Fujitsu Limited (6702) Earnings Call Transcript & Summary

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 JPY 2,346.9 billion, 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 Uvance and modernization business. Revenue in Uvance was up 47%. Revenue in modernization was up 24% from the previous year. This surpassed the Mid-Term Management Plan goals. Adjusted operating profit was JPY 361.4 billion, up 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 JPY 3,502.9 billion, 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 JPY 390.5 billion, up 27%. Each business segment posted higher profits, up JPY 10.5 billion from the prior year announcement in January. Consolidated total adjusted profit was also surpassed last year's record high -- record high profit. Net profit prior to adjustment was JPY 449.4 billion, up JPY 229.6 billion 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 onetime cash flow inflows and outflows. Core cash flow was JPY 289.9 billion, an increase in inflows of JPY 56.2 billion, up 24%. This was due to increase in profit in our main business as well as improvement in working capital efficiency. Free cash flow, JPY 482.6 billion, increase of inflow in the JPY 267.9 billion year-on-year. And this shows the improvement of core cash flow as well as the proceeds from the Shinko Electric Industries and the general. Next, I will provide an overview of the results of each segment. Each segment review will be explained in the following page. This shows the adjusted operating profit and the consolidated results prior to adjustment, which includes onetime 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 JPY 348.3 billion. Net profit was JPY 449.4 billion. 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 an overview of the segment's results. Service Solutions, this shows a breakdown of the changes in the adjusted operating profit of Service Solutions. The fiscal 2024, the adjusted operating profit for the Service Solution was JPY 289.9 billion. This is the starting point. And then the profit increased by JPY 41 billion from the benefit of higher revenue, and this was mainly due to revenue growth in Japan. Secondly, profit increased by JPY 43.7 billion, profitability improvement contributes to this. And the standardization and automation of development work as well as the benefits of using AI in the development of the process beginning to emerge, and this led to the 2 percentage point improvement of gross margin. Next, profit decreased by JPY 13.2 billion because of the accelerating investment, which is directly linked to business growth, such as developing new offerings, bringing together expertise regarding modernization and the consulting and bringing them together, profit increased by JPY 71.4 billion. As a result, adjusted operating profit in fiscal '25 for Service Solutions was JPY 361.4 billion, up 15.4%, an improvement of 2.5 percentage points from the previous year. I will explain the waterfall chart. We will look at the status of orders, which is -- 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 the digital transformation projects. I will explain on each industry segment. Enterprise segment, almost the same level as last year, excluding large-scale multiyear 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 continue 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, or the orders were up, excluding the impact of large-scale multiyear business deals. We were able to increase orders by systematically organizing the offerings and -- at 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 multiyear deals, orders were up 8%. And the mission-critical orders were up 2% from the previous year. Excluding large-scale multiyear 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 to propose higher -- highly value-added offerings under the guidance of Uvance Wayfinders and would like to make the reliable productive delivery team efforts. This shows the order backlog in Japan. And the 2025 total order backlog was JPY 1,127 billion, up 7% year-on-year. Out of this expected growth revenue for fiscal 2026 is JPY 1,033 billion, up 10%. Given these orders and the condition of our pipeline, 2026 revenue is projected to be JPY 1,960 billion, 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 this slide, but the numbers of deals in the pipeline at the end of '25, well, there are some potential that 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. Americas and Asia Pacific region, orders were down due to large-scale multiyear business deals, but mainly for public sectors. This shows the Uvance, which is the main driver. At the top is the -- shows the orders in fiscal '25, JPY 727.5 billion, increase of 33% and the graph at the bottom shows the revenue. Revenue in '25 was JPY 709.3 billion, up sharply by 47%. Vertical areas, mainly data and AI rose very sharply, up 69%, exceeded our target level of JPY 700 billion. And within Service Solutions, the revenue from Uvance increased from 21% in the previous year to 30%. And another pillar is modernization. Our orders in fiscal '25 were JPY 399.2 billion, increase of 4% year-on-year. There were some large-scale multiyear contracts, but we were still able to exceed that level in fiscal '25. Overall revenue in fiscal '25 was JPY 392.1 billion, increase of 32% year-on-year. Demand for modernization business was very strong, clearly exceeding our target level of JPY 330 billion. Excluding the overlap from Uvance, revenue from services was JPY 249.7 billion, 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 a positive effect of adjusted operating profit increasing by JPY 43.7 billion. 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 the 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 the 36 other countries. There is still only a limited number of projects for which 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 extent to which it is incorporated, we believe that we will be able to improve productivity going forward. By providing higher value-added services through improved service quality and speeding up our delivery, we will continue to achieve sustainable improvement in productivity. So next page shows the overview of each subsegment in Service Solutions. Each subsegment 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, JPY 33.3 billion, up JPY 27.6 billion year-on-year. Main driver behind this is the -- was the growth of Uvance. 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, JPY 293.9 billion, up JPY 33.6 billion 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. We're 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 points. 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 JPY 34.1 billion, up JPY 10.1 billion year-on-year. The adjusted operating profit margin was 5.9%. 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 JPY 67 billion, up JPY 5.7 billion year-on-year. System Products, excluding the impact of changes in 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 of [ Fsas ] Technologies improved efficiency. Network products revenue increased by 6.6%, and this was partly due to recording earlier-than-expected revenue from our base station business. 1FINITY also contributed to business efficiency. The top part of this page shows the Ubiquitous Solutions. Revenue declined by 8.7%, but adjusted operating profit was JPY 38.8 billion, up JPY 7.4 billion. Although demand because of the end of support for Windows 10 had wound down, we succeeded in our efforts to increase the sales in high value-added 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. Well, excluding onetime factor, the core cash flow was JPY 289.9 billion, increase of inflow of JPY 56.2 billion. In addition to growth in profit, progress was made in bringing the higher efficiency to working capital and cash generation. At the bottom, free cash flow was JPY 482.6 billion, up JPY 267.9 billion in inflow. Core cash flow improved and also from Shinko Electric and General, the sale of these companies made significant contribution. This shows the adjustment items from cash flow and the onetime 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 our Mid-Term 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 the 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 nonfinancial indicators. We are also making progress here, but I skip 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 Uvance and modernization. In addition to the positive effects of 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 Uvance and modernization. Well, as I mentioned at the beginning, the segment was able to achieve strong growth and that exceeded our plan. This shows the summary of the revenue portfolio transformation. The growth in Uvance and modernization drove the growth in revenue percentage of our Service Solutions revenue that came from Uvance and modernization increase from 14% in fiscal '22 to 41% in fiscal 2025. And one of the factors behind this improvement was the expansion of the offering business. The gross 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 '22 was concentrated in the fourth quarter. In fiscal 2025, however, this decreased to 40%, improving the balance of adjusted OP over the 4 quarters. Through our efforts to expand our offering business, increase recurring contracts and smooth out delivery schedules as well as improved productivity and in-sourcing, we made progress in gradually evening out the trend of adjusted OP being skewed toward the end of the fiscal year. Evening out the workload of systems integrators as well as sales and support staff, will rectify the discrepancies between peak and off-peak season as well as increased 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 capital allocation. I will now talk about cash flow generation. Core free cash flow, which is essentially the cash generation from our 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 a result of the sale of non-core business, including Shinko Electric, General and FDK, and making progress to reduce cross shareholdings. Core cash flows, free cash flows and base cash flows. To put it simply, base cash flow referred to cash that has yet to be put towards growth investment. It is cash generated from our 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. Left-hand side shows the base cash flows. In addition to growth in 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 JPY 1,349.1 billion, more than twofold increase from the previous MTMP. We use this as a source of capital from which to allocate JPY 672.3 billion to growth investment and JPY 639.3 billion to shareholder returns for a total allocation of JPY 1,311.6 billion. In the original plan, we expected to allocate JPY 1,300 billion, but as a result of the cash inflows increasing by approximately JPY 50 billion, an increase of approximately JPY 10 billion in capital to be allocated, we achieved a surplus of about JPY 40 billion. We will allocate this capital in fiscal '26. This shows the allocated -- capital allocated for investment for business growth. Investments for growth during the MTMP totaled JPY 672.3 billion. Of these, JPY 174 billion was spent on investment related to acquisitions and capital alliances. This mainly consisted of acquisition of GK Software and BrainPad as well as AI-related investments in Cohere and Rapidus. On the bottom half, we outlined the four main investment areas. We made well-balanced investments in areas directly linked to our current business expansion, including Uvance and modernization, the area of advanced R&D, including quantum computing, physical AI and our next-generation process, 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 greatly increased with an allocation of JPY 50 per share. This shows the share buyback. Share buybacks were flexibly implemented with a focus on higher capital efficiency. The share buyback amount for fiscal '25 was JPY 170 billion and JPY 453.1 billion 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 canceled. The graph on the right shows total shareholder returns. The total amount over a 3-year period from '23 to '25 was JPY 639.3 billion 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 '26. Revenue is projected to be JPY 3,510 billion, up JPY 7 billion from a year earlier. Adjusted OP is projected to be JPY 425 billion, up JPY 34.4 billion from the prior year. Adjusted net profit is projected to be JPY 320 billion, up JPY 21.7 billion from the previous year. We plan to continue to surpassed 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 JPY 10 billion from acquisition-related PPA. This shows an overview of our forecast for business -- each business segment. We project a strong increase in revenue and adjusted OP in Service Solutions. On the other hand, we anticipate a decline in revenue and OP in Hardware Solutions and Ubiquitous Solutions. Also plan to increase our advanced R&D investment Inter-Segment Elimination/Corporate. And the following pages will provide figures. And Service Solutions revenues are expected to continue to be driven by Uvance 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 percentage points from prior year, to 17.4%. Changes in the service solution from prior year. On the left, adjusted OP for fiscal '25 is JPY 361.4 billion. On the right, for the first change, we expect to increase in profit of JPY 48.5 billion, we expect an increase in revenue in Japan of 11% against the backdrop of an order backlog and deal pipeline, we expect continued growth -- strong growth in Uvance and modernization. Secondly, we anticipate JPY 50 billion in profitability improvements. We expect to continue improvements in the gross margin of 2 percentage points through an acceleration in the productivity gains from generative AI in the development process, such as standardization and automation of the development process. Thirdly, we expect a decline in profit of JPY 30 billion because of higher spending in the growth of our businesses. We will invest more in the growth of Uvance, modernization and our consulting business. Adding these together, adjusted OP is expected to be JPY 430 billion. The adjusted OP is expected to improve by 2 percentage points over the previous year to 17.4%. Now the revenue portfolio and gross margin. In fiscal '26, we expect services overall to account for 46% of revenue, mainly from growth in Uvance and 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 in -- mainly in Japan and Uvance and 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 subsegments. I will now explain the changes in our subsegments. Up until now, our subsegments were composed of global solutions, which was globally delivered value in common and regionally delivered services in Japan region and international region. However, with the growth in Uvance, we will move away from a conventional management approach based on a mix of products and services by region and further strengthen management with a focus on business sectors, gaining a deeper understanding of our customers' industries and business operations. With this in mind, we have changed from subsegments of Service Solutions and regional subsegments to Enterprise and Public subsegments, and we manage business inside and outside on a global basis. This list shows the changes of -- from the old and the new subsegments. Please refer to the details of the figures. The Enterprise subsegment includes automobile, manufacturing, distribution and retailing, while the Public subsegment includes national and local government, defense, finance and health care. This is our financial forecast for the subsegments in fiscal 2026. Within revenues for Service Solutions, we expect the Enterprise subsegment to comprise roughly 40% and Public to comprise roughly 60%. In the Enterprise subsegment, we expect revenue to increase mainly in manufacturing and retailing and the OP margin to be 13.1%, an improvement of 1.4 percentage points from the prior year. While we continue to pursue higher profitability, we are developing offerings tailored to specific industries and enhancing our consulting capabilities for continued growth. In the Public subsegment, we expect revenues to mainly increase in the finance and defense areas and an OP margin to be 20.1%, an improvement of 2.5 percentage points from the previous year. In addition to focusing on productivity improvements, we will focus on more profitable markets. From now on, I will talk about the segment other than Service Solutions. Revenue in Hardware Solutions is expected to fall by 4.9% to JPY 960 billion, with the decline in revenue and adjusted OP is expected to fall by JPY 5 billion to JPY 62 billion. In System Products, revenue is expected to fall because of a decline in scale of low value-added business involving a sale of third-party products and the restructuring of Fujitsu Frontech. In Network Products, revenue is expected to increase on sales outside of Japan of optical transmission equipment and higher investment spending by telecommunication carriers amid higher AI spending. Ubiquitous Solutions, revenue is projected to be JPY 160 billion, a sharp fall because of the pullback in demand from the discontinuation of support for Windows 10. Profit is expected to drop on the lower volume of sales with adjusted OP of JPY 28 billion. In Inter-Segment Eliminations and Corporate segment, adjusted OP is expected to show a loss of JPY 95 billion with higher expenses by JPY 18.2 billion from the prior year. Investment spending in advanced R&D is planned to be higher for business growth over the medium to long term. Fujitsu will retain its global competitiveness and actively invest in new business areas such as AI technology, including physical AI, the FUJITSU-MONAKA next-generation processor and quantum computing. Next, I will talk about the cash flow and capital allocation. First is cash flow. Forecast free cash flow is expected to increase by JPY 10 billion to JPY 300 billion. The increase is from higher profits in our main business and the checks on outflows of cash from the development of Fujitsu Technology Park. Free cash flow is expected to decline by JPY 272.6 billion to JPY 210 billion because of the decline in cash flow -- inflows from the sales of non-core business in fiscal '25. On this page, we derive base cash flow, the key source for cash flow allocation from core free cash flow. In fiscal '26, we expect the base cash flow to be JPY 450 billion prior to growth investments. This shows the planned allocation in fiscal '26. Because of higher profit and a more efficient use of funds, base cash flow, the source for funds allocation is increasing year-by-year and is expected to be JPY 450 billion in fiscal '26. From this amount, we expect to allocate JPY 280 billion to gross investment and JPY 240 billion to shareholder returns. In growth investment, the keys are AI-driven and technology-driven, and we will actively promote these areas. We are also increasing shareholder returns from the average of JPY 210 billion over the 3-year period of previous MTMP. Base cash flow is JPY 450 billion, but the distribution is higher with an allocation of JPY 520 billion. So we will include funds from the expansion of cash flow in fiscal '25. There is no change in our allocation policy. Rather than holding on to funds, we will allocate funds in ways that will lead to higher corporate value. Within the shareholder returns, the focus is on this page is dividends. Our dividend policy is to distribute stable dividends in accordance with our profit growth. In fiscal '26, we expect to increase our dividend by JPY 5 per share from the prior year to an annual dividend of JPY 55 per share. Dividends have increased for 11 consecutive periods and the dividend payout ratio for the fiscal year is 30%. Share buybacks. We have a flexible policy on share buybacks with a focus on improvement in capital efficiency. Fiscal 2026, we plan share buybacks of JPY 150 billion. The right-hand side shows total shareholder returns. The per-year average for the prior MTMP was JPY 210 billion, but we are planning for total shareholder returns of JPY 243 billion in fiscal '26 for a total return ratio of 78%. By increasing the generation of cash and solidly distributing the cash we earn towards growth investments and shareholder returns, it will lead to the next phase of growth and an improvement in capital efficiency. We will also be focused on the next cycle of higher corporate value. In summary, this slide shows our major financial indicators. Each category is calculated by excluding transitory profits or losses. The average growth rate in earnings per share is 14% with a favorable trend in both higher profits and capital efficiency. The return on equity has increased to 15.8%. By further accelerating profit growth, we seek to achieve an ROE of over 20% over the medium-term horizon. We similarly seek to increase our return on invested capital to 13.3%. The last slide shows the market evaluation of Fujitsu in terms of share price. Against the backdrop of a change in our business portfolio and the growth in profits, we have been able to achieve growth over the previous 2 Medium-Term Management Plans. Our goal is to achieve sustainable growth in our corporate value, first by achieving our targets for fiscal 2026 and then by continuing to demonstrate growth beyond then. We will work to continue the trends shown on this graph. This concludes my presentation today.

Thank you very much. Now we would like to ask CEO, Tokita, to talk about the review of the Mid-Term Management Plan and the future directions.

Thank you very much. I would like to mainly talk about the direction, primarily focusing upon the period from our fiscal year 2026 onwards. I will briefly summarize the result of the Mid-Term Management Plan and share our future direction and time line. While our CFO, Isobe, has already provided a detailed explanation regarding the achievement of our previous midterm management plan, I would also like to share my own reflections on our accomplishments to date. Over the 6 years from fiscal 2020 to fiscal 2025, we steadily enhanced our profitability by transforming our business portfolio towards a high-margin service solutions business, strengthening our management foundations, including talent and advancing standardization and efficiency across areas such as development and delivery. And the fact that our adjusted operating profit margin nearly doubled compared with fiscal 2020. Back in 2020, the margin was 6.6%, but it grew up to 11.2% in fiscal 2025. It has doubled, which was a major achievement. And when it comes to core free cash flow, it has also continued steadily, and that gave us the basic strength to grow the future business. For our core Service Solutions business, we achieved both scale expansion and improved profitability with adjusted operating profit margin of more than doubled compared with fiscal 2020. It was a little higher than 10% back in 2020, but it grew to -- from 6.0%, it grew to 15.4% by 2025. And looking at the group as a whole, while some challenges remain, we believe that we have established a solid foundation for our next phase for growth. Since I became the President of the company in 2019, I took up various challenges to dispose of the non-core businesses, introducing the new HR system, which was based upon job type HR programs as well as the carving out of the nonprofitable businesses and the region countries and the was closed in some places. It was a very difficult challenge, but we were able to achieve all these, thanks to the cooperation by the employees and the customers, partners and shareholders. Through the Uvance, we announced it back in 2021. And now it accounts for 30% of the Service Solutions business and the revenue reached up to JPY 700 billion or even higher. And the modernization revenue will also grow up to the level of JPY 400 billion. With these two combined, they now account for 40% of the total service solution. And the so-called system integration based on the [ man-month's ] business from that the profit structure, we are making the shift to the new profit structure, which is based upon the value and the deliverables basis. Uvance and modernization will continue to grow steadily, and they will remain at the core of our businesses. And the solutions that we provide going forward will be driven by AI. Now I'd like to explain our future direction. First of all, I'd like to explain the positioning of our new Mid-to-long-term Management Plan beginning in fiscal 2026. To date, we have formulated management plans on a 3-year cycle, and we have shared progress towards achieving those targets. From fiscal year 2026, we will establish a Mid-to-long-term Management Vision with 2035 as a target year and work steadily towards its realization. Today, I will outline the overall direction with further details to be shared at a later date. From fiscal year 2026 onwards, we will enter a new phase with technology at the core. By fully leveraging the enterprise, we have already transformed. We will accelerate both the speed and scale of growth while further enhancing corporate value. In today's rapidly changing business environment, we have reconsidered our long-standing approach of formulating and executing management plans on a 3-year cycle. There is a growing risk that the business assumption underlying our plan can shift significantly between the time it is formulated and its 3-year target, resulting in misalignment with actual growth conditions. So we are going to -- for these reasons, our new management plan is formulated as a 10-year Mid-to-long-term Management Vision 2035. As we work towards the desired state of the company, 10 years from now, we will set initiative-based goals on an annual basis and drive their realization while adjusting our course as needed along the way. Once again, we have defined Fujitsu's core strength of the technology capabilities. From fiscal '26, we will develop and deliver solutions that contribute to solving challenges for our customers and for society. And by combining this industry expertise, business knowledge and AI capability, all built on sovereign technology. But the technology is changing quite rapidly. And it is quite difficult to predict what's going to happen to the society. Now we are not able to manage the business by just following the changes. And these changes are driven by technologies, and that is what many of you have already noticed. We also bear an extremely significant responsibility in terms of national security. CPU development and optical network technologies and a very unique technology company in the world. HPC, supercomputer or quantum computing and the actual machines can be developed only by us. We have such technology capabilities and also from the national security, we have a very significant presence. And furthermore, customer base spans all industry sectors, including public sector. We have been involved in the development, operation and maintenance of business application for over 50 years. For the effective social implementation of cutting-edge technologies like AI, it is crucial to redesign existing operations and apply and implement new technologies grounded in the deep understanding of current business process and IT supporting them. With our on-site knowledge and response capabilities that reach the last mile, we will lead the technology-driven transformation of customer operations and society. As outlined, we consistently cover the entire spectrum, from developing and providing fundamental technologies critical for business and management to delivering and consulting on-site implementation and management reform. Once again, we have reaffirmed Fujitsu's strength as a unique proprietary technologies and our extensive experience and knowledge across various industries and business operations. Leveraging these strengths, combined with advanced AI, we will develop and provide solutions that contribute to solving challenges for our customers and society. As the use of AI expands across all industries and throughout daily life and the volume and the importance of data increase dramatically, it will become indispensable for the platforms that support mission-critical operations to respect to data sovereignty while ensuring security and reliability. Leveraging highly reliable technologies developed in Japan such as FUJITSU-MONAKA, for high-performance next-generation CPU; computing technologies, including quantum computers, the large language model, Takane, and the AI platform, Kozuchi, and combining them with leading technologies from our global partners, we will provide a sovereign technology platform that ensures not only functionality, but also quality and safety. As the international security environment undergoes major change, we believe Japan's role in the world is also evolving. For the processing of data, data is extremely important to national security and sovereignty perspective is indispensable. We are a company that contributes not only to Japan's defense, but also to the defense of Japan's allied nations. We believe our responsibilities and role in defense will expand even further than before. By combining industry-specific AI agents infused with the deep industry knowledge, we have accumulated over many years and our broad expertise spanning both business operations and technology, with consulting that works alongside customers to identify challenges to their growth and to a healthy society. And to formulate and execute measures to address them, we will deliver trusted technology solutions end-to-end and contribute to our customers and society as well as to the world's peaceful order. We will focus on four priority areas: Physical AI, Social Resilience, Digital Twins and Computing. And in particular, will support mission-critical businesses and activities for our customers and society. In these areas, we will create and scale new business opportunities by leveraging our strengths. For example, in the area of Physical AI, we will further strengthen Japan's manufacturing front lines by providing a platform that aggregates and shares high-quality on-site expertise while also enabling participating companies to mutually enhance their competitiveness. In the domain of Social Resilience, we will leverage AI agents to support healthcare systems from a management perspective, addressing critical societal issues. We will also enhance electronic health record systems and personal applications to further promote data utilization, thereby creating a healthcare environment that is more patient focused. Finally, I would like to explain the transformation Fujitsu itself must undertake to become a company capable of executing these initiatives. To begin with, we will embed AI across all our corporate activities and advance AI-driven management. To do so, we will focus on three key initiatives. The first -- so that we will be able to support the customers in the transformation. The first is scaling our AI-driven development. From January this year, we began operating a development platform that uses AI to automate processes from requirements definition through implementation and testing. We will progressively expand this platform to eligible projects. At the same time, by making greater use of generative AI, we will work to accelerate our customers' business execution while also improving our own sustained profitability. The second is evolving our talent portfolio. Building on the business portfolio transformation we have pursued today, we will advance the upskilling of our people on the premise of a collaboration between humans and AI. We will focus talent investment on areas that drive growth and high value creation, including consulting, data and AI and advanced technology research. The third is advancing our management foundation. Through the OneFujitsu program, we have already established a globally standardized data foundation. Starting this fiscal year, building on this foundation, we will fully scale AI-driven management by leveraging our own AI. This will enhance both the speed and quality of decision-making and enable management decision that anticipate change. Furthermore, as a technology company, we will put these initiatives into practice ourselves and actively offer them to customers as reference cases. Specifically in AI-driven management, Fujitsu itself will serve as a reference model and deploy this approach to our customers. Finally, this is the schedule. Let me outline the upcoming time line. Further details on the growth trajectory we are targeting towards fiscal year 2035 will be shared with you on 28th of May. In addition, we are planning to hold an IR Day in September. We will provide further details in due course. This concludes my presentation. Thank you for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]