NEC Corporation (6701.T) Earnings Call Transcript & Summary

Fujikawa will begin to explain.

So thank you very much for your participation today. I would now like to cover the financial results for Q1 fiscal year ending March 31, 2026, that were announced today. This is the agenda that I would like to cover today. And as we announced in our press release on the 18th of July, starting from Q1 of fiscal year ending March 2026, we have revised our segments. For fiscal years ending March 2024 and 2025 as well, we have disclosed numbers in accordance with the revised segments. Next, I would like to cover the outline of our Q1 results. Please reference Page 4. These are the key takeaways for financial results for Q1. So for Q1, revenue was JPY 715.7 billion. Non-GAAP operating profit was JPY 40 billion. Revenue year-on-year was an increase of 3.7% and for non-GAAP operating profit vis-a-vis last year, 2.5x. For Domestic IT, specifically around BluStellar, we are seeing the emergence of various profitability initiatives, and we are seeing a strong result. The results will be explained in detail later on. For Domestic IT, order intake is still strong. So for performance for 1Q, we believe that this is a solid platform for us to attain our full year plan. Page 5, please. We are showing you the main indices. For adjusted operating profit, we stand at JPY 41.7 billion, and this is an increase of JPY 29 billion from the previous year. On the right side, this is a breakdown by segment. IT Services and Social Infrastructure both saw an increase in revenue and profit. Please reference Page 6. This is adjusted non-GAAP operating profit year-on-year change. So for the year ending March 2025, Q1 adjusted operating profit was JPY 12.7 billion. Non-GAAP operating profit was JPY 16.3 billion. IT Services and Social Infrastructure saw a dramatic increase and internal AI usage and cybersecurity investments increased as well. And all in all, JPY 23.7 billion operational improvements were seen. Therefore, for the Q1 non-GAAP operating profit was JPY 40 billion. For the non-GAAP adjusted items, JPY 1.7 billion was acknowledged through asset sales and adjusted OP stands at JPY 41.7 billion. For GAAP profit to non-GAAP profit adjusted items, please refer to the appendix material, Pages 21 and 22. Moving on to Page 7. This is a breakdown by segment. I will start with IT services. For Domestic, we saw a strong bookings for public, and this drove our increase in revenue from the previous financial year. For adjusted OP, again, BluStellar and Public Enterprise saw strong profitability enhancements and subsidiary cost improvements also contributed to this strong revenue increase. For international DGDF, KMD's termination of low-profit business resulted in a revenue decrease. However, operating profit increased due to reversal impact from restructuring expenses in the previous fiscal year. Page 8, please. This depicts Domestic IT service status. we have broken it down between BluStellar and Base business. BluStellar enjoying the high demand for DX, we are seeing an improvement in revenue and profit as well. Year-on-year, a 14.4% increase in revenue, JPY 4.1 billion profit and hence, contributed to the revenue and profit increase for domestic IT. For Base business, inclusive of high profit projects and efficientizing costs as well as the reversal impact of onetime costs from the last year as well as acknowledging the sell-off gains from our subsidiary, we enjoyed an increase from the fiscal year previously of JPY 18.5 billion. Page 9 shows the Domestic IT services booking status. For Domestic IT services, we had impacts from the previous fiscal year's large projects as well as transfer of corporate PC sales, we saw a slight decline. However, if we exclude these impacts versus year-on-year, we see an increase of 11% and the DX demand continues to be strong. When we look at bike area, for public, we did have a large project last year, but for standardization of municipal government platforms and firefighting and disaster preventions, these contributed to a stable growth. For Enterprise, Retail and Services, if we exclude the large project from last year impact, we have been able to sustain a high level of performance. For the previous fiscal year, the large bookings were skewed towards the first half. But for this fiscal year, we are assuming that they will be skewed towards the second half. And for subsidiaries, et cetera, ABeam Consulting is increasing by 14% vis-a-vis last year and continues to be strong. As for bookings, we will continue to place emphasis on profit and steadily propel forward.

Page 10. Next, Social Infrastructure. Telecom services IT domain trended robustly. Also due to the reduction of development cost and the bringing forward of some projects, OP increased. Steady delivery of projects by ANS led to increase in both revenue and OP. Next, forecast for FY ending March 2026. Page 12, forecast for FY ending March 2026. No changes from the announcement made on April 28. Q1 actuals exceeded our plan, but due to the changes in macroeconomic environment, including tariffs, we made no changes to the full year forecast. Page 13, revenue and adjusted OP by segment. Page 14, IT Services. Figures for domestic IT and international DGDF are shown here. Regarding the Domestic IT, we expect there will be a decrease in revenue. This is due to the transfer of the sales functions of business PCs and termination of some businesses of NEC platforms. Centering around BluStellar, we believe that there will be improvement in profitability, and we expect adjusted OP to increase. Adjusted OP of international DGDF is expected to increase due to the Avaloq profitability improvement and elimination of one-off expenses from FY March 2025. Page 15 Social Infrastructure. Figures for Telecom Services and ANS. Firstly, Telecom Services. Factoring in the shift to software, we expect the decline in equipment sales leading to a fall in revenue. Also rebound from one-off factors in FY March '25 will drive a decrease in adjusted OP. ANS increase in revenue is expected to boost adjusted OP. Also, the elimination of one-off expenses in submarine systems incurred in FY March '25 will push up both revenue and adjusted OP. As to ANS, we plan to increase our investment to capture future businesses. Lastly, topics. Page 17, BluStellar. The experience and achievement under Client Zero, our concept of test bedding our own DX initiatives have been highly appreciated by stakeholders, leading to the expansion of partnership business and the acquisition of large projects based on multiple BluStellar scenarios. Lastly, Page 18, upcoming events. NEC IR Day will be held on November 13. BluStellar and National Security, the hot topics among the investors will be highlighted by our domain experts. NEC Innovation Day is scheduled, it is targeted at mass media, IT analysts and the investors. NEC's R&D and our strategy to create business values will be explained. The details of the schedule as well as the program and how to participate will be provided to you in a separate notice. I hope all of you will participate. And this ends my presentation. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]