MIRAIT ONE Corporation Q4 FY2025 earnings call

5Changes Strategic Progress

• Change 1: Human-centric Management:

  • Over 700 cumulative employee rotations to growth sectors as of 2024, on track to hit the 1,000 rotation target by 2026.
  • Internal education institution "Mirai College" reached near 100% employee utilization, with partner company utilization exceeding target at 56.3% (2025 target: 60%).
  • Reformed senior retirement/rehire systems to address labor shortages and improve engagement.

• Change 2: Accelerated Business Growth:

  • Data Center Business: 2024 orders came in 7 billion yen above plan at 46 billion yen, driven by strong demand. Full-scale launch of container-type data centers for GPU resources is planned for 2025, with a 50 billion yen order target; 2026 target is 65 billion yen in orders, offering full-stack services from construction to operation leveraging group synergy.
  • Trinity Synergy (Mirait One + Seibu Construction + Kokusai Kogyo): 2024 two-company synergy orders hit 7.22 billion yen, three-company synergy orders reached 1.85 billion yen (well above the 1 billion yen plan). 2025 and 2026 targets are 20 billion yen and 30 billion yen in synergy orders respectively, focused on municipal ZEB retrofitting, decarbonization, and public infrastructure management.
  • Growth of the Mirai Domain (smart city/rural development, green energy, global business) is on track, with its revenue share rising to 45% of orders and 43% of revenue.

• Change 3: Profitability Improvement:

  • 1.9 billion yen in cumulative cost cuts realized from the 2022 three-company integration.
  • Integrated 5 carrier construction subsidiaries into Mirait One Next to consolidate operations, and implemented regional management reforms to improve efficiency. Carrier business gross margin improved 1.2 percentage points in 2024, 1.6 percentage points versus 2022.

• Change 4: Data Insight Management:

  • Focused on DX talent development and generative AI adoption in 2024, and completed core system renewal. 2025 priorities include full utilization of the renewed core system to advance data-driven management.

• Change 5: Strengthened ESG Management Foundation:

  • Established a biodiversity and natural capital action guideline, continued GHG reduction efforts, and pursued safety initiatives and diversity certification acquisition, with ongoing plans to improve disclosure and governance.

Business Risk Management

• The new business risk management system launched in April 2024 is fully operational: it includes a dedicated corporate Business Risk Management Office, a pool of experienced in-house expert advisors for pre-order risk assessment of ~70 large annual projects, monthly board-level monitoring of in-flight projects, and knowledge sharing of past unprofitable project case studies via Mirai College.
• Large unprofitable projects have been resolved, ending their negative impact on earnings, and unprofitable new projects have dropped sharply. Non-carrier business grew 21% YoY while improving gross margin by 4.0 percentage points.

For the 2024 fiscal year (ended March 2025):

1. Communication Infrastructure Domain (Carrier Business, 40% of total revenue):

   • NTT Business: Revenue of 190.5 billion yen (up 8.7 billion yen year-over-year), driven by increased demand for fixed-line related business and mobile quality improvement investment. Contribution to total revenue: ~33%.
   • Multi-carrier Business: Revenue of 41 billion yen (down 8.6 billion yen year-over-year), due to continued order declines across 5G base station deployment and CATV-related projects. Contribution to total revenue: ~7%.
   • Total domain revenue: 231.5 billion yen (up 0.1 billion yen year-over-year), 40% of total revenue. Gross profit increased 2.9 billion yen year-over-year, with gross margin up 1.2 percentage points to 14.6%.

2. Corporate/Environmental and Social Infrastructure Domain (Non-Carrier Business, 60% of total revenue):

   • Environmental and Social Innovation Business: Revenue of 203.8 billion yen (up 60 billion yen year-over-year), driven by strong performance in renewable energy, electrical/HVAC, civil engineering/water, construction/renovation, and full-year profit contribution from Kokusai Kogyo's planning/consulting business. This segment led overall revenue growth. Contribution to total revenue: ~35.2%.
   • ICT Solutions Business: Revenue of 143.3 billion yen (up 0.2 billion yen year-over-year, flat overall). Declines in LAN-related projects and carrier communication equipment product sales were offset by strong growth in data center/cloud business, global data center-related business, and software business. Contribution to total revenue: ~24.8%.
   • Total domain revenue: 347.1 billion yen (up 60.2 billion yen year-over-year), 60% of total revenue. Gross profit increased 20.2 billion yen year-over-year, with gross margin up 4.0 percentage points.

Overall company results: Total orders 629.2 billion yen (up 80.2 billion yen YoY), total revenue 578.6 billion yen (up 60.3 billion yen YoY), operating profit 28 billion yen (up 10.2 billion yen YoY), EBITDA 41.7 billion yen (all-time high). Non-carrier business accounts for 63% of total orders and 60% of total revenue; the growth-focused "Mirai Domain" increased its revenue share to 43% from 38% in the prior year.

• 2025 full-year guidance: Total orders 630 billion yen (slight YoY increase), total revenue 620 billion yen (41.4 billion yen YoY increase), EBITDA 48 billion yen (EBITDA margin 7.7%), operating profit 34 billion yen (6 billion yen YoY increase, new all-time high, operating margin 5.5%), net income 21 billion yen, ROE ~8%, EPS 236 yen (25% YoY increase).
  • Revenue growth will be led by an 38.4 billion yen YoY increase in the Corporate/Environmental and Social Infrastructure Domain (driven by renewable energy, civil engineering, and data center-related sectors), offsetting a 7 billion yen YoY order decline and a 3 billion yen YoY revenue increase in the Communication Infrastructure Domain. The "Mirai Domain" revenue share is expected to hold steady at 43%, progressing toward the 45%+ medium-term target.
  • Selling, general and administrative (SG&A) expenses are planned to increase by 2.2 billion yen, driven by one-time head office relocation costs, wage increases, and improved employee compensation, but SG&A ratio is projected to fall from 9.8% to 9.5% via ongoing cost reduction efforts.
  • Shareholder return policy is maintained: targeting a total payout ratio of 50% to 70% via stable dividend growth and flexible share buybacks. 2025 plans include a 10 yen per share increase in annual dividend to 85 yen per share, and 3 billion yen in share buybacks, for a current total payout ratio of ~50%.

• Increased interest expense from higher interest-bearing debt for M&A, and foreign exchange fluctuation impacts from overseas related company loans, which reduced net income growth in 2024.
  • One-time extraordinary loss from the liquidation of an overseas construction subsidiary in the Philippines in 2024.
  • Multi-carrier investment demand remains muted, putting continued pressure on that segment's performance.
  • NTT Group restructuring creates uncertainty around future capital allocation and new business opportunities that the company is still monitoring.

Q: What are the key drivers of 2025 operating profit growth, and how is the company controlling SG&A growth despite head office relocation and wage increase costs? / A: Profit growth comes primarily from top-line expansion in environmental/social and ICT solution businesses, including fast-growing data center and green energy segments, plus synergy gains from the three-group combination. For the communication infrastructure domain, the focus is on productivity improvement rather than rapid revenue growth, via work standardization, digitalization, and efficiency gains from the 5-subsidiary integration. To control SG&A, the company is pursuing incremental cost cuts, including group-wide volume discounts for vehicle insurance and consolidated bulk purchasing of common supplies to secure larger discounts.

Q: Why is 2025 guidance not more aggressive given the apparent recovery in NTT Group capital expenditure, and what impact will NTT Group restructuring have on the business? / A: 2025 guidance deliberately sets a conservative order forecast for the communication infrastructure domain, with a focus on completing existing projects and converting backlog to revenue rather than chasing aggressive order growth. The company has built regional capabilities to capture NTT Docomo's planned expansion of quality improvement investment beyond Tokyo to regional areas, and will capture growth from the overall NTT investment increase. NTT restructuring is not expected to have an immediate direct impact on current operations, but the company is monitoring how NTT will reallocate capital to new growth areas (particularly AI and data centers) to capture new opportunities in ICT and environmental business for the group.

Q: What has driven the end of unprofitable project impacts and the recovery in profitability, and what systems are in place to prevent future issues? / A: The new risk management system launched in April 2024 is the core driver: it adds a central corporate risk management function that assigns expert advisors to pre-assess all large projects, monitors in-progress projects monthly, and shares lessons from past unprofitable projects across the company via internal training. This system has already sharply reduced new unprofitable projects, and allowed the non-carrier business to grow 21% while improving gross margin by 400 bps.