Oracle Corp Japan
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Oracle Corp Japan
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[Foreign Language] Thank you. I would like to turn the call over to you, please.
Thank you, Nishio-san. Good afternoon to everyone. Yes. And as -- on this call, most of you, when we spoke in Q3, we were operating business as usual, and everything was okay. And we have a slightly different circumstances in Q4 as we go through our earnings for this quarter.
Overall, as a company, we took a very strong position. We enabled our employees to work from home mostly, and our employees also basically rose to the occasion. They focused on selling all of the supporting functions contributed. And to put it all together, we are very, very pleased with our performance in Q4. And last, but not least, I also want to really congratulate my own finance team who have rose to the occasion, working remotely using Oracle's ERP and EPM cloud services. We could respond, and we still -- we went through a very, very smooth close for Oracle Japan.
[Foreign Language]
Sure. Moving on to the numbers for the year. For the year ending May 2020, our total revenues were at JPY 211,357,000,000, growing 4.4%.
[Foreign Language]
Operating income at JPY 68,865,000,000 grew 10.5%, and ended up at 32.6% operating margin, which is up 1.8 points year-over-year.
[Foreign Language]
Overall, you must remember that we came off a very, very strong performance from last year, and we could continue to match the same performance in FY '20 as well.
[Foreign Language]
Our license -- cloud license and cloud license and on-premise license at JPY 54,972,000,000 grew 4.2% for the year.
[Foreign Language]
We continue to see strong performance on our cloud services and license support business, which contributed JPY 117,601,000,000, growing close to 7% year-over-year.
[Foreign Language]
So overall, very, very strong performance under some difficult circumstances in Q4, and we end the year with an EPS of JPY 372.5.
[Foreign Language]
So as you can see, our revenue finished at close to the higher end of my guidance, and my EPS has exceeded the guidance by almost -- exceeded the higher end of the guidance by almost JPY 22.
[Foreign Language]
All of this points towards solid demand for our software, both on-premise and cloud. And also great management of expenses, very tight management of expenses, led us to this strong performance in the year.
[Foreign Language]
I'm pleased to announce that we continue to maintain consistency in our dividend payout, and we have proposed a dividend of 40% for the year ended May 2020.
[Foreign Language]
So quickly moving on to the guidance for next year. Again, I would like to say that we continue to operate under difficult circumstances. And obviously, this is not a Japan-specific problem. But demand, it does -- we are closely monitoring how it affects our demand. It also creates opportunities for companies like Oracle.
[Foreign Language]
There are a lot of industries that are affected severely by this pandemic, for example, hospitality industry or the airline industry, and so companies are looking to streamline their IT spend. They are looking to invest in technologies that will take them to the future.
[Foreign Language]
When companies look for consolidation of their IT spends, the one answer that will crop up is Oracle because we are present in -- we offer the entire computing stack to the customer from on-premise to platform to database to applications and cloud.
[Foreign Language]
So taking all of this into consideration and the current circumstances prevailing in the market, my revenue guidance for FY '21, for the year ending May 31, 2021, is 0% to 3%.
[Foreign Language]
And my EPS guidance is JPY 370 to JPY 385.
[Foreign Language]
With this, I finish my opening comments, and I like to open it for questions.
[Foreign Language]
[Foreign Language]
[Interpreted] This is Ueno-ka from Daiwa Securities, and I have 2 questions.
First, if my calculation is correct, the operating margin in fourth quarter of this year is extremely high. Looking back 2 or 3 years, I think the operating income margin has been in the range of 30% to 32%. However, when it comes to fourth quarter, it is about 36%. So what is the reason behind this high operating profit margin? Is it a onetime reason or is it structurally that the operating profit is going up? Or maybe its license fee that has to be paid to the parent company has changed? So I'm looking for the reason behind this high operating profit margin.
And another question is, whether this high level of margin will continue down the road?
So it's a good point. We have been -- there are 2 things probably more -- one, you have to look at Q4 in FY '19, which was a very, very strong quarter for us. And so we continue to -- we had, I think, if I remember correctly, it was close to about 32% in Q4 in FY '19. We have -- as I said, in my opening comments, we have tried to streamline our expenses. We have tried to look at restructuring some of the businesses that we run, deploying resources on more profitable businesses. But having said that, Q4 is a sort of a very high quarter, right? So you can't just take Q4 and think that you can extrapolate it into the future to every quarter. A lot of our business tends to be cyclical. So yes, we will see some increase in margins, but not to the extent of 4% immediately.
[Foreign Language]
So just an additional comment. Needless to say, we -- and I have been maintaining this, we will always see margins growing with -- slightly with a positive bias. At the same time, we do have to consider the extraordinary circumstances that we all operate in, just something for you guys to think about.
[Foreign Language]
[Foreign Language]
[Interpreted] Okay. Thank you very much for your answer. I understand that the ratio of hardware is coming down. So maybe the mix worked for better and that, of course, helped to improve the margin. I have more or less understood your response. Thank you.
[Foreign Language]
[Interpreted] This is Kikuchi from SMBC Nikko Securities. Please, allow me to ask in Japanese.
My question may be related to Ueno-san's question, but this has to do with the fixed expenditure in the fourth quarter. Perhaps this is causing the margin to go up, as I look down the list of expenditures such as advertisement, facilities and subcontracting fees, outsourcing fees, et cetera. Perhaps this has come down because of the COVID. But my question is, when, as you go back to normal operations, business as usual, whether these items -- accounting items go up back to where you were before? That's my first question.
Yes. Good point, Kikuchi-san. The -- yes, you're right. Some of that, obviously, because we are not using our facilities, the employees are working from home, there is -- there will be some impact on the facility expense, and it will come back up. We cannot do a lot of face-to-face marketing events. So a lot of the -- I mean at least in the last quarter, everything, all the marketing events have been online.
[Foreign Language]
So to answer your question, yes, some of the expenses will definitely come back. But also, all -- not just Oracle, but all the companies across the world, and I'm sure in the company that you work also, we are discovering new ways to work. And so, if we are able to learn from this experience and become more efficient, that is what we will aim for.
[Foreign Language]
[Foreign Language]
[Interpreted] And second question has to do with forecast, but I made it separate because this is following a different trend. So it's about the payroll cost. The fourth quarter of last year, payroll cost was rather high and my understanding was that because of higher revenue, you have to pay more incentives and commissions. But this quarter, that we're talking about, experienced a decline in the payroll cost. However, the revenue has not come down as much. And compared to fourth quarter of previous year, the payroll cost is down by about JPY 1 billion. So my question is, is it due to COVID-19? And if that is the case, we can expect that the payroll cost will come up once again? But at the same time, the headcount has come down this year. And I was wondering if the reduction in headcount will continue into next year as well?
So to summarize my question, why is it that the payroll cost did not increase this year or it was a decline? And if you could share with us the forecast of payroll cost next year or the year that's running right now?
Okay. So I will answer the last question first, which is, I do not forecast -- I do not share forecast at that level. So that's one. Do you want to translate that?
Yes. [Foreign Language]
So the year-over-year decline in the expense has -- it's a combination. It's a combination of different factors. Primarily, the commission payments that we make are more around our cloud services and our license business. And as you can see, quarter-over-quarter, the license business had declined. That's number one.
Number two, we also have been, as I said, trying to streamline our headcount, deploying resources in the right areas so that we can extract maximum productivity out of our people. And so that also is impacting our overall cost model, the question that I answered before. So it's a combination of number of people going down, license revenue not declining year-over-year because we had a huge increase last year in our license revenue. So all of this combining is why you see that expense trending down year-over-year. But if you look at the trend during the year, it is showing a nice and healthy, mildly growing pattern, very much following our total revenue number.
Following -- I'm sorry. I didn't get the final section.
Very much following our revenue performance.
[Foreign Language]
[Interpreted] So when we look at the trend of headcount, for instance, at Oracle Japan, until last year, that is year ending 2019 May or maybe from May 2018, May 2019, the headcount quarter-over-quarter has been on the rise. However, from around last year, a year ago, in fiscal year May 2020, you have started to decrease the number of headcount. So while exposed to the numbers, you do this earning calls and you explain about the numbers, however, we do not have opportunities to listen to the direction of the business, Oracle business, the strategy and how you intend to manage your resources and so forth. So I was wondering, this expansion that you had taken until May 2019 and now, from about a year ago, you started to shrink the number of headcounts. Was there any major change in the direction or the strategy of Oracle Japan in between? So that's my question.
And I have a request. As I just said, we're not exposed to the strategies, and there's no opportunities to listen to your strategies and business direction. So if you could communicate to us about the strategy of the company, that will be very helpful. So that's a request.
Thank you. So let me -- before I get into the headcount question, let me talk about the general direction of the business. There has been absolutely no ambiguity, and there has been absolutely no change in "our strategy" in the last 3 years. Our focus has been growth in cloud, and our focus continues to be growth in cloud.
[Foreign Language]
So like with any new strategy, when we started talking about big growth in cloud, generally, you want to overinvest in headcount as you are shifting through the landscape.
[Foreign Language]
And then as your strategy matures and the customer acceptability improves, and we keep encountering new things, we always want to go back and take a look at what -- how much we invested, where we invested and try and streamline that as we go through.
[Foreign Language]
Our focus is to extract more productivity out of our people. What you see is not a drastic change in direction or anything. It is more like a course correction, and you will probably see us reinvesting back in some areas, disinvesting in other areas. But fundamentally, we want to grow our business in cloud on the database and technology side and in cloud on the application side.
[Foreign Language]
We continue to be a market leader in database. We are now also called by Gartner and IDC as the market leader in cloud ERP by far. And our strategy is focused on these 2 areas, big time.
[Foreign Language]
I hope this answers your question.
[Foreign Language] Thank you very much.
[Foreign Language]
[Interpreted] This is Tanaka from Mitsubishi UFJ Morgan Stanley. Your cloud license and on-premise license in Q4 was quite strong. There wasn't a big deal, I understand, Q4 of last year. So including the impact from that big deal last year, perhaps this year cloud license and on-premise license did another strong year, fourth quarter. So perhaps if there are no corona impact, and I was wondering if the strong demand will continue into fiscal year 2021? Do you have a lot in the pipeline?
So thank you for your questions. So what you have to understand is that Oracle deals in mission-critical software. Demand is -- it's generally not very elastic. It is less elastic than some of the other software.
[Foreign Language]
The companies will still require -- be required to run their businesses, and they will require to run their businesses more efficiently. And the companies will then look to Oracle to help them through this journey.
[Foreign Language]
[Foreign Language] Please go ahead -- thank you.
No. I just wanted to say, we are happy with our pipeline and -- but we also are watching the COVID situation very closely.
[Foreign Language]
[Foreign Language]
[Foreign Language] So let me ask maybe a question in English, if I may. The first one is, again, cloud-related question. So could you give us more color how cloud service revenues trended in fourth quarter? And then how do you see the cloud demand under the pandemic going forward? Is this going to be accelerated because of the social distancing or is it going to be affected by client company trying to cut budget?
Thank you for your question. We continue to see very strong double-digit growth in our cloud business. And we think that, that trend is going to continue. We -- the -- under the current circumstances, it offers our customers a lot of opportunity to consolidate their IT spend.
[Foreign Language]
So as companies find their way through this situation and they want to optimize their spend by consolidating IT spend to specific few vendors, would help them extract overall good business with a few vendors, so -- and Oracle is well placed to take advantage of that situation. That's number one.
Number two, this will also move customers to look for more and more cloud in their portfolio. Even traditional customers who were reluctant to move to cloud will want to move to cloud because moving to cloud makes them more nimble and less committed to big capital spends.
[Foreign Language]
Great. My second question is actually about -- yes, sir?
Yes. So my second question is about your guidance, and it's actually a two-part question. Sorry. The first one is this, revenue trajectory for this year, through the quarter. So Oracle USA gave us the guidance that they see revenue growth is going to recover throughout the year. Do you assume the same for the Japanese operation? That's the first part.
Second one is OpEx. For the fourth quarter, OpEx was down JPY 2.7 billion, which is almost entirely explained profit loss of the fourth quarter year-to-year. So how much of this cost reduction is structural, which is going to remain at this level? You are talking about structural changes and efforts, so if you can quantify this to the number, that would be very helpful.
Okay. Yes, your first question on whether we see weak first half and strong second half, I would say, logically, that should be the case. And we did factor in a slightly weakish kind of first half and a stronger second half. And even otherwise, Oracle's business, in general, always is skewed towards the second half.
[Foreign Language]
And regarding your question on structural changes, I'm sure you are covering other software companies as well. No structural change in a software company is ever permanent. We operate in a dynamic environment. Our market dynamics keep changing. Competitors keep coming. They come with a new product. We have to challenge them with another new product. So this cycle keeps continuing. So I cannot say that whatever changes we have made will continue to remain. We will make other changes. But the bottom line is that, and this is something that I have been maintaining, I told you 6 quarters ago, 7 quarters ago, my margins were around 30%, 31%. I said we will continue to have strong margins with an upward bias. And I would continue to say that. We are -- as a company, we are very, very conscious about our -- we are conscious about both our top line and our bottom line. So we're already at a very strong position, and we hope to continue to better that in the future.
[Foreign Language]
Great. My third and very last question. So JPY 160 billion from long-term assets to the short-term assets. I understand that maturity is coming through this year. And also, I see that there's a little incentive right now because market interest rate is low and probably it's affordable for the company, the arrangement which was made about 2 years ago. Now my question, what is the plan for this JPY 160 billion after maturity? I just like to know current thinking. That's all.
The plan right now is to take the money back from Oracle Corporation.
Yes. And the use of the cash is my actual question, yes, sir.
Yes. So we -- as I said, we continue to look at the use of cash. We continue to look at the opportunity to reward our shareholders. We want to go through this pandemic situation first, and then look at what we can do. So I'm sure the Board is already considering all of these things. And as soon as we get to a decision, we will let the markets know. But yes, all options are on the table, would be my answer, just like always.
[Foreign Language]
Thank you very much. I appreciate it.
[Foreign Language]
[Interpreted] This is Chiba from JPMorgan Securities. Thank you very much for your detailed explanation. I have one question regarding data center. You opened Tokyo Data Center last year and Osaka Data Center this year. If there has been any major impact or visible changes, please share those with us.
So yes, the visible changes are that the Japanese customers who were buying our cloud were getting deployed somewhere else in the world. And now, they can deploy their software in Japan, which basically results in reduced latency, faster response times. So it works in favor of the customer, and we are seeing that appreciation coming back from the customer. It also opens up a lot of opportunities for us, especially with the financial sector and public sector to help them move their operations to the cloud. So we are seeing a lot of traction on a lot of these accounts. You would have also seen an announcement with NRI who have invested -- with whom we have invested in an exclusive data center for their financial services, which is going to be like a big reference for the power of Oracle Cloud, and that is going to help us really sell into a lot of other financial institutions in Japan as well. So yes, it's been a very, very positive effect on the business.
[Foreign Language]
[Foreign Language]
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]