NTT DATA Corporation

Thank you for joining us for NTT DATA's briefing session for the 6 months ended September 30, 2025. I will serve as your facilitator.

I'm Endo from IR. In terms of today's documents, please refer to our IR website presentation materials.

First, let me introduce the speakers. Representative Director, President and CEO, Mr.

Sasaki; Representative Director and Senior Executive Vice President, Mr. Nakayama; Director and Executive Vice President, CSO, Mr.

Nishimura and Senior Vice President, Head of Finance Headquarters, Mr. Kusakabe.

These are the 4 speakers. Today, we will skip the earnings presentation and start with a Q&A session.

[Operator Instructions] First, we will take questions from the floor. On the first row on the right-hand side from my side, please.

SMBC Nikko Securities. My name is [ Sakiguchi ].

I have 2 questions. The first question is regarding the domestic public and social infrastructure business.

There was unprofitable projects is what I've heard. So with the -- there is an unprofitable projects with the government agency-related type of projects, it actually drags along.

So what amount of this unprofitable project amount is recorded for the second quarter and the overall scale of the project and that what's going to happen of that for the second half of profit line for the public and social infrastructure. Well, Public and Social Infrastructure recently was performing strongly.

So there was one way of looking at it that it probably did increase to a peak, but there was more orders after that, but also including the treatment of unprofitable projects, what is your outlook for this business segment is what I'd like to know.

So Sasaki would like to answer your question.

For the second quarter, what we posted for unproduct -- it's unprofitable business for public area was JPY 3 billion in total. Basically, in the past cases in several large-scale projects, and within over several quarters, there was a track record that we have posted this unprofitable amount.

But this time, we have actually have visibility all the way to the risk. So for the third quarter and fourth quarter, our assumption is that there are no further losses that will be made.

And how we look at the market, we believe that it's going to be still strong for the central -- this public and social infrastructure is central government and the local governments and also the telecom utility. And we believe that this is going to continue to steadily grow strong.

So we would like to continue to bring in that demand and further grow. But as you have pointed out, for this fiscal year, on a year-on-year basis, profit-wise was a negative number.

That means that it requires some measures to be injected. The SG&A that is spent towards the second half, we would like to thoroughly look into it and thoroughly so that we will be able to turn around for the remaining year and next year.

And 2 projects and JPY 3 billion, looking at your scale of the business and comparing to the past, it's something that shouldn't be that worried about.

The second question, overseas, especially North America, you have quite a few orders of large-scale projects was explained. What is the content of that?

Recently, the continuing project of the existing customers, but also there is the expansion projects receiving the large-scale orders was the explanation. So if that is the same way of thinking, so how are you evaluating the orders that you have received this time?

And at the last press conference, you said that you want the contribution from these orders to come about from the third quarter. But around what timing is that going to be recognized?

Well, NTT DATA Inc. overall, there's a Chief Growth Officer person that is appointed now and acquiring the large-scale projects or targeting the large-scale accounts.

To surely acquire them is the activities that is conducted under this Chief Growth Officer. And one more thing we're working on is a global practice, meaning they're not saying that to each region to do your best, but looking at it more like a global-wide perspective like global security or digital workplace.

These are several offerings and solutions, the offerings that utilize the Indian resources, accumulating the know-how of that, and we wanted to roll that out to several large accounts. And this initiative has been worked on in a full scale since last year.

And finally, we have the CGO and the global practice initiatives are being well combined. And especially in North America, it has enabled them to acquire large-scale orders or projects.

So what's the content of it? Like in cloud and security is the large-scale project to cloud migration.

It's one case. And the contract period is 3 to 5 years, multiple years.

So it seems that the order received amount is larger. But from the second half of this fiscal year, it is going to be booked as net sales.

So from the third quarter net sales for North American region, it is going to exceed what it has achieved last fiscal year. So the North American turnaround based on these orders received, we would like to surely pursue it.

And by having the net sales being recorded or posted, that means the gross profit is also going to increase. And in North America, thorough initiatives are conducted in terms of reducing the SG&A.

So they will be able to surely accumulate the profit. If that is so, the expansion growth, so that means new orders you're receiving, yes, quite an amount.

Next question from the floor. Over there, please.

Masuno from Nomura. I'd like to ask about overseas data center.

In the press conference, I asked the question, why don't you accelerate even more than the current plan? And you said that you will carefully select partners and consider the approach in a balanced manner.

But I feel like now we are at a stage where you can take on more risk. So what are your thoughts regarding taking on further risk to accelerate?

What kind of reference do you take in order to make that decision? And now that you are 100% subsidiary, rather than relying on the cash from the REIT -- sales to REIT, I believe that you can take on more risk in that perspective as well.

So becoming a 100% subsidiary of NTT, we are able to take action based on a bigger balance sheet, and we have the room to make investments with more leverage. I understand that.

On the other hand, for cash allocation, there is data center and there's also M&A and also investment into pure assets. So there are different investment targets.

And especially with regards to M&A in the age of AI, the rules of competition are changing. And so what kind of company should we acquire in order to win in a global competition is something that we really need to strategize on.

Over the next 1 to 2 years, the competitive landscape in the age of AI will start to emerge. And so we don't want to just bet on data centers.

We would like to also consider M&A opportunities to have the optimal cash allocation. On the other hand, as you said, we have a REIT, and we're able to do a cash cycle based on that.

And we're also studying possibilities for utilizing third party in making investments. So rather than leveraging our balance sheet, how much we can expand our investment.

That is something that we continue to study.

So in terms of considering the allocation into data center, what are the indices or the environmental factors that do you look at in order to make the decision? Is it the investment into North America?

I also heard that India is more profitable. So is it the demand from India?

Well, we have placed much importance on our communication with hyperscalers. The team's head is in North America and the North American team is talking to the big techs on a day-to-day level.

And so we're able to grasp the demand going forward very directly. And the team is making various investments.

And we also look at other areas where we can complement that team and make the investment decision.

Are there any questions from the room, from the floor? If you do, please raise your hand.

It seems that no further questions from the floor. So we would like to ask those of you participating online, if you have any questions.

First of all, Ueno-san from Daiwa Securities.

This is Ueno from Daiwa Securities. Can you hear my voice?

Yes, we can hear you.

The previous person asked the same question regarding Page 7, excluding the 2 projects that are unprofitable, which shows the operating profit trend, that was JPY 3 billion. But with that, there's still a JPY 2.5 billion decline in profit.

But if you look more in detail on Page 6, net sales, the Public & Social Infrastructure, JPY 22.6 billion increase in net sales. So you are securing the increase in sales, but you have JPY 3 billion of a loss.

But in other areas, there's about a JPY 7.4 billion of a decline. What is the content of that remaining JPY 7.4 billion?

Public and Social Infrastructure up to the operating profit, I would like to break down the declining factors. About JPY 3 billion of unprofitable projects exist.

In addition to that, on a gross profit basis, about JPY 3 billion is added. So gross profit in total JPY 6 billion, we experienced a JPY 6 billion decline.

As you mentioned, the sales increased, but -- and there's about 15% growth rate. However, excluding unprofitable projects, it's still JPY 3 billion decline in profit.

Last year, there was a onetime large-scale, very profitable projects. So that not existing this fiscal year had the largest -- that was the largest factor.

And SG&A, there's an increase of about JPY 4 billion. And that also was a factor to press down the operating profit.

So the JPY 4 billion in gross profit decline and SG&A increasing by JPY 4 billion and JPY 10 billion, so a total of JPY 10 billion decline. So for SG&A activities and also the orders that are -- demand is strong, we have to hire the engineers and including the agent fees that is attached to hiring the people is also included in SG&A as well.

But in a full year perspective, we would like to control the areas so that we'll be able to achieve the target.

So I just want to confirm the breakdown. So profitability is JPY 3 billion, and there's additional JPY 3 billion of gross profit because no large project that you've seen last year.

And then there's SG&A and that total of JPY 10 billion, yes. So the impact of this to the second half.

So the gross profit, the large project not being there is okay. But this JPY 4 billion SG&A, you probably can recover that through sales increase.

So if you just compare second half and second half, there's no remaining, right?

For the SG&A, it depends on the order situation. But in the full year, we are aiming to achieve the full year target.

Sorry to be very detailed.

But just looking at the enterprise, the [ BOJ ] short-term outlook and looking at the other companies' performance, the demand is extremely strong. But for you, the enterprise net sales is that from JPY 279 billion to JPY 289 billion, a 1.4% increase.

So is it just that second half is lower or you're strong at the social financial -- social infrastructure financial and you're strong. So maybe you don't expect that much growth in enterprise, but why is this growth rate so low?

What is the factor behind it?

The one thing is maybe -- apologies for lacking the explanation. the payment where this agent to collect the payment, their rate has changed.

And there's about JPY 17 billion of that impact. And excluding this -- if you reverse that JPY 17 billion, there will be increase of about JPY 10 billion in revenue -- JPY 20 billion.

And towards manufacturing businesses, the demand is strong. So as a momentum, we are placed in a good -- very good situation.

So the new -- the net sales from the gross, we changed to net.

So include that the enterprise is having a strong growth. Is this going to continue into the second half?

Yes, we do expect it to continue.

Okay. And also regarding the data center question towards holding companies and towards your companies, there's repeating questions regarding data center.

Maybe this is a different angle way of looking at it. The AI, which is strong globally, honestly speaking, I think this area has risks.

And honestly, you have to have a several trillion yen fundraising capability or else NVIDIA is not even going to look at you. So regarding this AI area, you're not focusing that much and the data center that's going to grow as a real business, you are focusing on the AI investment for the data centers.

Is that a wrong way of looking at it? Or are you going to invest in AI as well?

We have an alliance with OpenAI as well. But the public giant language model, we have no intention of creating something like that.

So NVIDIA's GPU buying thousands of them and us creating a large-scale learning model, we have no intention of doing that as well. But on the other hand, the private AI like Tsuzumi or Mistral AI, relatively small-sized model we think that enterprise customers will utilize that more than now, and we call it private AI.

So in Tsuzumi 2, with -- it only requires 1 GPU. So as NTT already made the announcement, especially LLM that's strong in Japanese and finance and medical areas, it's already learning.

And if the customers add a learning area, then the learning speed is extremely fast. So towards those customers that are in need for that, we rent out our data center space and also combine that with the public AI and to have our customers utilize AI in this combined manner.

And we believe that this can be rolled out globally as well. So conducting business with the hyperscalers.

But in the private AI area, the government customers or manufacturing customers or finance industry customers, we would like to provide our service to them as well. So in that sense, regarding AI, including the infrastructure, we would like to become in a way that we'll be able to provide the service in a full stack manner.

That part, I highly evaluate that like IBM and Oracle being very strong is that instead of trying to develop a huge AI, but at the customer side, meeting the customer demand is enabling you more to make money. But the AI solution like AI agent, something that will gain sales, not the data center, but AI, you're mentioning Tsuzumi.

But application-wise, are you already prepared or around what timing are you going to be able to record net sales?

Well, the so-called AI agent, we are paying attention to that. And up to now, we have conducted many POC and there are actual orders that we have received in this area.

And we believe that there will be a business growth in this area moving forward. We are sure about that.

That is why even within the hand that we wrote it, we are going to establish a new company making investments in Silicon Valley. For AI agent, as several offerings, there are something that will made into a certain template, but we would like to have a thorough analysis of the customer and making and developing an AI agent tailored to our customers.

So the AI services or computing services that are tailored to the customer needs will be something that we are going to provide. So it's not that simply one can -- we are going to purchase packages and resell that, a lot of them.

But instead of that, we are going to be on the customer side and provide the service that is required. And as AI evolved, we will update our services also.

And AI in times will actually not tell the truth or lie to you. So in order to provide a thorough service, a managed service of our services that are provided is going to become important.

So we would like to establish a thorough business model to provide our services.

At Page 17, OpenAI-related business, JPY 100 billion. So in agent-related separate from them in 2027, JPY 300 billion is what we aim for agent management.

I believe that you were saying JPY 100 billion for overseas. Is that true?

Yes.

That concludes the question from Ueno. Next question, please?

We have passed the planned time, but we were also late in starting this session. So if there is a question, we'll be happy to answer additional questions.

And if you like to ask another question for those of you who have already asked a question, we are welcoming that as well. No questions?

We -- either from the floor or from the remote participants? Well, we see no hands.

And this concludes the NTT DATA Group's earnings presentation. Thank you very much.