Mirait One Corp

F:5FO

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Nakayama Toshiki, executive]

Thank you very much for attending this meeting today despite your busy schedule. Today, I would like to go over our results for the last fiscal year.

There will be 3 parts to today's presentation. First, on the financial results of last fiscal year. This will be Slide #4. Last fiscal year, we revised our earnings forecast downward at the announcement of the third quarter results. And the actual results, both orders received and net sales were almost in line with the revised forecast.

Operating income exceeded the forecast as a result of company-wide efforts.

Now first, let us look at orders received. On the slide, it would be this part in green. For the previous fiscal year, the environmental and social innovation business included JPY 58 billion in construction work for SEIBU Construction carried forward for multiple years. And in comparison to that, orders received decreased by JPY 23.1 billion or 4.4% from the previous fiscal year to JPY 498.2 billion.

The decrease was almost entirely due to 2 businesses in the Telecommunications infrastructure domain, that is the NTT business and the multi-carrier business. There was a reactionary fall in the work to build advanced wireless networks and the impact of restrained investment by some telecommunications carriers.

Also, despite signs of recovery in the second half of last year, when we look at the full year in the ICT business, orders decreased due to shortages of materials and price hikes caused by the shortage of semiconductors and supply chain disruptions.

In the Environmental and Social Innovation business, both MIRAIT ONE Corporation and SEIBU Construction performed well. As a result, as you see in the slide, the non-telecommunications business accounted for 52%, exceeding the telecommunications business for the first time and the MIRAI, the future domain, which we have defined as an area where we want to concentrate our management resources to strengthen in the future accounted for 30% of our total orders.

Next slide is about sales. This totaled JPY 484 billion, up JPY 13.7 billion or 2.9% from the previous fiscal year. This reason is, again, in green here was due to a large increase in Environmental and Social Innovation business to reach SEIBU Construction's figures made a full contribution from last fiscal year.

On the other hand, ICT solution and 2 businesses in the Telecommunications infrastructure domain decreased. The MIRAI domain accounted for 29% of total net sales, almost reaching 30%. The following is a detailed explanation of each of the 4 business segments.

We're on Slide 7. As I did for the previous fiscal year, I will start explaining from the Corporate/Environmental and Social Infrastructure domain. So first on Environmental and Social Innovation business. This domain sales increased JPY 56.4 billion from the previous fiscal year to JPY 112 billion, the only 1 of the 4 business segments to achieve an increase.

In addition to civil engineering, both construction and renovation that SEIBU Construction was in charge of and renewable energy and air conditioning projects that MIRAIT ONE Corporation worked on grew significantly.

Next is the ICT Solutions business. The main reason for the revenue decline was a large drop in the sales of goods business, which handles telecommunications equipment affected by inventory adjustments by some carriers and other factors. There was a drop by JPY 13.5 billion to JPY 127.8 billion, a reactionary fall from the Olympics and Paralympics and other events and construction delays due to a shortage of semiconductors and other factors, including delays in the delivery of some equipment were also the reasons of this decline. On the other hand, Global and Software, which comprise the MIRAI domain post a steady growth in net sales.

Next is the Telecommunications Infrastructure domain. First, on the NTT business. Factors such as a reduction in 5G maintenance due to the impact of restrained investment in the mobile business as well as a reactionary fall in work to build advanced wireless networks. So sales of both fixed line and mobile fell, resulting in a year-on-year decline of JPY 20 billion to JPY 184.3 billion.

Lastly, the Multi-carrier business. Although there were differences for individual carrier companies, sales increased in the area of 5G maintenance work due to their steady completion, an area which had seen strong orders in the previous fiscal year. On the other hand, the work to build advanced wireless networks for cable TV companies saw a reactionary fall. And there was also a decline in broadcasting projects as they have generally run their course. With that, the total amount of the multi-carrier business was JPY 59.9 billion, down JPY 9.2 billion from the previous fiscal year.

Now next page, on operating income. Operating income was JPY 21.8 billion, down JPY 11 billion from the previous year, but exceeding the downwardly re-revised forecast, which was JPY 20 billion. Although the first quarter got off to a tough start with a loss of JPY 1.1 billion, the second quarter saw a turnaround to a profit of JPY 2 billion, followed by JPY 5.2 billion of profit in the third quarter and JPY 15.7 billion in the fourth quarter, resulting in a significant catch-up in the second half of the year.

The fourth quarter alone was a record high for operating income as it was JPY 14.7 billion in fiscal year 2020 and JPY 13.7 billion in fiscal year 2021. I will explain the details of the operating income on the next page.

We're on Slide 12. From this year, we have decided to disclose gross profit and gross profit margin by the 3 business segments of Environmental and Social Innovation, ICT Solution and Telecommunications Infrastructure domain.

Now the reasons for the year-on-year decline in operating income was, as you see on this slide. First, although gross profit increased by JPY 1.8 billion in the Corporate/Environmental and Social Infrastructure domain, gross profit decreased by JPY 7.5 billion in the Telecommunications Infrastructure domain, a net JPY 5.7 billion decline.

And second, there was a JPY 5.3 billion increase in SG&A expenses. Specifically, related to net sales, the mix changed significantly impacting our operating income. While the Environmental and Social Innovation business grew with the addition of SEIBU Construction from last fiscal year, there was a decline in the sales of goods business dealing with telecommunications equipment, a reactionary fall in the work to build advanced wireless networks and a decrease in the mobile business.

In addition, most of the increase of JPY 5.3 billion in SG&A expenses came from an increase in SG&A expenses of SEIBU Construction itself, amortization of goodwill related to the acquisition and other factors. Also, there was a slight increase in expenses related to the integration of the 3 companies and branding expenses in the last fiscal year.

Finally, on net income. Due to the large decrease in operating income, net income was JPY 14.7 billion, down JPY 10.4 billion or 41.4% from the previous year. Now the company has been selling its strategic shareholdings. And in the fiscal year, the company posted an extraordinary gain of JPY 1.1 billion, while it also posted an extraordinary loss of JPY 300 million for expenses related to the integration of the 3 companies.

As the second part, I will explain the outline of the business strategy for fiscal year 2023. In May last year, prior to the integration of the 3 companies and the establishment of the new group in July, we announced MIRAIT ONE Group Vision 2030 as our business strategy into the medium term. And this slide shows the overview.

We mentioned 5 changes here. And by achieving these changes, we intend to transform ourselves into a company that goes beyond a Telecommunications Construction company. To transform beyond a Telecommunications Construction company, that is our slogan. And to realize this is the main theme of the group vision.

In the following slides, I will explain the outline of this year's business strategy based on the Group Vision 2030. So on this slide, the biggest point is that fiscal year 2023 is the starting year to strategically move our business growth through human capital growth.

Now we are in the construction industry. Therefore, we first need to create a comfortable working environment for our employees who support our business as a construction company. This is what is written in the red frame on the bottom part of this page. And it is based on work style reform or workplace reform from the perspective of our employees.

On top of that, this is a portion in the middle in yellow. We will accelerate our business growth strategy by using the MIRAI College as a strong engine for strategic human capital development and reforms to a flexible personnel system. And using this as the engine, we will promote the business growth strategies.

On the actual business growth strategies that are on the top of this page, I will talk about Part A and Part B separately in the next slides. On Strategy A, I would like to explain our business growth strategy, how to grow, and I will talk about the 3 areas that we will especially focus on this fiscal year.

First, in the Green Energy business, which began last year with our own construction of power generators and sale of electricity. We have expanded the scope of our efforts to include not only the solutions company, but also the carrier company, major operating companies and all group business organizations and have revised upward our sales target for fiscal year 2026 to JPY 30-plus billion.

Second, regarding the urban and regional development business, which I've been mentioning from last year as an area to strengthen, we intend to expand the full value type business model, which we implemented in places like Sapporo City and Fukushima Prefecture nationwide.

And third, while the Telecommunications Construction business in the narrow sense is expected to decline over the medium term by expanding the scope of our carrier-related business, including managed services, local 5G, support for cloud computing and virtualization, we have set a sales target of JPY 25-plus billion for fiscal year 2026.

Next, I would like to talk about the B part, which is more about the efficiency of the business. The DX reform of existing businesses, which we will focus on this fiscal year in order to improve profitability.

First of all, we would like to thoroughly tackle value chain reform in the field, which is the core of our business. In particular, we intend to start standardization and digitalization of construction manager operations. We have already started that in the NTT access business, and then we'll horizontally expand it to other business deals to enhance efficiency.

Also, moving to the top right-hand side of the slide, we will also strive to improve productivity by simplifying operations for each carrier companies and then apply them across multiple carrier companies aiming for an overall efficiency improvement of 3% or more by fiscal year 2026. In addition, we will work to steadily realize the effects of the integration of the 3 companies and will take an operational approach to steadily reduce costs.

The next slide, we said that fiscal year 2023 is the starting year for strategically moving business growth through human capital growth. More specifically, as you see on the top right-hand side, we intend to mobilize a total of more than 1,000 employees by fiscal year 2026 to the Corporate/Environmental and Social Infrastructure domain, particularly in the MIRAI domain, a business field expected to grow in the future.

As a prerequisite for this written in the center of this page, the HR system must be made more flexible, for example, different job types, allowing for side jobs or allowing for a comeback of the employees and the re-skilling mechanisms such as using MIRAI College needs to be enhanced. But the most important thing is, as you see the image of a handshake to have a dialogue to ensure that the Macro CDP, the career development plan based on the company's business strategy and the Micro CDP for each individual employees' aspirations around enhancing their skills and career growth are in line and match with each other.

While enhancing these strategic human capital development mechanisms, we will prepare a platform where each and every employee can take on new challenges with a sense of security and excitement. The basic premise of strategic human capital development is to create a healthy and comfortable working environment for each and every employee who supports the front line. In other words, to firmly promote work lifestyle reform from the perspective of employees.

Each employee would have their own unique issues. But for example, improving the company's system to support child care and nursing care and as a premise to that, developing a system that facilitates taking leaves of absence and vacations such as after project completion leave and bridge leaves between holidays. Also, since we have been seeing more widespread use of remote working, it is now also more realistic to implement a system that would allow an enhancing a way of working that is not restricted by time and place by realizing job postings that do not involve relocation.

Additionally, we will promote health management by expanding physical checkup assistance and introducing health consultation services. The bottom half of this slide is about re-skilling. MIRAI College has been rapidly expanding and taking root with the company in the 10 months since its opening last July. This year, we will be -- we will accelerate its expansion to partner companies to broaden its base and enrich its educational menu and content, both in the real physical and digital campuses for strategic human capital development.

On this next slide, I will explain the progress of synergies with SEIBU Construction. A little more than a year has passed since SEIBU Construction joined the group, and integration with the MIRAIT ONE Corporation Group is underway. While the company name of SEIBU Construction will continue for the time being, the corporate logo, as you see on the slide, is renewed as the MIRAIT ONE Group from this April. And all executives and employees of SEIBU Construction are working together on the "Proud of Our Future Realization Project" to make SEIBU Construction itself a stronger company.

Moving forward, as you see on the top left, we will continue to steadily increase reciprocal orders within the group. You see an increase from JPY 4 billion to JPY 6.5 billion. We will also expand orders by jointly proposing urban development projects for the SEIBU Holdings Group as well as for our client carriers, such as NTT and also by developing new projects.

And through these efforts, we aim to speed up value creation as a smart general contractor that drives full value, large-scale projects for urban and regional development.

Finally, ESG-related issues. So you can see for greenhouse gas reduction, last year, we have set a scientifically based target and acquired SBT certification. Specifically, we will continue to promote measures to achieve fiscal, including switching to use renewable energy for our buildings and the conversion of our business vehicles to EV/HV.

The greenhouse gas emission volume for fiscal year 2022 is unfortunately not available today and is scheduled to be disclosed on our company website at the end of September. As for the industrial waste final disposal ratio, we will strengthen the system and promote various measures to achieve the target. 2022 actual results are scheduled to be disclosed in July of this year. In addition, we are promoting the use of KPIs for non-financial indicators and enhancing various declarations, et cetera.

As the third part, I will now talk about the forecast for fiscal year ending March 2024. Our full year guidance for fiscal year ending March 2024 is orders of JPY 530 billion, net sales of JPY 520 billion, operating income of JPY 26 billion, operating income margin of 5% and net income of JPY 18 billion.

Orders in fiscal year ending March 2024, these are projected to increase JPY 31.8 billion year-on-year to JPY 530 billion. In the Telecommunications Infrastructure domain, we expect a decrease of JPY 8.6 billion due to restrained investment by carrier companies. On the other hand, the Corporate/Environmental and Social Infrastructure domain is expected to increase by JPY 40.4 billion. The breakdown is as follows.

In the ICT business, data center construction will increase, but sales of good will decrease, resulting in a decrease of JPY 9.8 billion, while in the Environmental and Social Innovation business, civil engineering, building, renovation work by SEIBU Construction and others and Green Energy-related projects altogether will increase by JPY 15.1 billion.

I'll mention in a little more detail about net sales. Net sales are projected at JPY 520 billion, up JPY 36 billion from last year. As with orders in the Telecommunications Infrastructure domain, we expect a decrease of JPY 12.2 billion due to declines in mobile-related business and NTT business. On the other hand, in the Corporate/Environmental, Social Infrastructure domain is expected to increase by JPY 48.2 billion. The breakdown would be as follows.

The ICT Solution business is expected to increase by JPY 12.7 billion due in an increase in data center construction and nationwide ICT construction, while the Environmental and Social Innovation business is expected to increase by JPY 35.5 billion due to an increase in civil engineering, building, renovation work and Green Energy-related projects.

The MIRAI domain is expected to account for 35% of net sales, an increase of 6 percentage points from last year. Operating income is projected to be JPY 26 billion, up JPY 4.2 billion from last year with an operating income margin of 5%. Gross profit is expected to increase by JPY 7 billion due to increased sales in the Corporate/Environmental and Social Infrastructure domain and improved cost of sales ratio in each business, while SG&A expenses are expected to increase by JPY 2.8 billion due to renewal of information systems and other factors.

Finally, I would like to discuss shareholder returns. Under the new medium-term management plan, we are strengthening shareholder returns based on stable dividend growth and flexible share buybacks. And the direction is to further strengthen this for this year.

The dividend will be increased again this fiscal year to JPY 65. That is plus JPY 5 per share, and the company has resolved to repurchase JPY 5 billion of its own shares, which, including those already resolved, is expected to bring the annual share buybacks to JPY 6 billion and a total return ratio to the upper 60% range.

Next, on ROE, which was sluggish at 6% last fiscal year. Now we will continue to invest in growth with high return on capital to reach our target of 10% or more. In addition, EPS is expected to increase 25% to JPY 190 this fiscal year.

That will be all for my explanation on the slides. Thank you very much for your kind attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]