SB Technology : Overview of Earnings Results Briefing for FY2023 Q1（569K）

SB Technology Corp.

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SB Technology Corp.

Overview of Earnings Results Briefing for FY2023 1Q

This is a transcript of the SB Technology Corp. FY 2023 1Q Results Briefing held on July 27, 2023. Speaker: Mr. Shinichi Ata, President & CEO, SB Technology Corp.

SB TECHNOLOGY, Full-year net income more than doubled YoY to ¥8.2 billion due to the transfer of subsidiary stock. Orders received for Digital Agency projects for Public Sector`s expansion

Shinichi Ata: Hello everyone, I am Shinichi Ata from SB Technology. Thank you for participating in our financial briefing while you are very busy today. I would like to explain the outline of the results and the progress of the Medium-term Management Plan.

First, we made a press release today that we were the first to be selected as a FTSE Blossom Japan Index composition brand. In 2022, we were listed on the Prime Market. It was soon recognized by FTSE as a Japan Sector Relative Index. After working to raise this score for one year, we were selected for inclusion in FTSE Blossom Japan Index of 310 issues in our ESG score of 3.3 or higher in June 2023.

Summary

Summary

｜ FY2023 Q1

FY23 Q1

Financial

Results

Orders Received

FY23

Forecast

Higher revenues in Public Sector& Enterprise, sales achieved record highs as Q1 Operating income decreased due to restrained investment in Telecommunication and strengthened recruitment.

Orders received for the demonstration phase of horizontal development projects in the map -related field,

although orders received decreased due to the effects of Local Government Information SC* in the previous fiscal year.

Net income has been revised upward by ¥4.25 billion to ¥8.2 billion compared to the initial forecast due to the recording of extraordinary

income associated with the transfer of shares of subsidiary Fontworks, Inc.

(Revised full-year forecast for net sales of 68 billion and operating income of 5.9 billion)

3

*：Abbreviation for security cloud

A summary of business results. In the first quarter of the fiscal year under review, sales in the Public

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Sector and Enterprise rose, reaching a record high for the first quarter. On the other hand, operating income decreased due to the impact of restrained investment in Telecommunication and the strengthening of recruitment.

Orders received fell due to factors such as the impact of Local Government Information Security Cloud ordered in the previous fiscal year, but we were able to receive orders for the demonstration phase of a very strategic, horizontal deployment project in the map-related field.

With regard to the earnings forecast for the current fiscal year, due to the recording of an extraordinary gain on the transfer of shares of subsidiary Fontworks, Inc., net income has been upwardly revised to ¥8.2 billion, an increase of ¥4.25 billion from the initial forecast.

In addition, net sales have been revised downward by ¥1 billion to ¥68 billion, and operating income has been revised downward by ¥500 million to ¥5.9 billion.

Consolidated P/L （Full year cumulative)

Consolidated P/L （Full year cumulative)

｜ FY2023 Q1

• Despite growth in Public Sector and Enterprise, operating income decreased due to restrained investment in Telecommunication and higher SG&A expenses.
• Net income decreased by -¥140 million due to the recording of an extraordinary loss associated with the devaluation of shares of a subsidiary. etc.

[Millions of yen] (Profit margin )	FY23Q1	FY22Q1	Change	Change ％
Net sales	RecordHigh	15,958	15,560	＋397	＋2.6%
Operating		1,057	1,085	▲28	▲2.6%
income		(6.6%)	(7.0%)
Ordinary income		1,054	1,070	▲15	▲1.4%
	(6.6%)	(6.9%)
Profit attributable to		505	646	▲141	▲21.9%
owners of parent		(3.2%)	(4.2%)
Net profit
EBITDA ※	RecordHigh	1,505	1,494	＋11	＋0.7% 4

*EBITDA ＝Operating income ＋Amortization of goodwill ＋Depreciation

As described in the slide, operating income and ordinary income have been in line with our initial plan.

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Net Sales and Gross Profit by Market

Net Sales and Gross Profit by Market

｜ FY2023 Q1

Net sales

15.9

15.5

1.0 1.0

2.3 3.4

Gross profit

〔Billions of yen 〕 （Profit margin ）

3.40	3.69
(23.1%)

Consumer： Flat in sales, and Decrease in profits

• Contract changes with NortonLifeLock Co., Ltd. were affected, but progress was largely as originally anticipated.

Public Sector： Increase in both sales and profits

• Growth in sales through projects for the Ministry of Agriculture, Forestry and Fisheries and the operation of Local Government Information SC, Profit margins also improved

Enterprise： Increase in both sales and profits

7.0

5.0

7.8

3.6

(21.9%)	0.67
0.69

0.14 0.46

1.76 1.88

0.79 0.66

• Profit margin declined temporarily due to licensing sales to cultivate focus customer groups
• Cloud construction and MSS* for the manufacturing industry performed well.

Telecommunication： Decrease in both sales and profits

• Despite lower sales due to a decrease in vendor management projects and the impact of restrained investment, profitability improved due to progress

FY22Q1

FY23Q1

FY22Q1

FY23Q1

in efficiency improvement.	5
*Abbreviation for Managed Security Service

I will explain net sales by market. Net sales in the Telecommunication area decreased by slightly less than 30% to ¥3.6 billion from ¥5 billion in 2022. Gross profit fell 10 percent from ¥790 million to ¥660 million.

In the Enterprise area, net sales increased from ¥7 billion in 2022 to ¥7.8 billion, and gross profit increased from ¥1.76 billion to ¥1.88 billion. Although sales grew, margins were slightly depressed due to licensing sales to focus customers.

Net sales in the Public Sector area rose nearly 50% from ¥2.3 billion in 2022 to ¥3.4 billion. Until 2022, the gross profit was extremely small due to the need to provide large allowances for municipal projects and other projects. However, in 2023, a variety of projects entered the operation phase. As a result, a certain amount of profit has been generated, resulting in gross profit of ¥460 million.

In the Consumer area, although there were changes to the contract with NortonLifeLock Co., Ltd., progress is generally in line with the initial forecast.

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Factors Behind Changes in Operating Income

営Factors業利益 Behind Changes in Operating Income

｜ FY2023 Q1

• Gross profit margin improved by 1.2 percentage points due to improved profitability in the Public sector and Telecommunication.
• Increased hiring to more than 1,500 employees on a consolidated basis. Operating income decreased by

¥28 million due to an increase in SG&A expenses.

1

1						0.20
1		0.09			↑Improving
	↑sales growth		profitability
	Net sales	＋JPY 0.4 billion	Gross Profit Margin ＋1.2pts
1	Public sector	＋JPY 1.03 billion	Public sector	＋7.6pts
	Enterprise	＋JPY 0.84 billion	Telecommunication	＋2.3pts
	Telecommunication ▲JPY1.41 billion

1

1.08

0.31

• Increases in SG&A expenses

Personal expenses /Recruitment cost, etc. YoY ＋85 employees

1.05

• (7.0%)

(6.6%)

0

0

▲28 millions of yen（▲2.6%）

FY22Q1FY23Q1

〔 Billions of yen 〕 （Profit margin）	6

This is a bridge to operating income. The increase in sales resulted in an increase of 90 million yen. As a means of improving profitability, we raised the number of points by 7.6, particularly in the Public Sector, due to the reasons I mentioned earlier. Steady efforts have raised in the Telecommunication by 2.3 points.

The increase in SG&A expenses was ¥310 million lower due to an increase in the number of employees by 85 compared to the same period and an increase in expenses as activities have become very active since the consecutive holiday in May. The result is an operating income of 1.05 billion yen.

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[Non-Consolidated] Orders Received/Order Backlog （ Except Consumer business）

[Non単体-Consolidated]受注残高 Orders Received/Order Backlog （ Except Consumer business ） ｜ FY2023 Q1

Orders received

Order Backlog	Single order
	balance

■ Public Sector ■ Enterprise ■ Telecommunication

＋26%	14.7 ▲28%
11.6	4.4	10.6
1.3
		1.9

＋13%

＋25% 29.6

23.6

16.6

10.8

	(YoY basis)
33.3	3.7 UP
JPYbillions

FY23Q1 Main orders

• Public Sector：Received an order for the demonstration phase of the Digital Agency's Real

20.7 property of base registries, and received an order for Local Government Information SC and a project from the Ministry of Agriculture and Fisheries in FY22Q1, and this resulted in a reactionary decline

5.0	5.4
		5.0
5.2	4.8	3.5
FY21Q1	FY22Q1	FY23Q1

〔 Billions of yen 〕

• Enterprise：Sales of licenses and equipment

				decreased.
7.9	8.7	9.2	•	Telecommunication：Steady development of
		internal systems and reduction in vendor
				management projects
4.8	4.1	3.4	•	Approximately 60% of the order backlog is
				expected to generate sales in FY23
FY21Q1	FY22Q1	FY23Q1		7

The status of orders received. Telecommunications area decreased by 1.3 billion yen to 3.5 billion yen from 4.8 billion yen in fiscal 2022. This represents a restraint on investment in this area.

The Enterprise area was ¥5 billion, compared with ¥5.4 billion in fiscal 2022. Although we touched on licensing sales earlier, the overall trend was that sales of low-margin licenses and equipment have declined, resulting in a slight decline in orders received.

The biggest change was in the Public Sector. Originally, the orders to be received at the end of March 2021 was delayed to the first quarter of 2022. Normally, we do not receive such orders in the first quarter. However, in 2022, we received large orders, which caused an abnormal value. As a result, the

1.9 billion yen in 2023 compared to 2022 is by no means small, and we have received sufficient orders for strategic items.

Order backlog totaled 33.3 billion yen, compared with 29.6 billion yen at the end of the previous fiscal year. Approximately 60% of these sales are expected to be recorded during the current fiscal year, of which 50% will be in the Public Sector.