QAs from earnings release meetings and others

November 5, 2021：2Q FY21 Financial Results Briefing (Online)

(*) This is a summary of questions and answers took place at the Briefing.

Question: You revised your full-year financial targets for FY21. As for the revised total revenue target, you increased it by JPY2.5 billion. Will you explain the thinking behind it?

Answer: There were the following main reasons why we updated the total revenue target: firstly, we revised the enterprise network services’ outlook based on the results for first half of FY21 (“1H21”) as well as current demand situation, and secondly, the revenue decrease for Mobile services would be smaller than our conservative initial outlook. What we additionally reflected in our enterprise network services’ revenue outlook are mainly the strong revenue growth coming from Outsourcing services, which include Security services, and the increase in WAN service revenue in the second half of FY21 by acquiring large network update projects etc. As for systems integration, the outlook remains unchanged from the initial outlook.

Question: How did you achieve a year over year increase in 1H21 operating profit

Answer: 1H21 operating profit increased by JPY4.07 billion year over year. The major breakdown is as follows: network services’ gross profit increase of JPY4.47 billion, systems integration’s gross profit increase of JPY1.09 billion, and SG&A’s increase of JPY1.57 billion. The revenue for enterprise network services (excluding Mobile services) such as Outsourcing services and IP services etc., grew by JPY3.89 billion year over year. Such strong revenue growth contributed to more than 60% of the network services’ gross profit expansion.

Question: You updated FY23 operating margin target, which is a part of your Mid-term plan (FY21-FY23), from “over 9%” to “over 10%.” Please explain the thinking behind it. In addition, is there any change to your revenue (consolidated) target?

Answer: The revised FY21 financial target has operating margin of 9.6%. Please note that FY21 is the first fiscal year of our Mid-term plan (FY21-23). Because the Mid-term’s operating margin target was likely to be achieved early, we updated the target to “over 10%.” FY23 revenue (consolidated) target remain unchanged from what we announced: JPY270.0 billion.

*Reference: Mid-term Plan

Question: 2Q FY21 Outsourcing services showed strong revenue growth year over year. Did it come from particular large projects? Please also comment about the future outlook for Outsourcing services.

Answer: Strong year over year revenue growth seen in 2Q FY21 did not come from particular large projects but from growing demands for various network-related Outsourcing services. As Japanese enterprises have been enhancing their network, demands for Security services, which is included in Outsourcing services, continue to be strong. We believe such momentum should remain; therefore, expect continuous revenue growth of Security services.

*Reference: Year over year revenue growth rate for Outsourcing services and Security services

Question: You mentioned that “GigaPlans,” which is your new consumer mobile services, has received high praise. What points do you think are being evaluated?

Answer: Approximately 70% to 80% of the current “GigaPlans” users contract with voice call service and small data volume plans such as 2GB or 4GB per month. We think that we are offering plans that meet the needs of customer segment of MVNOs, which leads to attracting users.