Net One : Presentation script for FY23

Net One Systems Co., Ltd.

Financial Results Briefing for the Fiscal Year Ended March 2024

May 8, 2024

Event Summary

[Company Name]	Net One Systems Co., Ltd.
[Company ID]	7518-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Financial Results Briefing for the Fiscal Year Ended March 2024
[Fiscal Period]	FY2024 Annual
[Date]	May 8, 2024
[Number of Pages]	33
[Time]	16:00 - 16:36
	(Total: 36 minutes, Presentation: 36 minutes)
[Venue]	Webcast
[Venue Size]
[Participants]
[Number of Speakers]	9
	Takafumi Takeshita	President & CEO
	Takuya Tanaka	Executive Director, COO
	Mitsuru Kiuchi	Executive Director
	Fumihiko Shinoura	Vice President, CTO
	Masayuki Kitajima	Vice President, CFO
	Koji Tsuji	Vice President, CSDO
	Akiko Kanai	Vice President, CHRO
	Takaaki Wakatsuki	Vice President, CRO, CCO
	Hirotsugu Muramoto	Director of Investor Relations Office,
		Corporate Planning Division

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Presentation

Muramoto: It is now time to start Net One Systems Co., Ltd.'s financial results briefing for Q4 of the fiscal year ended in March 2024. Thank you for joining us today while you are busy. I am Muramoto from Investor Relations Office and I will be your moderator.

In attendance today are Takeshita, President & CEO; Tanaka, Executive Director, COO; Kiuchi, Executive Director; Kitajima, Vice President, CFO; Shinoura, Vice President, CTO; Tsuji, Vice President, CSDO; Kanai, Vice President, CHRO; Wakatsuki, Vice President, CCO/CRO.

Today's briefing will proceed in accordance with the financial results presentation materials for Q4 of the fiscal year ended in March 2024, which are available on our website. Please download the documents from IR News in the IR category of the website and have them ready.

Now, please see page one. This is the agenda for today's meeting. After we explain these, we will have a question-and-answer session. The meeting is scheduled to end at 17:00.

First, Mr. Takeshita will give a summary of the financial results.

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Takeshita: This is Takeshita. Thank you for your attention.

Please see page three of the materials for the summary of our full-year business results for the fiscal year ended March 2024.

Bookings fell short of the revised plan on a full-year basis. However, bookings in Q4 recovered and enjoyed YoY increase, resulting in a record-high quarterly order volume. Revenue and operating income exceeded the revised plan thanks to improved profitability.

Actual results are shown in the red box. Bookings were JPY201.4 billion. Reasons behind the YoY decrease include the absence of large product projects and weak performance in the telecom carrier, public, and partner segments. On the other hand, Q4 saw a 13.1% increase over the previous year. Compared to the revised plan, the enterprise, public, and partner segments fell short due mainly to project delays.

Revenue was JPY205.1 billion. Reasons behind the YoY decrease include the absence of large product projects and weak performance in the telecom carrier, public, and partner segments. Compared to the revised plan, revenue exceeded the plan due to the growth in enterprise and telecom carrier segments.

Operating income was JPY19.5 billion, a YoY decrease. This is due to a decrease in revenue and a JPY3.2 billion increase in SG&A expenses, despite a 1.6 percentage point improvement in GPM. Against the revised plan, operating income was above the plan. This was due to revenue growth, a 0.6-point improvement in GPM, and a JPY0.7 billion decrease in SG&A expenses.

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Please see page four for the overview of earnings forecast for the fiscal year ending March 2025.

Bookings and revenue are expected to increase from the previous year, mainly in the public segment. Operating income is also expected to increase, as ongoing improvements in profitability will absorb the increase in SG&A expenses.

The forecast is shown in the red box. Bookings are expected to total JPY225 billion, an increase of JPY23.5 billion from the previous year.

Bookings in the enterprise segment are expected to increase by JPY2.3 billion due to recovery in the financial sector and continued growth in the manufacturing and non-manufacturing sectors; the telecom carrier segment is expected to increase by JPY2.1 billion due to expansion of co-creation business; the public segment is expected to increase by JPY15.3 billion due to government cloud connectivity projects and several large- scale projects; and the partner segment is expected to increase by JPY3.7 billion due to enhancement of WiFi project for MSP and value-added products.

Revenue is expected to be JPY220 billion, an increase of JPY14.8 billion from the previous fiscal year. We expect JPY4.2 billion YoY increase for the enterprise segment, JPY2.7 billion increase for the telecom carrier segment, JPY5.3 billion increase for the public segment, and JPY2.5 billion increase for the partner segment.

Operating income is expected to increase by JPY1.4 billion from previous year to JPY21 billion. The gross profit margin is expected to increase by 0.1 percentage points from the previous year. Factors contributing to the increase include the optimization of service prices. Factors for the decrease include the absence of positive impact on currency and one-time gains in the partner segment in the fiscal year ended in March 2024. In other words, the gross profit margin appears to be almost flat, but we expect the underlying profitability to keep improving.

SG&A expenses are expected to increase by JPY2.5 billion from the previous year. This includes a JPY2.5 billion increase in personnel expenses. This was due to increases in starting salaries for new graduates, salary and bonus increases to strengthen recruitment and investment in human resources, as well as an increase in on-

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site engineers to expand bookings. In addition, there is an increase of JPY700 million in equipment costs associated with new enterprise systems, etc. Factors for the decrease include a JPY800 million decrease in office expenses due to the return of the leased office space.

Page five shows a waterfall chart of the factors affecting the operating income forecast I just explained.

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Please see page six for our dividend forecast.

The year-end dividend forecast for the fiscal year ended March 2024 has been revised upward from JPY37 to JPY40, as profits exceeded the revised plan.

Regarding the forecast for the fiscal year ending March 2025, we have introduced a progressive dividend system in principle, and plan to increase the amount over the previous year to pay an interim dividend of JPY43 and year-end dividend of JPY43, for a total of JPY86. We are committed to achieving continuous growth in corporate value and improving the dividends to shareholders.

From here, Kitajima will give an overview of our business performance.

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Kitajima: My name is Kitajima, the CFO. Thank you for your attention.

See page eight for full-year results of the fiscal year ended March 2024. Results for the year are shown in the red frame.

As Mr. Takeshita explained, bookings totaled JPY201,448 million, down 8.4% from the previous year. By market, JPY0.1 billion increase in the enterprise segment, JPY6.9 billion decrease in the telecom carrier segment, JPY1.1 billion decrease in the public segment, and JPY7.1 billion decrease in the partner segment.

Order backlog totaled JPY145,388 million, down 2.5% YoY.

Revenue totaled JPY205,127 million, down 2.2% YoY. By market, JPY5.7 billion increase in the enterprise segment, JPY3.8 billion decrease in the telecom carrier segment, JPY0.2 billion decrease in the public segment, and JPY3 billion decrease in the partner segment.

Gross profit margin was 25.6%, up 1.6 percentage points YoY. In the products group, GPM was up 2.6 points YoY. Factors include absence of large projects we had in the previous fiscal year, as well as currency effect and one-time gain in Q3 for the partner segment.

In the services group, GPM remains unchanged from the previous year. This was due to progress in passing on the increased cost of vendor support, the impact of which has lessened since Q2, and gradual contribution from the optimization of service prices.

The service ratio increased 3.9 percentage points from the previous year due to an increase in services, especially maintenance services, and the absence of large product projects.

SG&A expenses totaled JPY33,022 million, up 11.1% YoY. This is mainly due to the JPY 1.44 billion increase in personnel expenses, JPY1.39 billion increase in office expenses, and JPY0.55 billion increase in equipment expenses.

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As a result, operating income was JPY 19,533 million, ordinary income was JPY19,151 million, and profit attributable to owners of the parent was JPY13,720 million for the year.

Please move on to page nine. These are the factors for YoY change in operating profit, the graphical representation of the results I just explained.

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Please turn to page 10. This is the full-year results as compared to the revised plan.

Bookings fell short by JPY8,551 million. By market, JPY3.1 billion shortfall in the enterprise segment, JPY1.5 billion over-achievement in the telecom carrier segment, JPY4.7 billion shortfall in the public segment, and JPY2.2 billion shortfall in the partner segment.

Revenue exceeded the plan by JPY4,127 million. By market, JPY1.2 billion over-achievement in the enterprise segment, JPY2.6 billion over-achievement in the telecom carrier segment, JPY0.1 billion shortfall in the public segment, and JPY0.3 billion over-achievement in the partner segment.

Gross profit margin was 0.6 percentage points above the revised plan due to improved profitability in the telecom carrier segment as well as positive FX effects and one-time gain in Q3 for the partner segment.

SG&A expenses were lower than the revised plan by JPY777 million due to various cost reduction efforts.

As a result, operating income exceeded the plan by JPY3,033 million.

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