acceleration of digital business, we have established DSO organization. And these 8 areas were selected by DSO as a target we address globally and now solutions service development is undergoing full realization of digital transformation. And this is a solution assisted by AI for diagnosis on medical images. This solution analyzes the medical images of patient's body and detects abnormalities of multiple diseases that assists doctor with diagnosis work.

According to the recent proving experiment, it was confirmed that for any kind of kidney case disorder, this solution is applicable to the patients of multiple countries, even their races and their lifestyles are different. Especially for kidney cancer, the solution demonstrated high detection performance. With this result, we are planning to verify this solution in fiscal year 2020 in actual diagnosis process to see the effect, whether it alleviates doctors' efforts.

This is what we offer to retail industry, offering of a cash register-free store, which is called Catch and Go service, was started in September. And this service is digitization of real stores, where we leveraged our accumulated knowledges from customer contract-related digital businesses, including omnichannels and the e-commerce sites. Consumers can be freed from the payment at the cashier with this solution, and stores can benefit from improved operation efficiency and maximize consumers' purchasing opportunities for no queue up at the cashier.

Furthermore, consumers' flow data can be used for our stores' marketing. We target to implement this service to 1,000 stores in the retail industry by the end of FY 2022.

Next is regarding the activities of COE that support development and the deployment of offerings. COE set up global common research locations to gather and leverage technology and knowledges globally in order to support customers' digitization, especially for blockchain and the design. Out of these 4 fields, an external rating company ranked us as a leader in their evaluation.

Sharing use cases and the references support in strengthening the synergies and lead to increasing business opportunities domestically and overseas. Blockchain COE counts over 300 members participating from 24 countries in entire NTT DATA group. Already, collaboration with COE has demonstrated a case using blockchain technology for commercial services. This is one of a few cases realized in the world so far.

This shows initiatives by design COE. We have established a network to globally share design knowledges. Fifteen studios have over 450 UX designers in total around the world, and more than 80 use cases are shared.

Next is strategy number two. This is to deliver greater value based on the regional needs, with which we aim to continue delivering attractive values to clients.

I'd like to introduce some cases by region. First, this is a use case in Japan. As a new solution based on our CAFIS, the largest cashless payment platform, we started to offer code payment gateway that accepts a variety of code payments such as 1 dimension barcode and QR code. Various code payment and methods available in Japan and others commonly used in China can be handled in an integrated manner with this solution. Usually, implementation of such code payment services require system connection per service operator, but this solution is not the case. Also, [ shop clock's ] effort can be mitigated.

Going forward, we will continue to accommodate our service to various code payment methods and link this solution with other CAFIS services to promote cashless society in Japan.

This slide shows the consortium established by 8 companies aiming to offer a next-generation laboratory for iPS cells and others. This consortium digitizes and leverages research activities in the fields of drug development, regenerative medicine and so forth in a centralized manner seeking to improve reproducibility and the efficiency of experiments. Before the end of this fiscal year, we will develop a system and facilitate a new laboratory.

Next is a case in North America. Our group company, NTT DATA Services, was awarded a new large-scale outsourcing service project leveraged by their abundant experience in public sector in the region. We will leverage the outcome of our investment for digital offerings such as intelligent automation in order to further improve our productivity and to offer advanced value to our clients. Also, we will address improvement on our operating efficiency to grow our profitability.

Continuously, we provide attractive value to our clients for strengthened relationship and contribute to their businesses by leveraging digital technology.

This is another case in North America, also a large-scale outsourcing project won by NTT DATA Services. Recognizing the changes of business at U.S. major chemical company, NTT DATA Services integrated this client's extensive and complicated IT and started offering of a dynamic workplace service leveraged by digital technology. We are seeing these cases as a result coming out of our efforts spent for this region such as investment for digital offerings and other selected items as well as enhancement on our capability for upstream phases.

This is a project awarded in EMEA and the LatAm. Also, in this region, we have closed a contract for a large-scale outsourcing project. Our growth company, everis, as well has plenty of experiences in outsourcing projects.

Everis was selected as a strategic partner because the client for this project highly evaluated their firm's relationship with -- built with them, and they have a track record of process automation with digital technology and enhancement of peripheral systems and our structure for efficient delivery.

In EMEA and LatAm as well, we are seeing the good outcome of our efforts spent for investment of digital offerings and the improvement on our delivery. Along with the business restructuring currently undergoing, we will keep addressing the profitability improvement in this region.

Next, strategy number three is maximize individual and organizational strength. We aim to enhance digital and global capability of every one of our employees and strengthen our organization.

We have prepared a carrier system for diversified human resources, so employees can maximize their professional specialties. As digital business keeps expanding, new professional skills and specialties are needed now.

With this as a backdrop, we enhanced our recruiting activity with ADP system set last fiscal year, and now we have 4 highly advanced level of experts. Also, as employees' career and the capabilities are diversified, technical -- we have prepared a technical grade system in order to maximize and evaluate the potentials of human resources with specialized skills.

Furthermore, we have added business developer and digital scientists as new specialties in our expert category list in order to respond to various specialties required while digital business keeps growing. In our work style reform, driven by digital technology, highly advanced system is implemented to share knowledge and know-hows on a global scale to promote collaboration among employees.

Currently, about 18,000 content are globally shared in the use for compiling the proposals and the deployment of know-hows.

Last but not the least, I'd like to touch upon NTT Group collaboration. This is a project that NTT Group companies are collaborating on. Joining the strength together as a group, we realized public safety solution for the city of Las Vegas. Our group company, NTT DATA services, in North America is involved in this project as a prime SIer representing NTT Data Group and the collaborator with NTT Limited to deliver total service.

I will skip my explanation on the following pages that describe business topics and the financial figures in details. This page concludes my presentation. Thank you very much for your attention.