Mirait One Corp

F:5FO

Earnings Call Transcript 2019-Q2

[Masatoshi Suzuki, executive]

Good morning, ladies and gentlemen. I'm Suzuki, the President and CEO of the company. Thank you very much for joining us despite your busy schedule. I'd like to present on the results of the second quarter of fiscal year ending in March 2019. I'd like to walk you through the overview.

Following the material, please turn to Page 3. This slide shows the overview for the second quarter of fiscal 2019. Although not substantial, we achieved the growth both in sales and profit, as expected. Specifics are shown in the table, and the key points are shown in red. When you refer to the FY 2019 in the red square, orders received were JPY 159.7 billion, up JPY 2.8 billion or 1.8%. Breakdown of the orders are shown on the right. Orders in NTT increased, while Multi-Carrier and Environmental & Social, they dipped slightly. ICT Solution orders increased strongly. And in total orders increased by JPY 2.8 billion year-on-year.

Net sales were JPY 140.3 billion, up JPY 8.1 billion or 6.1% year-on-year. As you can see, in all segments of NTT, Multi-Carrier, Environmental & Social Innovation and ICT Solution, sales increased year-on-year, showing overall strength.

Operating income was JPY 5 billion, up JPY 0.5 billion or 11.1% year-on-year. Net income was JPY 3.6 billion, up JPY 0.9 billion or 33.3% year-on-year. Accordingly, construction account carried forward to the third quarter and onward was JPY 147.6 billion, up JPY 8.1 billion year-on-year, showing the continued strength.

Page 4 shows net sales and operating income by bar chart. Let me comment briefly. In sales, NTT increased by JPY 1 billion, pushed up by regular access work and facility operations. In Multi-Carrier, though orders were slightly weak, in sales, demand continued for 700 megahertz and 3.5 gigahertz-related works, and global business also increased. Environmental & Social marked JPY 2.9 billion increase through increasing work for solar power and civil engineering, which have more than offset the decrease in air conditioning work. In ICT Solution, work in 700 megahertz decreased, but PBX/LAN work and new businesses of cloud/recurring stock business increased. As a result, sales increased to JPY 140.3 billion, up JPY 8.1 billion year-on-year. And compared with the forecast, sales increased by JPY 0.3 billion, almost in line with the forecast.

Please refer to the operating income on the right. Increase in net sales made the greatest contribution, plus JPY 1 billion. Drop in gross profit margin was minus JPY 0.5 billion year-on-year due to the delays in mobile works. And SG&A cost was well controlled. As a result, profit was up JPY 0.5 billion year-on-year and also up JPY 0.5 billion compared with the plan.

Next for the revision of the full year plan, please turn to Page 6. As you know, as of October 1 and January 1 of 2019, we will have management integration as shown in the next slide. As of October 1, TTK in Tohoku region will be consolidated in the third quarter and onward. And as of January 1, SOLCOM in Chugoku region and Shikokutsuken in Shikoku region will be consolidated in the fourth quarter and onward, and they affect the forecast.

So I'd like to comment with that regard. In the center of the table, there is a red framed column of current group, which consist of existing MIRAIT, MIRAIT Technologies and Lantrovision. And this column shows the development up to the end of the fiscal year. Next column of merged companies is the expected total contribution of TTK, SOLCOM and Shikokutsuken for the fiscal year ending in March 2019. And the combination of these 2 columns is shown next.

Now let me talk about the revision made on the current group in the red square from the initial forecast. As shown on the right, reflecting the steady progress in the first half, we made upward revision both for sales and profit. To be specific, orders were revised to JPY 320 billion, up JPY 5 billion. Net sales were revised to JPY 324 billion, up JPY 4 billion. Operating income was up JPY 0.5 billion to JPY 16.5 billion. And net income was up from JPY 11 billion to JPY 11.8 billion. For every item of sales and profit, we made upward revision, and this is about the current group.

Sales and profit of merged companies will be added to this. In the case of TTK, the contribution for half year, from October to March next year, of the third and fourth quarter will be added and the part of the fourth quarter contribution of SOLCOM and Shikokutsuken will be added as well. Their orders received will be JPY 385 billion; net sales, JPY 365 billion; operating income, JPY 18.5 billion; and net income will be JPY 13.2 billion.

When we refer to the Tanshin report, the flash report at the bottom, this total is shown as a full year forecast, which reflects 6 months contribution of TTK and 3 months contribution of SOLCOM and Shikokutsuken. So please refer to that later.

Next slide shows the management integration as a review. TTK in Tohoku, SOLCOM in Chugoku and Shikokutsuken in Shikoku were merged. And when you refer to the map on the right, as shown in pink, MIRAIT Holding Group has been operating nationwide. Every merged company has its own local strength and has customer base of NTT as a general contractor. Therefore, they had the competitive edges not only in works, but also in the coordination and control capabilities as well. So this will make substantial changes.

On the left bottom, you'll see the historic business scale development. In March 2018, we set the structure of MIRAIT, MIRAIT Technologies and Lantrovision. In October 2018 and as of now, TTK was merged, as shown in yellow. And in January 2019, SOLCOM and Shikokutsuken will be consolidated to make up their entity.

When you refer to the MIRAIT Holdings, net sales, operating income, number of employees and the number of subsidiaries are shown, and they are based on the disclosed a few years upon the results announcement of the previous year. So this just indicates the size of the company, nothing more than that. When you compare the net sales of JPY 410.5 billion against the JPY 312.9 billion, operating income of JPY 21 billion against JPY 16.7 billion, employee number of 12,531 against 9,269, and the number of subsidiaries of 74 against 55, we'll be achieving the growth of 1.3x, roughly speaking.

The merged companies have various strengths. As one of our strategies, we have been diversifying the company to meet the needs of time to be comprehensive engineering and services company rather than the telecom work company. We will enhance that strength further with corporate direction remains unchanged.

Page 8 shows rationale of integration. Although I wouldn't mention in detail, we will aim to maximize synergies between the nationwide network of MIRAIT Holding Group and the strong regional business base of TTK, SOLCOM and Shikokutsuken for further enhancement of the corporate value.

On the right- and the left-hand bars, you'll see the breakdown of sales by business of MIRAIT Holding Group on the left and merged 3 companies on the right. At a glance, you would notice that the proportion of NTT fixed communication is high. But out of the various businesses that they are engaged in, we would like to enhance synergy. We will also strengthen management base and reduce cost.

And in particular, expanding ICT business, we like to consider how we share the expertise and make proposals to client base. In existing NTT business, we will be more flexible to respond to disasters and other emergency situations. In this regard, we will be able to achieve synergy effect by advancing businesses and improving efficiency. Please refer to the details later.

Page 9 for shareholder returns. Our policy remains unchanged as to pay dividend consistently with the total shareholder return target of more than 30%. Annual dividend per share were increased from JPY 35 to JPY 40 per share this year. Due to share exchange, number of shares outstanding increased this year by about 20%. Taking that into consideration, we will continue to pay attention to shareholder returns.

I have covered the overview so far, and now I'd like to explain about the trends in each business briefly as we disclose this material for the first time today. Page 11 and 12 show NTT business. The bar chart on the left shows the net sales, including merged entities, which is slightly higher than the previous year. We'll continue to ensure solid profit. Sales growth is supported by 2 aspects, facility improvement and facility management. In facility improvement, mainly in Western Japan, by taking proactive measures for faulty equipment in each area, we can improve efficiency in maintenance works, providing cost-effective services, and we can make the business more efficient using area-round method.

As shown on Page 12, using drones or through regular inspections, we can identify faulty facilities. We would support NTT so that they can take preventive measures and can do effective maintenance. In facility management business, also mainly in Western Japan, on-premise building maintenance has been expanding. We outsource a telecom works company, and as the chart shows it has been growing firmly.

In terms of the profit growth, consolidation of branch offices is shown on the right. We are consolidating offices from 70 to around 50, which is currently ongoing. Map on the page happen to show the consolidation in Chiba and Tokyo, and we still have a little more to do in Kanagawa, Saitama and Gunma, but we will proceed steadily for better efficiency.

With regard to efforts to enhance efficiency through use of IT, this is closely related to work style reform, and it is not alone only for telecom works but also for construction and the service sector as well. Use of ICT will improve the operational efficiency and rationalization.

This example shows the QR code used for managing employees. Smartphones can be used to streamline on-site workflow. For safety check patrol, smartphones with GPS will be useful to identify the location of construction works. Then we can implement a spot check for safety procedures in many occasions and with great efficiency.

Page 13 shows trends in the Multi-Carrier mobile business. Although there was a decline in FY '16, this segment showed continued relatively moderate growth in works volume, and that continues to come. The sales increased related to 4G prior to 5G for 700 megahertz/3.5 gigahertz will continue, and we are involved with this job. And concerning profit growth, we are promoting efficiency by deploying more IT systems and more buyers to change operational process so that we can engage in more profitable and safer works. On next slide, as initiatives in 5G-related business, NTT DOCOMO's 5G open partner program is described. By collecting various companies, they are trying to launch new 5G business. And we are part of the program, working together to explore the next new business.

At the bottom of the page, for 5G, carriers are reported to make JPY 1 trillion investment, and the global trend is shown here indicating how we can be involved. On the right top, the variety of application of mobiles is shown here with the expanding business domains. Of course, skills and know-hows will be required, but we'll ensure to capture those opportunities proactively. On the right bottom, initiatives in global business is shown. In Australia, we won order for optical fiber work and we have been expanding them steadily.

Page 15 and 16 show the Environmental & Social Innovation business. In FY '17, net sales and works decreased slightly. But in the previous year and this year, the works volume has been increasing steadily.

When you refer to the breakdown of net sales in the latest 3 years where the steady growth has been achieved from FY '17, electric and air conditioning has been solid. And in particular, battery and solar power sales have been growing strongly. We have been through a number of issues, but sales growth has been sustained.

On the right, key initiatives are summarized. As for new energy, we need to consider the future development of mega-solar construction, but rooftop middle solar facilities have been expanding and will continue to grow. And there will be increased demand for O&M as well as construction. So we will focus on this as well.

As for post-solar power, we are engaged in EV chargers, small-scale wind power and rechargeable batteries. In civil engineering, we are expanding works to lay power lines underground. Administration, including national government, Ministry of Land, Infrastructure and Transport and Tokyo Metropolitan Government began to announce plans to show clearly their intentions to make headways. So we are proactively meeting their needs and working together. In electric and air conditioning, LED installment work for municipalities has been progressing steadily.

Page 17 and 18 show the ICT Solution business. Net sales in the bar chart on the left show the steady growth. In the breakdown of net sales, PBX and LAN has been growing steadily. 700 megahertz is slightly down, but data centers and stock business are expanding.

We refer to the key initiatives on the right shown in red. As for the LAN and PBX, we are strengthening the collaborative sales effort with Lantrovision in Singapore for clients expanding into Japan and vice versa.

As for stock business and data center, data center in Osaka commenced operation in June, as shown on the right, and full operation will be in the next year. We have got off to a good start in the first half of this year. Works to build servers and networks for corporate has been expanding.

As shown on Page 18, in addition to own data center, establishing the so-called virtual data center functions through network of distributor system is growing. We'd like to get involved in those trend as well.

Page 21 and 22 are recent initiatives for business expansion. Please refer to initiatives marked as new. Base domains at the bottom are our commercial business of telecom infrastructure. And in frontier domains, applying the technologies and human resources of base domains, we are exploring into new domains, leveraging ICT. In each segment of Environment & Social, ICT and Global, cases of alliance and M&A are shown here. Notable ones are M&A and acquisition of full ownership to make more integrated and efficient entity rather than keeping the relationship of placing and receiving orders. And in each segment, we are trying to strengthen the weaker portion while brushing up the already strong portion.

Page 22 shows initiatives to build a stronger business space. This is about the group structure, though I mentioned slightly about it before. Besides the alliance with -- or M&A of the third party, our company's subsidiaries and affiliates need to coordinate better so that overlap should be minimized and make the structure more rational. And as a result, the profit of subsidiaries increased. Therefore, we are reviewing the group operational structure and that is now revisited. At the bottom, the example of reviewing operational process is shown. Overhead needs to be rationalized further to allocate more resources to direct the jobs, and we continue to work in that direction.

Page 23 is ESG initiatives to build a stronger business base. I wouldn't comment in detail, but we will diversify Human Resources and increase participation of women in workplace. As for strengthening our Human Resources, we will increase the number of qualified staff or skilled workers as this is a foundation of our business, and we will continue to hire more diversified Human Resources. Safety, work environment and work styles shown -- are shown on the right and they are of prime importance for us, so we are consistently working on these.

Finally, Page 24. This year, we suffered many disasters in Western Japan, Osaka and other areas, and the map shows Osaka Chugoku and Shikoku areas. To support -- we've rendered support to about 3,000 base stations for mobile, and we have deployed a substantial number of staff for reconstruction. We had many disaster recovery works in the first half of this year.

With this, I conclude my presentation on the first half results of this year. Thank you for your attention.