Fujitsu Ltd

Good afternoon, ladies and gentlemen. My name is Isobe, CFO. I'd like to give you the outline of the financial results for the second quarter. Please go to page 3. I will start by presenting our financial highlights for the first half of fiscal 24. Most important segment is service solutions, which continued to post steady improvements and higher revenue and operating profit. Revenue for the first half was 1 trillion 17.5 billion yen, an increase of 3.4% over the last year's first half. For business in Japan, demand continued to be strong. All digital transformation, modernization services, and revenue in Japan rose 7%. Outside of Japan, however, because of the curve-out of low-profitability business, revenue declined by 4%. Excluding the curve-outs, revenue was essentially unchanged. adjusted operating profit for service solutions was 88.7 billion yen increase of 25.2 billion yen compared to the first half of fiscal 23 in addition to the impact of higher revenue there has been steady progress over profitability improvement adjustment adjusted operating profit margin improved by an 2.3 percent up to 8.7 percent in terms of the first half results in both cases there were record results for fujitsu total consolidated revenue was 1 trillion 696.6 billion yen 0.9 percent higher than previous year And the revenue declined in hardware solutions and ubiquitous solutions. Adjusted operating profit was 79.5 billion yen, 28.7 billion yen from the previous year. Adjusted operating profit margin was 4.7% up 1.7 percentage point. In terms of the first half results, suggested operating profit was a record for Fujitsu, showing an increase of 56.6% over the last year's first half. Page 4 shows the overview of the financial results for each business segment. I will discuss the results for each segment starting from the next page, but here this gives you overall view. as i touched upon just now service solutions our growth driver had the higher revenue and strong pace of progress in profitability improvement hardware solutions both revenue and profit fail as there was a pullback from last year's large-scale deals and the negative impact of the weak yen results in the device solutions on the other hand benefited from the wikian both revenue and profit increase the inter-segment eliminations and corporate reduction in the inventories led to improvement and unrealized gains. From page 5, we will show you the result of each segment. Page 6, the service solutions. Revenue was 1 trillion 17.5 billion yen, increase of 3.4% from the previous year. Primarily in Japan, there were continued increases in demand for digital transformation and modernization services. Revenue from a business in Japan rose by 7% from the prior year. Adjusted operating profit was 88.7 billion yen, up 25.2 billion yen from the prior year, and the adjusted operating profit margin was 8.7%, improvement of 2.3 percentage points compared to the previous year. I will now explain the components of this increase in profit with a waterfall chart. Page 7 shows the factors that caused increases and decreases in adjusted operating profit in service solutions. Operating profit for the first half of fiscal 23 was 63.4 billion yen, and that is the starting point of examining the exchanges in operating profit in the first half of the year. First factor is an increase of 16.6 billion yen in adjusted operating profit for the impact of higher revenue. And the second factor is an increase of 25.2 billion yen from the improved profitability. We continue to make progress in initiatives to improve productivity, such as standardization in our development work processes and stronger management of profitability. And in addition, in the regions and international, there was a positive impact from the cut-out of low-profitability business. The gross margin improved by 2.6 percentage point. Third factor is decline of 16.6 billion yen related to increased expenses, primarily investment in the gross business. We continue to actively implement investments in the direct growth of our business, such as the development of human offerings, aggregation of knowledge to support the rapid growth in the modernization business and investment in employee training and development. Adding all this up, adjusted operating profit for the service solution was 88.7 million yen. Page 8, I will now provide supplemental information about the factors in the previous waterfall chart. First, the status of orders, which led to increase in revenue. This page shows the orders in Japan, and they fell by 1 percentage point. First of all, the private enterprise business segment, which were up 3% from the prior year. There was continued growth in the projects related to digital transformation, sustainable transformation, as well as a modernization for mission-critical systems, which continued the strength of growth. A wide range of customers, including manufacturing, mobility, retail, and distribution. And the orders were up 9% in the financial business segment. We were able to win multiple large scale deals to upgrade. the emission critical systems for financial institutions in public and healthcare segment orders fell 10 percent this represents a pullback from the first half of last year when we received orders for large-scale multiple multi-year deals from the customers in the public sector mission critical and other segment orders were up 11 percent from the previous year We received multiple large-scale deals, such as upgrades for mission-critical systems. We already foresee that we will receive multiple large-scale deals in the second half, mainly in the field of national security. Overall, our business in Japan is roughly at the same level it was in the first half of last year. We were significantly impacted by the pullback of the public and healthcare segment in the first half of 2024. from the large-scale contracts we won in 23. In the private enterprise finance and mission critical and other segments, we were able to surpass even the high level of orders received in 23. We accumulated a large balance of orders, and we expect no major changes in the pipeline. We already foresee several large-scale deals in the second half of the fiscal year, and expect to be able to continue the growth in sales revenue. Page 9 shows the orders in the international regions. The orders for the Europe and America's regions declined compared to last year. This represented a pullback from last year's large scale. We anticipate receiving large deals in the second half of the year. Our orders for the Asia-Pacific region was up 25%. In Oceania, we were able to win multiple are multi-year contracts from customers in finance and retail industry. Page 10 shows the progress of Fujitsu Yubans, which we are positioning as the most vital area for the growth of the business. Orders received in fiscal 24 amounted to 223.1 billion yen. a major increase in over 30% from last year. Below is the revenue. In the bar graph, a deep blue portion depicts the revenue from the four vertical areas, which are cross-industry areas, and the light blue are revenues from three horizontal areas, which are technology platforms that support the cross-industry areas. Overall revenue for the first half of the year was 200.7 million yen, up 31%. of this vertical areas grew by 93%, nearly double the revenue of the last year. The share of the revenue from my Fujitsu U-BANs in service solutions increased from 16% of the previous year up to 20%. For U-BANs, orders and revenue are in good shape and progressing at a strong pace towards our target. On the right-hand side of the graph, there is a revenue target for both fiscal 24 and fiscal 25. Revenue target for 24 is 450 billion yen, an increase of approximately 100 billion yen from the previous year, and a growth of 22%. Growth in the first half was 31%, slightly above our plan. We are seeking to achieve our target for U-Bank's revenue of 700 billion yen in fiscal 2025, the final fiscal year of mid-term management plan, in which we seek to have U-Bank representing 30% of the total revenue in service solutions. Page 11 shows the status of the modernization business. Revenue for the first half of this year was 82.8 billion yen, a large increase of 69% from the previous year. The full-year revenue target shown on the right-hand side is 200 billion yen, an increase of 69% from the previous year. Therefore, for the first half of 2024, modernization business has progressed according to the plan. excluded from this figure a revenue that will overlap with Fujitsu Yubans and hardware revenue from modernization business. We will improve profitability through the knowledge aggregation and automation while expanding our digital transformation and sustainable transformation business. Page 12 shows the supplemental information about the status of our efforts to improve profitability and the status of our growth investment. Increase in profit resulting from a profitability improvement in the first half of the year was 25.2 billion yen. The growth margin was 35.1%, improvement of 2.6 percentage point from the previous year. As shown on the graph, profitability is continuing to improve at a steady pace year after year. We are steadily continuing profitability improvement measures such as standardization of development automation bringing working house. In addition, improvement in monitoring profitability has also contributed to the improvement in profitability. Of course, customers have recognized the quality and the value we deliver. And another positive point has been that we have made progress on setting appropriate pricing. The impact of the business portfolio changes that we have done in the regions, international regions, cannot be also seen here. On the right-hand side, expansion of the gross investment was 16.6 billion yen, representing a negative impact on the operating profit for the year. In addition to developing offerings for Fujitsu humans and knowledge aggregation to handle the expansion of the modernization business, we have continued proactively, systematically the direct investment toward the business growth, such as investment in developing and hiring employees with special skills, as well as strengthening security. The pillars of the growth in service solutions are humans, modernization business, and consulting. And we are moving ahead with investment to support the acceleration in expanding these growth businesses while keeping a close eye on the investment. Next, page 13, I will briefly touch upon the status of each sub-segment in service solutions. First, global solutions revenue was 246.7 billion yen, up 13.3% from the prior year. On an adjusted basis, the sub-segment posted an operating loss of 6.0 billion yen. Revenue grew at a double-digit pace primarily from Fujitsu Yuvans. As for profit, however, because of a large expansion in investments for the growth business, the sub-segment continued to record a loss. We accelerated the development of offerings in Yuban primarily in the vertical areas, and we are strengthening investment in delivery standardization, such as 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 digital transformation and modernization. We expect through the impact of a higher revenue and improvement in our gross margin in the second half, we should be able to achieve solid level of profit for the full year. In the Japan region, revenue was 583.3 billion yen, up 2.1% from the previous year. Adjusted operating profit, 91.4 billion yen, up 19.2 billion yen from the previous year. Expansion of the modernization-related demands, such as digital transformation business and the emission-critical system upgrades, led to an increase in revenue, mainly in customers in mobility and finance sectors. In addition to the impact of higher revenue, we also continued making progress on improving profitability. Adjusted operating profit margin had a significant three percentage point improvement from the prior year to 15.7%. In international regions, revenue was 275.6 billion yen down 4.4%. year adjusted operating profit 3.2 billion yen enabling us to post a profit for the first half representing improvement by 9.4 billion yen because of the negative impact of the curve out of the low profit the german private cloud business revenue declined excluding that impact revenue was essentially unchanged from the previous year in terms of the profit the significant effect of the business portfolio transformation led to improved profitability

This page shows the other segments besides service solutions. First is hardware solutions. Revenue was 456.6 billion yen, down 4.4% from the previous year. adjusted operating profit of 3.1 billion yen, representing a deterioration of 14.3 billion yen from the previous year. In system products, in addition to the pullback from the large-scale business deals in the public sector from the previous year, the weak yen led to higher component procurement costs, which resulted in decline in operating profit and revenue. In network products, demand both inside and outside of Japan this year has been at about the same level as the previous year. On the other hand, we are continuing our investments in product development and preparing for the next growth cycle. Below that is ubiquitous solutions. Revenue was 108.6 billion yen, down 16.9% from the previous year. Adjusted operating profit was 11.3 billion yen, an increase of 2.3 billion yen from the previous year. The decline in revenue was a result of the exiting of the business in Europe. As announced in the previous fiscal year, the business in Europe was a very competitive environment in which it was difficult to ensure profitability. It is for this reason that Fujitsu exited the business in April of this year. exiting this business has trimmed losses or in other words had positive effect profitability improved to the point that exceeded the negative impact of the increasing cost from the weekend yen page 15 device solutions revenue was 147.4 billion yen up 3.3 percent from the previous year adjusted operating profit was 13.4 billion yen an increase of 4.1 billion yen from the previous year The impact of foreign exchange movements in this segment was different from that of hardware solutions and ubiquitous solutions. It had a positive effect on both revenue and profit for the exported products from device solutions, but results in the main business of the segment excluding the impact of foreign exchange movement was slightly lower than expected. The full-scale recovery in demand has been lower than initially planned, and it is expected to occur in the second half of the year. Below that is intersegment elimination corporate. There was adjusted operating loss of 37.1 billion yen with decrease in expenses of 11.3 billion yen compared to the previous year. In the first of the fiscal year, business growth investment were slightly lower in addition last year's temporary accumulation in inventory assets for transactions within fujitsu group was eliminated resulting in improvement in unrealized gains and was another positive factor the business growth investment managed by inter-segment elimination and corporate include advanced cutting edge research mainly in field of ai and quantum computing and enhancement to the our overall management foundation we will continue the planned implementation of these implement investments we have been advancing one fujitsu program the global group-based erp deployment project and investment to strengthen our management foundation we plan to launch erp system in the service solutions in japan in fiscal 2024 we will accelerate our digital transformation and a further increase the speed and optimization page 16 i will now take Our first half operating profit, which I discussed after now, discussed progress toward the full-year target. The upper part shows total adjusted operating profit for the first half of the year, 79.5 billion yen, representing progress completion rate of 24.1%, 330 billion yen. This is an improvement of 6.2% from the previous year. Looking at survey solutions in the lower half, Operating profit progress made in the first half of the fiscal year was 31.7%, improvement of 5% from the previous year. As usual, operating profit is skewed in the second half of the fiscal year. Operating profit is slowly improving. Page 17. This is related to the improvement of the portfolio and to improve corporate value. I will be basically touching upon that. For the first half of fiscal 2024, we recorded a loss of 23.1 billion yen as adjusted item. This was mainly due to approximately 20 billion yen cost of implementation of time-limited expansion of self-produced support system with a scale of 20 billion yen, transforming our human resource portfolio. This is related to reskilling and job posting system. In addition to this, we are implementing a time-limited expansion of self-produced support system for manager-level employees without direct customer responsibilities to accelerate our productivity improvement and optimal positioning of human resources. The table on the bottom of the slide shows adjusted consolidated results, adjusted items, and consolidated results before adjustment for the first half of this fiscal year. Page 18. I will now review the status of cash flows and balance sheet. Page 19. Cash flows excluding one-time cash flows. Core free cash flow was 93.7 billion yen. An increase of inflows of 2.6 billion yen. Toward the bottom of the table, free cash flow including one-time cash inflow was 48.2 billion yen, increase of 13.5 billion yen from the previous year. This is part due to pullback from the cash outflows related to acquisitions made in the previous year. Page 20 shows the status of assets liabilities and equity. i will omit the explanation this concludes my overview of the financial results for the first of the fiscal year though it is not in the slide i will briefly comment on the progress the result of the first half of fiscal 2024 were mostly in line with our plan In each of the sub-segments, Resolve 4 service solutions showed slight improvement mainly in improved profitability. Hardware solutions and ubiquitous solutions were basically in line with the plan, although there were some currency exchanges. On the other hand, device solutions, the recovery in demand for electric components has been a bit slower than we anticipated, so the results were below our plan. Overall, consolidated results were in line with our plan. Market demand for service solutions was also almost in line with our plan. The large-scale amount of orders for business in Japan for the first half was almost the same level as the previous year. impact of the timing of a winning large-scale project from looking from the pipeline expected business deals for the second half of the year. We do not see any major changes in the increase of the demand. We will continue to make progress on both expanding revenue and improving profitability. to achieve our plan page 22. this shows our financial forecast for 2024 revenue is forecasted to be 3 trillion 760 billion yen adjusted operating profit is forecasted to be 303 billion yen All of these remain unchanged. Page 23, there's no change in the forecast. We will progress according to plan. On page 24, it shows the breakdown of the business segment information and projections for the first and the second half of the year. I will just touch upon service solutions. The subsegments adjusted operating income of the first year shows 88.7 billion yen. second half of the year is an increase by 17.5 billion yen at 191.2 billion yen The first half of progress is improving versus the last fiscal year. And in the second fiscal year, it is forecasted to be slightly less than first half. On page 25, I will now explain the adjustment items and consolidated results prior to adjustment. As I have explained, there is no change to our adjusted consolidated results. On the other hand, as an adjustment item to the operating item, we are revising one-time loss of 20 billion yen recorded in the first half of the year. At that time, after taking into account tax effects, we calculate it will be negative impact of 14 billion yen. As I explained in the first half of the fiscal 2024, one-time loss was due to cost-related expansion of the self-produced support system for transforming our human resource portfolio. To accelerate transformation of our human resource portfolio as an additional measure to top of the efforts we have already been making on the job posting system and reskilling, we implemented time-limited expansion of the self-produced system. profit prior to adjustment expected to be 310 billion yen which will be declined by 20 billion yen page 26 core free cash flow and the free cash flow for both projected with 220 billion yen they remain unchanged although we anticipate one-time expenditure related to transforming our human resources portfolio in the second half of the year There will be improvement in capital investment and other working capital for full year result. We anticipate that we will be able to achieve our initial plan. Lastly, the first half of the fiscal year marked halfway point of our midterm business plan as the progress for the midterm business plan. there are some variations but we believe we are progressing mostly according to plan particularly in our growth driver service solutions we are seeing steady improvement in profitability as a result of our efforts even as we make in progress in progressing our portfolio initiatives such as shift to fujitsu uvans transformation of our business portfolio in one stronger growth power We must have optimal human resource portfolio. We will have decisive actions, as we mentioned today, and we will try to accelerate the human resource portfolio and business portfolio. We will continue to work to achieve the midterm management plan and sustainable improvement to our corporate value. This concludes my presentation.