MIRAIT ONE Corporation (1417) Earnings Call Transcript & Summary

Thank you all for taking time out of your busy schedule today. I am Nakayama, the President of the company. Today, I have a lot to cover. And so I will try to explain only the main points, but please bear with me for about 40 to 45 minutes. Let me start. I will start with a summary of last fiscal year's financial results and then move on to the main points. Page 3, first, about our orders. We upwardly revised our forecast by JPY 10 billion during the term, reflecting the strong performance in all business segments in the first half of the fiscal year. But since the second half of the fiscal year, orders have stalled due to several factors. For example, the investment restraint of some telecommunication carriers have become more pronounced. And investment sentiment cooled somewhat due to the semiconductor shortage, supply chain disruptions and other factors resulting in a year-on-year decline in all 3 divisions except Environmental & Social Innovation business. And so although short of the upward revised numbers, there was a JPY 46.4 billion increase in orders over the previous year's figure due to the recording of JPY 58 billion in construction work carried over from Seibu Construction, which newly joined the group at the end of the fiscal year. Next, net sales increased JPY 6.6 billion from the previous year to JPY 470.3 billion, marking the sixth consecutive year of year-on-year growth. The telecommunications carrier business was the driving force behind the strong order performance of the previous year. And although JPY 9.7 billion less than the upward revised number during the fiscal year, sales increased from the previous year, reaching a new record high for the full year. The following page provides a detailed explanation of what is in store for each business. First, let me discuss the NTT business. Well, as a long-term trend, capital investment by NTT East and West have been on a downward trend. But in the last fiscal year, capital investment increased by JPY 6.4 billion from the previous year to JPY 163.4 billion due to progress in the completion of advanced wireless networks in Hokkaido, Tohoku and Chugoku regions. At the same time, we have been working on multi-scaling of engineers that can work on both fixed line and mobile communications equipment. This has enabled us to secure necessary workforce to start nationwide mobile base station inspection services as well as achieve a certain degree of success in reducing costs as well. Next is the Multi-Carrier business. Although there are some variations amongst the different telecommunication carriers, in general, the 5G base station construction is in full swing, resulting in an JPY 8 billion increase from the previous fiscal year to JPY 106.2 billion. In addition, network expansion work for cable TV companies and other projects were also solid backed by the expansion of telecommunications demand, the bottom line, due in part to COVID-19. In addition, the reorganization of mobile-related group companies was implemented in July last year and we were able to further improve efficiency by consolidating the operations of these companies. Next is the Environmental & Social Innovation business. Net sales decreased by JPY 2.5 billion from the previous year to JPY 55.6 billion. The switch from large solar installations to small- and medium-sized solar installations is progressing and the unit price or revenue per project is going down. The sales of HVAC work, which was strong in the previous period, declined this year due to a slight reactionary fall resulting in an overall decrease in net sales, but electrical and lighting work, et cetera, are increasing steadily. In the current fiscal year, in addition to the strong orders received in the fiscal year, Seibu Construction, which newly joined the group, will contribute to earnings throughout the year so we expect a turnaround and an increase. Next is the ICT Solutions business. Net sales decreased JPY 5.2 billion from the previous fiscal year to JPY 145.1 billion. Because of the pandemic, telework and remote working became more widespread and construction around telecommunication facilities to enhance the data centers have increased. In addition, the LanTroVision Group, a subsidiary in Singapore, have seen improvement in their business because of economic recovery in Singapore and other parts of Asia. And so although there were some negative factors such as a decrease in demand related to GIGA schools that we had in the previous fiscal year, overall sales decreased just slightly by JPY 5.2 billion. Next, I would like to explain about profit. Operating income increased by JPY 2.7 billion, 8.6% year-on-year to JPY 32.8 billion, also a record high. And the profit margin finally reached 7.0%, up 0.5 percentage point from 6.5%. So we have been able to achieve the plan and profit margin, which we revised upward during the period. To be a little more specific, the increase in profit is due mostly to the improvement in the gross profit margin, as you can see in this slide. As you can see here, the increase is partly due to sales increase, but it is mostly due to the improvement in the gross profit margin. We, especially in the last fiscal year -- or rather during the previous medium-term business plan, have been striving to improve productivity with profitability improvement as our biggest theme. Although sales in businesses with relatively high gross profit margins have expanded, we have also strongly implemented measures to improve operational efficiency, which have paid off, and profit margins have improved in the telecommunications construction sectors as well as in the nontelecommunications construction business, Environmental & Social Innovation businesses as well. SG&A expenses increased in personnel- and system-related costs and there was a onetime increase in business-related expenses due to the business integration scheduled for July and M&A. We will continue to manage these expenses properly. Please understand that the impact of the revenue recognition standard has almost disappeared as of the end of the previous fiscal year. As for net income, since we are proceeding with a sale or disposal of strategic shares, we recorded a gain on sales of securities while there was a decrease in dividend income. So there were increases as well as decreases there. However, due to an increase in operating income, net income increased JPY 0.9 billion from the previous year to JPY 25.1 billion. Finally, shareholder returns. Last fiscal year, we increased the dividend by JPY 10 from the previous year to JPY 55 per share for the full year. We also conducted share buybacks of JPY 3 billion at the beginning of the fiscal year and JPY 2 billion in the fourth quarter, a total of JPY 5 billion. This resulted in a total shareholder return ratio or total payout ratio of 41%, as shown in the slide. We have been announcing a policy of stable and continuous shareholder returns with a target total payout ratio of 30% or more while paying attention to business performance and financial conditions. But in the past several years, the actual total payout ratio has been higher than that. The policy for shareholder returns after this fiscal year will be discussed later when I talk about our new Medium-term Management Plan. From here onwards, I would like to talk about the new Group Vision 2030, what we will be doing towards 2030. There are a lot of slides from here, but I wish to explain them more in some detail. The essence of the message of the Group Vision that I would like to share with you is summarized on this single slide. I will explain the points of this slide in detail in the latter part of my presentation. Now from the top left, this is what we have been able to achieve over the past 10 years. Net sales have doubled with an annual growth rate of more than 7%. The profit margin has also improved significantly from the 2% level to the 7% level or 7.0%. However, we are still in the middle or average of the industry, and we understand that there is still a lot of room for improvement. On the other hand, the high dependence on telecommunications construction, which we had targeted to bring it to 46%, still, unfortunately, exceeds or it is exceeding 50%. And I'm aware that the structure of our business has not changed much. The bottom left shows the merger of the 3 companies in July. Now what is the purpose of this and the establishment of a new group? In a nutshell, it is to solidify the foundation of the next 10 years, to consolidate growth resources, to streamline the organization and make it more lean. We will lay the groundwork for the next decade and then we will grow the group as a whole in the regional businesses, global businesses and future domains. And on the top right. Our main strategy is to accomplish the 5 changes in our businesses to achieve this goal. I'll explain this in more detail. Our company is made up of people, both in name and substance. First of all, our people must be safe and healthy. And those safe, sound and healthy people will learn, change and grow on their own. This is the only way our business can grow. I will explain -- as I will explain later, people-centric management is at the center of our strategy and that is the purpose of our business. And in the lower right. We have set the fifth medium-term goal or target, which is a 5-year plan for the year 2026. And these are the figures which I will explain further later. I believe that if we accomplish these numbers and climb this mountain, we will be able to clearly see the height of the mountain we need to climb by 2030, which is the final goal of this vision. As a result, as written in yellow letters in the center, we will go beyond just a telecommunications construction company, become a company that contributes to society at full value and a company that implements the future. We will change in order to become a future implementation company, that is the essence of our long-term strategy. Below, I would like to explain a few specifics. First, before I do so, I would like to talk about how things have been going so far for the establishment of the new company in group. And if you look at this graph, going back over the past 10 years, net sales have doubled with a CAGR of 7.1%. We were also able to improve our operating profit margin by a little less than 5%, bringing it to 7.0%. However, the nontelecommunications construction business remained at 43%. Our midterm target was 46%, but unfortunately, we were not able to reach this level. For the 3 regional companies, which we merged in 2018 and during these 3 years, from 2019 to 2021, operating profit margin that you see in the middle improved from 5.2% to 7.1%, an improvement little less than 2 percentage points. However, net sales increased only slightly by about 1.1x with a CAGR of 3.7%. The ratio of noncommunications sales actually fell back from 29% to 25%, and we recognize that how to grow the nontelecommunications segment is the challenge for the regional businesses. This next page, now regarding how the latest the fourth Medium-term Business Management Plan has performed. The targets of that plan are on the far right, which is written in yellow, and we were actually able to achieve those targets in fiscal year 2020. The environment for fiscal year 2021 was very uncertain, including the impact from the pandemic. So we have been working for a year with the goal of making the fiscal year 2020 results our true strength and we have been able to exceed the fiscal year 2020 numbers in almost all areas. And although our ROE fell slightly to 10.7%, we were able to clear the more than 10% level, which means that in fiscal year 2021, we were able to make the fiscal year 2020 results our true strength and I believe this is an achievement to a certain extent. Now what is our purpose of establishing a new group? As you can see here, there are 4 points. Basically, we are going to concentrate or mobilize our resources for growth, which were dispersed till now. Then we will streamline duplicated operations, strengthen our lean structure, and furthermore, strengthen our profit structure. In a nutshell, our goal is to solidify the foundation and strengthen the management base for the next 10 years. Our aim is to create a foundation for growth as a group and not just as a stand-alone entity. In preparation for the launch of the new company, all employees, officers and directors, there are approximately 14,000 of us, have spent the past 6 months or so within our group asking ourselves what our purpose and mission is through questionnaires and various small group discussions. We have redefined the terms purpose and mission. As written here, the purpose is co-creating an exciting future through challenges and technology. This is our renewed definition of raison d'être based on collective thoughts of our employees and offices and directors. Our mission is how we will fulfill our role for each of our customers, shareholders, partners, employees and society itself. And we have chosen each word to express it in the way it is written here. And now how to express that in our name. And as you may be informed, we have decided to mark a new beginning with the name MIRAIT ONE Corporation. The word ONE simply expresses our goals and determination. ONE for all, all for ONE is an expression in rugby. It expresses our solidarity and unity, our determination to grow as a group. And only ONE means that we value the individuality and ability of each and every employee and that the services and businesses we provide are irreplaceable and one of a kind. We named our company MIRAIT ONE because we aim to be #1, a leading global company. And if we further express this with a corporate mark, it would look something like this. First of all, it is the door to the future pushing us into the future. It symbolizes that we are opening the way to an exciting future. The middle part of the logo has a hidden Roman numeral one. The top and bottom parts are slightly curved, which represents an arc that gives a sense of the expansion of the business. The color is MIRAIT ONE blue, which evokes a sense of reliability and progress. This is how we have expressed it. Now let me explain the content of the 2030 vision. The keyword for the next business strategy and growth strategy is change, to change. Through the change of each and every employee, we, the company will change and change society and the future. And so change future is the keyword. So what exactly -- what business transformation are we going to work on? So they are to accomplish these 5 changes. This is the key to our business strategy. First, which we have placed in the center of our business is people-centric management. As I mentioned earlier, our business doesn't have any factory equipment that generates revenue for us. Unlike telecommunications carriers, we do not have facilities like base stations and telephone stations that make money for us. It is our people themselves who generate revenue and earn profits. Unless our people change, our business will not change. With this in mind, the first prerequisite is that our people are safe, healthy and sound. And on top of that, the fundamental idea is that each and every one of us must learn and grow, acquire new technology, increase our experience and expand our business. And the key to that is MIRAI College. As I have explained several times, we are finally going to open MIRAI College in July 2022 at the time of start of our new group. This will be a core initiative of our people-centric management, and we have been preparing for about a year to build a real campus, as you see here on the left-hand side. They will be in Chiba, Saitama and Hyogo prefectures. And while these campuses will be like the axis of the initiative, a major element will be the digital campus. We have created a digital campus where employees or participants from anywhere in Japan, well, anywhere in the world can participate in learning from all over the country. We would like to create a campus that combines this digital and real world where people can grow at MIRAI College. We intend to strengthen the community function where group employees can interact with each other through learning. As you can see here, we are planning to start with 110 courses with 3 areas not only to teach technical skills, but also to include management skills and social skills courses, so participants can acquire knowledge and the attitude around basic societal issues such as ESG. We would like to start the program with around 10,000 participants, and we would like to ask our partner companies to participate in the programs as well. As I said, people change and business changes and we want to make this a driving force behind business structural reforms. To form a group of human resources that will change the future, our strategy will be to strengthen our internal human resources. That will be the first strategy. Through MIRAI College, we would like to strengthen multiskilling with mobile; cloud technology; renewable energy; and of course, project management capabilities; proposal skills; and of course, data insight and DX, digital transformation skills. Most importantly, we believe that the key is to have a personnel system that encourages human resource mobility. Therefore, we are introducing or considering the HR system described here. Second is the active promotion of external human resources. As written here, we intend to form a diverse group of human resources that will accelerate our growth. We will acquire external human resources through active recruitment of mid-career personnel and through M&A and also promote these people, including foreign engineers. Meanwhile, we are also working on work lifestyle reforms and we intend to formulate and announce each of the declarations and policies mentioned here in turn from July to November. We wanted to unveil all of them in July, but this is not a top-down approach and it will be meaningless unless we make these reforms firmly from the perspective of employees who work for us. We wanted -- or I wanted to formulate a system that would thoroughly listen to the voices of 14,000 people, listen to the voices of employees on the front lines and determine what kind of work style would bring about the highest productivity. The following page is Change 2, acceleration of business growth or our growth strategy. You've seen this slide before. First, we will clearly redefine new growth areas as future domains and invest resources in them. I will explain the 4 things mentioned here in the next few slides, so I won't go into too much in detail here. But the common point is that we would like to shift to a full value type model. Let me add a little more to this. For our existing businesses in a nutshell, we are strengthening our customer base. We call it the solutions business. But in the enterprise/environmental and social foundation domain, our main focus is to expand our customer base and increase the number of customers in the B2B and the B2G market. And in the communication foundation domain, our telecommunications carriers customers are gradually reducing their telecommunications capital expenditures. In this context, the telecommunication carriers are also changing and shifting their business access to other forms. The key question is how to respond to these changes. In other words, how to respond to such growth or evolution of customers themselves. The summary of our strategy is shown here, but let me explain each point a little more in detail. So what do we mean by our advocating a full value type model? Up until now, we have been offering comprehensive engineering and services these 10 years. This has been our slogan up to now. Originally, we started our business in the area of telecommunications construction of the fixed and mobile lines but we have expanded, as you can see, as you go to the left into the IT field, including PBX servers, WiFi, Internet of Things, 5G, camera sensors and software. Then now on to the right-hand side, we have also expanded our construction fields to include electricity, electrical insulation, lighting, HVAC, civil engineering, and most recently, renewable energy and solar power. In other words, we have been expanding our scope of construction and engineering. But how we have been addressing this has been in focusing on a single vertical type of construction in response to individual customer orders. Recently, however, we have been receiving a variety of inquiries from municipalities and companies about full value type construction. Now -- so this relates to what we'll be doing in the area of urban and regional community creation as well as DX and GX, digital transformation and green transformation or greenification, and these themes are becoming more complex and comprehensive. The major issue is how to respond to requests that cannot be met by the conventional type of working on a single construction. And we are now integrating these horizontally expanding deals of constructions or to say we are doing multi-engineering. We also need to connect and integrate the value chain that extends vertically from not just on construction, but also from the stage of planning and proposal to design, operation and maintenance. This integration of vertical and horizontal aspects is what we call the full value type model. The key point for the future is how to respond to customers' requests with this full value type model and how to increase the number of experienced and talented people in this area. To be more specific, there are four domains that I've mentioned in the future domain, and I've attached a slide for each of them. The first one is the promotion of DX/GX, which is about urban and regional community creation. I won't explain each of these slides in detail, but as far as I'm aware, at hand, 70 to 80 projects are in progress with various municipalities and companies. Some of them have already started construction and others are still in the proposal stage, but 70 to 80. That is how many are in progress right now. We show some examples here of the urban and regional community creation, the new business model or in other words, the smart general contractor type business model. And we are aiming for net sales of JPY 30 billion by fiscal year 2026. In this context, we have integrated Seibu Construction, and I'll talk about the significance of integration. If we use the picture of vertical and horizontal integration that I just described, it means that the management power of Seibu Construction will be of great significance in this urban and regional community creation business. I hope you'll understand it that way. Now Seibu Construction has long been involved in the development of railroad lines, resorts and other urban and regional community creation projects within the Seibu Group. This includes high construction and civil engineering capabilities as well as the ability to act as a general contractor, which includes their capability to make plans and proposals. We're going to have them make full use of the human resources, especially the highly skilled engineers in civil engineering and architecture who support these capabilities in our new business strategy. In this sense, the area circled in red will be Seibu Construction's role within the new group. As I said, we are aiming to become a smart general contractor and we would like to strengthen our ability to realize our goal of urban and regional community creation. The next page is about the expansion of green power generation projects. This is to aim for a decarbonized society, and we have been constructing power plants for our clients up until now as an EPC. But since last fiscal year, we have been acquiring land and constructing power plants ourselves. So there will be times where we sell the constructed power plants themselves and times where we sell the power produced there as wholesale power or PPA. To put it simply, our strength lies in the fact that we have a nationwide network of branches and group companies. I believe that this on-site development capability is a major strength whether it be in the acquisition of land or in the relationships with the local governments that facilitate the development of projects. Above all, we have constructed projects such as solar power plants ourselves and we are able to construct high-quality projects safely and inexpensively. Furthermore, we have accumulated experience in the logistics of material procurement as well and that accumulated experience is the key to our ability to construct high-quality projects at a low cost and also on the dismantling or recycling business, which we also wish to grow. We are now working on a plan to grow this business to the JPY 10 billion level by 2026. Now speaking about strengthening our software business. As I have mentioned several times in the past, on July 1, we decided to establish a strategic subsidiary MIRAIT ONE Systems Corporation by integrating our software subsidiaries. On the top left. So what are we going to do then? We wish to work on system development that only a telecommunications construction company can do. So what do we mean by that? Now communication networks are being virtualized and themselves becoming software. There is i-Construction that utilizes AI and other software. One of the things we would like to do is to take advantage of our unique experience in telecommunications construction in these areas. The other is, as I mentioned earlier, is addressing the DX needs of the companies. This is steadily growing, and our major intention is to respond to this growing demand with software. The blue box at the bottom left indicates that bringing together software-related resources, we will, for one, increase the scale of development of our business and services. Our goal is also to strengthen our ability to recruit and train human resources. Our current target is to grow from the JPY 23.6 billion we achieved last year to the JPY 50 billion level by 2026. The fourth area of growth is to strengthen our global business. Up to now, our global business has been developing data centers, centering on LanTroVision. And we had also been constructing telecommunication facilities in some parts of Asia, just as we have done in Japan. We will continue to strengthen our business portfolio by adding green energy and telecommunication tower businesses to this. In the telecommunication tower business, in particular, we invested JPY 3.7 billion in LDIC in the Philippines in March of this year and are now moving forward with full scale participation in the tower business. We would like to eventually collaborate with our domestic business as well. Last year, we achieved JPY 25 billion and we would like to grow this amount also to the JPY 50 billion level by fiscal year 2026. Next, we will discuss Change 3, top class profitability. I would like to explain some of our efforts to date. We have been reorganizing our mobile business subsidiaries and we are in the process of improving the cost ratio by about 5 percentage points by consolidating operations and transferring head office operations. The merger of 3 companies is also expected to improve personnel efficiency by about 20% through the commonization of overhead and streamlining of overlapping divisions. We also plan to reduce premiums -- insurance premiums by about 10% by consolidating insurance premiums. Furthermore, up to now, the head office was centralized in Toyosu, but we will decentralize it to each company. While the location dispersion will be done with an eye to work-life balance, we are aiming to reduce the annual expense by about 10% by streamlining the head office as a result. Next, I would like to discuss the future initiatives. I have drawn a conceptual diagram of our future efforts, which is the structural approach. The next target is to reform the value chain, including partner companies by utilizing data insights. Then we will focus on the business itself, especially the business of each communication carrier companies. Each carrier has different business processes and we would like to simplify these processes by making them multi-carrier oriented and improve efficiency by optimally allocating human resources. This is a somewhat fundamental review. We will also continue to take a steady operational approach. As I explained at the beginning of this presentation, we have been working to improve the operating margin by several percentage points through benchmarking. We will continue to promote this benchmarking method by establishing an organization called the Profit up or Profit Improvement Committee. Next, on Change 4 on management based on data insights. This is actually an initiative that is still in its infancy, but it is on the next change from Change 1 through 2, 3, 4, 5, where we will fully utilize data in each of the management strategies and link them together. In particular, DX on the offense in the area of growth strategies and DX on the defense in the area of decreasing costs. And in the center, we will create the human resources to support these efforts. Specifically, on DX on the offense, we have started working, especially on the sales and marketing side. The DX on the defense efforts are particularly in the construction field in the so-called digitalization of construction and in value chain reforms. In the area of common systems, the promotion of the use of robotics have emerged. The key point is how to recruit human resources, including those from outside the company, who could work on smart systems and how to train them in-house. In particular, on developing human resources capable of promoting DX in each business unit organization, we have begun to work towards our goal of developing 2,000 core human resources by 2026, which includes the MIRAI College initiative. Finally, Change 5 on the strong foundation for ESG management. This covers a wide range of areas, so I would like to explain with some examples. First, on the E in the environmental area, we are committed to achieving carbon neutrality by 2050. As you can see on the left and right sides of this tree, we are going to make 2 major efforts. One is to reduce the environmental impact of our customers through our business activities, as I mentioned, that we will support green power generation and corporate GX for society and our customers. The other on the right-hand side is to reduce our own greenhouse gas emissions, GHG, such as switching to EV and HV vehicles and switching to green electricity at our branches and our offices. And when I say commitment, it is on the 10th of May we submitted a letter of commitment and applied for certification to the Science Based Target initiative, SBTi, which certifies the so-called SBT, the Science Based Target. One of the commitments is to achieve zero greenhouse gas emissions by 2050 towards the realization of a carbon-neutral society. And by 2030, we will reduce Scope 1 and 2, that is our own emissions, by 42%. So 42% reduction of Scope 1 and 2 with 2020 as the base year. And for Scope 3, which is for the entire supply chain, we'll be reducing it by 25%. This is our plan and commitment. Next, on the social side, we will launch the MIRAIT ONE Partners in July. This is an attempt to co-create social value with our partner companies. As you can see below, the MIRAIT Group has 2,200 partner companies, which support our strong fieldwork. Among these partners, we will work with 350 core companies to challenge -- or to work on the future domain, which is written in the middle of this page and to develop human resources to support the challenge through the MIRAI College. I wish to establish this MIRAIT ONE Partners that will work together to develop people who will bring about growth and change and to promote safety and DX compliance. In terms of governance, the new company will be structured as a company with an Audit Committee. Now with the establishment of the Audit Committee, supervision of business execution will naturally be strengthened. On the other hand, we believe that the establishment of a delegated relationship will encourage prompt decision-making and speedy, agile management on the part of the executive officers. In addition, we are thoroughly implementing a 3-line defense system of governance and we intend to move forward in a direction that will firmly strengthen corporate governance. Lastly, I would like to talk about the group management as one of our governance components. We will have divided them to -- into 3 major groups -- or rather there will be 3 groups of businesses. First, there is MIRAIT ONE in the middle this as a company unit system and there are 3 company units. Then Seibu Construction, which is in charge of the future domain, MIRAIT ONE Systems and LanTroVision. Finally, there are the businesses that extend to all of the domains, communication, enterprise, environmental and social. And these 3 regional companies will serve as the core. These 7 major companies -- or the collaboration between these 7 new companies will work to create a group management structure and strengthen governance as we intend to aim for growth as a group. Now I will explain the numbers for our business moving forward. For our full year guidance, this is as presented here. For fiscal year 2022, JPY 540 billion in orders and net sales, JPY 30 billion in operating income. Unfortunately, operating income is set to decline by JPY 2.8 billion and the operating profit margin to decline by 1.4 percentage points. Regarding shareholder returns, we plan to increase the dividend for the third consecutive year to JPY 60. On share buybacks, the initial plan is to buy back JPY 2 billion, but we'll continue to consider flexible implementation of share buybacks during the fiscal year depending on our business performance and financial situation. Just a little more detail on the sales numbers. For fiscal year 2022, the net sales of JPY 540 billion, an increase of JPY 69.6 billion from the previous year mainly due to the consolidation of Seibu Construction, which has been integrated into our business. But even excluding Seibu Construction, we plan an increase of JPY 2.7 billion from the previous year as the increase from large-scale electrical work and data center construction. Orders are also expected to increase by JPY 18.7 billion year-on-year due to the same factors just mentioned. Operating income is projected to decline by JPY 2.8 billion from the previous year to JPY 30 billion with an operating income margin of 5.6%. As you can see on this bar chart, with the shift in the profit structure is that businesses with high gross profit margins, such as the work to build advanced wireless networks, mobile businesses and sales of goods or merchandise, will fall and that is one big change. We also expect an increase in onetime costs associated with the business integration in July and also those related to branding as well as some increase in cost of information systems that will be revamped next year. With that, we are projecting an operating income of JPY 30 billion. Next, I will explain our Medium-term Management Plan up to 2026, which will start this fiscal year. As shown in the table, we plan to achieve sales of JPY 720 billion or more and operating profit margin of 7.5% or more and future domain ratio of 40% or more, which will be the core of our business growth. Incidentally, we expect that noncommunications construction business will account for about 70% of our total sales in fiscal year 2026. And the following page talks about our financial targets and also our capital allocation and investment strategy. First, on shareholder returns. In our new medium-term strategy, we would like to change our policy and message a little to further strengthen shareholder returns. We have been saying that through stable increases in dividend payments and flexible implementation of share buybacks, we would be aiming for a total return ratio of 30%. We would now like to change that to aiming for a total payout ratio of around the 50% level. So the change will be from the previous message of around 30% to 50% level. In addition, we will consider canceling treasury stock that has no intended use. Regarding free cash flow after shareholder returns, as written, we will focus on allocating them to growth investments. We will also utilize debt on the assumption that we maintain our A external credit rating. With this, we will set the goals of the new Medium-term Management Plan as ROE of above 10% and EPS growth rate of 10% or more per year. In addition to the financial targets explained on the previous page, we have also established medium-term targets for nonfinancial items. The various policies and declarations and schemes mentioned on the slide will be disclosed as soon as they're ready, sequentially from July to November, as I mentioned earlier. In terms of specific figures related to the environment, we have set greenhouse gas emission targets for Scope 1, Scope 2 and Scope 3, which I mentioned earlier as well as a final disposal rate of 1.5% or less for industrial waste from the perspective of resource recycling. In terms of S, society, from the perspective of safety, we aim to achieve a zero number of serious personal injury accidents and serious equipment accidents. From the perspective of human resource development, we have set specific goals such as increasing the ratio of employees who have acquired multiple certifications to more than 50% by fiscal year 2026. So we have specific numerical targets for these items. We will also enhance nonfinancial indicators other than those shown on this slide and actively disclose them in the integrated report and on our website. This slide shows our business performance to date, which I explained at the beginning of my presentation, and I mentioned that we are aiming for net sales of JPY 720 billion and a profit margin of 7.5% in 2026. We will first climb that mountain and then -- now I'm not sure if you can see that faint yellow color line around JPY 1 trillion or so for 2030 but I'm sure that once we climb this mountain, we should be able to see the next one for 2030. Finally, this is the final page. This is our message to society, including yourselves, our investors, and to our customers that we are, MIRAIT ONE, the power to implement the future. I will not read out this page, but we would like to make our group stronger and more capable of contributing to society as a corporate group. That will be the end of my presentation. Thank you very much for your time today.