NTT Data Corp

TSE:9613

Earnings Call Transcript 2023-Q2

[Yo Honma, executive]

[Interpreted] This is Honma of NTT Data. Firstly, I sincerely thank you for attending the earnings results briefing session today despite your busy schedule. Let me now present to you the results for the second year of fiscal year ending March 2023.

Please turn to Page 1. Here is today's agenda. I will explain the second quarter results, then key initiatives in the first half.

Please move to Page 3. This highlights the second quarter results. Results are based on the premise that in October, we combined overseas business of NTT Ltd. And as NTT DATA Inc., we have commenced business operations as one since then. However, NTT Ltd.'s results are to be consolidated from the third quarter. Therefore, its second quarter results are not reflected here. NTT Limited's first half results are scheduled to be covered in tomorrow's NTT earnings announcement.

Now let me turn to our performance. Firstly, new orders received. In the previous fiscal year, there was domestic large deals and there's a drawback. However, project wins abroad and FX impact increased the orders. Net sales [ enjoyed ] increased business scale across all segments as well as FX impact, recording an increase.

Operating income helped by revenue growth, there was a growth. However, because of unprofitable projects and incremental company-wide strategic investments, it was on par with last fiscal year. In the second half, we plan to spend more for future growth with company-wide strategic investments. However, we -- as we continuously see a growing demand of digital transformation with our clients, we aim to grow profit by driving sales to achieve the full year guidance.

I will take you through with details by each major later. However, please allow me to explain segment classification that we have revised since the second quarter.

Please move to Page 4. As of July 1, 2022, organizational changes took place, leading to 2 major changes in disclosure segments. First, technology consulting and solutions segment was newly established, and the Enterprise segment scope has been revised. Due to the organizational changes, what Enterprise & Solutions segment used to cover such as diesel solutions, data centers, network business and so forth, have been transferred to the technology consulting and solution.

Under the new disclosure segment classification, those figures are included in the others segment. The second change has been made owing to the overseas business merger. The former North America segment and EMEA segment as well as China and APAC, which used to belong to the other segment, will be aggregated and reported under the overseas segment.

The segment classification revision has changed the mix of the forecast, the details of which are described in appendices of this deck. On the domestic front, the financial and the enterprise figures are partially transferred to the other segments. However, it will not impact the overall guidance. Now let me move on to year-on-year changes by segment.

Please turn to Page 5. New orders received. As for the Public & Social Infrastructure, there was an impact by drawbacks from last year's large contracts with central government and ministries leading to a decline. As for the Financial segment, due to large project wins from financial institutions during the previous fiscal year, it reported a reduction. The Enterprise segment won projects for the manufacturing industry and grew orders. Overseas segment enjoyed growth, thanks to project wins in Europe and currency translation gains.

Please move to Page 6. Next, net sales. The Public & Social Infrastructure segment helped by an increased scale of services for the central government and ministries and it resulted in an increase. The Financial segment, the scale of services for large -- in financial institutions expanded and reported net sales growth. As for the Enterprise segment, the project size increase for the manufacturing industry and the retail and services sector and the size of payment services became greater, thus, it reported an increase. Overseas enjoyed FX impact and greater size of services in Europe recording incremental sales.

Please move to Page 7. Next, looking at operating income. The Public & Social Infrastructure recorded a decline due to unprofitable projects. Financial, Enterprise and Overseas segment increased profit mainly helped by sales growth. Also, the others dropped the figure, which is not disclosed as a segment, mainly because of more spend on the company-wide strategic investments, which have been factored in our initial guidance. Details on what I have just covered can be found in the following slides.

So this wraps up the section of the results for the fiscal -- the second quarter of the fiscal year ending March 2023. Next, let me talk about the currency impact.

Please turn to Page 13. The second quarter continued to see the rapid yen depreciation since the end of last fiscal year and compared to the rate expected in the full year guidance, the actual rate has been weaker. In the second quarter, compared to our rate in the forecast, it is JPY 14 and JPY 6 weaker against U.S. dollars and euro, respectively. Without NTT Ltd. or against our stand-alone guidance, as shown here, the FX sensitivity is expected to work positively on our performance.

Let me now turn to our key initiatives in the first half of the fiscal year.

Please turn to Page 15. First, the status of the combined Overseas business. On the 1st of October, we combined Overseas business, and this shows the outline. Through the joint investment with NTT, the overseas operating company called NTT Data Inc. was established by combining our non-Japan business and NTT Limited's Overseas business. This merger has increased the net sales of the company to reach approximately JPY 3.6 trillion with around 190,000 employees.

The Overseas business has grown to represent about 60%. For the Overseas business, with around 140,000 professionals, our teams will serve clients across over 80 countries and help grow clients' businesses and address societal challenges.

The next topic is enhancement of the global business management. Let me share the time line and the progress status.

Please turn to Page 16. This shows the overall schedule to transition to the global business management structure. At step 1, we have just combined our Overseas business with NTT Ltd. from July 2023 onwards. As a step 2, we plan to convert NTT DATA into a holding company and transfer its domestic business to Japan operating company to further strengthen the global business management structure. Next, let me share some specific initiatives we worked on during the first half.

Please turn to Page 17. This slide shows Innovation Center's launch in August 2022. In the past, researchers, consultants, engineers and other experts were dispersed across the globe, but these 100 personnel have been consolidated into these centers to collect the information on cutting-edge technology, test them and promote co-creation with clients while moving fast to identify and gather information on the leading technology there to leverage them for our future technology strategy.

Going forward, by the end of fiscal year '25, we plan to enhance the organization by increasing the experts to 300, and we aim to form 50 or more mid- to long-term R&D partnerships with clients.

Please turn to Page 18. This shows an example of the TCFD disclosure-related consulting service. This service will provide support in establishing an organization, calculating CO2 emissions, setting reduction targets and disclosing information to respond to TCFD reporting as a one-stop consulting service so that clients can sustain and further enhance the initiatives to reduce greenhouse gas emissions. By the end of fiscal year '23, we aim to provide this service for 50 businesses.

Next, let's move to Page 19. This shows our solution developed with SAP to improve supply chain insurance management. Due to rising geopolitical risk, trade growth and volatility -- material availability, global value chains are becoming increasingly complex, growing the demand of quickly adapting to incidents while transporting. This solution enables monitoring various real-time data on transportation operations so that we can meet client needs.

With this solution, we are currently collaborating on a pilot with partners such as the Spanish logistics group and a German insurance company, and we plan to turn this concept into real life projects and extend the solution to international insurance and logistics companies in future. The rest of the slides describe topics by segment and other numerical information, which I would like to skip for this session. This concludes my presentation. Thank you for listening.

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