Regarding the impact from the unification of accounting periods of group companies including the former Dell Services, etc., the net sales are forecasted as increase by approx. 90 billion yen in the fiscal year ending March 2018. Any impact on operating income?
Regarding the impact of the unification of accounting periods in the fiscal year ending March 2018, forecasted the increase in net sales by approx. 90 billion yen and also increase in operating income before goodwill amortization by approx. 3 billion yen.
For the fiscal year ended March 2017, give us the reason why the results shown upward to the forecasts. There was an impression that the results exceeded the forecasts in all segments in Japan, but the results fell slightly below in the Global segment. Was the increase in operating income due to the net sales in the areas of your specialty? The order situation in Japanese domestic IT service market seems good, and if such an environment remains the same for the fiscal year ending March 2018, can we expect similar results for net sales in your specialty exceeding the forecasts?
The order situation in the fiscal year ended March 2017 was quite favorable, so the net sales overall have increased. Also, we recognize that operating income exceeded the forecasts since we have tightly controlled unprofitable projects while profit margins differ from project to project, and been setting up a structure in which each project generates profits.
Will the business environment in the fiscal year ending March 2018 be similar to that in the fiscal year ended March 2017?
At this time, we believe that there will be no major changes in the environment. As for our control over unprofitable projects, while we forecasted a loss of approx. 8 billion yen for the fiscal year ended March 2017 at the beginning of the year, and actually posted a loss of 7.4 billion yen. As mentioned before, we believe it would be the best if we could control unprofitable projects account for less than 0.3% of consolidated net sales; and if the percentage is as low as 0.5%, management is deemed to control the risks of such projects and could recover from the loss by increasing the net sales, reducing administrative costs or taking other measures even if the percentage is approx. 1% at the highest. In the fiscal year ending March 2018, the consolidated net sales will be approx. 2 trillion yen, so 0.3% of consolidated net sales is approx. 6 billion yen.
However, since not only the continued attempts of the Project Reviewing Committee, but also tough internal control of each segment as basic foundation is especially important, we will aim to develop a management structure in which even if there is an unprofitable project in a segment, we can achieve the profit target by making up for it with other factors. Therefore, for the fiscal year ending March 2018, we have not set a profit target in such a way of including assumed loss from unprofitable projects in the financial forecasts.
As for the situation of the former Dell Services, the effect of the consolidation will become tangible on a full scale in the fiscal year ending March 2018, but under the new U.S. administration of President Trump, the business environment has been changed since the decision of the acquisition, for instance, reduced enforcement of Obamacare and qualification change in H-1B visa program. Please advise us whether there are any business concerns.
After the acquisition, we visited the former Dell Services several times, and exchanged our opinions with their directors. We have discussed over Obamacare, too. Also in last month, we had asked the opinion on Obamacare during the conference with experts in Washington D.C.
Obamacare largely consists of Medicare and Medicaid programs. Medicaid is a social healthcare program for low-income individuals in U.S. and has 70 - 80 million enrollees. As changes in the program would have substantial impacts, Obamacare reform has not progressed quickly, for example, the Obamacare replacement bill needed to be toned down the other day. We do not know how the program will be changed in the future, but not think that all parts of Obamacare will be repealed.
Approx. half of net sales of the former Dell Services, 300 billion yen, is hospital-related and medical insurance related; and the revision of Obamacare may have no impact on these businesses. Rather, changes in situations would provide us new opportunities, and we believe that it would offer advantages for us instead of disadvantages.
Also, the former Dell Services have long-term contracts with most of its customers and its business model is not affected by short-term changes. Of course, we conducted Due Diligence before we decided to acquire the former Dell Services, and believe that synergies examined in the process will not be affected by the current changes in the environment. Furthermore, we posted 2.7 billion yen of gain on transfer of affiliated business in the fiscal year ended March 2017 by selling off the overlapped business with the former Dell Services. Though this is the solution business for medical institutions, we decided to retain more competitive solutions and sell off less competitive solutions between those from the former Dell Services and NTT DATA, Inc.
Therefore, all is well regarding PMI and no concerns approx. the acquisition of the former Dell Services at this time. The most important challenge is to transfer some internal IT systems for which we pay a usage fee to Dell Inc. to us in about 4 steps over 18 months or so. We consider the most important is to implement this large project, involving approx. 500 people at most, on schedule and within the budget.