Fujitsu Ltd

Allow me to explain about the earnings result. I will follow the slides.

Page 3 shows an overview of our results for the first nine months of fiscal 2025. On the top half of the slide is service solutions, our most important segment, Revenue for the first nine months was 1,657.7 billion yen, up 6.1% from the prior year. Excluding the impact from business restructurings that took place during the prior fiscal year, revenue was up 7.5%. In business in Japan in particular, there was continued stronger growth in demand for DX and modernization, and revenue was up 10.4% from the prior year. Adjusted operating profit was 216.1 billion yen, 54.5 billion yen from the prior year, an increase of 33.8%. Adjusted operating profit margin was 13%, an improvement of 2.7 percentage point. from the prior year due to the benefit of higher revenue in addition to continued steady progress in profitability improvements. Looking at the trends per quarter, the third quarter saw both revenue and profit increase even further than in the first half of the year. In the lower box, total revenue for the first nine months was ¥2,451.1 billion, up 1.8% from the prior year. Looking at this figure, excluding the impact of business restructuring, it is up 4.4%. Adjusted operating profit was 229.1 billion yen, and each business segment that posted higher profit compared to the prior year, the total increase was 92 billion yen. up by 67 percent. The adjusted operating profit margin was 9.3 percent, an improvement of 3.6 percentage points from the prior year. At the very bottom, net profit was 343.6 billion yen, up by 255.6 billion yen from the prior year. In addition to the higher profits in our major business areas, recording of a gain on the sale of shares in Shinko Electric in general in the first half of the year also contributed to the higher figure, both operating profit and net profit that reached a new record. Page 4 shows the progress we have made in consolidated adjusted operating profit. The result for the first nine months was 229.1 billion yen. The progress toward the profit plan for the year is shown on the pie chart, 64%. This is an improvement of 19 percentage points from 45% in prior year. We will aim to make steady progress toward the profit plan for the year, as well as to achieve further increase in profit. Page 5 gives an overview of the results for each segment. In the following pages, I will go through the results for each segment separately, but at the outset, let me note that all segments recorded increased profits. Revenue in service solutions, our growth driver, was up 7.5%, excluding the effects of the sale of the contact center business in the prior fiscal year. Profitability also continued to see a steady improvement. Below that is hardware solutions. Revenue declined in the segment from the large negative impact of the change from using the gross sales. standard to a net sales standard when recording low added value sales from software from other companies that took place this fiscal year. Excluding this change, revenue was the same level as the prior year. As for profitability, progress was made on cost optimization resulting in a significant increase in profit. In ubiquitous solutions, there was a slight decline in revenue. due to the impact of a pullback from large-scale business deals in the prior year. Despite this, the segment recorded a profit in the two-digit billions of yen from shifting to high value-added products and the cost improvements. From page six, we show the trends in profit or losses for each segment by quarter. The increase in revenue and profit has continued to grow with each quarter. If you take a look at the results of each quarter compared to the prior year in service solutions at the very top of the box, you will see that this segment in particular has expanded its increases in revenue and profit. This improvement in its profit margin has also gone up. Starting from slide seven is breakdown of the results. for each segment. First is service solutions. Revenue was 1,657.7 billion yen, up 7.5%, excluding the impact of restructuring. There was continued strong demand for DX and modernization deals, primarily in the Japanese marketplace. Revenue from business in Japan was up 10.4% from the prior year. Adjusted operating profit was 216.1 billion yen, up 54.5 billion yen from the prior year. The adjusted operating profit margin was 13%, an improvement of 2.7 percentage points from the prior year. Later on, I will explain the increase in profit using the waterfall chart. Page 9 shows business trends by quarter. The line graph on top shows revenue, and the bar graph below shows adjusted operating profit. The increase in revenue compared to the prior year expands with each quarter. This is driven by business in Japan, which in the third quarter was up 13% compared to the prior year. The adjusted operating profit shown in the bar graph as well as the increase in profit has also gone up with each quarter by expanding the amount of quality projects for the segment that we have also increased. improvements to adjusted operating profit margin. In service solutions, revenue growth is not necessarily tied to operating expense increase. By expanding quality of revenue, adjusted operating profit margin will increase. The sustained productivity improvements in delivery operations also, of course, contribute to this. Looking at each quarter, Its business trends have been steady up to this point. Page 10 shows a breakdown of the changes since last year in adjusted operating profit for service solutions. On the very left, adjusted operating profit for the first nine months of fiscal 2024 was 161.5 billion yen. And that will be starting a point for the factors on the right that impacted the result for the first nine months of fiscal 2025. First, the profit increased by 34.6 billion yen from the impact of higher revenue. The main factor was the increase in the gross margin because of higher revenue in Japan. Second, the profit increased by 31.1 billion yen from profitability improvement. This is the result of steady progress being made on initiative to improve productivity, such as standardization of processes for development of work and automation. In addition, in regions outside of Japan, we started to steadily see the results of a portfolio transformation. Overall, the gross margin improved by 1.9 percentage points from the prior year. Third, profit decreased by 11.2 billion yen because of an increase in business growth investments. proactively made progress on expanding investments directly linked to business growth, including enhancements in U-Bahn's modernization business consulting and security. Next is page 11. I will now provide some additional information on each of the items in the previous waterfall chart. First, we look at the status of orders, which leads to sales. This page shows orders in Japan. Overall, the growth rate for orders was up from the prior year in each quarter, and orders for the first nine months were up 4% from the prior year. Each quarter included large-scale deals that have contract terms spanning several years. Although winning new projects is a good thing, it makes it a bit difficult to see trends. Due to this, we have listed the growth rate excluding these large-scale business deals in brackets. Orders in Japan were up by 7%, and we perceive this to be cruising speed for demand. Incidentally, large-scale deals are shown beneath the box to each have on average a contract period of more than five years and a contract amount exceeding 5 billion yen. I will now comment on each industry segment. Orders in the enterprise segment for the first nine months were at the same level as prior year, excluding the impact of large-scale business deals for multi-year contracts. Orders were up by 6%. There was a particular increase in orders in the third quarter. Orders in retailing and distribution held firm, and looking at the orders in the manufacturing industry by customer, Although there were some cases in which IT investment was scaled back from concerns regarding uncertainty about the future, these continue to be a strong flow of inquiries overall, particularly for Ubans and DX-related projects. down five percent compared to the prior year excluding the impact of large-scale multi-year business deals for finance orders were up one percent in the public and healthcare segment orders were up four percent compared to the prior year we perceive eight percent to be cruising speed for demand and notably were able to win public sector large-scale system upgrade projects in the second quarter. Mission Critical and other orders were up 25 percent from the prior year and were up 15 percent, excluding large-scale business deals. In the third quarter, there was large-scale national security-related orders in business in Japan. Inquiries remain robust for digital transformation and sustainability transformation projects. Due to uncertainty from international affairs and changes in the economic environment, we have seen Cases in Fitch, individual customers are currently reviewing the priority levels of their investments in the fourth quarter. We will work to secure solid business yields, continuing efforts into the next fiscal year to further increase our business. Page 12 shows revenue and order backlog from business in Japan. The left side of page shows the revenue target of 1,800 billion yen for the full year. Against this, in the light blue colored column, That is the fourth column from the left, the total revenue for the first nine months and the backlog of orders. The plan for fiscal 2025 is shown to be 1,657.3 billion yen. This covers 92% of the revenue for the full year. The coverage ratio is at the same level as the prior year, and we consider this to be strong progress. The amount needed to achieve the revenue target from orders and the sales in the first quarter from the deal pipeline is the figure on the right side of the page, 142.6 billion yen. For reference, on the bottom of the slide, we list the orders. Order backlog for sales exceeded expected from fiscal 2026. As of third quarter for sales from fiscal 2026, there is approximately 730 billion yen in completed contracts. Page 13 shows orders from outside of Japan. Orders in Europe are up 14% from the prior year. Growth is from winning multi-year contracts for data-centre-related large-scale renewal projects. Orders in America and Asia-Pacific were down due to pullback from multi-year business deals in the prior year, mainly public sector projects. Page 14 shows the progress of U-1s, which is positioned at the heart of our business portfolio transformation. Overall orders for the first nine months were 504.8 billion yen, up 45% from the prior year. The bar graph below shows revenue, which was 492.7 billion yen for the first nine months, up 53% from the prior year. of this revenue in the vertical areas grew by 77%. The share of revenue from Ryuban in the total revenue of service solutions grew from 21% last year to 30%. Our revenue target for fiscal 2025, the final year of our current medium-term management plan, is 700 billion yen, as shown on the graph. the far right, representing a target growth rate of 45%. Page 15 shows the status of modernization business, another pillar of our growth. The level of orders in the first nine months was 260.4 billion yen, down 6% from the The main reason for the decline in orders was pulled back from the series of large-scale projects won in the prior year. As shown on the right-hand side, actual orders for last year were up sharply by 65% over the previous year. With multiple overlapping large-scale business deals for multi-year contracts won in the public sector, we have built up a significant backlog of orders and managing to ensure the delivery system, but system engineers will continue to have a high level of workload. In the back graph below that, revenue in the first nine months was 266.5 billion yen, up 43% the prior year. On the right side shows the fiscal year's revenue target, which is 330 billion yen. We are on track to exceed this target. With page 16, I would like to provide additional information on improvements on profitability. With improvements in profitability, the impact on the increase in profit was 31.1 billion yen. The gross margin is up by 1.9 percentage points from the prior year. In addition, to standardize and automating development through the utilization of Japan Global Gateway, we are accelerating the use of generative AI in the development process. We started to deploy generative AI development environment, which enables use under secure conditions in 36 countries outside of Japan during the third quarter. We are working to expand the range of uses of Gen AI in Japan. Currently, among over 20,000 development projects, we have increased proportion using GenAI to 60%. The scope of usage on each project is still limited to a portion of processes, so the impact has also been limited, but the proportion of projects using GenAI at the end of the fiscal half was at 30%, so use is expanding at the rapid pace that was exceeded our expectations. There are some hurdles, including cases in which we need the customer's consent to use JNAI, but we want to further expand its use and widen the range of processes. where it can be applied. So through improvements in service quality and faster delivery, we aim to provide a service with even higher value added. And we think that by accomplishing this, it will lead to an improvement in profitability. We also continue to work on optimizing our personnel portfolio. In October, we launched a globally standardized human resources platform called One People in Japan, and we plan to phase the rollout of it globally. We are working to make further improvements, including optimizing the allocation of resources and accelerating resource assignment in development projects.

Page 17 provides an overview of each sub-segment in Server Solutions. All sub-segments achieved their well-balanced profit growth. First, Global Solutions. Revenue was 379.8 billion yen, up 3.5% year-on-year. Excluding the impact of restructuring, actual revenue was up 8.7%. Adjusted operating profit was more than 13.1 billion yen, an improvement of 17.9 billion yen from the prior year. The main factor behind the increase in revenue was the growth of Yuvance. In terms of profit, in addition to the benefit of higher revenue, being more discerning on development expenses for each offering had a positive impact. Looking at the operating profit margin, only in the third quarter it was just above 7%, so there is still room to grow, but we will continue to make necessary investments to develop offerings and upgrade our modernization knowledge center as we work to further increase revenue and improve profitability. In regions Japan, revenue was 953 billion yen, up 5.3% from the prior year. Adjusted operating profit was 179.9 billion yen, up 25.9 billion yen from the prior year. Higher demand for modernization-related projects such as DX and upgrade grades of mission-critical systems led to higher revenue in a wide range of public sector areas in particular, including sports competitions run by public sector organizations, local governments, and national security. As for profits, in addition to benefits of higher revenue, there was continued improvement in profitability, and while making growth investments in such areas consulting, we were able to generate higher profits. Adjusted OP margin was 18.9%, an improvement of 1.9 percentage points year-on-year. In regions international, revenue was 417.6 billion yen, down 1% year-on-year, a slight decline. Adjusted operating profit was 23 billion yen, up 10.6 billion yen from the prior year. The effects of business and personnel portfolio transformation had a significant impact and led to profitability improvements. Operating profit margin was 5.5%. Page 18. I will now talk about the other segments besides server solutions. First, hardware solutions. Revenue was 672.9 billion yen, down 5.6% from the prior year. Excluding the impact of the change in the way revenue is recorded, revenue was essentially unchanged. Adjusted operating profit was 37 billion yen, up 22.9 billion yen from the prior year. In system products, revenue in Japan was essentially unchanged from the prior year. Outside of Japan, in addition to changes in the way revenue is recorded, revenue declined because of reforms to businesses and in areas in Asia with smaller scale and low profitability. Operating profit increased because of the impact of an improvement in business efficiency from the integration of manufacturing and sales at FSAS Technologies, which was launched last fiscal year, leading to higher profitability. In addition, mainframe upgrade deals contributed to higher profit. In network products, while revenue was still sluggish, it increased by 9.2% over the prior year, in part because of an earlier delivery schedule for base stations. Profit increased because of higher revenue and business efficiency improvements from Onefinity. Page 19. The top part of the page is ubiquitous solutions. Revenue was 177.9 billion yen, down 1.9% from the prior year. Adjusted operating profit was 31.4 billion yen, up 11.1 billion yen year-on-year. Adjusted operating profit margin was 17.7%, an improvement of 6.5 percentage points year-on-year. The higher demand previously generated from ending support for Windows 10 essentially wound down in the first half. In addition, while revenues slipped to a decline, in part because of a pullback from large volume deal in the prior year, profits significantly improved because of a shift in sales toward higher value-added products. At the bottom is inter-segment eliminations and corporate. There was an operating loss of 55.5 billion yen, with a decline in expenses of 3.4 billion yen compared to the previous year. We are moving forward in advanced R&D areas, primarily in the field of computing, AI-related projects, quantum computing and next-generation CPUs. While systematically making investments in medium to long-term business growth and enhancing management systems for data-driven management, we are also continuing to work to achieve greater efficiencies in corporate costs. Page 20. I will now talk about the status of cash flows in the balance sheet. Page 21. Cash flows. Excluding one-time cash inflows or outflows, core free cash flow was 175.7 billion yen, a significant increase in inflows of 133.2 billion yen from the prior year. In addition to higher profits, progress was made on bringing greater efficiencies to working capital, including holding down inventory assets. In addition, the carve-out of Shinko Electric also led to a reduction in capital expenditures. Through the bottom of the table, free cash flow, including one-time inflows or outflows, was 390.3 billion yen, an increase in inflows of 413.4 billion yen from the prior year. In addition to the improvement in core free cash flow, there were inflows from the sale of shares in Shinko Electric in general, resulting in a significant increase. Also, in Q3, there was an outflow of cash from the acquisition of BrainPad. Page 22 shows the status of assets, liabilities and equity. I will omit explanation for this page. From page 23, I will discuss our forecast for fiscal year 2025. Page 24 is our consolidated financial forecast. As I have been explaining, our performance in the first nine months exceeded our initial targets with both a very solid expansion in revenue and very solid improvements in profitability. In light of this, we are upwardly revising our consolidated financial forecast. Our revised forecast for fiscal year 2025 is as follows. Revenue of 3 trillion 530 billion yen, up 80 billion yen from our previous forecast. Adjusted operating profit of 380 billion yen, up 20 billion yen from our previous forecast. Adjusted operating profit margin of 10.8%. Adjusted net profit of 275 billion yen, up 25 billion yen from our previous forecast. Page 25 shows revisions to our forecast for each segment. We have made upward revisions to our forecast for all business segments. Service Solutions, our revenue forecast is now 2 trillion 350 billion yen, up 20 billion yen from our previous forecast. This is mainly the result of the impact of foreign exchange movements in regions international. Our forecast for adjusted operating profit is 365 billion yen, up 5 billion yen from our previous forecast. The projected increase in profit is from higher profitability from delivery improvements in Japan and higher profits outside of Japan from our continued progress in structural reforms. hardware solutions. Our revenue forecast is 1 trillion 30 billion yen, up 65 billion yen from our previous forecast. For system products, it is mainly from the impact of exchange rate movements. For network products, it reflects earlier than anticipated demand for base stations. Adjusted operating profit forecast is 60 billion yen, up 5 billion yen from our previous forecast because of higher projected revenue. Ubiquitous Solutions, our revenue forecast is 225 billion yen, unchanged from our previous forecast. Adjusted operating profit forecast is 30 billion yen, up 10 billion yen from our previous forecast. In the revised forecast, we incorporated progress in profitability improvements from cost reductions and higher projected sales of higher value-added products. Page 26 shows comparisons in quarterly performance with the prior year's performance. For the fourth quarter, we project consolidated adjusted operating profit to be 150.8 billion yen. While that figure represents a continued quarterly scale expansion, it also represents a decline compared to the prior year. service solutions, we predict the fourth quarter will continue to demonstrate a strong increase in operating profit, but we predict lower profit in hardware solutions from a pullback from the prior year's large-scale projects, and we also predict a significant pullback in ubiquitous solutions from the demand that had previously been generated in relation to the switchover from Windows 10, resulting in an expected decline in both revenue and profit in the fourth quarter. Please note that this quarterly volatility was anticipated in our original forecast and is not the result of any recent market changes. Page 27 shows the trends in adjusted operating profit since fiscal year 2019. bar graph shows the total consolidated operating profit while the blue portion represents the contribution service solutions the line graph on the top shows the adjusted operating profit margin for the this fiscal year the final year of our meeting to management plan adjusted operating profit is projected to be a record 380 billion and with an adjusted operating profit margin of 10.8 also a new record as you can clearly see from the trend we have made progress in expanding our profit by transforming our business portfolio and raising profitability while ensuring that we achieve our FY2025 performance targets, we will continue to take measures to realise improvements in our corporate value in the future. Page 28 shows the sub-segment components within Service Solutions. In Global Solutions, adjusted operating profit is projected to be 28 billion yen with a profit margin of 5.3%. This represents an increase in profit of 1 billion yen from the previous forecast from productivity improvements and greatest scrutiny of investment spending. For Regions Japan, adjusted operating profit is projected to be 306 billion yen with a profit margin of 21.4%. Progress has been according to plan with no changes to the previous projection. The region's international adjusted operating profit is projected to be 31 billion yen with a profit margin of 5.6% as foreign exchange movements increase revenue by 20 billion yen. In addition, from profitability improvements and expense, a reform projected adjusted operating profit is up 4 billion yen from the previous forecast. Page 29 shows the trends in adjusted operating profit from fiscal year 2019. The bar graph shows the total figure and the line graph represents the adjusted operating profit margin. With the expansion of our events offerings business and our modernization business, along with continued productivity improvements from standardization automation in our delivery operations, including in our systems integration business, we can see improvements in our revenue, profit, and profit margin. In the current fiscal year, the final year of our medium-term management plan, we are seeking to achieve a profit of ¥365 billion and an operating profit margin of 15.5%. Page 30 shows our forecast for adjusted consolidated results and adjusted items. First, starting on the left, adjusted operating profit is projected to be 380 billion yen, an upward revision of 20 billion yen from our previous forecast, as previously explained. It just said that income is projected to be 275 billion yen, an upward revision of 25 billion yen compared to the previous forecast because, in addition to the increase in operating income, there were contributions from foreign exchange movements and an increase in income from investments accounted for using the equity method. The dotted items on the right side show one-time gains or losses for operating profit. Although there were losses mainly associated with approximately 20 billion yen in structural transformation expenses for the European hardware business recorded in the first half, for net profit for the period there were significant gains of 150 billion yen from the sale of Shinko Electric and General. resulting in an upward revision of 10 billion yen from the previous forecast. As a result, operating profit prior to adjustments is projected to be 360 billion yen unchanged from the prior forecast, and net income prior to adjustments is projected to be 425 billion yen represented in an upward revision of 35 billion yen from the previous forecast. Page 31 shows our forecast for cash flows with... The upper division in our forecast for profit, we also expect an improvement in cash flows. We project core free cash flow to be 260 billion yen, up 25 billion yen from our previous forecast, in line with the amount of improvement in adjusted net income. Free cash flow is projected to be 415 billion yen, up 35 billion yen from the previous forecast, in line with the same amount in the improvement to projected net income prior to adjustments. Page 32 shows revisions to shareholder returns in light of the projected increase in profit and cash flow. In fiscal year 2025, the final year of our medium-term management plan, as well as the final year in our capital allocation plan. Regarding the projected 35 billion yen by which our cash flow is projected to exceed our previous forecast, the full amount will be allocated to shareholder returns, including higher dividends. Specifically, the year-end dividend for fiscal year 2025 will be raised by 20 yen from 15 yen per share to 35 yen per share. As a result, the four-year dividend will be raised from the initial forecast of 30 yen per share to 50 yen per share. Payment of dividends are expected to be a total of 80... 7.3 billion yen, an increase of 35 billion yen from our original forecast. As shown in the graph on the right, dividends have increased for 10 straight years. Furthermore, in accordance with the growth in profit level, we plan to increase the level of dividends this fiscal year. We will continue to work on achieving growth in profits, and in accordance with that growth, implement a dividend policy that is stable and effective. Page 33 shows total shareholder returns. For fiscal year 2025, we will implement share buybacks of 170 billion yen in accordance with our plan. The bottom graph shows the trend in total shareholder returns. The three columns on the right show our current medium-term management plan. The fiscal year 2025 on the far right, with the dividends discussed previously, total shareholder return is projected to be 257.3 billion yen, with total returns during the current medium-term management plan of 639.3 billion yen, with a shareholder return of 71%. In terms of our allocation plan of 600 billion yen in shareholder returns over the three-year period, in light of higher cash flow generation, we are increasing it by 39.3 billion yen. These are my comments about our third quarter results and our forecast for fiscal year 2025. For this fiscal year, with every segment achieving solid growth in profits, we are expecting to achieve record full-year results in profits, cash flows and shareholder returns. We cannot let down our guard with respect to changes in international circumstances or our business environment, but we will continue to be agile in the transformation of our business. Beyond meeting our targets for fiscal year 2025, we will also continue to work to raise our corporate value going forward. This concludes my presentation.