Fujitsu Ltd

This is Isabe speaking. So I would like to explain about the financial results of 2024. Please turn to page 3. I will start by presenting our financial highlights. The most important segment is service solutions. We continue to have strongly high revenue and operating profit building on the previous year. Revenue for the first quarter was 501.6 billion yen, an increase of 7.8% over last year's first quarter. In particular, business in Japan continues to see a healthy demand for DX and modernization services, and revenue rose 11% over the prior year. Adjusted operating profit and service load solutions was 34.9 billion yen, an increase of 14 billion yen compared to the first quarter of fiscal 2023. In addition to the impact of higher revenue, there has been steady progress in profitability improvements. The adjusted operating profit margin improved to 7%, an increase of 2.5 percentage points from the prior year. Total consolidated revenue was 830 billion yen, an increase of 3.8 percent over the previous year revenue rose in service solutions hardware solutions and device solutions adjusted operating profit was 23.6 billion yen up 21 billion yen from the prior year the adjusted operating profit margin 2.8 percent an improvement of 2.5 percentage points from the prior year primary from service solutions Page four shows an overview of the financial results for each business segments. I will discuss the results for each segment starting with the next slide, but this gives you an overview of the segments. Service Solutions, our growth driver, started the fiscal year with strong growth in both revenue and profits. In hardware solutions, profit fell as there was a pullback from last year's high profit deals and a negative impact from the weak yen. Results in device solutions, on the other hand, benefited from the weak yen, and both revenue and profit increased. In intersegment eliminations in corporate, a reduction in intervectories led to an improvement in unrealized gains among other positive factors, but there has been no particular shift in our expansion in investments to achieve growth over the medium and long-term horizon. From page five, I will show results for each segment. Page six, first, I will discuss service solutions. Revenue was 501.6 billion yen, an increase of 7.8% from the prior year. Primary in Japan, there was a strong increase in demand of DX and modernization services, and revenue from events continued to increase. Revenue from business in Japan rose by 11% from the prior year. Adjusted operating profit was 34.9 billion yen, up 14 billion yen from the prior year, enabling the segment to achieve a solid start to fiscal 2024. I will now explain the components of this profit increase using a waterfall chart. page seven this chart shows the factors that cause increases or decreases in adjusted operating profit in service solutions compared to the prior year. On the far left adjusted operating profit in the first quarter fiscal 2023 was 20.9 billion yen, and that is the starting point for examining changes in profit during this fiscal year's first quarter. The first factor is an increase of 14.2 billion yen in adjusted operating profit from the impact of higher revenue. The strong growth in revenue in Japan drove an increase in gross margin. The second factor is an increase of 8.1 billion yen from improved profitability. We continue to make progress initiatives to improve productivity, such as the standardization in our development process. In addition, in regions, international regions, there was a positive impact from The carve out of a low profitability business, the growth margin improved by two percentage points from the previous year. The third factor is a decline of 8.3 billion yen from higher expenses, primarily investments in growth business. We continue to actively implement investments in the direct growth of our business, such as the development of events offerings, the aggregation of knowledge to support the rapid growth and a modernization business investments in employee training and development and enhance security. Adding these up, adjusted operating profit for service solutions in the first quarter of fiscal 2024 is 34.9 billion yen. Page 8. I will now provide supplemental information on each of the factors in the previous waterfall chart. First is the status of orders, which led to the increase in revenue. This page shows orders in Japan. Orders in Japan fell by 3% in the first quarter compared to the previous year. I will comment on each industry segment. First is the private enterprise business segment, in which orders were up 6% from the prior year. There was continued growth in projects related to digital transformation and sustainable transformation, as well as modernization deals for mission critical systems with continued strength across a wide range of customers, including those in manufacturing, mobility, retailing and distribution sectors. Orders were flat in the finance business segment compared to the prior year. We were able to win large scale deals to upgrade mission critical systems for financial institutions, enabling us to receive a scale of orders on par with the high level of orders in last year's first quarter. In the public and health care segment, orders fell 15%. This represents a pullback from the first quarter of last year when we received orders for large-scale multi-year deals. Our deal pipeline for the second quarter and beyond is growing. And although the level of orders in the first quarter was below last year's level, we are not particularly concerned about the future. In the mission critical and other segments, orders were up 31% from the prior year. We received multiple large-scale deals such as upgrades for mission critical systems. Overall, our business in Japan is continuing a solid growth trend and deals across a wide range of customers. There was a pullback in the first quarter from the multi-year contracts we won in last year's first quarter, but the pipeline of expected orders in the second quarter and beyond is solidly expanding, and for the full year we expect a continuation of these strong trends. In addition to the high volume and backlogs from orders we had received through to the end of last year, the expansion trend is Expansion trend and opportunities for orders remain strong and we expect to be able to continue the steady growth in revenue. Page nine shows the orders in the international regions. Orders in Europe region fell 14% compared to last year. This represented a pullback from last year's large-scale deals primarily in the Nordic areas. Orders in America's region increased by 4%. The solid growth in orders continued primarily for Fujitsu Yuvans, and we were able to exceed the high level of orders received in last year's first quarter. Orders for the Asia-Pacific region were up by 14%. In Oceania, we were able to win a multi-year contract renewal from a finance-related customer, taking the growth in orders up a notch. Page 10 shows the progress of Fujitsu Yuvance, which we are positioning as the most vital area for the growth of our business and the transformation of our business portfolio. Overall orders received in the first quarter sharply expanded, growing by 50% over the prior year to 109.2 billion yen. Below that is revenue. In the bar graph, the deep blue portion depicts revenue from the four vertical areas, which are cross-industry areas that solve societal issues. The light blue presents revenues from the three horizontal areas, which are technology platforms that support the cross-industry areas. Overall revenue from Fujitsu Yuvance in the first quarter was 96.5 billion yen, up by 37% from the prior year. Of that, 19.1 billion yen was from the vertical area roughly three-folds in the scale of revenue compared to the prior year. The ratio of revenue and service solutions from Fujitsu Yuvance rose from 15% in the prior year to 19%. The graph on the right hand side shows our revenue targets for this fiscal year and next fiscal year. The revenue target for this fiscal year is 450 billion yen, up from 367.9 billion yen in fiscal year 2023, nearly an increase of 100 billion yen. In the first quarter, the Yuvon's business got off to a good start in both orders and revenue, and our progress is on pace to slightly exceed our target for the first quarter. We are seeking to achieve our target for Yuvon's revenue of 700 billion yen in fiscal 2025, the final fiscal year of our medium-term management plan, in which we seek to have Yuvon's representation 30% of total revenue in service solutions. For page 11, I would like to comment on profitability improvements and the status of growth investments. The increase in profit from profitability improvement was 8.1 billion yen, and the gross margin improved by 2 percentage points from the prior year. Starting last year, every year we have been able to improve our gross margin by roughly 2 percentage points. Productivity improvements are clearly continuing, such as through the standardization of development work, automation, the expansion of in-house work, and the expansion in the utilizing of offshoring. In addition, customers have also acknowledged the quality and the value we deliver, and our progress in setting suitable pricing is another positive point. Moreover, the impact of the shift in our business portfolio implemented in international regions is already starting to materialize. On the right-hand side, growth investments and other expenses increased by 8.3 billion yen. Investments have increased. We have continued to deliberately and proactively invest in areas directly related to business growth, such as the development of Fujita Yuban's offerings, the aggregation of knowledge to support the expansion of our modernization business, investments needed to develop and recruit specialist human resources, and investments to strengthen our security. have created our three growth pillars of uvance modernization and the consulting business and we are working hard to accelerate that growth next is page 11 i will briefly touch on the status of each sub-segment in service solutions first is global solutions revenue was 129 billion yen up sharply by 23.8 from the prior year On an adjusted basis, the sub-segment posted an operating loss of 2.3 billion yen. Revenue grew strongly, primarily from Fujitsu U-Vans. As for profit, however, because of stepped-up expansion in investments, in absolute terms, the sub-segment ended with a loss. We accelerated the development offerings in U-Vans, primarily in the vertical areas, and we are strengthening investments in delivery standardization, such as the expansion of the Modernization Knowledge Center. We are making progress as planned in dealing with expansion of our offerings business and the strong demand for DX and modernization services. And we expect that through the impact of higher revenue and improvement in a gross margin, we should be able to achieve a solid level of profit for the full year.

In region Japan, revenue was ¥272.6 billion, up 4% from the previous year. The adjusted operating profit was ¥37.9 billion, approximately 1.5 times the level of profit of the previous year. Modernization-related demands such as DX business and upgrades of mission-critical system continue to increase, and revenue increase from a wide range of industries such as mobility finance and public sectors in addition to the impact of higher revenue we also continued making progress on improving profitability the adjusted operating profit margin therefore had significant four percent improvement from the prior year to 13.9 percent In regions international, revenue was 142.2 billion yen, up 0.9% compared to the previous year. Adjusted operating profit was a loss of 0.5 billion yen, loss decreased by 3 billion yen from the previous year. For revenue, although there were positive effects from foreign exchange movements, there was also the negative impact of the carve-out of the low-profit German private cloud business. On the net basis, revenue was essentially unchanged from the previous year. In terms of profit, the effects of the business portfolio transformation led to improved profitability. Page 13. This page shows the other segments besides service solutions. First is hardware solutions. Revenue was 228.5 billion yen, up 5.4% from the previous year. There was an adjusted operating loss of 3.6 billion yen, a deterioration of 6.3 billion yen from the previous year. System products. in terms of revenue saw an increase due to foreign exchange movements but on the other hand in terms of profit there was an increase in the cost of procuring components tied directly to the weekend which had a negative effect on profitability in addition on top of the impact of foreign exchange movement there was also drop off of the previous year's highly profitable business deals which resulted in decrease from profit from the previous year network products were was also similarly impacted by weekendian excluding the impact of foreign exchange movement revenue was about the same level as the previous year the operating laws also improved slightly from the previous year we expect the demand in and out of japan for fiscal year 2024 will continue to be low as the previous year on the other hand We are continuing our development investment for the next growth cycle, so the segment will continue to struggle with profitability. Below is a ubiquitous solution. Revenue was 48.7 billion yen, down 18.5% from the previous year. Adjusted operating profit was 4.4 billion yen, about the same level as the previous year. The decline in revenue was due to exiting business in Europe. As we mentioned last fiscal year, in regard to business in Europe, it was very competitive environment in which it was difficult to ensure profitability it is for this reason that fujitsu exited these regions in april 2024 in terms of profit exiting business in the low profitability regions in europe termed losses or in other words had a positive effect the increasing cost from the weekend the end however had a negative impact and these two combined led to profit remaining essentially unchanged for the previous year Page 14, device solutions revenue was 71.6 billion yen, up 6.2% from the previous year. Adjusted operating profit was 7 billion, an increase of 4.7 billion from the previous year. The impact of foreign exchange rate movements in this segment was different from the hardware solutions, ubiquitous solutions. Haruko Wainwright-Hung, Ph.D.: : excluding the impact of foreign exchange movement, the demand stop declining demand is starting to recover, but the strong surging demand anticipated to come after second half of the fiscal year. Haruko Wainwright-Hung, Ph.D.: : below is the. Inter-segment elimination and corporate there was an operating loss of 90.1 billion yen with a decrease in expenses of 8.6 billion yen compared to the previous year. In the first quarter, group-wide business growth investment was slightly lower. In addition, an improvement in unrealized profit due to shipment of inventories, which had temporarily retained in intra-group transactions at the end of the first quarter of the fiscal year. positively impacted the result. The business growth investments managed by inter-segment elimination of corporate include advanced cutting-edge research mainly in the field of AI and quantum computing enhancements to our overall management foundation. We will continue the deliberate implementation of these investments for our medium to long-term business. We have been advancing one Fujitsu product project for global This group-based ERP deployment project has an investment to strengthen our management foundation. We plan to launch this project in the services business in Japan in fiscal 2024. We will accelerate our digital transformation to further increase the speed and optimization of the business. Page 15, we will talk about the status of cash flow and the balance sheet. Page 16, cash flow excluding one-time cash inflows for free cash flow was 167.7 billion yen, a reduction of 15 billion yen from the previous year. The main factors in the reduction of core free cash flow was a temporary increase in the balance of accounts receivable from a high level of revenue at the end of the first year. And the pullback from the previous year is a sale of share holdings. We anticipate a core free cash flow to increase the free cash flow, which is in the table at the bottom. This page was 130.4 billion yen, an increase of 4.8 billion yen from the previous year. Page 17 shows the status of assets, liabilities and equity. I will make an explanation of this page. This concludes my overview of the financial results for the fiscal year. Though it is not on the slide, I will briefly comment on the progress toward our plan. Fujitsu's operating profit is skewed toward the second half of the year and the fourth quarter. So although we cannot afford to be overly optimistic, results for this quarter slightly exceeded our internal start of the fiscal year in segments. The results for survey solutions showed a slight improvement. Outside of this, there was some variation due to two factors impact and the results were mostly in line with the plan demand in service solutions such as orders received was anticipated there was also pullback for the large-scale orders one during the previous year so orders may seem slightly weaker compared to the previous year if i not only look in the first pair on the profitability this is exactly as planned So having said that, although I mentioned that this is better than planned. There is no point at which I can say it is significantly better than our plan. So although it is not a very concrete explanation, I dare say that there was very little significant failures or negative details as steadily expanded our business. One could say that we had a firm handle on things. We will continue working to maintain, accelerate the starting speed from the first quarter to steadily achieve the plan. Page 18, I will now explain our financial forecast for fiscal 2024. Page 19, this is our financial forecast for fiscal 2024. Revenue is forecasted to 3 trillion 760 billion yen. Adjusted operating profit is forecasted to be 330 billion yen. and adjusted profit for fiscal 2024 is forecasted to be 26 billion yen all of our forecasts remain unchanged in addition there is also no change to the forecast for each segment for cash flow starting to the next year we are progressing as planned lastly i briefly touched on earlier but the results for the first quarter slightly exceeded our internal plan we believe we are off to a good and steady start to achieve our target on the other hand we are still at the very beginning of this year there are still many things that we need to address areas in which we must further accelerate our efforts and actions that we must do to handle our strong business to deliver value to customers we strongly believe people will be at the core as for deployment and change to a structure in which the right people are in the right place including reskilling of internal human resources securing external human resources and the standardization of manufacturing innovation to meet the changes to our business portfolio it will be important that we carry this out quickly It is also for this reason that we believe that taking firm action will handle this. We believe that this initiative will deliver each of the existing system integration projects while also growing overall business with Fujitsu's modernization and consulting as the main pillars. We will believe that these will be essential for steadily improving productivity. From the second quarter onward, we will continue to gauge the steady achievement of our plan. through the expanding of the business and improving the profitability. This concludes my presentation on the overview of the financial results. Lastly, I would like to announce Fujitsu RR Day 2024 on September 10th. Our five corporate vice presidents, including myself, will explain Fujitsu's business strategies for achieving our medium term management plan and the status of our progress towards achieving it. We believe that this event will be an important opportunity for having direct discussions between the participants and those in charge of Fujitsu business and for understanding Fujitsu business strategy. We will share the details and specifics related to how to participate in the event in a separate statement. We hope many will attend.