Fujitsu Ltd

Thank you very much. I will give you the outline of the consolidated financial results for the third quarter 2024. I will explain based upon the material. First of all, please turn to page three. I will start by presenting our financial highlights for the first nine months of the fiscal 2024. Most important segment service solutions which continue revenue and operating profit for the first half. Revenue was 1,563.1 billion yen, increase of 2.7 billion. In Japan, demand continued to be strong for digital transformation and modernization. Revenue in Japan rose 6% year-on-year. Outside of Japan, because of the curve-out of the low-profitability business, revenue declined by 5%. Excluding this, revenue was essentially unchanged from the previous year. Adjusted operating profit for service solutions was 161.5 billion yen, increase of 45.2 billion yen compared to the first nine months of 2023. The trend in the most recent third quarter showed similar progress. In addition to the impact of higher revenue, there has been progress in profitability. The adjusted operating profit margin improved to 10.3%, up 2.7 percentage point. And the total consolidated revenue was 2 trillion 621.4 billion yen, decrease of 0.8%. Revenue declined in hardware solutions, ubiquitous solutions. Adjusted operating profit, 157.6 billion yen, up 38.7 billion year-on-year. And the margin was 6.0%. Improvement of 1.5 percentage point from the prior year, mainly from the improvement in service solutions. Adjusted operating profit for the nine months. of the year hit a record high. Open profit prior to adjustment was 125.2 billion yen. There was a rebound from the one-time business restructuring cost recorded last year, resulting in an increase of 78.7 million yen for the fiscal year's first nine months. Page 4 shows the overview of the financial results for each business segment. I will discuss the results of each segment later, but I will give you the overall view. Service solutions on the growth driver had higher revenue and strong pace of progress. In the profitability hardware, their revenue and profit fell. as there was a pullback from last year's large-scale deals. In ubiquitous solutions, revenue declined because of the exit from a low-profitability business in Europe. Profit increased, however. In device solutions, the revenue and profit increased, excluding the impact of the OEPM. However, results were essentially unchanged from the previous year. Page 5 shows the consolidated PL, adjusted operating profit, adjusted amounts, and the profits prior to adjustment. Page 6, the following slides show results for each segment. Service solutions, starting from page 7. Revenue was 1,563,000,000 yen, up 2.7% year-on-year. Primarily in Japan, there were continued increase in demand for digital transformation and modernization services. 6% on the increase in the revenue in Japan compared to previous year. Global, the Fujitsu Yubansa revenue rose 30.1% year-on-year. Adjusted operating profit was 161.5 billion yen, up 45.2 billion yen year-on-year. And adjusted operating profit margin was 10.3%, improvement of 2.7 percentage point. I will explain the component of the increase in the profit with a waterfall chart on the next page. This chart shows the factors that caused the increase and decrease in the adjusted operating profit in service solutions. Far left, the operating profit, 116.3 billion yen. and then the starting point for examination changes in operating profit in the first nine months of this fiscal year to the right of that. The first factor is an increase of about 25.4 billion yen in adjusted operating profit from the impact of higher revenue. Second factor is an increase of 38.8 billion yen from improved profitability. We continue to make progress in initiatives to improve productivity. and in the international regions there was a positive impact from the curve out of low profitability business growth margin improved by 2.6 percentage points from the previous year the third factor is a decline of 19 billion yen from the higher expenses including investment in growth business. In accordance with our plans, we are implementing investment in the business, such as the development of human sufferings, meeting the increasing demand for the modernization business, and others. And adding these up, adjusted operating profit for service solutions in the first nine months of the year was 161.5 billion yen. Page 9, I will provide supplemental information in each of the factors in the previous chart. First, the status of orders. This is in Japan. Compared to the previous year, in the third quarter, Japan rose 9% and rose by 2% for the first nine months. Last year, we won large-scale multi-year contracts, and we had an extremely high level of orders throughout the year. Nevertheless, we were still able to exceed the previous year's level this year. Column at the far right shows the, for reference, Compound annual growth rate for the cumulative first nine months of the year with fiscal 2022 as a starting point. Orders in Japan have grown at average rate of 9%. I will comment on each segment. First of all, private enterprise business segment and the orders were up 5%. And there was continued growth in the projects related to digital transformation and sustainability transformation and modernization and mission-critical systems. There is an increasing demand across the industries. Orders were up 6% in financial business. We were able to win multiple large-scale deals to upgrade mission-critical systems for financial institutions. And using fiscal 2022 as the starting point, the annualized average growth was 15%. In the public healthcare segment, orders fell 5%. In the third quarter, we won deals for mission-critical systems, and orders were up sharply by 11% compared to year-on-year when there was a high level of orders. On the other hand, there was a pullback from the first half of the last year when we received orders for large-scale multi-year deals. and the average annual growth rate in orders since fiscal 22 has been 6%. In mission critical and other segment, orders were up 10% from the previous year. We received multiple large scale deals such as cloud related projects. The average annual growth rate in orders since 22 has been 19%, which has been very high. We foresee there will be multiple large-scale deals in the fourth quarter, mainly in the field of national security, while there are variations in the figures by market segments among the quarters. But the overall major trend of expansion in demand has continued, and we will continue to win new projects. Looking at our pipeline of expected orders, we are expecting to see a similar expansion in demand in the fourth quarter. While converting our backlog of our orders to date into sales, we believe that we can continue to increase revenues in the fourth quarter and then fiscal 25 as well. Page 10 shows the orders in the international regions. Orders for Europe and America's region declined compared to last year. This represented pullback from last year's large-scale deals, but we anticipate there will be large deals in the fourth quarter, and we are going to win them. Orders for the Asia-Pacific region were up 45% from the previous year. In Oceania, we were able to win multiple new deals and renewals in the public sector. Page 11 shows the progress of Fujitsu Yubans, which are positioned as the most vital area for our business. Orders received amounted to ¥348.5 billion, an increase of 32% year-on-year. And the revenue is shown below. The bar graph, the deep blue portion, depicts revenue from the vertical areas. And the light blue are revenues from three horizontal areas, which are technology platforms. that support aforementioned cross-industry areas. Overall revenue in the first nine months was 321.7 billion yen, up 30%, and vertical areas grew by 78%. And share of revenue from Fujitsu Yurvan's in-service solutions increased from 16% from the previous year to 21%. For Yurvan's, orders and the revenue are performing well and progressing at a strong pace toward our target. On the right-hand side of the graph, there is a revenue target for fiscal 24 and 25. Revenue target for fiscal 24 is 450 billion yen, increase of about 100 billion yen from the previous year, growth of 22%. Growth in the first nine months was 30%, slightly above our plan. We are seeking to achieve our target for U-BAN's revenue of 700 billion yen in fiscal 2025, the final fiscal year of the meter management plan in which we seek to have U-BAN's represent 30% of the total revenue in service solutions. In that sense, we are still in the launch phase. We need to drive it even higher level of performance. Page 12 shows the status of the modernization business. Revenue for the first nine months of the year was 139.4 billion yen, up 74% year-on-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 nine months of the year, modernization business has also progressed slightly above the plan. excluded from this figure are revenues and that would overlap with which to humans and hardware revenue from modernization business we will improve profitability through such initiatives as knowledge aggregation and automation to implement a thorough modernization of it assets of our customers and while expanding our digital transformation and sustainable transformation business Page 13 provides supplemental information about the status of our efforts to improve profitability and the status of our gross investment. Increase in profit resulting from profitability improvement in the first nine months was 38.8 billion yen. Gross margin was 35.9%, improvement of 2.6 percentage point year on year. As shown on the graph, profitability is continuing to improve at steady pace year after year. We are certainly continuing to improve productivity in services through such measures as the standardization, automation, and bringing work in-house and expanding the use of offshore operations. And in addition, improvements monitoring profitability has also contributed to the improvement of profitability of course customers have recognized the value we deliver and another positive point has been that we made progress on setting appropriate plans pricing and we can also see this in the international regions on the right side expansion in the growth investment was 19 billion yen representing a negative impact on the operating profit In addition to developing offering for the Fujitsu humans and knowledge aggregation to handle the expansion and modernization business, we have continued to proactively and systematically direct investment towards business growth, such as investment in developing and hiring employees with special skills. The pillars of growth in service solutions are humans, modernization, and consulting. And we are moving ahead with investment to support the acceleration in expanding these growth business. Page 14 shows. and the status of each segment in service solutions. First of all, global solutions. Revenue was 367 billion yen, up 10.7% year-on-year. On the adjusted basis, sub-segment posted an operating loss of 4.8 billion yen. Although the sub-segment secured the profit looking only at the third quarter, in terms of cumulative total for the first nine months, it is still in the red. Revenue increased by double digit, primarily by U-bands. Meanwhile, we are also accelerating and developing offerings primarily in the urban vertical areas and strengthening the investment in delivery standardization, such as a modernization knowledge center. They are planned upfront investment for the startup of the business, so we do not view this as a particularly negative factor. We will carefully assess each of our investment in each of these areas, including expansion of the sale of each of these offerings. We believe that in the fourth quarter, we will be able to increase the sub-segment's profitability to a further increase in revenue and become profitable on the full year basis. next regions in japan revenue was 905.2 billion yen up 2.1 year-on-year adjusted operating profit 153.9 billion yen up 31 billion yen from the previous year expansion of demand in a digital transformation business and modernization business such as the upgrades to mission critical system led to increasing revenue mainly in mobility and finance sector in addition to impact of higher revenue we will continue to make the fine progress on improving profitability. And the adjusted operating profit margin had a significant 3.1 percentage point improvement year-on-year to 17%. While growth and the profit growth was steady, skewing our revenue towards the fourth quarter remains the main issue. Although we have many expected orders in a pipeline for the fourth quarter revenue, having a large concentration of orders in the fourth quarter could lead to issues and concerns. And our first priority is to ensure orders for the fourth quarter are converted into actual sales. But at the same time, we will also work to make progress on expanding on the recurring basis. International regions Revenue was 421.8 billion yen, down 5.3% from the previous year. Adjusted operating profit, 12.4 billion yen, up 15.6 billion yen year on year. Revenue was down due to the impact of the curve out of low profitability, German private cloud business. But aside from the impact of this, the revenue was at the same level as the previous year. In terms of the profitability, transformation of our business portfolio has a significant positive impact. While improvement in profitability and the level of profitability is still low, we are seeing the results of the improvement. Page 15 shows the progress of a profit plan. The three figures on the left-hand side shows the cumulative adjusted operating profit by quarter. The color shows the figure for fiscal 23, and the dark blue shows the 2024. so the each fiscal year there has been not been any significant changes and the e2 each of these quarters and as a result adjusted operating profit for the first nine months was 161.5 billion yen progress rate and the rate towards the annual target um is at 58. uh 58 percent at nine percentage point yeah yeah right hand side um is the actual results for fiscal 23 and 24 so we must record roughly 120 billion yen in adjusted operating profit in the fourth quarter to achieve this target. While the situation remains impossible to predict, we will work towards achieving the scale of profit. shown here. Page 16, I will talk about the other segments besides the service solutions. First of all, hardware solutions revenue was 712.8 billion yen, down 4.7% year on year, and the adjusted operating profit, 14.1 billion yen, the deterioration of 23 billion yen. and system product business. In addition to pullback from the large-scale business deals in the public sector last year, the weak yen led to the higher component cost and resulted in decline in operating profit and revenue. Network products demand in both in and out of Japan this year has been about the same level. We are continuing to invest in the product development. as we prepare for the next growth cycle, but the business still remains difficult. Next is the ubiquitous solutions. Revenue was 181.4 billion yen, down 8.2% from the previous year. Adjusted operating profit, 20.3 billion yen, increase of 3.6 billion yen year-on-year. decline in revenue was mainly the result of the exiting of the business in europe in the segments continuing business in japan there was an increase in the revenue due to demand related to preparing for the end of support for windows 10 in october 2025. in terms of profitability exiting the business in europe where business has trimmed losses or in other words on the having the positive effect and improved the profitability to the point that it exceeded the negative impact of a weak yen

Page 17, DeFi Solutions. Revenue was 217.5 billion yen, up 2.4% from the previous year. Adjusted operating profit was 20.5 billion yen, an increase of 7.8 billion yen from the previous year. In exported products from device solutions, foreign exchange movements had a positive impact on both revenue and profit, and the impact of this contributed to higher revenue and profit. But the recovery of demand has actually been slower than we planned, and looking at business performance excluding exchange rate movements, revenue fell slightly, and both revenue and operating income fell below our target levels. Below that is inter-segment eliminations and corporate. There was an operating loss of 58.9 billion yen, with a decrease in expenses of 5.1 billion yen compared to the previous year. We are continuing to advance group-wide business growth investments. Last year's temporary accumulation of inventory assets for transactions within the 42 group was eliminated, resulting in improvement in unrealized gains, which was another positive factor. Incidentally, for business growth investments that are managed group-wide, items related to cutting-edge research on AI and quantum computing, as well as enhancing the management foundation of Fujitsu as a whole, are areas that contribute to medium- to long-term growth. We have been advancing the 142 program, the global group-based ERP deployment project, as an investment to strengthen our management foundation. We started this program in 2020 and launched it in our services business in Japan in the third quarter. Currently, approximately 70,000 people have started using the program. In addition to accelerating our digital transformation DX and advancing data-driven management, we will use Fujitsu's internal implementation of OneFujitsu, such as its actual formulation and usage conditions, as a useful reference for us deploying it in our customer business as well. Page 18. This concludes my overview of the status of adjusted operating profit that represents our core business. I will now briefly explain the one-time profit or loss adjustment items, including review of our portfolio to improve corporate value, as well as our operating profit prior to adjustments. including these factors. From the left, the table of totals from the first nine months shows the actual results in comparison with the previous fiscal year for adjusted operating profit, adjusted items and operating profit prior to adjustments. In the middle, in dark green, in the first nine months of fiscal year 2024, an adjusted item reduced operating income by 32.3 billion yen. main reasons for this were the approximately 20 billion in expansion of expenses for the self-produced support program system approximately 4 billion yen in mna related expenses and approximately 4 billion yen in business restructuring expenses last year recorded a one-time loss of approximately 70 billion yen mainly from business portfolio transformations and structural reforms in europe as adjustment items As a result, in the box in the far right, looking at comparisons with the previous year, adjusted operating profit was up 38.7 billion yen. With adjusted items boosting operating profit by 39.9 billion yen from a decrease in costs and operating profit prior to adjustments, the sum of these two figures was 78.7 billion yen. Page 19. I will now review the status of our cash flows and balance sheet. Page 20. Cash flows. Including one-time cash inflows or outflows, the core free cash flow was 42.4 billion yen, an increase in inflows of 32.6 billion yen year-on-year. Accounts receivable and inventory assets increased mainly due to services in Japan, for which there has been a trend in higher revenue. We expect there to be cash inflows from these areas in the fourth quarter as inventory are reduced and account receivables are collected. For the bottom of the table, free cash flow, including one-time cash flows, was negative 23.1 billion yen due to such factors as pullback from one-time cash inflows in the previous year, including from the sale of shares in social next. It is an increase in outflows of 92.6 billion yen a year. Buybacks of producers' own shares are included in cash flows from financing activities. Throughout the third quarter, 52 has executed 111.7 billion yen in buybacks. Throughout our annual target of 180 billion yen, we are progressing as planned. Page 21, the status of assets, liabilities, and equity. I will omit explanation. Although this is not on this slide, this concludes my explanation of the nine financial results for the first nine months. Although it is not on this slide, I will now briefly comment on the progress that we have made toward our targets. Although the status of financial results of each segment during these nine months varies, overall, we are mostly progressing as planned toward our internal target. Performance and service solutions were slightly better than our target, mostly due to improvements in profitability. Ubiquitous solutions also perform better than our target, against the backdrop of demand for replacing Windows 10 due to end of support for it. On the other hand, hardware solutions, the weekend and other factors have a slight negative impact on results. Moreover, particularly in network products, the status of orders and our pipeline of expected orders has been less than anticipated in our plans. In addition, device solutions, recovering demand has been slower than anticipated, therefore not meeting targets for both revenue and operating profit. consolidated basis. Our rate of progress toward our profit target is improving more than before, and we will continue to work hard to achieve our targets. Page 22. I will explain about the progress in our portfolio transformation. As a part of portfolio transformation, we've been working on covering out non-core business. I will explain about this progress. First, Shinko Electric. As you may know, FD2 signed an agreement to sell its shares in Shinko Electric in December 2023. After this, the necessary procedures for domestic and foreign competition laws were completed in December 2024. and tender offer bid is scheduled to take place in mid-February 2025. Following the tender offer bid, sales of shares, including share consolidation, is scheduled to take place in fiscal year 2025. Secondly, 52 Optical Components Limited in December 2024, 52 signed an agreement to sell its shares in 52 optical components to Furukawa Electric. We expect to execute the sale of shares on April 1, 2025. Number three, Fujitsu General. As we recently announced, Fujitsu signed an agreement to sell its shares in the company to Paloma Reem Holdings in January 2025. We expect to execute sell of shares in fiscal 2025. In line with the progress of these portfolio changes, base cash flow generation of 1.3 trillion yen over three years of the medium term management plan is in sight. Device solutions will be reclassified as discontinued operations at the end of fiscal year 2024. Page 25 shows What changes will occur if device solutions is classified as discontinued business operation? The left side shows the base case without any discontinued operations. The right side shows the changes if device solutions is classified as discontinued operation. It shows adjusted operating profit from continuing operations excluding device solutions. Both sides show hacked results for fiscal 22 and 23. the previously announced forecast for fiscal 24 and figures for our medium-term plan for fiscal 2025. Fiscal 2024, the base case on the left side has revenue of 3 trillion 760 billion yen, adjusted operating profit of 330 billion yen. If device solution is classified as discontinued operation, 335 billion in revenue and 40 billion in adjusted operating profit that would be subtracted from these figures leaving 3.4 to 5 trillion yen in revenue and 290 billion adjusted operating profit as shown in the right hand side box today's explanation is our third quarter financial results was in accordance with our base case but for the fourth quarter and beyond our expectations will be based on continuing operations as i just mentioned past figures will also be restated regarding the figures we have presented for our third quarter financial results if there is a restatement to just reflect continue operations as i just explained we have attached some supplementary materials for your reference Starting from page 26, we have the earnings forecast for fiscal 2024. The explanation here is in accordance with the continuing operations basis, as I just mentioned. The financial forecast for fiscal 2024 projects revenue of 3.47 billion yen, 45 billion yen increase from the previous forecast, and adjusted operating profit of 290 billion yen, which is unchanged from the previous forecast. From the next page, I will explain the composition of these figures by segment. Page 28. Service solutions. There are no changes from the previous forecast. Next is hardware solutions. Revenue is projected to be 1.5 trillion yen, up 20 billion yen from the previous forecast. Adjusted operating profit is projected to be 62 billion yen, representing a downward version of 8 billion yen from the previous forecast. In system products, while we predict that revenues will exceed our target, the weak yen has also increased procurement costs, so the benefit to profit on a net basis is limited. For network products, in addition to a very slow recovery in demand and profitability is expected to deteriorate because of changes to the product mix, and these factors are expected to result in lower revenue and lower profit compared to the previous forecast. Ubiquitous Solutions' revenue is projected to be 245 billion yen up. 25 billion yen from the previous forecast. Adjusted operating profit is projected to be 28 billion yen, representing an upward revision of 8 billion yen to the previous forecast. The start of replacement demand because of the end of support for Windows 10 has been earlier than anticipated, so we made upward revisions to revenue and profit compared to the previous forecast. Page 29 breaks out the actual results for the first nine months and our forecast for the fourth quarter. The rate of progress in profits in the actual estimated operating profit for the first nine months was 47.3%, exceeding the level of the previous year by 7 percentage points, and we expect the level of profit in the fourth quarter to fall slightly below actual results in last year's fourth quarter. Based on the pipeline of expected orders, the level of existing order backlog and the progress in improving probability we think we are on course to meet our targets but the lopsided trend in the way the fourth quarter profits still remain so we will continue to work toward each of our goals without letting up page 30 shows adjustment items for operating profit and our forecast for results prior to adjustments aside from the upward revision to revenue which i just mentioned there are no other changes from the previous forecast page 31 there are no changes from the previous forecast to core free cash flow or free cash flow. As I have explained, in the third quarter overall, there were no major deviations from the performance trends of the first half. In our main focus area of service solutions with the expansion of Fujitsu Yuvance and our modernization business, we are making steady advances on initiatives to promote business growth and improve profitability. In addition, we were also able to report steps in our progress to carve out non-core business. Although we are always exposed to a variety of potential changes in our business environment, we will continue to ensure that we do not delay in responding to these changes. To do so, what we think is most decisive is to continue to flexibly execute our business portfolio transformation and our human resources portfolio transformation without interruption. We will continue to work hard to achieve the medium term management plan, and beyond that, a sustainable improvement to our corporate value.