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Edited Transcript of 9613.T earnings conference call or presentation 14-May-20 10:59am GMT

Full Year 2020 NTT Data Corp Earnings Presentation

Tokyo May 15, 2020 (Thomson StreetEvents) -- Edited Transcript of NTT Data Corp earnings conference call or presentation Thursday, May 14, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Yo Honma

NTT DATA Corporation - President, CEO & Representative Director

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Presentation

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Yo Honma, NTT DATA Corporation - President, CEO & Representative Director [1]

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Good afternoon, everyone. I am Honma, President and CEO. Thank you for -- thank you very much for attending our briefing today despite of your busy schedule. As coronavirus is concerned these days, today, we are conducting this briefing online. And there is no one around me within 2 meters of radius. Therefore, I'd like to conduct this briefing without mask.

First of all, I'll explain the results of our term ended in March 2020. Our orders received recorded all-time high, owing to strong domestic business and expansion of overseas businesses. On top of that, our sales increased again, which is 31 years in a row since the company foundation. On the other hand, operating income decreased as the growth investment and structural transformation based on the current mid-term management plan progressed as projected at the beginning of the term, especially the structural transformation, the cost increase due to the adjustment of some unprofitable projects in overseas and other reasons, which resulted in profit decrease.

Now I'm going to explain each segment comparing to the previous term. First, orders received. Public & Social Infrastructure segment demonstrated a significant increase with multiple projects awarded from central government ministries, including the -- some larger scale ones. Financial segment turned out relatively quiet after having won large-scale projects with banks in the previous term. However, the other orders included system renewal project contributed to mitigate the total decrease in the segment.

Enterprise & Solutions segment has continued to grow on a steady basis, mainly led by manufacturing sector. North America won another large-scale project in the fourth quarter and remaining strong. EMEA and Latin America was awarded for a large project in Spain in the fourth quarter as well and posted remarkable growth.

Next is sales result. Public & Social Infrastructure demonstrated a consistent sales growth in central government ministries as well as telecommunications and utility sectors. We also saw a growing sales from a variety of clients in financial segment. Enterprise & Solution has been robust with sales increase by expanding the scale of services for manufacturing clients and the payment business, including a company acquired in the previous fiscal year.

Sales increased in North America because of company acquired in the previous fiscal year now included in this segment. Although the growth seems smaller than the actual due to the exchange rate.

The same for EMEA and Latin America. Sales grew led by Spain and Italy. Despite that, the growth seems smaller for the same reason.

Now operating income. Public & Social Infrastructure increased in operating income, along with sales increase and reduced in loss amount coming from profitable projects. However, financial segment resulted in loss due to the unprofitable project recognized in the third quarter. Enterprise & Solution grew consistently with increased sales.

For North America, although we saw an increase in business expansion costs, such as sales cost driven by strong orders, the decrease in PMI costs and M&A in the previous fiscal year eventually led to the number in almost on par with the previous year.

EMEA and Latin America resulted in loss. While the steady progress was seen in structural transformation, its cost increased for additional measures to the planned ones at the beginning of the fiscal year and due to one-off costs after reevaluation on some businesses in Brazil.

Now I'd like to touch upon the period that ends March 2021. Regarding the impact of the novel coronavirus infection, as it turned out to be pandemic, I have to say that we are in a difficult position to rationally calculate its impact on our overseas businesses. However, our main businesses haven't been influenced so much.

On top of the expected sales from order backlog and the recurring businesses, we will continue to address and support our clients' business growth and the unnecessary IT investment in order to maintain social infrastructure. While we have to invest on the projects with digital and other advanced technology and the solution, consulting business and overseas business for possible impact, we will keep watching their future trends to minimize the impact and secure future orders.

On top of that, new business opportunities may rise up for better society after coronavirus is ceased. We will contribute establishing a system for a new society, leveraging digital and other technology and solutions.

At this stage, we have to inform that our earnings forecast for the fiscal year ending March 2021 is to be determined, given the difficulty of reasonable estimate, especially for overseas businesses. We will continue investigating carefully the impact and the present forecast once we find it possible to estimate reasonably.

As for the dividend, JPY 18 per share is expected, the same amount as the previous years. This is based on our policy to maintain consolidated cash flow dividend payout ratio over mid- to long term.

With the significant impact of novel coronavirus, social structure is considered to dramatically change going forward around the world. We, NTT DATA, will contribute to realizing better society in post-coronavirus world, leveraging our experience and strength of establishing IT infrastructure as well as our digital technology to support the society. This is exactly represents our consistent belief and corporate philosophy. As old company, we will continue addressing to shape the future society with our clients by our efforts from around the world.

Now I'd like to present the progress of mid-term management plan. This is the overview of the mid-term management plan. With consistent belief and courage to change, we aim at quality growth on a global scale. For quality growth on a global scale, our business goal for FY 2021 is as presented on the slide, and this shows our strategy to achieve the goal. In the current mid-term plan, we have been thoroughly executing these 4 strategies in order to maximize our value offered to clients.

From next slide on, I'll introduce to you the progress and achievement in FY 2019. But due to the time constraint, it will be brief. First, strategy #1, expand global digital offerings. The aim of strategy #1 is to build our strength and improve the way we compete. By these 3 measures in red font, Global One team, Digital Strategy Office or DSO and the Center of Excellence or COE, we prepare to compete leveraging our strong global and digital capabilities.

We established Global One Team for acceleration of our global marketing activity and for delivery of our advanced services to global clients in an integrated manner. Our telecom team collaborated on a global scale for this project for our client, Telefónica.

Now we move on to DSO, Digital Strategy Office, and its offering strategy with some cases. DSO was established to further accelerate our digital business, and global level solution services have been developed, targeting these 8 important domains. This is one of their initiatives in insurance domain. The services are provided by globally integrated insurance solutions of each group company.

Here is another initiative for health care domain. The verification of this AI image diagnosis solution is globally ongoing. For our Catch & Go, cash register-free store service for retail industry, it has been further evolved with face authentication entry and dynamic pricing. With clients, we aim to commercialize this service in FY 2020.

Now activities by Center of Excellence. COE set up global common research locations to gather and leverage technology and knowledges around the world in order to support clients' digitization. Over 300 members from 24 countries are participating blockchain COE. This page shows initiatives of digital design COE, which globally shares knowledges about design to support clients' digital transformation.

For DevOps, mainly our agile development platform called Altemista Cloud have enormously contributed in winning orders, mainly in Italy, Spain and North America. AI COE started up in FY 2019 and has been sharing use cases and nurturing engineers.

Next, strategy #2. Deliver a greater value based on regional needs, aiming to continue offering attractive values to our clients.

In FY 2019, each segment accelerated their initiatives, leveraging the strength in existing systems with digital technology. And these outcomes have already been seen. To be more specific, in public and social infrastructure field, Grid Data Bank Lab was established with our clients, TEPCO, and others to promote laboratory-oriented co-creation based on the trusting relationship with them through past SI projects.

In financial sector, Zengin System is a good example. Another major system revision was successfully completed by transforming development process using digital technology. For enterprise and solution, we started providing card payment gateway of cafés, which is a cashless payment settlement platform. And now the card payment gateway is used by over 10,000 stores.

Next, initiatives in North America. The region focused on selected offerings to realize more efficient and advanced services. This is one of their cases. The government of Oklahoma State awarded us a new large-scale project for ITO and Consulting Services. Another example of a large-scale outsourcing project is for a U.S. major chemical manufacturer to whom we started offering the service called Dynamic Workplace, leveraging digital technology.

The strategy of EMEA and Latin America is to grow sales and to improve efficiency through structural reform transformation. One of the examples of the initiatives resulted as a contract signed between everis and Naturgy, a major gas and electric power company for our large-scale outsourcing services.

Also, NTT DATA EMEA and itelligence AG collaborated and won an order from Deutsche Bank AG for a major SAP implementation services. They will promote the client's digital transformation by fully leveraging SAP S/4HANA throughout the phases from consulting to application development.

Now strategy #3, maximize individual and organizational strength, aiming to enhance every employee's digital and the global capabilities and to strengthen the organization itself. This shows our definition of digital human resources classified in 3 categories by knowledge level. We expect all of our human resources have digital capability. For that purpose, various measures were planned and executed in FY 2019, such as Human Resources development program and the changes in the internal system. Going forward, enhancement on digital and global capabilities of employees will be continuously promoted in an accelerated manner.

Also, as part of work style reformation, leveraging digital technology, our most advanced system was introduced globally and now used for sharing and rollout of the knowledges in many proposal activities.

Next is about strengthening the relationship within NTT Group. This is a case with Toyota. So far, we jointly researched the AI, IoT, big data analysis for connected car as NTT Group. And a business partnership is in place with the Toyota Connected, aiming for a global deployment of mobility services. As a unified team, NTT Group altogether will proactively address on their smart city concept as well. NTT Data services in North America is involved as prime systems integrator and collaborate with NTT Limited as one NTT team member in providing smart city services in the city of Las Vegas.

Next is consistent belief. We advocate that we contribute achieving sustainable development goals through ESG-based management. In order to shape the future society with our clients, we create values based on our long-term relationship with our clients to contribute achieving the goals and increasing our corporate value in a sustainable manner. Also, since we set out these 12 items as a new material ESG issues in FY 2019, we will promote our social contributions through business and corporate activities.

From this page on, I'd like to introduce some examples of our social contribution through business. While novel coronavirus has spread out around the world, we have been providing health management solutions to medical institutes, especially in North America and Europe.

And this slide shows the consortium established by 8 companies aiming to offer next-generation laboratory research in IPS sales and others. Our RPA solution, WinActor, helps realize clients' work style reformation. As all company, we are promoting it, and now about 3,000 clients are using.

AW3D provides digital 3D map with the world highest definition and is currently used in 130 countries for a variety of purposes, including infrastructure development and measures against natural disasters. This is a case of social contribution through corporate activities. We stepped up further in our response to climate change issues for higher objectives, which are obtaining certification of SBT and agreeing on TCFD recommendations this fiscal year.

In relation to governance, AI guideline across NTT Data Group was established.

Last but not the least, I'd like to explain how we will address key challenges. We have to continue taking measures to control and avoid causing loss in projects. In FY 2019, we conducted a prior checking process among third-party members on each concerned project before the proposal is submitted. Continuously, we have to strengthen our measures for prevention.

Also, this is regarding improvement on profitability in overseas business. We have executed structural transformation measures in North America and Europe, such as enhancement and re-skilling of human resources for consulting and digital-related areas as well as closing down of profitable businesses. We will keep watching the outcomes of these measures and continue addressing for better profitability.

I'll skip my explanation on the following pages that describe business topics and financial figures in details.

Now this page concludes my presentation. Thank you very much for your attention.

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