Fujitsu Ltd

Without further ado, I will ask CFO Isobe to start your presentation. Hello, this is Isobe. I would like to give you the outline of the financial results. First of all, the overview of the financial results for fiscal 25, starting with service solutions. Revenue for fiscal 25 was 2,346,000,000 yen, up 4.5% from the previous year. Excluding the impact from the business restructuring, actual revenue was up 5.6% and from business in Japan, it was up 8.3%. This growth was mainly driven by U-BANs and modernization business. Revenue in U-BANs was up 47%, revenue in modernization was up 24% from the previous year. This surpassed the Mita Management Plan's goals. Adjusted operating profit was 361.4 billion yen, up to 25% year-on-year. Adjusted operating profit margin was 15.4%, improvement of 2.5 percentage points. And in addition to benefit of the higher revenue, we also made steady progress in improving the profitability. As a result, adjusted operating profit was mostly in line with the plan. This shows the overview of the consolidated total results. Revenue was 3 trillion yen. 502.9 billion yen, down 1.3% from the previous year. Excluding the business restructuring impact, it was up 0.9%. Revenue in service solutions increased, but the revenue in hardware solutions and ubiquitous solutions declined. Adjusted operating profit was 390.5 billion yen, up 27%. Each business segment posted higher profits, up 10.5 billion yen from the previous year announcement in January. Consolidated total adjustment profit was also surpassed last year's record high profit. Net profit prior to adjustment was 449.4 billion yen, up to 129.6 billion yen year on year. In addition to increasing profit in the main business, gains from the sale of Shinko Electric and General also contributed significantly. And this shows the cash flows and the cash generation both increased steadily, excluding one time cash inflows and outflows. Core cash flow was 289.9 billion yen, an increase in inflows of 56.2 billion yen, up 24%. This was due to increasing profit in our main business, as well as improvement in working capital efficiency. Free cash flow, 482.6 billion yen, increase of inflow in the 267.9 billion yen a year-on-year. and the this shows the improvement of core cash flow as well as the proceed from the shinko electric industries and the general next i will provide an overview of the results of each segment each segment and the review will be explained in the following page this shows the adjusted operating profit and consolidated results prior to adjustment, which includes one-time gains and losses. At the top is the adjusted consolidated results, which reflect our main business, which achieved a record high. At the bottom is the consolidated results prior to adjustment, and the operating profit was 348.3 billion yen. Net profit was 449.4 billion yen. As for operating profit, although we recorded adjustment items such as the business restructuring expenses and the PPA, there were gains from the sale of Shinko Electric and General that contributed to this number. Next, I will provide the breakdown of the results for each segment. First of all, service solutions. I omit the explanation of the figures because I already mentioned them, but starting from the next page, I will provide the overview of the segment's results. Service solutions, this shows the breakdown of the changes in the adjusted operating profit of service solutions. The fiscal 2024, the adjusted operating profit for the service solution was 289.9 billion yen. This is a starting point. And then the profit increased by 41 billion yen from the benefit of higher revenue. And this was mainly due to revenue growth in Japan. Secondly, profit increased by 43.7 billion yen. Profitability improvement contributes to this. And the standardization and automation of development work, as well as the benefits of using AI in the development process are beginning to emerge. And this led to the 2 percentage point improvement of gross margin. Next, profit decreased by 13.2 billion yen because of the accelerating investment direct which is directly linked to business growth such as developing humans offerings bringing together expertise regarding modernization and the consulting and the bringing them together profit increased by 71.4 billion yen as without adjusted operating profit in fiscal 25 or service solution was a 361.4 billion yen up 15.4 percent an improvement of 22.5 percentage points from the previous year I will explain the waterfall chart. We will look at the status of orders, which shows orders in Japan. Total orders in fiscal 25 in Japan were up 2%. Excluding large-scale deals that have contracts spanning several years, orders were up 8%. Demand remains robust. mainly because of their digital transformation projects. I will explain on each industry segment. Enterprise segment, almost the same level as last year, excluding large-scale multi-year deals, orders were up 6%. Manufacturing-related demand, there were some cases in which individual customers narrowed down their IT investment due to uncertainty, but demand related to DX and continued to experience strong growth. We also made progress in expanding our market share, and there was an overall trend of growth throughout the entire year. The finance business, finance segment, orders were down 6% year-on-year. All the orders were up, excluding the impact of large-scale multi-year and business deals. We were able to increase orders by systematically organizing the offerings and accelerating DX at the financial institutions, introducing new offerings for both accounting processing and branch solutions, and public health care orders were up 5%, excluding large-scale multi-year deals, orders were up 8%. And the mission-critical orders were up 2% from the previous year, excluding large-scale multi-year deals. Orders were up 13%, mainly orders in national security related to defense projects saw strong growth. Overall, Japan business continued to experience favorable conditions. with a particularly strong demand for dx sustainability transformation and going forward we will continue the to propose a higher highly value-added offerings and the under the guidance of our humans we find us and would like to make the reliable productive delivery team efforts and this shows the order backlog in japan And the 2025 total order backlog was 1,127,000,000 yen, up 7% year-on-year. Out of this, expected growth or revenue for fiscal 2026 is 1,033,000,000 yen, up 10%. Given these orders and the condition of a pipeline, 2026 revenue is projected to be 1,960,000,000 yen, up 11%. The order backlog coverage ratio is 53%, which represents progress that is almost on par with previous years. The remaining revenue that is not covered by our existing order backlog will need to be secured by winning new orders in fiscal 2026. It is not shown on the slide, but the numbers of deals in the pipeline at the end of 2025 Well, there is some potential lead to orders, which is 6% higher year-on-year, and we have sufficient resources to achieve our target. Next, I will go to overseas orders. In Europe, fluctuations in deals are seen, but the orders for full-year were on par with the previous year. In the Americas and Asia-Pacific region, orders were down due to large scale multi-year business deals, but mainly for public sectors. this shows the ubans and the e which is the main driver at the top is uh the e shows the orders in fiscal 25 727.5 billion increase of 33 percent and the the graph at the bottom shows the revenue revenue in 25 was a 709.3 billion yen up sharply by 47 vertical areas mainly data and ai rose very sharply up 69 percent exceeded our target level of 700 billion yen And within service solution, the revenue from U-BAN increased from 21% in the previous year to 30%. And another pillar is modernization. Our orders in fiscal 25 were 399.2 billion yen, increase of 4% year-on-year. There were some large-scale multi-year contracts, but we were still able to exceed that level in fiscal 25. Overall revenue in fiscal 25 was 392.1 billion yen, increase of 32% year-on-year. Demand for modernization business was very strong, clearly exceeding our target level of 330 billion yen. Excluding the overlap from U-bans, revenue from services was a 249.7 billion yen increase of 24% year-on-year. Within service solutions, composition of revenue from modernization increased to 11%. This shows the status of improvement to profitability and gross margin. Improvement in profitability led to positive effect of adjusted operating profit increasing by 43.7 billion yen. Gross margin saw improvement of 2 percentage point improvement in fiscal 2025. There were also improvements in the standardization of development process automation and expansion of standardization of delivery model. and the use of AI in the delivery process. We are making progress on expanding our generative AI development environment, which enables the use under secure conditions in Japan and 36 other countries. There is still only a limited number of projects for which the entire development process is carried out on our AI-driven development platform, So, only a portion of projects have benefited from productivity improvement. By expanding the usage of AI and the extent to which it is incorporated, we believe that we will be able to improve productivity going forward. By providing higher value-added services to improve service quality and speeding up our delivery, we will continue to achieve sustainable improvement in productivity. Next page, it shows the overview of each sub-segment in service solutions. Each sub-segment posted higher profit year-on-year. First of all, global solutions, excluding the impact of restructuring, actual revenue was up 9.9%. Adjusted operating profit, 33.3 billion yen, up 27.6 billion yen year-on-year. Main driver behind this was the growth of U-banks. The adjusted operating profit margin was 6.2%. We will continue to further improve this figure by increasing revenue. Regions Japan revenue was up 4.3%. Adjusted operating profit, 293.9 billion yen, up 33.6 billion yen from the previous year. Business increased due to the demand for DX and modernization. The business is growing and also we made progress on profitability improvement while able to secure the significant increase in profit while also increasing our investment. The adjusted operating profit margin here was 21.5% rather, improvement of 1.6 percentage point. In international regions, revenue declined by 2.5%. This was mainly due to the prior year's large-scale contracts in public sector in Oceania. Adjusted operating profit was 34.1 billion yen, up 10.1 billion yen a year. The adjusted operating profit margin was 1.9%. These numbers are still low, but our portfolio transformation and restructuring efforts have allowed us to improve this much. Next, I will talk about the other segments other than service solutions. First of all, hardware solutions. Excluding the impact of changes in accounting, the revenue declined by 5%. Adjusted operating profit was 67 billion yen, up 5.7 billion yen. year-on-year. System product excluding the impact of changes in the accounting revenue declined by 7.3%. This was due to large scale business deals in the public sector and scaling down in the scale of sale of third-party products as well as downsizing in the unprofitable business in Asia. Profitability improved as a result of changes to our revenue structure and also the integration of production and sales at EFSA's technologies improved efficiency. Network products revenue increased by 6.6% and this was partly due to recording earlier than expected revenue from base stations business. Onefinity also contributed to business efficiency. the top part of this page it shows the ubiquitous solutions revenue declined by 8.7 percent but adjusted operating profit for 38.8 billion up 7.4 billion although demand and a for because of the end of support for windows 10 and the one down we succeeded in our efforts to increase the sales and high value added the business The bottom shows the inter-segment eliminations, and the R&D areas such as AI quantum computing and next generation are moving forward. Now I'd like to talk about the cash flows. Excluding one time factor, the core cash flow was 289.9 billion yen, increase of inflow of 56.2 billion yen. In addition to growth in profit, progress was made in bringing higher efficiency to working capital and cash generation. At the bottom, free cash flow was 482.6 billion yen, up 267.9 billion yen in inflow. Core cash flow improved, and also from Shinko Electric in general, the sale of these companies made significant contribution. This shows the adjustment items from cash flow. and one-time factors. I omit the explanation of this page. Next shows the assets, liabilities, and the equity. I skip the explanation of this page. From now on, I'd like to talk about the review of a midterm management plan. First, I will talk about the trends in consolidated adjusted operating profit. At the top is the revenue. The dotted line shows the adjusted operating profit margin, and then bar graph shows adjusted operating profit, and then at the very bottom is the core cash flow. We made progress in transformation and human resource portfolio, and we made improvement in profitability and cash generation. This shows the consolidated non-financial indicators. We are also making progress here, but I skipped the explanation on each of these indicators. Like the prior page, this slide shows the trend in actual results for service solutions. Revenue in the segment grew in Japan. This increase was mainly due to U-bonds and modernization. In addition to the positive effects, higher revenue, we have made continued and sustainable progress And we were able to achieve the significant increase in revenue, adjusted operating profit, and adjusted operating profit margin. And this shows the portfolio transformation and the status of our youth and modernization. As I mentioned at the beginning, the segment was able to achieve strong growth and exceeded our plan. It shows the summary of the revenue portfolio transformation. The growth in U-BANs and modernization drove the growth in revenue percentage of a service solutions revenue that came from U-BANs and modernization increase from 14% in fiscal 22 to 41% in fiscal 2025. And one of the factors on the Behind this improvement was expansion of the offering business. The growth margin achieved a 2 percentage point improvement in the period of mid-term management plan.

Now here, it shows the quarterly changes to the segment's adjusted operating profit. Adjusted operating profit has always been heavily skewed to being higher in the fourth quarter, but we have made significant improvements to this imbalance. The pie chart shows the quarterly composition of profit. On the far left, 67% of adjusted OP in fiscal 2022 was concentrated in the fourth quarter. In fiscal 2025, however, this decreased to 40%, improving the balance of adjusted OP over the four quarters. Through our efforts to expand our offering business, increase the recurring contracts and smooth out delivery schedules, as well as improve the productivity and insourcing. We made a progress in gradually evening out the trend of our tested OP being secured toward the end of the fiscal year. Evening out the workload of the systems engineers as well as sales and the support staff will rectify the discrepancies between peak and off-peak season as well as increase business efficiency. Needless to say, this will have a positive effect on productivity improvements as a whole as well as on our efforts to improve adjusted gross profit margin. Most importantly, it has become much easier to create a forecast for our annual profit. And now, cash flows and the capital allocation. I will now talk about cash flow generation. Core free cash flow, which is essentially the cash generation from a main business, increased 1.8 fold during our fiscal 23-25 medium term management plan. Adjusted operating profit also saw a 1.6 fold increase. In addition to this, in our main business, we also made progress in improving working capital efficiency. Free cash flow increased 2.7-fold. This was the result of the sale of non-core business, including Shinko Electric, General FDK, and making progress to reduce cross-share holdings. free cash flows and base cash flows. To put it simply, base cash flow refers to cash that is yet to be put towards gross investment. It is cash generated from an existing business and the source from which capital is allocated. I will omit the explanation. Now, capital allocation during the medium-term management plan period. The left-hand side shows the base cash flows in addition to grossing revenue and improved capital efficiency. There was also an inflow of cash from the sale of non-core businesses. Due to these factors, base cash flow was ¥1,349.1 billion, more than twofold increase from the previous MTMP. We use this as a source of capital from which to allocate ¥672.3 billion to gross investment ¥339.3 billion to shareholder returns for a total allocation ¥1,311.6 billion. In the original plan, we expected to allocate 1 trillion 300 billion yen, but as a result of cash inflows increasing by approximately 50 billion yen, an increase of approximately 10 billion yen in capital to be allocated, we achieved a surplus of about 40 billion yen. We will allocate this capital in fiscal 26. This shows the capital allocated for investments for business growth. Investments for growth during the MTMP totaled 672.3 billion yen. Of these, 174 billion yen was spent on investment related to acquisitions and capital alliances. This mainly consisted of acquisition, GK software, BrainPad, as well as AI-related investment, Cohere and Rapidus. On the bottom half, we outlined the four main investment areas. We made well-balanced investments in the areas directly linked to our current business expansion, including U-bounce and modernization, The area of advanced R&D, including quantum computing, physical AI, and our next generation processor, strengthening our management foundation and the area of strength and quality and security. We have established in advance these areas as growth investment areas and implementing investment and monitoring the impact from a company-wide perspective. Next, shareholder returns. Dividend first. Dividends were stably distributed in accordance with profit growth. As a result of profit growth during this medium-term management plan period, the distribution of dividends in fiscal 25 rate increased with an allocation of 50 yen per share. This shows share buybacks. Share buybacks were flexibly implemented with a focus on higher capital efficiency. The share buyback amount for fiscal 25 were 170 billion yen and 453.1 billion yen across the entire period of MTMP, which was in line with our plan. In addition, as planned, all shares held as treasury stocks at the end of fiscal 25 were cancelled. The graph on the right shows total shareholder returns. The total amount over a three-year period from 23 to 25 was 639.3 billion yen, with a total return ratio of 69%. We made a firm progress on this through a good balance of increasing cash generation, investing in our next area of growth. implementing shareholder returns with a focus on capital efficiency. I will talk about fiscal 2026 forecast. This shows the financial forecast for 2026. Revenue is projected to be 3,510 billion yen, up 7 billion yen from a year earlier. Adjusted OP is projected to be 425 billion yen, up 34.4 billion yen from a prior year. Adjusted net profit is projected to be 320 billion yen, up 21.7 billion yen from the previous year. We plan to continue to surpass our record high profits. Here, I would like to talk about adjusted items and consolidated results prior to adjustments. The forecast for fiscal 26 shown in the center box. Under adjusted items, we project a loss of ¥10 billion from a credit-related PPA. This shows an overview of our forecast for each business segment. We project a strong increase in revenue and adjusted RP in service solutions. On the other hand, we anticipate a decline in revenue and RP in hardware solutions and ubiquitous solutions. We also plan to increase advanced R&D investment in intra-segment elimination core. And the following pages will provide figures and the service solution. Revenues are expected to continue to be driven by advance and modernization, with double-digit growth expected in Japan of 11%, with continued productivity improvements in the delivery of service. Adjusted OP is expected to increase by 2% in points from year to 17.4%. Changes in the service solution from prior year. On the left, adjusted OP for fiscal 25 is 361.4 billion yen, On the right, for the first change, we expect to increase in profit of 48.5 billion yen. We expect an increase in revenue in Japan of 11%. Against the backdrop of an order backlog and a deal pipeline, we expect a continued strong growth in U-vans and modernization. Secondly, we anticipate 50 billion yen in profitability improvements. We expect to continue improvements in the gross margin of 2% each point through an acceleration in productivity gains from generative AI in the development process, such as standardization and automation of the development process. Thirdly, we expect a decline in profits of 30 billion yen because of higher spending in the growth of our businesses. We will invest more in the growth of Yuban's modernization or consulting business. Adding these together, adjusted OOP is expected to be 430 billion yen, The adjusted OP is expected to improve by 2 percentage points over the previous year to 17.4%. Now, the revenue portfolio and the gross margin. In fiscal 26, we expect services overall to account for 46% of revenue, mainly from gross new advance modernization. We seek to achieve a growth in the gross margin of 2 percentage points to 40.7% from change in our business portfolio productivity improvements. Now, adjusted OP. and we expect growth mainly in Japan and Japan's modernization along with the increase in profitability in operating margin and operating profit for the year. We will again seek to achieve another record high in profit in fiscal 26. Now, sub-segments.

I will now explain the changes in our sub-segments.