U.S. Markets open in 5 hrs 10 mins

Edited Transcript of 1417.T earnings conference call or presentation 6-Nov-19 1:00am GMT

Q2 2020 Mirait Holdings Corp Earnings Presentation

Tokyo Dec 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Mirait Holdings Corp earnings conference call or presentation Wednesday, November 6, 2019 at 1:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Masatoshi Suzuki

MIRAIT Holdings Corporation - President and Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Masatoshi Suzuki, MIRAIT Holdings Corporation - President and Director [1]

--------------------------------------------------------------------------------

Good morning. I'm Suzuki, President of MIRAIT Holdings.

Without further ado, please turn to the table on Page 3. Page 3 and 4 show the overview for the 6 months of FY 2020. Orders received and net sales are shown in the table on the left. In this first half, sales went up, whereas profit declined. Decline in profit was just JPY 0.1 billion and therefore, the profit was close to flat. In the first half, sales grew and profit declined slightly.

Prior to the comment on the orders received, let me explain the point I skipped. As shown on the right top, in the previous year of FY 2019 March, MIRAIT Holdings group consisted of MIRAIT, MIRAIT Technologies and Lantrovision. But in this year of FY 2020 March, shown in the red square, from the second half of the previous year, TTK in Tohoku region and from January this year, Solcom in Chugoku and Shikokutsuken in Shikoku region were added. These 3 companies were added to the group. As these are included in this year's figure, when you compare year-on-year, the corporate structure is slightly different. When the company was integrated, we assumed the sales would be up by about 30% compared to the previous group. So please bear in mind that this year, sales include the contribution of integrated companies.

Now let me come back to orders received. They were JPY 222.6 billion, up by 39.4%, close to 40%. Breakdown is shown in the table on the right. By segment, although each segment marked growth, growth in NTT was substantially strong by JPY 30.4 billion, which is close to the half of the total growth. This is partly attributable to the 3 integrated companies' strengths in fixed line communications. And this is followed by ICT. As Multi-Carrier and environmental segment, the growth was not as substantial as NTT. Because this business has been driven by the former group. Having said that, orders increased in all segments.

Net sales shown on the second column were JPY 182.9 billion, up by JPY 42.6 billion or 30.4% year-on-year. Its breakdown is shown below. And NTT and all other segments achieved a positive growth. Here also, NTT's growth was as high as 45.7%, well above the other segments and showing the integration effect.

Gross profit increased to JPY 19.5 billion, up year-on-year, but gross profit margin was down slightly by 1.2 percentage point. We cut back SG&A expenses, but operating income decreased to JPY 4.9 billion from JPY 5 billion in the previous year, down by JPY 0.1 billion, staying almost unchanged.

Construction account carried forward is shown at the bottom as JPY 184.6 billion, up JPY 37 billion year-on-year. We continued to post high level of construction account carried forward at JPY 184.6 billion. This is the overview. Breakdown is shown on the following slide.

As shown in the bar chart of net sales on the left, contribution of merged companies was substantial in NTT, and it was larger than ICT. As for the second quarter sales of JPY 182.9 billion shown on the right part of the chart, it was very close to the initial forecast of JPY 183 billion with only difference of JPY 0.1 billion, so we mostly achieved the target.

Operating income changed from JPY 5 billion to JPY 4.9 billion, down by JPY 0.1 billion due to increase in net sales, drop in gross profit margin and increasing SG&A. However, initial plan was JPY 4.2 billion. So compared to the initial plan, operating income was up by JPY 0.7 billion. Our plan is skewed to the second half as initial plan indicates. So we worked hard in the second half so that we would achieve the full year target.

Please turn to Page 7 for shareholder returns. Full year forecast for this fiscal year at the right hand shows high bar. In the third column from the top, annual dividends per share is shown. Interim dividend was JPY 20, and we plan to pay JPY 20 at the year-end, totaling JPY 40 per year, which remains unchanged from the previous year. This year, we have already completed share repurchase of JPY 10.4 billion, shown in the center in red. As a result, total return ratio went up substantially to 95.4%. As for the total shareholder return ratio, we'd like to sustain the basic policy of total ratio of 1/3. But this time, we captured this opportunity of share repurchase to return to shareholders. And I will elaborate on this later, but upon integration -- I will elaborate the content later. But as our capital policy upon the integration, we had the share issues. And there were some dilutions and also convertible bonds impact was observed. Therefore, in order to clearly show the direction to avoid dilution by controlling the outstanding shares, we will consider the share repurchase. Let me reiterate the essential part of this slide. We continued to pay dividends in a stable and consistent manner. And in this fiscal year, due to share repurchase, total return ratio is 95%.

Now I'll briefly walk you through the trends in each business. Page 9 shows trends in NTT business. Investments by NTT East and West continued to slow down by 4% or 5% by year. But on the other side, besides the construction backed by investment, maintenance services have been expanding recently, and NTT business consists of these 2 businesses. We have been making facility improvement proposals, including those based on daily inspection. And in the field of maintenance services, both subtype of services and the coverage area has been expanding, and they resulted in a very solid business.

As shown on the left of Page 10, we commenced area round method in facility inspection, mainly in West Japan. Rather than general inspection, we identified a focused area of inspection, leveraging ICT and image analysis. And as for facility management, especially in West Japan, maintenance area has been expanding rapidly. We are also improving efficiency by increasing remote network maintenance support. Having said that, NTT fixed line business is, generally speaking, based on sustaining the existing business rather than creating new business, and we need to make effort to improve profitability under such circumstances. Therefore, we'll continue to consolidate branch offices, if any chance, and we will strive to create a synergy effect of integration for further efficiency improvement. And they are described on the right part of Page 10.

Consolidation is steadily underway at MIRAIT at Chiba and MIRAIT Technologies, Saitama. And though I wouldn't comment in detail, we are strengthening group-oriented operations to deliver integration synergies, in particular, by sharing stuff. As for example, at the time of natural disaster that hit Chiba, due to group-oriented operations, we were able to move very flexibly and promptly. And immediately after the integration, we experienced a torrential rain, and we witnessed the progress of group-oriented operation that was enabled by integration.

In the case of natural disasters, we take advantage of nationwide group-oriented operation, and we will continue KAIZEN initiatives and systems integration so that we will deliver effects. We cannot do all of these concurrently with integration. As for the systems integration, we need to do that while maintaining the daily operations. So it will take some time and will not be completed in this year, but we expect that they will continue to deliver much effect from now on.

Page 11 shows Multi-Carrier business. Investments by mobile carriers in total will not slow down and continue to be solid, partly due to 5G. Our Multi-Carrier business is partially supported by integration, though, its contribution is not as large as NTT fixed line business.

As for sales growth described in the table on the right, besides highlighted 5G, advancement in 4G, namely in 3.5G and 700 megahertz are ongoing, and they are actually booming. Furthermore, works related to the new frequencies of 1.7 and 3.4 gigahertz are coming up additionally. Therefore, at the outset of 5G, 4G advancement works will continue.

On the left part of Page 12, trends in mobile business are shown. At the bottom, advancements in 4G and 5G launches are described. In this year, preliminary services of 5G will be progressing gradually. Sales structure will be different from that of 4G. Antennas will be a big task. And 5G will be expanding based on the industrial applications rather than through the news in voice, image or text transmission. They will be expanding in the potential industrial areas rather than universally. But, of course, the expansion will be based on the policy of mobile carriers. Target 5G base station penetration based on the 10-kilometer grid is over 50% in 5 years. And we are also informed that the carriers' promise to the government that within 2 years in all prefectures, 5G service will be launched. And the construction works will be in line with that plan.

For the profit growth shown at the bottom of Page 11. Main topics are described on Page 12. Improvement of productivity is essential central part, and we will improve efficiency by deploying workflow that includes method and technologies, such as i-Construction and robotics. And second point is to deliver synergy impact. As mentioned in the part of NTT, after integration, mobile business of each company will be combined, and that will improve efficiency, and we'll continue to work on this in many aspects. Challenges are listed here, and that indicates the great potentials we have for better efficiencies, and we will make steady head base.

One more additional point is that Rakuten Mobile was launched in this year. And to improve construction capability, Toei Electric Telecommunication was made into 100% subsidiary in June. And that will improve our flexibility and agility. In addition to expanding the business areas for new customer of Rakuten Mobile, we will continue to enhance our own capabilities.

Page 13 shows environmental and social innovation business. This business has been very solid. As bar chart on the left of net sales indicates, sales have been growing steadily, partly backed by the integration. Breakdown of net sales at the bottom shows the special factor of electric and air conditioning turning to grow substantially this year. And civil engineering and solar power with this work completing this year are growing strongly in this year.

On the left of Page 14, initiatives in civil engineering are shown. Our project in Ponto-cho was introduced before, but it was a very sensitive work in narrow roads, where large construction machineries couldn't be used, where efficient works are required. It was a very special project that works were allowed only at night, and in the daytime, the road had to be restored. Quality of our works was highly appreciated and that led to additional orders for the adjacent area of Sanjo-dori. Work to lay power lines underground is not complete, and it is still ongoing in Tokyo and other areas. And the final image is not envisaged yet, but it is steadily progressing.

Water utility conduit work is described at the bottom. Recognizing the future growth potentials, MIRAIT Technologies has been working with Katakura Construction and Kobe City Water Bureau and promoting advanced maintenance with sensors.

In October, we acquired Tokaikoei, which is engaged with Tokyo Metropolitan Government water project. As infrastructure is faced with renewal timing, very strong demand is anticipated, and we'd like to expand this business going forward.

Solar power business is shown on the right. In this fiscal year, a large business will bear fruit for both MIRAIT and MIRAIT Technologies with the completion of works. Although FIT will be changing, large works still remain. As was planned, utility company's obligation to purchase self-consumption type solar power generated on rooftop will be lifted from this year. So solar power generation will be promoted further for self-consumption. Since a few years ago, we have been monitoring this opportunity, a demand for self-consumption, and now we are entering such new era.

Road lighting facilities-related works to install LED lights have been recovering steadily due to needs for energy conservation.

Page 15 and 16 show ICT Solutions. As bar chart at the bottom for breakdown of net sales shows, 700 megahertz TV reception interference works are peaking out, and it shows clear decline as shown in yellow part at the bottom. And substantial decline in sales is attributable to this interference works of 700 megahertz. However, this is offset by good sales of extensive products, including PC, facility equipment and communication machinery. And LAN and PBX and software businesses have been firm as well. And they are very diverse business and will continue to be firm.

And Osaka #1 data center is shown on the right of Page 16. We have been receiving questions about the timing of full capacity running of this center, but it started in May 2019. It has been up and running smoothly. And now we are heading for the network data center for the next era, connecting a number of data centers.

On the left, global business initiatives are described. We are often asked about the impact by U.S.-China trade issues and Asian economic development. So we prepared this slide. This shows Lantrovision's sales and, in a nutshell, impact on its sales and orders are not material. Having said that, businesses around Singapore are growing more competitive with more players in the market. So we will have a close watch on these. And we will also try to develop other businesses and expand the geographical areas to promote solid business. And we will keep our close eye on the possible temporary impact, if any.

And the initiatives in WI-FIs are shown below. ee-TaB Plus was installed in major hotels, including the most renowned 3 Japanese hotels in light of upcoming Olympic Games, and its demand continues to grow.

Page 17 is for your reference. On the left, new business opportunities are described in light of Olympics, as we receive the relevant questions often. In addition to the work for stadium itself, works for road, underground power lines and Wi-Fi through large-scale development to accommodate larger traffic of people are included in the so-called Olympics-related works.

And on the right, mobile sensors or drone business is actually promoted in MIRAIT Technologies. Simply put, we have been making steady progress. Of course, as the core of the business, human resource development at drone school and support at Drone Techno Port have been promoted systematically. But the actual works have been generated, working with MLIT and the regional development bureaus and drone lease business also started with NTT Finance. And alliance has been increasing. Inspection of facilities and station buildings and survey of disaster-affected areas are also from NTT Group. And those specific works of inspection and survey were established.

So I'd like to tell you here that our steady expansion is based on the increasing real demand at this point of time.

Final Page 18 shows ESG initiatives. On the left, ESG initiatives are described, and on the right, how we strengthen human resources through integration synergies are shown. For the left part, I wouldn't comment in detail, but we work on environment, society and, in particular, governance. In governance, we implement self-assessment of Board of Directors and also establish the committees. And on the right, integration synergies part is very important, though it is not particularly conspicuous. Greatest asset provided by integration is qualified staff or the human resources. We have expanded base of key driver of qualified staff or construction staff, and this part describes how we achieved more diversity.

KAIZEN activities and work style reform are also very important in the engineering industries. We make declaration, and we are committed to proceed further in this regard. I would appreciate if you take a look at this part later.

With this, I conclude my presentation. Thank you very much for your attention.