Annual Report2017NEC Networks & System Integration Corporation
Group Statement
To achieve sustainable growth and to create and provide social value,
the NEC Networks & System Integration Corporation Group has established this statement through internal
discussion about the values that it has developed, its DNA, and its vision of what the Group should be.

The NEC Networks & System Integration Corporation Group enables communities
throughout the world to enjoy a safe, secure and plentiful tomorrow by continuallyfacilitating more welcoming and convenient communications, and supporting aconnected society, from the floor of the ocean to the far reaches of outer space,with proven technologies and reliable services cultivated over many years.

(Established on January 4, 2017)

The NEC Networks & System Integration Corporation Group aims to contribute to creating an enriched society
with more user-friendly and convenient communications.
The Company was founded in 1953 as a telecommunications construction company. Since then, we havebuilt, maintained, and operated fixed-line and mobile communications and a wide range of communications
infrastructures, including submarine cables and satellite communication systems, both in Japan andinternationally. We now offer a variety of systems and services utilizing ICT.
Throughout the many years since its foundation, the Group has always valued its relationship of trust withcustomers. Going forward, we will continue to enhance the Group’s strengths, its proven technology and its
ability to provide services that meet customers’ needs and solve customers’ problems in order to provide valuethat meets or exceeds customers’ expectations, thereby building valuable relationships of trust.
We aim to help create a connected society where people around the world can communicate a range of
information and ideas freely so that they can enjoy safe, secure, full lives, and to contribute to thedevelopment of more user-friendly and convenient communications. We aspire to continue being a company
that will be trusted by society and customers in all eras.
These aspirations and this resolution are reflected in the Group Statement.

Corporate Message
This is a message to the public based on the NEC Networks & System Integration Corporation Group Statement.

1

Annual Report 2017

Contents

Editorial Policy and Scope of Report

NEC Networks & System Integration Corporation GroupStatement / Corporate Message 

1

Editorial Policy and Scope of Report / Contents 2

Editorial Policy

Message from Chairman of the Board 

3Since 2016, NEC Networks & System Integration
Corporation (NESIC) has been issuing its Annual Reportas an integrated report with its CSR report.
For 2017, we have reported on a wide range ofcorporate activities, including formulating a businessstrategy for the creation and provision of social value
and for our growth over the medium term as well as
the initiatives we pursue under that strategy.
Referring to various types of reporting
guidelines, we strive to provide information thatstakeholders across a wide spectrum will findvaluable, in the interests of providing a better
understanding of the NESIC Group. We would like forthis report to be read as widely as possible, andwelcome opinions and comments.
Full details, including our financial results andmedium-term business strategy, are available on the“Investor Relations” section of our website. Further
details of initiatives relating to corporate social
responsibility meanwhile are available on the“CSR” section.

History 

5Three Strengths 

7

NESIC in Daily Life 

9Period Covered
April 1, 2016 to March 31, 2017
(Some information related to the period following that
noted above is also included.)

Scope of Report
NEC Networks & System Integration Corporation andconsolidated subsidiaries

Guidelines• ISO 26000 (Guidance on social responsibility)• Sustainability Reporting Guideline 4.0 of the Global
Reporting Initiative (GRI)• International Integrated Reporting Council (IIRC)
Integrated Reporting Framework

Contact• Investor Relations
http://www.nesic.co.jp/english/ir/
Responsible section: IR Group, Corporate Finance &Controller Division• Corporate Social Responsibility
http://www. nesic.co.jp/english/csr/
Responsible section: CSR Promotion & Corporate
Communications Division

Disclaimer
This report contains forecasts, outlooks, targets, plans,
and other forward-looking statements concerning thebusiness performance, financial condition, and otheraspects of the management of the NEC Networks &System Integration Corporation Group. These
forward-looking statements are based on information
NEC Networks & System Integration Corporation had
as of the time this report was prepared and on certain
premises judged to be reasonable. These judgments
and premises, by their nature, are subjective andcharacterized by uncertainty. Furthermore, forwardlooking statements are not guarantees of future results
and actual performance could be greatly affected byvarious factors.

The NESIC Social Value Creation Model 

11

Financial & Non-Financial Highlights 13Chapter 1 Business and Strategy
15

Message from New President 

Summary of FY 2017/3 and Growth Initiatives for the Future  17
Examples of Creating Social Value through Strategic Businesses
Initiatives Aimed at Work-Style Innovation 

21

Orders for Large-Scale Mega Solar Power
Projects Received 

23

Business Development in the Myanmar Market 24

Chapter 2 Foundation for Business
NESIC Group's Sustainability Initiatives 25Continuously Enhancing Values for Employees 27

Promoting Diversity 

28

Establishing a Corporate Culture in Which Employees Can
Work without Anxiety 

29

Encouraging Suppliers to Give Greater Consideration to
Sustainability / Contributing to Mitigating Effects of and
Adapting to Climate Change 

30Providing Products and Services that Contribute to Safety and31
Security Continuing Thorough Efforts in Compliance 

33

Enhancing Corporate Governance 

34

Directors & Corporate Auditors 

37

A Dialogue Between Outside Directors 

39

Financial Section 

42Corporate Overview / Stock Information 

75

Annual Report 20172

Message from Chairman of the Board

Under New Management, We Are Solving
Social Issues and Accelerating Growth.

NEC Networks & System Integration Corporation (NESIC) is acommunications system integrator that provides a range oftelecommunications in an integrated fashion, from system
integration to installation to service, to variety of customers
including companies, telecom carriers, public offices and social
infrastructure operators. Founded in 1953, we have for morethan 60 years developed (i) construction capabilities used fortelecommunications facilities, electric facilities, airconditioning facilities, and building facilities, (ii) reliable ICT
capabilities for developing sophisticated ICT infrastructure fortelecom carriers and public institutions, and (iii) a range of
support service platforms for safety and security, using
operation centers which operate, monitor, and maintainnetworks, and comprehensive technical centers for the supply
chain from the procurement and storage of equipment toevaluation, repairs, and distribution. Our advantage isproviding these strengths in a comprehensive manner.

We Change Gears from Consolidating ourFoothold to Growth.
In the fiscal year ended March 31, 2017, net sales and operating
income weakened with the effect of the curbing of investment
at telecom carriers and the completion of fire-fighting andemergency radio system digitization, which had been brisk

Masao Wada
Chairman of the Board

3

until the previous fiscal year. Meanwhile, strategic businesses incustomers. The experience and expertise that we havethe midterm plan expanded steadily. The gross margin

accumulated in the course of these activities is one of our

improved thanks to cost structural reforms. We consolidated

strengths. We will help customers promote work-style

our foothold for regrowth.

innovation, making the most of our experience and expertise.

Based on this understanding, we have changed

In a networked society, cyber-terrorism has become amanagement to shift gears for growth. Yushi Ushijima, former

major threat. Cyber security to protect networks is becoming

president of Q&A Corporation, a Group company, has become

increasingly important as a consequence. We have a number ofpresident. Under Mr. Ushijima, a young and vigorous leader, thenetwork users, including the NEC Group, and will provide safe

NESIC Group will be united in accelerating growth. As Chairman

communication, using our ability to provide comprehensiveof the Board, I will support the president, taking good care ofservices ranging from the operation of networks to theimportant customers and partners.

monitoring of security.
We believe that the value we generate throughWe Will Work to Help Realize an Advanced
Society Based on the Spirit of the NEC
Networks & System Integration
Corporation Group Statement.

communications is becoming more and more indispensable forsociety and that we will achieve growth and enhance ourcorporate value by working to solve social issues.
To achieve sustainable development through the 100th

In Japan, work-style reform is a major theme in relation to social

anniversary and beyond, we discussed our values, our DNA, andissues, such as the work-life balance associated with childcare

our vision of what we should be like and, in January 2017,

and nursing care and the improvement of productivity. We haveestablished the NEC Networks & System Integration Corporation

been offering EmpowerdOffice since 2007. EmpoweredOffice isGroup Statement. We will contribute to the sustainable

an innovative work style that promotes communication anddevelopment of society and will grow with all of ourenhances creativity by integrating ICT and office space design.

stakeholders by working to help realize an advanced society,In the past ten years, we have implemented EmpoweredOfficewhere more comfortable and convenient communication isconcept at our own office and have offered EmpoweredOffice toavailable, based on the spirit of the statement.

Annual Report 20174

History

NESIC Has Grown 60+ Years by Being a Key Contributor
to the Development of New Ways of Communication.
1950s

1960s & 70s

1980s & 90s

A time for building a foundation Period of significant contributions to global
for communication infrastructure communication infrastructure construction

Period of diversification incommunications

Accumulation of a range of construction technologies and expertise throughconsiderable achievements related to worldwide telecom infrastructure construction andoffice facilities installation
Construction of the firsttelevision broadcasting
facility

Construction ofsatellite telecom
infrastructure for the1968 Olympic Games,
in Mexico City
Construction of
microwave telecom
infrastructure for five
Central Americancountries• Telecom liberalization• Birth of the New
Common Carriers(NCCs)• Expansion of themobile telecom
network

Acquisition of
special construction
business andgeneral construction
business licenses forseven categories of
construction
business

Integration of intra-office
voice and network systems
Business for NCCs takes
on significant scale

Acquisition of overall ICT technologies related to arange of systems and security measures at companies
based on our ability to design and build public networks
requiring high reliability

Expansion of the enterprisesystem integration business

Expansion of business basedon our strengths in the total
provision of network
integration and support
services

Strengthening of support capabilities through expansion of anationwide maintenance network to support public
infrastructure, along with the development of data centers,
network monitoring facilities, call centers and other facilities

Opening of the Customer
Support Center for theenhancement of customer
support services

Net sales
1953 Nippon Electric Installation Company
foundedOver ¥10 billion
1974
1975 Relocated the head office to Minato-ku, Tokyo
1976 Established the first overseas affiliate, in Brazil

Over ¥100 billion
1989

Over ¥200 billion
1997

1980 Changed the company name to NEC System Integration & Construction, Ltd.
1983 Listed on the Tokyo Stock Exchange Second Section
1991 Establishment of subsidiaries in Thailand and the Philippines
1992 Listed on the Tokyo Stock Exchange First Section(Assignment to the First Section)

1992 Established NEC System Integration & Construction Engineering, Ltd.
1993 Relocated the head office to Shinagawa-ku, Tokyo
1995 Acquired Media Service, Ltd.
(now NEC Networks & System Integration Services, Ltd.)

5

Annual Report 2017

2000sPeriod of explosive growthin communication

2010s
Advance of IP*1 and broadband networks
Integration of communications and broadcasting

Pursuit of value creation
via communication

Expansion of the use of the cloudIoT*2, Fourth Industrial Revolution

Construction
Capabilities
Started the EmpoweredOfficebusiness
Digitalization of terrestrial
broadcasting, andinformatizationof local communities• Initiatives in high-speed
mobile networks andnext-generation
broadcasting• Launch of MVNO*3 service
for IoT

Established sDOC (Service
Delivery Operations Center)

Establishment of S-iDC(Strategic Internet Data Center),NESIC’s first data center

ICT Capabilities

Established nTOC (Network
Total Operation Center)

Support Service
Platform

Strengthening of the contact
center business (Acquired
Q&A Corporation)¥292.2 billion
FY 2015/3 (record high)2003 50th anniversary
2005 Changed the company name to NEC Networks & System Integration Corporation2005 Acquired Toyo Networks & System Integration Co., Ltd.
(Merged with NEC Magnus Communications, Ltd. in 2015)

2006 Established a subsidiary in Saudi Arabia
2006 Acquired NEC Telenetworks Co., Ltd. (Merged with NESIC in 2007)2008 Acquired NICHIWA Co.

¥257.9 billion
FY 2017/3

2010 Relocated the head office to Bunkyo-ku, Tokyo
2011 NESIC’s industry sector classification in the stock market was changed from “construction” to“information & communication”

2013 Acquired NEC Magnus Communications, Ltd.
2014 Made NEC Net Innovation, Ltd. into a direct subsidiary2015 Merged with NEC Networks & System Integration Engineering, Ltd.
(former NEC System Integration & Construction Engineering, Ltd.)2016 Established a local subsidiary in Myanmar as a joint venture with local companies*1 IP: Internet Protocol *2 IoT: Internet of Things *3 MVNO: Mobile Virtual Network Operator

Annual Report 20176

Three Strengths

Drawing on Three Strengths,
NESIC Provides Unique, Innovative Services.
From telecom infrastructure,
to office facility management,
we get the job done.

Having a core of network technology
with rock-solid reliability, we respond to aOver the 60-plus years we have been in business, we haveaccumulated a wealth of experience and knowledge in working
with diverse types of telecom infrastructure in Japan and abroad.
We draw on all of that intellectual wealth in installing mobile
base stations, broadcasting systems, and other types of public
infrastructure, and in providing office facility management
services encompassing all related electrical facilities, officefurniture, and even space design.

With outstanding capabilities in the design and integration of
public networks operated by telecom carriers and other large-scale,wide-area networks for which impeccable reliability is essential,
NESIC provides ICT services for a broad range of customers
including central and local governments, social infrastructure
operators, and enterprises. We handle various systems, depending
on customer requirements, and provide customers with solutions
that also include measures for outstanding security, energy
efficiency, and environmental consciousness.

broad range of ICT needs.

Employees with managing engineer
or technical supervisor qualifications

Over

Employees with advanced
ICT qualifications

1,400

*

Over

Construction
Capabilities

700

*

ICT
Capabilities
Three
Strengths

Support Service
Platform
We have the organization wherewithal to provide a

broad range of services

customers can count on.

Nationwide Service Network

NESIC offers operation center functions centralizing everythingfrom help desk to network operation, maintenance and monitoring
services; comprehensive technical centers serving as a one-stopsource for distribution functions, technical evaluations, testing, SI,
maintenance and repairs; and data centers serving as a platform foroutsourcing services. We have the organization wherewithal toprovide customers with sophisticated support services 24/7.

Over

400

locationsthroughout
Japan

sDOC

nTOC

S-iDC

(Service Delivery Operation
Center)(Network Total Operation
Center)(Strategic Internet Data Center)

Data figures on this page are as of March 31, 2017 *Detailed data are available on page 14.

7

Annual Report 2017

Examples of the Use of Three Strengths 1“EmpoweredOffice” Work-Style Innovation Solutions
Integrating ICT, office facilities, and space design for innovation in work styles
Reforming the way people work in offices, and improving productivity, requires not only thelatest information and communications technology (ICT) but also office innovations to
unlock all of the benefits of ICT.
EmpoweredOffice is a work-style innovation solution that integrates ICT, office facilities,
and space design to deliver the work-style flexibility customers seek. With needs to work athome to fulfill child and elderly care responsibilities, together with other types of work-styledemands, approaches designed to get work done regardless of time or location are
becoming increasingly diversified. At NESIC, we implement work-style innovations ourselves
and then use what we learn to develop solutions for customers.

When we began offering EmpoweredOffice solutions tocustomers in 2007, we also implemented the EmpoweredOfficeconcept at our own head office. In 2012, we started to
implement EmpoweredOffice solutions at regional divisions
and offices throughout Japan. Now, many customers visit our
locations throughout Japan every day to see how
EmpoweredOffice works for us. Over the past ten years, wehave implemented work-style innovations at our own offices
and have accumulated expertise in innovative work styles,
including expertise in human resource systems. The number ofvisitors to our locations has exceeded 30,000*, and they are an
important part of our customer base.
In July 2017, we introduce telework at all locations. We willaccumulate know-how through the implementation of
telework by around 5,000 employees and will promote
activities to receive related orders, leveraging our customer
base.

Head Office

At the EmpoweredOffice Center, customers can experience environments fordemonstrating solutions according to their needs.

Examples of the Use of Three Strengths 2

Cyber Security BusinessIn addition to SI and maintenance, we provide support for security monitoring, analysis, and handlingWith cyber attacks constantly increasing in sophistication andtheir threat expanding, information security measures for ICT
systems, which are the backbone of the foundations of society
and corporate activities, are becoming more and more
important.
One of the strengths of the NESIC Group is that it provides
comprehensive solutions, including the selection ofequipment, design, building, and support, taking thecustomer’s operations after system implementation into
consideration. In particular, the unique benefit we offer lies in
the fact that we have Security Operation Center (SOC) in our

Network Total Operation Center (nTOC), which is formonitoring and operating customer networks. This means wemonitor customers’ information security 24 hours a day, sevendays a week. We comprehensively analyze the logs of security
equipment. If problems arise, we deal with them promptly.
We are able to rapidly and accurately analyze andrespond to incidents using our network operation and security
monitoring services. In addition to those services, we areleveraging our considerable track record of success in Japan toexpand our cyber security business.

*Detailed data are available on page 14.

Annual Report 20178

NESIC in Daily LifeNESIC Contributes to a Safe, Secure, and Plentiful
Tomorrow in Various Contexts of Daily Life.
Airports

HotelsBroadcasting

Work-Style Innovation

Visual Docking Guidance
Systems (VDGS), airport
information, and a broadarray of other services.

Comprehensive hotel
solutions such as
telephones and switchingequipment, room
management systems, andsystems for providing
guests with information.

Construction, operation,and maintenance of digital
TV broadcasting facilities
and relay stations, andstudio facilities, as well as
installation of fiber-optic
cable for next-generation
4K and 8K broadcasting.

Offices

Telework

Office innovation combining
ICT, office facilities, and design
to resolve diverse problems andenhance the value of work.

Proposals on telework that isderived from what we have
implemented in our own offices
and make the most of the
productive teamwork andsmooth communication thatare the hallmarks of leading
Japanese companies.

Fire-fighting &Ambulance

Disaster Prevention

Mobile Base Stations Shops and Public
Facilities
Installation of mobile baseConstruction of command
systems and radio systems
enabling rapid responses to
119 emergency calls, andthe provision of multilingual
call center services.

9

Annual Report 2017

Warning systems that provide
information at times of
emergency (earthquake, tsunami,
typhoon, etc.) via simultaneous
announcements over disasterprevention communication
systems for greater safety andsecurity in daily life.

stations indispensable fordaily communication via
smartphone and flip phone,and overall network
support, together withsystem integration of core
networks.

Creation of convenient user
environments for customers
including Wi-Fi networks,
information distribution
systems, and value-added
video services.

Railways and Roads
Support for public
transportation by
constructing andmaintaining
telecommunications
networks and other systems
for railway and highway
traffic control.

Drawing on our three strengths – construction capabilities, ICT capabilities, and support services platform – we offer comprehensive
solutions in all project stages from consulting, to system design, integration, installation, operation and maintenance, and even
BPO (business process outsourcing) to improve productivity and solve customers’ problems.

OceansSpace

Local Governments

Solar Power

Installation of submarine
cables that support
international communication,and support for earthquake
warning systems by
integrating submarine
seismometer systems.

Support for control systems
used to communicate withand operate asteroid
exploration, and other typesof satellites and probes.

Provision of networks used by
local governments to protect
citizens, provide municipal
services, and promote citizen
convenience and security,and tourism information
services for local
revitalization.

Construction of solar powersystems, drawing on
capabilities developed overmany years, and solar panel
maintenance and monitoring
services capable ofpinpointing panel damage.

Comprehensive
Technical Centers

Data Centers

Network Total
Operation Center

Contact Centers

Comprehensive technicalservices ranging from
distribution control
functions that run 24/7, to
new-technology evaluationand SI, and maintenanceand repair.

Keeping of customers’ IT
assets in secure, robust
environments, andprovision of wide-ranging
operation, outsourcing, andcloud services.

24/7 customer network
services ranging fromsecurity monitoring to
network operation.

ICT system failure response,
helpdesk, and other support
services for customer
system administrators andsystem users, andinterpretation services for
multiple languages.

Annual Report 201710

The NESIC Social Value Creation Model

Providing Value to Stakeholders by
Promoting the Evolution of Communication
Chapter

Using clean
energyBuilding and renovatingsocial infrastructure

Construction
Capabilities

Three
Strengths

ICT
Capabilities

pp. 7-8

Support Service
Platform

Making communities
safe and secure

Eliminating inequality

Improving job satisfaction
and productivity

NESIC Management Resources

Business Locations(Operation Centers,
MaintenanceNetwork, etc.)

Technology &Know-How

Diffusing innovation andpromotingindustrialization

Using safe andsecure ICT

Human Resources &Corporate Culture

In our Enterprise Networks Business, NESIC provide integration,
operation, monitoring, and outsourcing services for networks, IT,etc. and various other forms of office ICT, that companies rely on. By
also innovating work styles to increase productivity through the
integration of office space design, office facilities and ICT, we enablea diversification of approaches to work so as to address social
issues, such as striking balance between work and childcare and/or
nursing care for family members .

Carrier Networks business
NESIC supports daily communication by providing system
integration services, including network design and verification, andsupport services, such as system operation and maintenanceservices for telecom carriers.
We contribute to greater convenience for society by providing
loT and other types of new communication services applying
highly reliable, large-scale network technology, which are assets
developed in our business with telecom carriers.

Social Infrastructures business
NESIC makes daily life safer, more secure, and more comfortablethrough system integration, installation, maintenance, monitoring,
and a wide array of other services for the ICT infrastructure used bycentral and local governments, broadcasters, expressway andrailway operators, and other providers of social infrastructure.

Chapter
SDGs
Sustainable Development
Goals

Business and Strategy

Enterprise Networks businessSocial Challenges
Mitigating the effects ofand adapting to climatechange1

Stakeholder
Relationships Built
on Trust

Financial Base2

Foundation for BusinessContinuously Enhancing Values for Employees
Promoting Diversity
Establishing a Corporate Culture in Which Employees Can Work
without Anxiety
Encouraging Suppliers to Give Greater Consideration to Sustainability

Further strengthening of management resources

11

Annual Report 2017

Creating Value throughCommunication
Providing value to customers and society
Increasing productivity
Improving work-life balance

Global Business Area

Infrastructure Business Area

pp. 21-24

Service Business Area

Examples inStrategic
Businesses

Building social infrastructure offering
greater safety, security, and comfort
Promoting and expanding the global
use of ICT
Reducing environmental impacts
Expanding the use of renewable energy
Increasing business value by
expanding the use of ICT

Increasing the value of employees
Realizing flexible, satisfying work styles
Developing specialized human resources that
promote business growth
Promoting diversity and motivation

pp. 25-41

Increasing shareholder value

Contributing to Mitigating Effects of and Adapting to Climate Change
Providing Products and Services that Contribute to Safety andSecurity
Continuing Thorough Efforts in Compliance
Enhancing Corporate Governance

Increasing corporate value throughbusiness growth
Providing stable returns to shareholders

Annual Report 201712

Financial & Non-Financial Highlights

Financial Highlights
Orders Received / Net Sales

Operating Income / Ratio to Net Sales

299.1
274.9
279.2
292.2
280.0
270.3
257.9

280.1
241.3
235.7

16.2

14.4

14.1

12.5
5.3

5.3

5.5

5.0

10.0
3.9

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

FY 2017/3

Net sales (¥ billion)

Orders received (¥ billion)

FY 2015/3

FY 2016/3

Free Cash Flow / Cash and Cash Equivalents atthe End of the Fiscal Year

59.6
6.5

6.0
9.6

FY 2017/3

Ratio to net sales (%)

7.8

7.2
8.8

FY 2014/3

Operating income (¥ billion)

Net Income Attributable to Owners of the
Parent / ROE
8.3

FY 2013/3

8.7

44.4

7.0

6.5

43.9

39.0

30.3
17.8

19.9

6.6
(1.5)

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3(5.2)

FY 2017/3

FY 2013/3

Owner’s Equity / Owner’s Equity Ratio

End of2013/3

46.3

End of
2014/3

Owner’s equity (¥ billion)

13

Annual Report 2017

47.2

45.8

End of
2015/3End of
2016/3

Owner’s equity ratio (%)

FY 2016/3

FY 2017/3

Annual Dividend per Share / DOE

47.9

End of
2017/345
2.7

FY 2013/3

72

70

64

60
50.9

FY 2015/3

94.6

92.7

92.6

87.5

85.3

FY 2014/3

Cash and cash equivalents at the end of the fiscal year (¥ billion)
Free cash flow (¥ billion)

Net income attributable to owners of the parent (¥ billion)
ROE (Return on Equity) (%)

3.5

3.5

3.8

FY 2014/3

FY 2015/3

FY 2016/3

Annual dividend per share (¥)

DOE (Dividend on Equity) (%)

3.8

FY 2017/3

Non-Financial Highlights
Number of Employees at the End of Fiscal Year /Number of New Graduates (Consolidated)
7,464

7,260

7,572

1,110

1,136

1,262

6,150

6,328

6,310

98

103

27

32

FY 2015/3

FY 2016/3

Length of Service (Non-consolidated)(Years)

16.2

16.8

17.3

12.6

13.0

13.4

End of
2015/3End of
2016/3End of
2017/3

102
33
FY 2017/3

Female employees
Male employees
Male new graduates
Female new graduates

Male employees

Average Overtime (per month) (Non-consolidated)

Female employees

Employees with Qualifications (Non-consolidated)(Hours)

25.6

24.0

20.3

2,177

2,026

1,900

1,412

1,385

1,471

Employees withmanaging
engineer or
technical
supervisor
qualifications

1,471

FY 2015/3

FY 2016/3

FY 2017/3

End of
2015/3

706

614

515

End of
2016/3

Employees withadvanced ICT
qualifications

706

End of
2017/3*By each qualification

Carbon Statistics*1 (Non-consolidated)

EmpoweredOffice Visitors
6,170

6,113

6,108

Cumulative Visitorssince 2007
Companies

2,131

FY 2015/3

Companies

2,248

FY 2016/3

Individuals

2,146

FY 2017/3

CO2 emissions reduction
contribution:

CO2 emissions:11,653
Individuals

34,27014,474 t

1 Office energy usage

24,69910,642t

2 Logistics-related
CO2 emissions

104t

3 Paper usage

82t

4 Business travel(transportation)
5 Company-owned
vehicles(commercial)

1 Reductions in customer
23,274t
CO2 emissions*2
2 Renewable energy
purchases

14t

3,119t3 Tree-planting (Carbon
offset procurement)

12t

527t

4 Teleconference system
usage*3

1,399t*1 C
 omparison of NESIC’s CO2 emissions from business activities to its contributions to CO2emissions reductions, during the fiscal year ended March 31, 2017.
*2 CO2 emissions reductions expected from customers’ use of environmentally conscious products
and services provided by NESIC.
*3 CO2 emissions reductions related to internal use of teleconference systems.

Annual Report 201714

Chapter1

Business and Strategy

Message from New President

I Will Take the Lead in Making Change forRegrowth and the Evolution of the NESIC Group.

Please let me take this opportunity to say a few words as the newpresident.

More and more businesses are shifting their focus fromproducts to services. Against this backdrop, the NESIC Group, led by
Chairman Masao Wada, focused on expanding services, promoting

I joined NEC Networks & System Integration Corporation (NESIC) in

M&A, and strengthening the earnings structure. In the fiscal year

1984. Since then, I have been committed to expanding our businessended March 31, 2015, we achieved new record sales and operating

fields, involved in sales and the development of sales strategies inincome. In the fiscal year ended March 31, 2017, we focused onsales sections. I was also involved in the launch of therebuilding our business base. In the carrier networks business,

EmpoweredOffice business. From 2014, I worked in management at

results declined due to the adverse effect of a reduction in capital

Q&A Corporation (QAC) which provides B-to-B-to-C services,expenditure at telecom carriers, and we reformed the cost structure

including technical support and contact center services. QAC

in the business. Meanwhile, we strove to expand strategic

started as a venture company and became a consolidated

businesses in the midterm plan.

subsidiary of NESIC in 2014. QAC thus has a corporate culture thatIn the fiscal year ending March 31, 2018, a slowdown in our

differs from that of NESIC. Its business style is also different frombusiness targeting the telecom carriers and a reactionary declinethat of NESIC. QAC directly contacts consumers—individuals andafter special demand associated with fire-fighting and emergency

households that use products or services of corporate customers—

radio system digitization projects, the main causes of the decline inwhile NESIC engages primarily in B-to-B business. I was involved inresults, ended, and we moved from a phase of consolidating amanagement at a company that has a culture and a market

foothold to a phase of regrowth through the expansion of strategic

different from those of NESIC and had opportunities to see NESIC

businesses. My missions are to achieve regrowth to implement thefrom outside, in an objective way. That was a very valuable

current midterm plan and to transform the NESIC Group for further

experience.

growth as a “change leader.” To fulfill these missions, I would like tofocus on the following initiatives.

15

Annual Report 2017

Further Strengthening Strategic
Businesses for Regrowthforerunner of these trends and launched the EmpoweredOffice

To achieve regrowth, we need to expand our strategic businesses inrecord. I aim to make innovations happen at NESIC by

the midterm plan. I believe that the direction of our strategy is right.

transforming it into a company that will change itself to achieve

Taking advantage of my experience at sales divisions and in B-to-B-

its own vision instead of considering development based on the

to-C business at QAC I will focus on improving our ability to provide

existing situation.

and IoT/MVNO (Mobile Virtual Network Operator) businesses. We
have created new businesses, making the most of our strong track

services and to make proposals that consider the customers of ourcustomers. I will thus expedite the execution of initiatives in ourservice, infrastructure, and global businesses.

Lastly, Aiming to Create a Company
Where Each Employee Can Shine

Enhancing Strengths to Reach an
Overwhelming Level

Employees need to have high motives and a mindset for enjoying

The key to regrowth, our challenge, is to provide high value-added

will shine and growth will accelerate. I will take the lead in changing

services to customers. I would like to expand business scale and

the Group to a corporate group where each employee will be

improve profitability by providing services that not only satisfy

motivated and shine. I will do my best to ensure that NESIC remains

customers but also get customers to say that we are indispensable

a company trusted, acclaimed, and supported in society byto them.

achieving regrowth at the NESIC Group and change for the future,

We have strengths that competitors cannot obtain easily,
including network technologies, the ability to develop operations

changes to create innovations and build on strengths. If each
employee has a dream and is motivated to achieve it, all employees

thereby living up to the expectations of customers, shareholders,and all other stakeholders.

not only in Japan but in the world, and a support and service
platform offering maintenance, operations, monitoring andI hope that we can rely on the continued support of all of ouroutsourcing services across the nation 24/7, which we havestakeholders.

developed over the sixty-plus years since our founding. I aim toachieve substantial growth by building on these strengths, raisingthem to an overwhelming, unbeatable level, and creating a numberof businesses that have their own new strengths created on the

Yushi Ushijima

existing ones.

President

Creating Innovations
To that end, we need to create major innovations from scratch
without depending on the existing base. Our strengths are basedon the strong trust we have built with our customers. They trust
us as a reliable company because of our sincere attitude towards
them and well-developed service platform. However, it is also
important for us not to be satisfied with the current situation, but
to always create innovations and take on challenges throughoutside-the-box approaches. The IoT (Internet of Things) has now
emerged. Everything is connected to networks, and everythingexchanges information through networks. Meanwhile, innovating
work styles—the use of diverse human resources, a good worklife balance, and high productivity—are required. We were theAnnual Report 201716

Chapter1

Business and Strategy

Summary of FY 2017/3 and Growth Initiatives for the Future

Summary of FY 2017/3 and Growth
Initiatives for the Future
Overview of Results in FY 2017/3
Although net sales and operating income declined, we consolidated our foothold for regrowth by
expanding strategic businesses and cost structural reforms.
In the fiscal year ended March 31, 2017, our results weakened. Net sales and operating income declined with the effect of the curbing ofinvestment at telecom carriers and the completion of fire-fighting and emergency radio system digitization. Meanwhile, there were signs ofregrowth in the topline. The Carrier Networks business, which declined significantly for two years, bottomed out, and strategic businesses
expanded steadily. On the profit front, the gross margin improved from the previous fiscal year thanks primarily to cost structural reforms in the
Carrier Networks business. We consolidated our foothold in the past year. Orders received rose year on year, reflecting orders for projects forconstructing and maintaining large-scale mega solar power generation plants.
(¥ billion)

FY 2016/3

FY 2017/3

YoY changes

Orders Received

274.9

279.2

+2%

Net Sales

280.0

257.9

(8%)

Gross Margin

16.1%

16.5%

+0.4pt14.1

10.0

Operating Income
Ratio to Net Sales

Net Income Attributable to Ownersof the Parent
Ratio to Net Sales

ROE

5.0%

Annual Report 2017

6.5

6.0

+0.5

2.1%

2.5%

+0.4pt6.5%

7.0%+0.5ptIn the fiscal year ended March 31, 2017, differences in the businessenvironment were evident in each field. There was active
investment to bolster business management and competitiveness,
including investment in work-style innovation, while telecom
carriers continued to curb capital spending on network
infrastructure. In this environment, net sales declined from a year
ago on telecom carriers’ investment restraint and the end offire-fighting and emergency radio system digitization projects in
May 2016, which had been brisk until the previous fiscal year. Given
this fall, operating income also declined.
Orders received rose year on year, reflecting orders for projects
for constructing and maintaining mega solar plants. The grossmargin improved from the previous fiscal year, chiefly due to cost
structural reforms in the Carrier Networks business, which
continued from the previous fiscal year. Net income attributable toowners of the parent increased from the previous fiscal year due toa decrease in extraordinary losses and the absence of the reversal ofdeferred tax assets associated with changes in tax rates. As a result,ROE (Return on Equity) improved from the previous fiscal year.

17

-4.1
(1.1pt)3.9%‌
Trendsin Year-on-Year Changes in Orders Received and Sales
in the Carrier Networks BusinessIn the fourth quarter, it became obvious that sales
had bottomed out following orders received.

+5%
(10%)

(5%)

(16%)
(27%)

(16%)
(24%)
1Q

2Q

+4%

(28%)
3Q

+4%

+1%

(21%)
(23%)

(21%)
(21%)

(20%)

4Q

1Q

2Q

3Q

4Q

FY 2016/3

FY 2017/3

Year-on-year changes in net sales (%)

Year-on-year changes in orders received (%)*Excluding the effect of projects for constructing and maintaining large-scale mega solar power
generation plants

Review by Segment

Enterprise Networks businessNet sales ¥107.4 billion

Sales Breakdown(2% decrease year on year)

Business description
Integration and operation/monitoring
services of office ICT, including intra-company
networks and IT. Providing work-styleinnovation solutions, security solution andmultilingual contact center services.

42%
Net Sales

Net sales decreased 2% year on year, to ¥107.4 billion, reflecting decreased sales in the PBX(private branch exchange) business, which showed good results in the previous fiscal year
due to special demand for replacement, among other facts, despite growth in
EmpoweredOffice, a solution for work-style innovation, owing to active ICT investment inwork-style innovation. Operating income stood at ¥8.8 billion, a slight decrease due to the fallin net sales. The operating margin increased with improvements in cost-effectiveness.

Operating Income (¥ billion)

107.4

109.6

8.8

8.9

(8.2%)(8.1%)FY 2016/3

FY 2017/3

The figures in parentheses are operating margins.

Carrier Networks businessNet sales ¥61.6 billion

Sales Breakdown(11% decrease year on year)

Business description
Building, operation and maintenance of
network infrastructure for telecom
carriers. Providing other communication
services, including the installation of
Wi-Fi equipment, and IoT.

24%
Net Sales

Net sales decreased 11% year on year, to ¥61.6 billion, given the effect of cuts in capitalspending by telecom carriers, particularly in mobile communications base stations. In the
fourth quarter, however, net sales appeared to have bottomed out, rising 1% year on year,to ¥18.9 billion. Despite the decline in net sales, operating income rose to ¥3.6 billion due
to the effect of cost structural reforms, primarily in-house production and a reduction in
outsourcing costs.

Operating Income (¥ billion)

69.3

61.6
3.6

3.5

(5.8%)(5.1%)FY 2016/3

FY 2017/3

The figures in parentheses are operating margins.

Social Infrastructures businessNet sales ¥82.4 billion

Sales Breakdown(14% decrease year on year)

Business description
Provision of ICT infrastructure-related
services, which underpin society, including
building of fire-fighting networks,
installation of CATV facilities, and disasterprevention solutions.

Net sales decreased 14% year on year, to ¥82.4 billion, reflecting the effect of thecompletion of fire-fighting and emergency radio system digitization projects because of
the arrival of the deadline for migration from analog systems in May 2016. The competitiveenvironment in the public sector, including road networks, worsened, but the field of
broadcasting and CATV, including the opticalization of CATV, expanded steadily. With thefall in net sales, operating income declined to ¥6.0 billion.

32%

Net Sales

Operating Income (¥ billion)

96.3

82.4
9.5
(9.9%)

6.0(7.3%)FY 2016/3

FY 2017/3

The figures in parentheses are operating margins.

Annual Report 201718

Chapter1

Business and Strategy

Summary of FY 2017/3 and Growth Initiatives for the Future

Achievements and Challenges in FY 2017/3
The strategic areas in the midterm plan expanded steadily.

Achievements

Challenges•Strategic areas expanded (+8%)•The gross margin improved (+0.4pt)
with the results of cost structuralreforms in the Carrier Networks
business.

•The basement business declined
more than expected (-17%).
•The operating margin decreased(-1.1pt) due to the smaller sales
scale.

The execution of growth strategies and the strengthening of business capabilities
delivered some results.

The following had been factors for smaller sales, but•The telecom carriers business bottomed out.
•A reactionary fall following special demand for fire-fighting and emergency
radio system digitization projects ended.
Although net sales declined year on year in the fiscal year ended
March 31, 2017, sales in the strategic areas in the midterm planannounced in 2016 expanded steadily as described below.
In the service business, sales increased 12% year on year,
reflecting the expansion of the EmpoweredOffice business against a
backdrop of rising interest in work-style innovation and increasingneeds for cyber security.
In the infrastructure business, sales rose 7% year on year withthe expansion of the broadcasting and CATV field and the disasterprevention field. In the mega solar business, orders for large-scale
projects were received from a Spanish operator, which has
implications for the future.
In the global business, sales remained flat from the previous
fiscal year due to the effect of the stronger yen, but outboundbusiness effectively expanded in local currency terms. ICT StarGroup Myanmar Co., Ltd., a local joint venture in Myanmar that

For reference

commenced operations in June 2016, received a series of orders,
including orders for telecom infrastructure SI, making a good start.
In terms of profitability, the gross margin improved 0.4 pt as aresult of cost structural reforms in the Carrier Networks business,among other factors, in response to a significant reduction in
investment at telecom carriers.
As described above, we consider that in the fiscal year ended
March 31, 2017, we achieved some results in the implementation of
growth strategies and the strengthening of business capabilities.
Net sales declined, however, because results in strategic businesses
were more than offset by a fall in the basement business due to a
decline in business for telecom carriers and the end of fire-fighting
and emergency radio system digitization projects, and as a result,sales were insufficient in comparison with the business structuredeveloped for growth.

Outline of the Midterm Plan (FY 2017/3 – FY 2019/3)

Basic Strategy
Expansion of the topline (orders received, net sales)•Further growth by strengthening the service, infrastructure, and global
businesses

ServiceBusiness
Area

Strengthening business capabilities•Strengthening the business base that supports growth•Improving management efficiency further

New midterm plan targets (FY 2019/3)* New midterm plan targets are as of May 10, 2016.

•Net sales ¥300 billion •Operating income
margin5.5%•Operating income
10%¥16.5 billion •ROE

19

Annual Report 2017

Infrastructure
Business
Area
GlobalBusiness
Area•B-to-B service business expansion
EmpoweredOffice business
Cyber security business
IoT/MVNO business•Strengthening and deepening of business inmarkets with growing investment(Broadcasting/CATV, disaster prevention, railway/road networks, etc.)•Outbound business expansion centered on ASEAN•Inbound business expanding with visitors to Japan(Hotels, airports, tourism, multilingual support)

Initiatives for Growth
We will accelerate growth in the strategic areas to achieve regrowth from the bottom in the fiscal year ended March 31, 2017.
‌Progress in Strategic Areas and Target Net Sales (¥ billion)
Total

Strategic areas
total

Strategic areas

Service Business
Area

280.0

257.9

103.0 +8%111.0

51.0 +12% 57.0

270
127
+14%
+9%

29.0 +7% 31.0 +29%
Global Business23.0 +0% 23.0 +9%
Area
Infrastructure
Business Area

The basementbusiness

177.0 (17%) 146.9
FY 2016/3(3%)

FY 2017/3

62
40
25
143
FY 2018/3(Forecast)*Forecast as at April 27, 2017

The business targeting telecom carriers and fire-fighting andemergency radio system digitization projects were the two main
reasons behind our decrease in net sales in the fiscal year ended
March 31, 2017. However, the business for telecom carriers has
obviously bottomed out, although a significant recovery is unlikely.
Also, the reactionary fall following special demand for fire-fighting
and emergency radio system digitization projects has ended. In thenext fiscal year (ending March 31, 2018), we aim for regrowth basedon achievements in the fiscal year ended March 31, 2017 byaccelerating the expansion of the strategic businesses in themidterm plan.
In the service business, work-style innovation is gathering

momentum in Japan. We will expand the business, making themost of the customer base of EmpoweredOffice, which we haveaccumulated since we launched EmpoweredOffice in 2007, and theexpertise that we have developed through our implementation ofwork-style innovation at our own office. We will work to strengthen
and expand the cyber security business, for which needs are
growing due mainly to cyber terrorism. In the IoT/MVNO business,
we will accelerate the development and introduction of newservices, including SIM (global Subscriber Identity Module) service
and services in collaboration with other companies.
In the infrastructure business, we expect the opticalization of
CATV for next-generation 4K broadcasts. In the mega solar field,
where an increase in projects is expected in the medium term, we
will focus on executing large-scale projects for which we received
orders in the previous fiscal year, and will seek to receive orders for
new projects based on the execution of projects for which orders
have been received.
In the global business, we will work to strengthen our local
business capabilities in the ASEAN region, primarily Myanmar andThailand, where continued active investment is expected. We will
also seek to receive orders for ODA projects, and will thus expand
our outbound business. In the inbound business, inbound tourists
are increasing steadily, reflecting the government’s policy. We will
work to expand services for sightseeing spots, airports, and manyother places, especially for hotels, where there is strong demand fora variety of services, including Wi-Fi and room management
systems, based on our common base, including multilingual service
and MVNO.

Shareholder Returns
We aim to expand shareholder returns steadily.
We view the distribution of a reasonable share of profits toshareholders as one of our top management priorities and focus on
steadily increasing returns to shareholders who hold shares for thelong term. To this end, while investing actively in M&A, among
other purposes, for business growth, we aim to pay dividends
without being affected by changes in profits in the short term,
taking DOE (Dividend on Equity) into consideration.
Although our results were weak in the fiscal year ended March
31, 2017, we paid an annual dividend per share of ¥72, up ¥2 fromthe previous fiscal year, as planned, in accordance with our policy. In
the fiscal year ending March 31, 2018, we plan to pay an annual
dividend per share of ¥74, an increase for the 11th consecutive
fiscal year.

‌Per-Share Annual Dividend(¥)

Planning an increase for the 11th year in a row

60

64

70

72

74

45

14

20

22

25

26

28

FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3(Forecast)

Annual Report 201720

Chapter1

Business and Strategy

Examples of Creating Social Value through Strategic Businesses

Service BusinessInitiatives Aimed at Work-Style Innovation
Providing solutions to help customers resolve management issues,
based on our own initiatives over the past decade.
Social Value Creation
NESIC provides total support for everything from designing and developing
systems and rules for new working practices, through to improving ICT
environments in the interests of work-style innovation. As well as improving
productivity or reducing extended overtime, for instance, this enables us tohelp tackle social challenges, such as striking a balance between work andcaring for children and family.

We have been offering EmpoweredOffice solutions toenable people to work more efficiently and creatively since2007, based on the conviction that “management
innovation starts with office innovation.” We also take theinitiative in introducing new working practices ourselves,practices that eliminate the use of paper, overcome
distances between offices and facilitate more collaborative
work, as we continue to make improvements.
We brought in telework, including telecommuting inJuly 2017, building on the expertise we have accumulated
over the last decade to enable employees to work without
being bound to specific locations or times. When customers
actually see how dynamically our employees are working,they appreciate our approach to work innovation. We canthen work in partnership to come up with the optimum
working solution for each customer, to help innovate theirown working practices.
We intend to keep on developing the skills and expertise
we have built up to date, so that we can pave the way forfurther innovation, and improvements in productivity andefficiency. We will continue to offer work-style innovation
solutions, as a driving force behind growth and improved
competitiveness for all of our customers.

Striking aContribution to Balance between
Work and Caring
Productivity
Improvement for Children andFamilyReduction ofExtended
Overtime

2007-

2015-

Launched EmpoweredOfficeinnovation solution business

Implemented demonstration
experiment of working from home
aimed at striking a balance between
work and private life
• ‌Formulated rules for working fromhome
• ‌Developed and introduced
attendance management app

2010-

2016-

Relocated head office to Koraku,
Bunkyo-ku

Trialed telework on a companywide
scale• ‌Explored telework models from a
range of professions

Rolled out EmpoweredOfficecompanywide (head office andoffices in Japan and overseas)• ‌Experimented with flexible teleworksystem, using hourly units as well
as daily units

Laying the foundations for telework Putting telework into practice

TOPICSTaking Part in Telework Day
On July 24, 2017, three years ahead of the opening ceremony of the 2020 Tokyo
Olympic Games, we took part in “Telework Day,” a government project aimed atgetting the Japanese people on board with telework by the year 2020. We took
part as a special supporting organization, to assist with measuring the effects ofthe project.
On the day, not only more than 50% of our employees in our head officearea signed up for telework, but half of our executives, including the President,
took part in executive meetings from their offices or homes via telework too. We
were successfully able to make effective use of this system when referring to
documents, engaging in discussions and making decisions.
An executive meeting, in which half of the members took part via telework

21

Annual Report 2017

2017Took on the challenge of innovating working practices to improve productivity• ‌Brought in new telework scheme with no restrictions on where and when employees work for
all of about 5,000 employees• ‌Created mechanisms to share and co-create knowledge, combining technologies such as IoT
and AI (Artificial Intelligence)

On to the next stage
Visualizing and analyzing working practices
Analyzing bottlenecks that impede efficiency and productivity in operating processes, and working
to reduce extended overtime and improve productivity

Intelligence Connect
Aiming to speed up operations and improve quality by transforming employees’ skills into datathat can be used in related work

Increasing efficiency of staff operations
Aiming to make significant improvements in operating efficiency through measures such as using
AI to automate inquiry responses, and automating standard operations through RPA (robotic
process automation)

Making the most ofaccumulated
expertise based on
our own initiatives
to show customers
the best way toinnovate working
practices

New innovations in working practices for the future

STAFF VOICE

Tomoyuki Takahashi 1st Consulting Group, EmpoweredOffice Business Development Division

My work involves providing solutions and consulting services to help customers innovate working
practices. We have customers from a wide range of sectors coming to visit us here, including privatecompanies, public bodies and local government. With more and more top management staff coming to
see us these days, work-style innovation is definitely becoming a key element of management strategy.
As improving productivity is a major priority for all of our customers, many of them want to know more
about the initiatives we have implemented to innovate working practices over the last decade, and thechallenges we have faced. There is a real sense that the market is focusing more on us as a company.
I get a real sense of satisfaction on a daily basis, as we think through challenges with our customers
and come up with solutions to their problems, all the while playing to our strengths in terms of “redesigning communication.” I intend to continue to work closely with our customers, as we do our bit tocreate a society in which everyone can live their lives to the full and improve productivity.

Annual Report 201722

Chapter1

Business and Strategy

Examples of Creating Social Value through Strategic Businesses

Infrastructure Business Area

Orders for Large-Scale Mega
Solar Power Projects Received
NESIC will contribute to mitigating global warming and achieving a diversified
energy supply through the construction and maintenance of large-scale mega
solar power generation plants.
Social Value Creation
With growing expectations of solar energy as a renewable energy source,
we received orders for large-scale mega solar power projects from a leading
global company. We will execute the projects reliably, making the most of
the construction capabilities that we have developed throughtelecommunications infrastructure construction work worldwide to expand
our infrastructure business and contribute to reducing CO2 emissions.

Contribution to Expansion of theDiversified
Mitigation of Use of Renewable
Supply of Energy
EnergyGlobal Warming

From the Construction of Mega Solar Plants to
Maintenance in an Integrated Mannercompanies have been entering Japan, and we recognize that morethan 20 large-scale projects are planned.

We received orders for projects for constructing and maintaining
large-scale mega solar power generation plants from X-Elio*1, a
global solar power generation company based in Spain. We are
executing construction work to start power generation in thesummer of 2018.
We are constructing mega solar plants at two sites in Miyagi
Prefecture, in Shiroishi City and in Kurokawa County (Taiwa andTomiya). The number of solar panels will be approximately 200,000.
Total rated power output*2 will amount to 58 MW. Annual output is
expected to be equivalent to power consumption at 15,000 generalhouseholds. In these large-scale projects, we are carrying out land
preparation, the design, construction and installation of electricfacilities, monitoring systems, and panels. After the plants arecompleted, we will maintain them for 20 years.
There are high expectations of solar power generation as arenewable energy that does not emit any greenhouse gas.
Following the change in the feed-in-tariff scheme, there is a needfor a surge in power generation plant construction, given therelatively high tariffs. A number of foreign power generation

Focusing on Mega Solar Plants as Part of Our
Infrastructure Business for Medium-Term Growth
and the Creation of Environmental Value
Recognizing that there are ebbs and flows in investment in theinfrastructure business area in accordance with the needs of society,
we have adopted a basic policy of focusing on fields where
investment is rising. We have positioned solar power generation
plants as one of the infrastructure businesses that we should focus
on in the medium term.
The projects we are undertaking involve for the first timelarge-scale mega solar power generation plants whose output
exceeds 10 MW. Making the most of the construction capabilities
that we have developed through telecommunications
infrastructure construction work around the world for more than 60
years since our founding, we will execute these projects reliably to
win additional large-scale projects and expand the business in the
future. We also aim to contribute to expanding the use ofrenewable energy through the business.

*1 X-Elio: A global solar power generation company headquartered in Spain. X-Elio operates in 18 or more countries.
*2 Maximum output in a JIS standard test environment

STAFF VOICE

Kazuya Hashioka Taiwa Tomiya Solar Farm Division, Mega Solar Project

I am involved in electric work at the mega solar plant being constructed in Taiwa Town and Tomiya City.
I had never been involved in a project as large as this. We are working to arrange approximately 117,000
solar panels to generate power efficiently and build a system to send generated power to the electric
power company’s power grid.
When this project is completed, electricity as clean, natural energy will be generated. I am
performing day-to-day tasks, feeling proud of helping to protect the global environment. As this islarge-scale construction work, we are working to complete it safely in cooperation with other companies,
while seeking the understanding of neighborhood residents.

23

Annual Report 2017

Global BusinessBusiness Developmentin the Myanmar Market
NESIC is building telecommunications infrastructure in growing
myanmar to help bridge the international digital divide.
Social Value Creation
NESIC has made a full-scale entry into the Myanmar market. Myanmar has
been promoting rapid democratization and economic reform and isachieving remarkable development. By building its business in this country,
we are contributing to job creation, human resource development, andinformation infrastructure development, which will help bridge theinternational digital divide.

Strengthening Our Ability to Adapt to Expanding
Markets, Focusing on Those in the ASEAN Region,
to Expand Our Global BusinessWe position the global business as one of the strategic businesses inour midterm plan. We are striving to bolster our ability to adapt to
expanding markets, focusing on those in the ASEAN region, where
investment in social capital is expected to expand significantly.
Myanmar achieved a transition to civilian rule in 2011 and has
been promoting democratization and economic reform. The
Myanmar economy is achieving remarkable growth. The
penetration rate of mobile communications*1 in that country was
13% in 2013. Although the rate expanded rapidly to 77% in 2015, it
was still low compared with advanced countries and othercountries in Asia. An international digital divide remains.

Collaborating with Local Companies to Steadily
Expand Businesses Such as SI of Telecom
Infrastructure and Installation of Facilities at
Telecommunications Stations
To tap into the fast-growing market, we opened a Yangon branch of
NESIC (Thailand) Ltd., an overseas subsidiary, in 2015, making a

Bridging theInternational
Digital Divide

Use of Local
Job Creation in Human Resources
an Emerging
and Cultivation
Countryof Engineers

full-scale entry into the market. In 2016, we established ICT StarGroup Myanmar Co., Ltd. (iSGM) as a joint venture with two local
companies: GUSTO Technology Limited, which provides education
for IT engineers, and Technology & Magical Trading Co., Ltd., which
engages in the import and procurement of IT equipment.
By collaborating with these local companies, we were able tosecure excellent human resources and build a business base,including SCM (Supply Chain Management) primarily local
equipment procurement. As a result, we received orders for SI of
telecom infrastructure, installation of facilities intelecommunications stations, and technical assistance for
introductory technology. Net sales in the first year stood at
approximately 1 billion yen, exceeding the forecast. The number of
employees expanded rapidly to 175 at the end of March 2017 from40 when the joint venture started.
We plan to leverage iSGM’s strengths, cost competitivenessand its ability to provide Japanese-quality projects using excellent
human resources, to expand local business targeting telecom
carriers and other companies and the government of Myanmar. We
also plan to expand into offshore software development and tocontribute to the development of the country through telecom
infrastructure development and the cultivation of engineers.

*1 Source: International Telecommunication Union (ITU)

STAFF VOICE

Yadanar Facilities BU, ICT Star Group Myanmar Co., Ltd.

iSGM has established an in-house human resources system to facilitate the personal development oflocal employees like us. It maximizes the potential of employees, helping younger and relatively
inexperienced employees become leaders and professionals. iSGM actively transfers technology to local
employees and offers comprehensive support. Thanks to the support, we can set high targets and takeon challenges.
What we like best about iSGM is that we can build strong trust with the company and are proud towork for it. We are highly motivated and we enjoy our work. We will work hard together to make iSGM
the No. 1 company in the Myanmar ICT industry.

Annual Report 201724

ChapterFoundation for Business

2

Sustainability Initiatives

NESIC Group’s
Sustainability Initiatives
Contributing to the development of a sustainable society based on engagement with stakeholders
The NESIC Group’s growth is underpinned by sustainability initiatives, which include measures for sound corporate governance. We, therefore,
engage in a wide variety of activities that contribute to the development of a sustainable society. Before carrying out such activities, we checkstakeholder opinions and expectations, so that we can evaluate and determine what measures need to be prioritized. We then identify material
issues (materiality) based on our findings, clearly set out priority initiatives as a group, and evaluate and disclose progress with the relevantmeasures and their results.

Major communication opportunities by stakeholder are as follows• Briefing sessions on business trends• Annual questionnaire surveys to major customers about
our services

Customers• Questionnaire surveys on individual project at completion

Suppliers• Periodic audit of matters, such as quality and information
security• Face-to-face surveys on individual project at completion• Other communications with customers• Communications through individual transactions• IR tools (IR website, annual report, shareholder's magazine(kabunushi-tsushin), etc.)

Shareholders
and investors• General meetings of shareholders and questionnaire
surveys on shareholders• Presentations (financial results presentation, presentation
for individual investors, presentation at IR conference, etc.)• Information sharing based on the activities of respective
NPOs

NPOs andexperts• Participation in and cooperation with the activities ofrespective NPOs
• Joint activities with various external research associations• Stakeholder dialogues: Held once annually• One-on-one meetings/group meetings• President’s briefing on medium-term management plansand others• Periodic information exchanges with local governments,
such as Bunkyo Ward, where the company’s head office islocated, and social welfare councils

Local community • Participation of local residents in events sponsored by themembers
company, such as local food fairs for disaster-affected areas• Joint activities related to matters such as quality, safety andinformation security, with a council of key cooperatingcompanies

Employees• Study on the awareness of employees (opinion survey):
Conducted once annuallyand benefit concerts• Various questionnaire surveys and studies including thesurvey on compliance awareness• Communications with companies, organizations, residents,and local governments in disaster-affected areas• Training programs by rank and individual purpose

Dialogue with a Prominent Outside CSR Expert
Hideto Kawakita, CEO, "the International Institute for Human, Organization and the Earth [IIHOE]" and Editor and Publisher, “Socio Management.”

We organized a stakeholder dialogue session on the Company’s businessactivities and related CSR initiatives, including Senior Vice Presidents Tetsujiro
Arano and Komei Sakanashi, and Associate Senior Vice Presidents Tokuo
Yamamoto and Masamitsu Kisaki, as well as members of the CSR Promotion &Corporate Communications Division and other related staff divisions.
We exchanged opinions on a whole host of topics during this, our third
dialogue session with Mr. Kawakita, ranging from ways to improve productivity
and encourage employees to keep on working for the Company, through tosustainable procurement activities.
*Positions correct as of May 24, 2017.

Details on Mr. Kawakita’s opinions and on NESIC’s conversation with him on the following webpage:

http://www.nesic.co.jp/english/csr/engagement.html

25

Annual Report 2017

Materiality for FY 2018/3
To ensure that our sustainability initiatives are in line with public expectations, we actively take on board stakeholder opinions, and make sure that wehave adequate processes in place for identifying material issues (materiality). Once we have determined material issues, the relevant staff divisions
work together to formulate a range of measures, as part of a continuing process of strengthening and improving activities via the PDCA cycle.
We review material issues every year, as necessary.
Materiality for FY 2018/3
Extremely High

Stakeholder Expectations/Importance for Stakeholders

Continuously enhancing values for
employees, promoting diversity

Providing values by creating
communication

Providing products and services that
contribute to safety and security(product safety and quality, information security)

Establishing a corporate culture in which
employees can work without anxiety

Continuing thorough efforts in compliance

Encouraging suppliers to give greater
consideration to sustainability

Extremely High
Importance for the Company’s Business (Assessed from the Perspectives of Risk Borne and Value Provision)Materiality Determination Process
We determined materiality with respect to entire process based on feedback from the Institute for International Socio-Economic Studies (IISE), which serves
as a think tank for the NEC Group.

STEP

STEP

STEP

STEP

STEP

Identification ofsocial issues(in and outside Japan)

Detection of issues thatare highly relevant toCompany businessMeasures to be taken by
the Company towards
solving social issues

Priority setting

Identification ofmateriality

Identified global issues
related to SDGs (Sustainable
Development Goals)*1,
compared them with recent
domestic issues, and took
into account ISO 26000*2 andGRI*3.

Compared with Company
business the issues in andoutside Japan that wereidentified in STEP 1 andselected highly relevant issues.
Determined relevance with
Company business in light ofthe medium-term
management plan and soforth.

Sorted out measures to betaken by the Company forsolving issues that arehighly relevant to Company
business as identified in
STEP 2 and narrowed
down to 31 items ascandidates for material
issues.

1 2 3 4 5
Set priorities for the 31
items based on the twocores of stakeholder
expectations/importancefor stakeholders andimportance for Company
business and categorized
them into six themes.

Validated in theManagement Quality
Improvement Committee
the six themes that were
narrowed down as material
issues and measures
included in said issued, andidentified them asmateriality.

*1 SDGs: Short for “Sustainable Development Goals,” the SDGs are a set of international goals for theperiod from 2016 to 2030. They were set out in the 2030 Agenda for Sustainable
Development at a UN summit in September 2015.
*2 ISO 26000: International standard for organizational social responsibility, issued by theInternational Organization for Standardization (ISO) (headquartered in Geneva,
Switzerland) on November 1, 2010
*3 GRI: Short for “Global Reporting Initiative,” GRI is a non-profit organization whose goal is to set out
international standards for sustainability. It formulates “Sustainability Reporting Guidelines” in its
capacity as an official body recognized by the United Nations Environment Program (UNEP).

Once we have identified material issues, we clearly set out specificinitiatives and work to continually improve the standard of ouractivities based on the PDCA cycle.

http://www.nesic.co.jp/english/csr/materiality.html

Annual Report 2017

26

Chapter2Foundation for BusinessContinuously Enhancing Values for Employees
The NESIC Group’s most important management resource for supporting sustainable growth is its people. Working from a foundation ofrespect for human rights, we implement measures for continuously increasing the value of our employees. We engage in human resources
development systematically, to enable employees to make the most of their talents and capabilities, and achieve our management
objectives in accordance with the Basic Policy on Human Resource Development set out below.

Basic Policy on Human Resource Development(1)We will continue to engage in systematic, incremental
human resource development based on strategic long-term
schemes as part of our management plans.
(2)‌We will dedicate ourselves to developing experts equippedwith specialist skills, knowledge and expertise.
(3)We will create a culture of self-innovation that promotes
independent capacity building by employees themselves.
(4)We will engage in effective, integrated human resource
development in line with personnel management systems.
Specific initiatives as part of our systematic training framework
include job-level specific training, training to improve individual
expertise, and external qualifications.
Education and Training Framework
Companywide
training(management
quality)

We planned and implemented the following training programs
during the fiscal year ended March 2017, with an eye to expanding
operations globally.
Training

Objective

Short-term
overseas
training

Develop humanresources with a keenawareness of overseas
operations throughexperience incross-culturalcommunication

Location

Philippines 10 days

14 trainees(10 male, 4 female)

Missionglobaltraining

Develop humanresources who view
differences in nationality
as opportunities not
obstacles as they go
about their duties

Vietnam10 days

12 trainees(10 male, 2 female)

Training for
local
employees
at overseas
subsidiaries

Develop humanresources capable ofsharing issues
throughout the groupand taking the initiativein expanding ourbusiness

11 days

9 trainees, from
Saudi Arabia, Brazil,
Philippines andThailand (5 male,
4 female)Tokyo

Duration

Trainees

Elective training

Senior•N ext-generation
management executive training

Assistantmanagers

Job-level
specific•D epartment
managercandidate training

Developing Engineers• Year three training
for managers•N ew managerial
staff training

In addition to skills in specific areas, such as SI, maintenanceservices and installation, developing engineers includes selecting
and providing support to obtain “companywide high-priority
professional qualifications,” in order to equip personnel with theskills they need in line with our business strategy.
We make every effort to improve the skills and knowledge of
employees who are keen to obtain such qualifications and those
who have already obtained external qualifications, throughactivities such as assisting with funding and organizing seminars
led by in-house staff.

• Companywide
high-priority
professional
qualifications(elective)• Project
management• Overseas
human resource
businessdevelopmenttraining
programprograms (one • Section-specific• Year seven training year)
technical education• Year five training• Short-term
overseas
training• Mission global
training• Year three training
for assistantmanagers•N ew assistantmanager training

Three-year development program for new employees• Year three training• Year two training• Training for
qualifications in linewith job-specificcareer plans• F ollow-up training•C ommunication
training( new recruits +• Global
more senior
New recruits
mindsetemployees)
training• B asic corporate
citizenship/
Understanding
our operations• Basic training inuniversal
technologies∙ IP networks∙ Wirelesstechnology∙ Security∙ Servers∙ Installation(practical)∙ Safety and quality

Annual Report 2017

Progress/career reviews (annual interviews with superior)
Rotation, in-house study at other sections
Self-development (TOEIC, distance learning, online courses, seminars, etc.)
Support programs for external qualifications

Sectionmanagers

27

Technical humanGlobal training resource development(operational quality)

Stepping up Global Human Resource
Development

Comprehensive Career Advancement Support
We take an integrated approach to human resource development,
through a combination of personnel systems and treatment,
systematic job rotation, and offering training opportunities
wherever possible. To enable employees to work on advancing theirown careers, employees have regular meetings with their superiors,
to discuss progress towards improving their abilities and careerplanning. We also enable employees to take on new challenges atwork by opening up human resource applications.

Promoting Diversity
The NESIC Group believes that encouraging employees with diverse individualities to fully exercise their abilities will lead to the further
enhancement of its corporate competitiveness. In the interests of our continued growth as a company, we are focusing our efforts such as
developing a workplace environment that encourages female workers to fully exercise their abilities, and continued awareness-raising
activities for the effective utilization of diversity in business, and we help each employee promote diversity.

Promoting Workplace Participation andCareer Advancement for Women

Support for the Continued Participation ofElderly Employees

To promote active participation by women we are working to add
women to our managerial staff and expand our hiring of women.

We continue to employ workers who have reached the mandatory
retirement age through our Senior Partner Program. As of the endof March 2017, we have 117 employees working for us under thisscheme, whereby we assign elderly employees with a wealth ofexperience and technical skills to positions that make the most of
their strengths and expertise.

Women as a Percent of Managerial Staff
End of 2016/3

End of 2017/3

2.2%

2.8%

* ‌Target is to reach 5% by March 31, 2021. (General Employer Action Plan for Compliance with the
Act on Promotion of Women’s Participation and Advancement in the Workplace)

On May 27, 2016, Japan's Ministry of Health, Labour and Welfare
presented NESIC with the highest level (Level 3) of “Eruboshi”
certification in recognition of our efforts to promote active
participation by female employees in accordance with the Act on
Promotion of Women's Participation and Advancement in the
Workplace.
This scheme enables companies that have formulated andsubmitted an action plan in accordance with the act, which cameinto effect on April 1, 2016, to apply to their Prefectural Labour
Bureau and receive certification from the Minister of Health,Labour and Welfare, providing that they meet the specified
criteria. Certification is divided into threelevels, depending on the number ofcategories in which the company meets
evaluations criteria.
Having satisfied criteria in all fivecategories, covering recruitment,
continued employment, working
Eruboshi logo
practices (hours, etc.), the percentage of
The logo is only available tocompanies that have
women in management positions, andformulated an action plan incareer path diversity, we have obtained
accordance with the Act on
Promotion of Women’s
the highest Level 3 certification.
Participation andAdvancement in the
We are also implementing the
Workplace, and arefollowing measures in an effort to promote implementing initiatives to ahigh standard.
greater roles for female employees.
Seminar for managerial
staff (December 2016,
200 participants)

We invited an outside expert to deliver a seminar
aimed at improving understanding of theimportance of diversity promotion activities, sothat managerial staff can incorporate that into
their day-to-day management activities.

Discussion between afemale director andfemale managerial staff(December 2016, 10
participants)

We organized a discussion session as a means ofsharing information from both sides, with theaim of raising awareness regarding careerdevelopment (rising to more senior positions),
making new contacts, and continuing to boost
motivation.

Number of Employees Rehired after Retirement andPercentage of Employees Continuing WorkEnd of 2016/3 End of 2017/3
Number of employees rehired after retirement

70

117

Percentage of employees continuing work

54.7%

66.6%

Promoting Employment of Persons with
Disabilities
We consider it one of our corporate social responsibilities to help
people with disabilities to become more independent, and are fullycommitted to increasing disabled employment. Having taken partin nine events, including interview fairs for people with disabilities,
and worked hard to promote disabled employment throughout the
fiscal year ended March 2017, this year we hired three new
employees. We currently have 81 employees with disabilities, as ofthe end of March 2017, which translates into a 2.07% rate ofdisabled employment.
Rather than focusing solely on our rate of employment
however, we believe it is important to offer employees withdisabilities a long career. We arrange interviews with individual
employees after they have been with the company for three to six
months, and immediately provide feedback to their workplace if
there are any issues discouraging them from continuing to work for
us. Through regular talks such as these and other measures, we areconstantly working to create pleasant working environments, andhave continued to increase the length of service for employees withdisabilities as a result.
Employment Rate of Persons with Disabilities
End of 2016/3

End of 2017/3

2.06%

2.07%

Length of Service for Employees with Disabilities
End of 2016/3

End of 2017/3

13.5 years

14.4 years

Annual Report 201728

Chapter2Foundation for Business

Establishing a Corporate Culture in Which Employees Can Work without Anxiety
NESIC takes a number of steps from different perspectives, including an improved work-life balance, innovation in work styles, andemployee health management, to establish a corporate culture that allows employees to continue to work with a sense of security. We are
striving to improve employee satisfaction, conducting an opinion survey of all employees once a year and reflecting the results of surveys
in our development of these steps.

Balancing Work and Childcare

Management Emphasizing Health

NESIC is enhancing systems to enable employees with children to
feel easy about balancing work and childcare, and are taking steps
to support these employees. In recognition of our efforts toestablish a system that is open to diversity in work styles, enhancesystems to support childcare, and create
an environment in which employees feelable to take childcare leave and return towork, we have been granted the“Kurumin” certification under Japan’s Act
on Advancement of Measures to Support
Raising Next-Generation Children.
We hold monthly meetings for male
“Kurumin” Markemployees due to become fathers and
The “Kurumin” mark is asymbol of the certification
their supervisors to explain systems togranted to companies thathave established an action
enable employees to balance work andplan, and achieved targets, inchildcare and to encourage them to takeaccordance with Japan’s Act
on Advancement of Measuresleave. A total of 120 male employees
to Support Raising Nextattend meetings annually.
Generation Children.

NESIC promotes efforts to improve employees’ health, focusing on
preventing diseases, and to reduce total working hours including by
reducing overtime.

Number of Employees Taking Childcare Leave andPercentage Returning to Work
Employees Taking Childcare Leave (The numbers in parentheses are numbers of male employees.)

FY 2016/3

FY 2017/3

Number of employees taking
childcare leave

40 (3)

38 (5)

Percentage returning to work

100%

100%

Promotion of Health
We take steps to prevent diseases. The main initiatives are as
follows:• Raising each employee’s awareness of health promotion• Health guidance, interviews by the industrial physician, and work
restrictions based on the results of medical examinations• Promoting cancer screening
In mental health care, we encourage self-examinations andprovide initial consultations with industrial physicians and othermental health professionals. We also help employees who havetaken leave to return to the workplace.

Reducing Total Working Hours
To encourage employees to take paid holidays, we set intensive
period for taking paid holidays and grant paid holidays according
to plans.
To reduce overtime, we have built a flexible work system andraise awareness. Departments take steps to distribute work load
according to working conditions.
Average Overtime (per month) and Paid Holidays Taken
FY 2016/3

Balancing Work and Nursing Care
NESIC is enhancing our systems to help employees balance workand nursing care responsibilities, and encourage employees’
understanding of the systems via theintranet while hosting relevant seminars
for employees.
Nursing care seminars are held toshare information for the successful
nursing care of all family members,
including those living apart or living a“Tomonin” MarkThe “Tomonin” Mark can belong distance away, and to explain how
used by companies
to use nursing-care insurance service socommitted to developing aworkplace environment
as to relieve concern over balancing
ensuring the balancing ofwork and nursing care.
work and nursing care responsibilities.

29

Annual Report 2017

FY 2017/3

Average overtime (per month)24.0 h20.3 hRatio of paid holidays taken

68.1%

70.3%

As a result of these efforts, we havebeen recognized by Nippon Kenko
Kaigi as one of the 2017 CertifiedHealth and Productivity Management
Organizations in the large enterprise
category (White 500). The Nippon
Kenko Kaigi is an organization thattakes practical community- and workplace-based actions, throughcollaboration among private organizations and with fullgovernment support, in order to increase healthy life-spans and toprovide appropriate medical care targeting individuals in Japan.

Encouraging Suppliers to Give Greater Consideration to Sustainability
To execute its business, the NESIC Group needs to cooperate with its suppliers. We promote sustainable and ethical procurement by taking
steps, not only within the Group but across its entire supply chain, in all aspects of sustainability, particularly human rights, labor,
information security, the environment, and corruption prevention.

Initiatives in JapanThe NESIC Group has developed a procurement policy and supply
chain CSR guidelines. We conduct surveys of suppliers’ attitudes
towards CSR and inspect their compliance. In this way, we deepen
mutual understanding between it and its suppliers, and the entire
supply chain works to help realize a sustainable society.

Initiatives Overseas
As the NESIC Group is expanding its global business, a strategic
business area in its midterm plan, we are emphasizing CSR morestrongly when procuring from suppliers overseas.
We have prepared guidelines, such as supply chain CSR
guidelines, green procurement guidelines, and standards for
restriction on the procurement of products containing chemicals,
in English to request CSR activities and promote the understandingof CSR.
In agreements with overseas suppliers, we include provisions
stipulating compliance with requirements related to respect forhuman rights, the environment, and safety management. In addition,
we ask suppliers of its overseas subsidiaries in writing to comply withlocal environmental regulations and to ensure the safety of workers atconstruction sites and confirm in writing their compliance withregulations and the safety of their workers. We will pursue activities tostrengthen its partnership with overseas suppliers.
Activities to Raise the Level of CSR Activities across the
Entire Supply Chain
Opportunities
for Communication

Inspections andSurveysBusiness trends presentation
meeting (held twice in FY
2017/3)Around 120 companies,
including suppliers ofaffiliates, participated in themeeting.
Safety and quality meeting(held six times in FY 2017/3)
Company-wide safety
meeting (held twice in
FY 2017/3), etc.

Survey under the supply chain
CSR guidelines (80 companies
were surveyed in FY 2017/3)<Main issues>• Fair trade, corporate ethics• Human rights, labor• Safety and health• Contributions to society
and communities
Quality audit (carried out at
84 companies in FY 2017/3)
Documentation inspection
and on-site inspection of
information security (carriedout at 62 companies in FY
2017/3)On-site audit of industrial
waste disposal contractors(five companies were audited
in FY 2017/3)

Communication
with suppliers

Raising the level ofthe entire supply chain
Improvement
Activities
If improvement is needed basedon inspections and audits, theGroup requests suppliers to takeaction.

NESIC Group•Procurement policy •Supply chain CSR guidelines

Contributing to Mitigating Effects of and Adapting to Climate Change
To mitigate climate change, a global challenge, NESIC helps society and customers reduce CO2 emissions through a variety of solutions
and services, including the work-style innovation solution “EmpoweredOffice.” Meanwhile, we are reducing its CO2 emissions by using
less electricity and other measures. As initiatives for adaptation to climate change, we are offering a range of solutions, primarily disasterprevention measures and disaster countermeasures, to local governments and companies.
Carbon Statistics*1 (Non-consolidated)
CO2 emissions reduction
contribution:

CO2 emissions:

14,474 t

1 Office energy usage

24,699 t

10,642t

2 Logistics-related CO2 emissions

104t

3 Paper usage

82t

4 Business travel (transportation)
5 Company-owned vehicles (commercial)

3,119t527t

1 Reductions in customer CO2

23,274t

2 Renewable energy purchases

14t

3 Tree-planting (carbon offset procurement)

12t

emissions*2

4 Teleconference system usage*3

1,399t*1 Comparison of NESIC’s CO2 emissions from business activities to its
contributions to CO2 emissions reductions, during the fiscal year ended
March 31, 2017.
*2 CO2 emissions reductions expected from customers’ use ofenvironmentally conscious products and services provided by NESIC.
*3 CO2 emissions reductions related to internal use of teleconference
systems.

Further information on efforts at NESIC are available inJapanese on the following webpage.

http://www.nesic.co.jp/csr/
environment-report.html

Annual Report 201730

Chapter2Foundation for Business

Providing Products and Services that Contribute to Safety and Security
The NESIC Group maintains impeccable quality in the products and services that it provides to customers and manages safety and quality
in construction work and other kinds of work. Meanwhile, we maintain reliable information security for business, personal and all othercustomer data, and implement a broad spectrum of measures to ensure safety so that customers can be confident in the systems andservices we provide.

Major Initiatives for Advancement of
Safety and Quality
We promote a range of initiatives to enhance safety and quality
management so that we will provide impeccable quality inproducts and services. We comply with laws and regulations related
to occupational safety and health and give our employees a safe,
healthy, and comfortable environment.

Process Transition Determination
We establish clear quality and control standards, and specify
matters required to meet certain standards for each process of a
project, and set checkpoints between processes. Our project
management scheme, in which process transition determinations
are made to ensure standards have been met before going on to
the next process, contributes to the maintenance of high quality.

Project Inspections
We conduct internal third-party project inspections to help ensurecompliance with relevant laws such as Japan’s Industrial Safety and
Health Law and Construction Industry Law, as well as our own rules,
and ultimately prevent compliance violations.
Going beyond the discovery and correction of unsatisfactory
conditions, project inspections also take note of excellence inprocesses and tools. Project inspection findings are sharedthroughout the company to help improve safety and quality
activities in each of our departments.

On-Site Safety Patrols
To eliminate safety and quality problems, we conduct thoroughchecks of individual processes and have top company managers
and the heads of business sections systematically conduct on-site
safety patrols in an effort to prevent accidents.

(1) Detection of Unknown Attacks
As part of inbound and outbound countermeasures of the NEC
Group intranet, we have introduced a system for detection of
unknown malware (software and codes with malicious intent) tomonitor Web communication and e-mail sending and receiving
and filter unauthorized communication. We also treat PCs andservers that are suspected to be infected with a virus.
We analyze and examine traces of attackers through the
integrated management and analysis of log data of employees’communication and operation and the examination of packets.

(2) Strengthening PCs and Servers
We have strengthened countermeasures to overcome thevulnerability of PCs and servers and have introduced a tool toimprove the efficiency of incident response. We are stepping up
action to protect PCs and servers in two stages: proactive
protection, or countermeasures based on risk awareness, andreactive protection when incidents are detected.

(3) Countermeasures in Human Resources
We provide education through the simulated experience oftargeted attacks to all employees to strengthen their ability torespond to sophisticated attacks. We have installed a tool to detectsuspicious e-mail in each terminal throughout the company toraise awareness.
Detection of Unknown Malware andUnauthorized Communication(1) to (4): Flow after the detection of
unknown malware

Internet
Firewall/proxy server
Detection of
unknown malware(files attached toe-mail, downloadingfrom the Web)

(3) Filtering unauthorized communication

Detection of
external
unauthorizedcommunication

NEC intranet
ServerAnnual Report 2017

Cooperation

Externalorganization

秘PC(4) Examination/treatment of PC and server withsuspected infection*1 C&C server: Command & Control server*2 CSIRT: Computer Security Incident Response Team

31

CSIRT*2(2) Analysis
System for detectingof
unknown malware
malware(1) Communicating
information on
malwareCountermeasures against Cyber-Attacks
To protect customer information and confidential information, we
have instituted a range of countermeasures against the threat ofcyber-attacks, which are growing more sophisticated and advanced,
in line with the NEC Group’s information security policy.

Server distributing malware
C&C server*1

Attacker

Raising Employees’ Information
Security Awareness

Certifications
We are making efforts to obtain and maintain third-party
certifications related to quality, information security, and personal
information protection.

To enhance security awareness, information security training is
actively conducted for all employees (including temporary
employees) of the NESIC Group in Japan. In the fiscal year ended
March 2017, all our employees in Japan underwent DVD-based
training on sending e-mails to wrong recipients and participated intraining on information security and protection of personal
information.
As we are promoting globalization, we are strengthening
information security risk countermeasures at overseas subsidiaries,
providing education about information security and conductedinterviews to identify risks.

Obtained quality management
system international standard
ISO 9001 certification
Obtained ISMS international
standard ISO/IEC 27001
certification
Obtained Privacy Markcertificate from JIPDEC (Japan
Information Processing andDEvelopment Center)·NEC Networks & System Integration
Corporation·N EC Magnus Communications, Ltd.
·NEC Networks & System Integration
Corporation·Q &A Corporation·N EC Networks & System Integration
Corporation·NEC Magnus Communications, Ltd.
·N ICHIWA Co.
·N EC Net Innovation, Ltd.
·Q&A Corporation

Cyber Security Countermeasures Provided to Customers

Our cyber security solutions protect
customers’ information assets fromcyber-attacks.
We not only take cyber security countermeasures forourselves but provide cyber security solutions tocustomers, contributing to secure information society.
In addition to traditional SI-type systems, we provide a
range of detection and defense systems using cloudservice and security operation services to minimize any
damage that does occur. We provide a safe security
environment to customers in a comprehensive manner.

Cloud security

Network security

Desktop security
Base

Data center
E-mailservice

Zeroconf UTM

Secureconnection
service

WAN
Thin-client
service

Client security
countermeasures

Head office

Security appliance

Authentication /access control

Security Operation Center (SOC)
We support security countermeasures to protect customers’ information assets from the threat of cyber-attacks
through defense by layers (cloud, network, and desktop).

Annual Report 201732

Chapter2Foundation for BusinessContinuing Thorough Efforts in Compliance
The NESIC Group believes that it is important to gain acclaim and trust in society as a healthy corporate group and enhance the overall
Group’s corporate value, with each of its employees fulfilling their social responsibilities according to high ethical standards. We
emphasize compliance, aiming to raise the level from the compliance building stage to a stage of compliance as part of our culture.

Activities for Promoting Compliance

Risk Management System

Compliance Education

NESIC works to correctly identify every risk related to its business inand outside it to achieve sustainable growth as a business. We
assess risk and take the appropriate measures. We then assess theimplementation of these measures and improve it. If risk eventsoccur, we need to gather information and assess the situation tominimize the resultant damage. This is our attitude towards risk
management.
The Management Quality Improvement Committee, whichplays a key role in the risk management system, has identified thethree high-priority risks below for the fiscal year ending March 31,
2018. The marketing and sales development unit, operations units,
and corporate staff are now working together to prevent these risks
from being realized.
Risk management in projects, particularly large-scale projects,
is an important challenge in management. We are taking steps,
including the establishment of dedicated teams, to strengthen our
project management capabilities.

NESIC runs a diverse array of education programs systematicallythroughout the year. In the fiscal year ended March 31, 2017, we
provided many online education programs on topics such ascompliance (semiannual courses), the Subcontract Act, theConstruction Industry Act, the Worker Dispatching Act, competition
law, antibribery laws, fair trade, and trade control and ensured
employee participation.
We also provide a “back-to-basics as a businessperson” education
every year, during which employees learn what is expected of themas employees at the NESIC Group. All employees at NESIC, domestic
affiliates, and local subsidiaries overseas participate in the program.
Back-to-Basics as a Businessperson Education(fiscal year ended March 31, 2017)

Domestic affiliates

100% of the employees participated in aface-to-face program

Overseas subsidiaries

100% of the employees participated in an
online program

Compliance Awareness Survey of Employees
A survey of officers and employees is conducted to assess theextent to which compliance awareness has taken hold and a“culture of compliance” has been fostered in the organization.
Results of these surveys are fed back to each workplace in the
NESIC Group and are used in developing and executing initiatives
related to compliance awareness.

Priority Risks

Risk of long working hours and overwork
Risk of violations of competition law
Risk of safety and quality accidents
Risk Management System (as of March 31, 2017)
Corporate Auditors
Corporate Auditing Division

ReportPresident

Management Quality Improvement Committee
Organizers: CSR Promotion & Corporate Communications Division /Corporate Finance & Controller Division / Legal & Compliance DivisionCorporate Ethics Hotline

50

Request /order
improvement

Order companywide deployment

Number of Internal Reports (fiscal year ended March 31, 2017)

Audit
Report issues / problems

The NESIC Group has established its Corporate Ethics Hotline andSexual Harassment and Power Harassment Hotline so thatcompliance problems may be prevented altogether. The hotlines
are internal reporting and consultation resources for employees touse when they are concerned that certain behavior may be in
violation of laws, regulations, internal rules, or social norms, and, for
any reason, feel they cannot consult with their supervisor or
relevant departments. We operate the hotlines effectively under the
Whistle-Blower Protection Act.

Activities to improve
management quality ineach NESIC unit
(Marketing and Sales Development Unit,each operations units, corporate staff)

Quality Management Committee
Organizer: Safety & Quality Assurance Division

Information Security Committee
Organizer: Management Systems Division

Branding & CS Promotion Committee
Organizers: Marketing Planning Division /CSR Promotion & Corporate Communications Division

Personnel Quality Improvement Committee
Organizers: Personnel Relations Division /Procurement Division

Management
systemsorganized byaffiliate
Report issues /problems

Activities to improve
management quality
at each affiliate

Thoroughly communicate directions and measures

NESIC Group employees

33

Annual Report 2017

Enhancing Corporate Governance
NESIC believes that enhancing corporate governance is critical for realizing an advanced society with vibrant communication and forsustaining increases in corporate value. We therefore strive to build a management system that enables quick decision-making so that we
can respond promptly to changes in the operating environment, and we work to ensure management soundness and transparency bypracticing timely, appropriate disclosure.
In this way, the Board of Corporate Auditors endeavors to improvethe effectiveness of audits.

Corporate Governance System (as of June 23, 2017)
Board of Directors and Board of Corporate Auditors
The Board of Directors comprises 10 directors (eight men and two
women), including three outside directors. In addition to maintaining
the number of directors at an optimum level for quick decisionmaking, NESIC has reduced the terms of directors to one year inorder to clarify the management responsibilities of the directors, andstrengthen its management structure. The members of the Board of
Directors are diversified in terms of experience, knowledge, expertise,and gender. Three outside directors (independent directors) havebeen appointed. In this way, we strive to improve the Board of
Directors’ function of making decisions on important matters andsupervisory function. At monthly Board meetings, discussion takes
place based on a wide range of knowledge.
The Board of Corporate Auditors consists of four corporate
auditors, including two outside auditors. It decides audit policies,
and hears reports on audit work performed by each auditor.
Corporate auditors attend Board of Directors’ meetings andother important meetings, examine significant documents related
to final decisions, and hear reports by directors and employees on
the performance of their duties. Through activities such as these,
corporate auditors properly fulfill the function of auditing thedirectors’ performance of their duties.
The Board of Corporate Auditors exchanges information
regularly with the outside directors, accounting auditors, and the
Corporate Auditing Division and enhances cooperation with them.

Executive Officers, Executive Committee andBusiness Execution Committee
NESIC has adopted an executive officer system to clearly demarcate
the supervisory function and the business execution function and hasformed the Executive Committee consisting primarily of executive
officers at the senior vice president level and higher and corporate
auditors, to discuss key management and operating issues.
We have also established the Business Execution Committee
to monitor the progress of business execution and report on
significant matters to strengthen management functions.

Corporate Auditing Division
The Corporate Auditing Division has been established as an internal
audit unit independent from the business execution divisions. It
examines through internal audits whether business execution is
being conducted legally and properly according to relevant laws,
regulations and Company rules.

Accounting Auditors
The Company has engaged KPMG AZSA LLC as its accounting
auditors. KPMG AZSA LLC expresses its views on the financial
statements and related matters from an independent viewpoint.

NESIC’s Business Execution, Management Oversight, and Internal Control Framework
General Meeting of Shareholders
Elect/Dismiss

Elect/Dismiss

Elect/Dismiss

Management andSupervision
Audit

Board of Directors(Directors)

Cooperate

Board of Corporate Auditors(Corporate Auditors)

Supervise

Audit

Business Execution

Cooperate

Executive Committee(Executive Officers)

Accounting
Auditors

Business Execution Committee
Management Quality Improvement Committee

Corporate Staff, and Marketing & Sales andBusiness Operations Units and Divisions

Cooperate

Corporate Auditing Division

Management section ofaffiliated companies

Cooperate

Audit

Manage/Monitor
Affiliates
Office Corporate Ethics Hotline (Hotline for internal reporting and consultation)

Annual Report 201734

Chapter2Foundation for BusinessHistory of Enhancement of Corporate Governance at NESIC
2000

Introduces an executive officer system (making the division of the supervisory function and the business execution function clear)

2005

Reduces the number of directors to ten or fewer from 20 or fewer (expediting decision-making)Shortens the director’s term of office to a year (making the director’s management responsibility clear)

2006

Appoints the first independent auditor (introduces the independent director/auditor (ID/A) system) (improving management transparency)

2008

Appoints an independent director, making the number of ID/A two (improving management transparency)

2012

Adds an independent director, making the number of ID/A three (improving management transparency)
Appoints the first female director (increasing the diversity of the directors)

2015

Adds an independent corporate auditor, making the number of ID/A four (improving management transparency)

2016

Strengthens compliance with the Corporate Governance Code: starts the assessment of board effectiveness and systematizes training for directors and corporate auditors(strengthening the management oversight function)
Appoints the first person having experience in corporate management as an outside director (improving the diversity of directors)
Establishes an advisory panel consisting of mainly of independent outside directors to discuss nomination and compensation(improving management transparency)

2017

Adds an independent director (a female CEO in a different industry), making the number of ID/A five
(improving management transparency and increasing the diversity of the directors)

Independent Directors/Auditors (as of June 23, 2017)
To further strengthen its corporate governance, NESIC in 2006
adopted the practice of nominating independent directors/auditors(ID/A) who, in accordance with Tokyo Stock Exchange requirements,
are unlikely to have conflicts of interest with general shareholders.
NESIC has expanded the number of ID/A to five, three directors andtwo corporate auditors. ID/A account for more than a third of thetotal number of directors and auditors.
To strengthen the corporate governance system, we have been
diversifying our ID/A, whereas previously they had only been
attorneys and university professors. In June 2016, we nominated an
independent director who is experienced in corporate management
and will be able to apply his broad experience and expert
perspectives for the benefit of NESIC’s management. In June 2017, we
nominated a female CEO from a different industry.

Reasons for Nominations of Independent Directors and Auditors
Meetings Attended
Board ofDirectors

Board ofCorporate
Auditors

Yumiko Ichige has extensive experience and expertise as an attorney handling corporate legal matters. It is
anticipated that as a legal expert with an objective perspective, she will contribute to the proper supervision ofmanagement at NESIC.

13/13

—

Hisayoshi Fuwa

Hisayoshi Fuwa has a wealth of experience in corporate management. It is anticipated that he will be able toapply this experience for the benefit of management at NESIC, and provide appropriate management advice andsuggestions from a perspective independent of the managers directing business execution.

11/11

—

Michiko Hirono

As a management executive in a different industry, Michiko Hirono is expected to give appropriate advice on NESIC’s
management strategies from out-of-box perspectives and to contribute to the proper supervision of management.

——

Yuji Kikuchi

Yuji Kikuchi is expected to exercise his knowledge and perspective as a legal expert, and to apply the fair andobjective perspective of an outsider in auditing the directors’ performance of their duties.

11/13

12/13

Masayuki Horie

Masayuki Horie is expected to exercise his expertise in internal controls and other aspects of corporate management,
and to apply the fair and objective perspective of an outsider in auditing the directors’ performance of their duties.

13/13

13/13

Name

Reason for Nomination

Yumiko Ichige(Note 1) Figures for Board of Directors and Board of Corporate Auditors meeting attendance are for the fiscal year ended March 31, 2017.
(Note 2) Hisayoshi Fuwa was appointed as a director at the 84th General Meeting of Shareholders, held on June 21, 2016. The figures for Board of Directors meeting attendance above are figures after he was appointed.
(Note 3) Michiko Hirono was appointed as a director at the 85th General Meeting of Shareholders, held on June 23, 2017.

35

Annual Report 2017

Compliance with Japan’s Corporate
Governance CodeWith the application of the Corporate Governance Code forcompanies listed on exchanges in Japan, NESIC is working toappropriately implement the code, implementing each principle,
and further enhance its own corporate governance by closelycomplying with its requirements.

Main Points in Enhancement or Improvementbusinesses, business environment, finance, and what the Board of
Directors should be like, among other subjects. We also
conducted a survey of directors and corporate auditors after eachtraining session. We will review and enhance director/auditor
training, taking the results of the survey into consideration, suchas increasing the number of site tours.

Dialogue with Shareholders and Other
Investors

Bolstering the Assessment of Board EffectivenessBeginning with the fiscal year ended March 31, 2016, we areconducting a survey of all members of the Board of Directors toanalyze and assess the effectiveness of the board as a whole. In thefiscal year ended March 31, 2017, we enhanced the assessment,
including individual interviews based on the survey. The
assessment for the fiscal year ended March 31, 2017 is that theboard is operating properly and is effective in its performance. To
further enhance the effectiveness of the board, certain
improvements, such as revisions in its operation and composition,
have been implemented.
We believe that we need to continue to make improvements,
including more discussions on medium- to long-term management
strategies, among other subjects, and more opportunities andinformation for discussions, to further enhance the operation of theboard. We will seek to enhance the board’s decision-making
function and supervisory function, reviewing the operation of theboard and officer training.

NESIC has formulated a disclosure policy and holds meetings,
briefings on financial results and management strategies, andgeneral shareholders’ meetings with the aim of providing
shareholders and other stakeholders with accurate, timely
explanations of business performance and management direction.
Dialogue with capital markets is pursued by the IR staff,
working under the leadership of the Associate Senior Vice
President in charge of Accounting, Finance, and IR to arrange
briefings, and private meetings for investors with the president andother senior managers.
Opinions and requests received from the dialogue are reported
to all officers, independent directors and auditors, for further
constructive dialogue with capital markets.

Review of the Structure of Directors’ Remuneration (Incentives
for Sustainable Growth)
We discussed the structure of directors’ remuneration in the fiscal
year ended March 31, 2017 based on the Corporate GovernanceCode. We have reviewed the remuneration structure. We havedecided to link directors’ bonuses to performance and introduce
remuneration linked to stock prices in June 2017 for the identity ofinterest between shareholders and directors and for raising directors’
motivation to improve results.

I feel that the message “Re-designing
your Communication” is very good as
it clearly expresses the Company’s
aspirations. Information andcommunications are changing every
day and are becoming moresophisticated. In this environment,
Michiko Hirono
I believe that we need to express
Outside Director
opinions about management fromvarious perspectives.
I usually work in a different industry. Taking advantage ofthat, I would like to put emphasis on the customer perspective
when I consider management and thereby contribute tosustainable growth.

Enhancement of Director/Auditor Training
In the fiscal year ended March 31, 2017, we systematized director/
auditor training, which was provided individually, and conductedtraining for the acquisition of knowledge necessary for the
management of the Company, knowledge about the Company’s

Message from New Outside Director

Annual Report 2017

36

Chapter

37

2Foundation for BusinessDirectors & Corporate Auditors (As of June 23, 2017)

Yasuhiro Ito

Yoichi Sato

Masafumi Gouji

Senior Vice President andMember of the Board

Senior Vice President andMember of the Board

Senior Vice President andMember of the Board

Annual Report 2017

Yushi Ushijima

Masao Wada

President

Chairman of the Board

Yumiko Ichige

Tokuo Yamamoto

Member of the Board (Outside Director)

Corporate Auditor (Full-time)

Partner, Nozomi Sogo Attorneys at Law
Outside Auditor, AEON MALL, Co., Ltd.
Outside Director(Audit and Supervisory Committee Member),
SANYO TRADING CO., LTD.
Outside Director(Audit and Supervisory Committee Member),Sushiro Global Holdings Ltd.

Hisayoshi Fuwa

Shoichi Fukaya

Member of the Board (Outside Director)

Corporate Auditor (Full-time)

Outside Director, Tokyo Electron
Device Limited

Michiko Hirono

Yuji Kikuchi

Member of the Board (Outside Director)

Corporate Auditor (Outside Auditor)

President and Representative Director of theBoard, 21 Lady Co., Ltd.

Partner, Tokyo Hatchobori Law Office

Representative Director of the Board,
ILLUMS JAPAN Co., Ltd.
Representative Director Chairman andPresident, HIROTA Co., Ltd.
Outside Director, JAPAN POST Co., Ltd.

Yukinori Nakayama

Masayuki Horie

Member of the Board

Corporate Auditor (Outside Auditor)

General Manager, Telecom Carrier
Business Planning Division, NEC Corporation

Professor, College of Commerce,
Nihon University

Junji Ashida
Member of the Board
General Manager, Corporate Strategy Division,
NEC Corporation

Annual Report 2017

38

Chapter2Foundation for BusinessA
Dialogue
betweenOutsideDirectors

A Dialogue between Outside Directors

In June 2015, Japan’s Corporate
Governance Code, issued by the
Tokyo Stock Exchange, entered into
force. Under the Code, listedcompanies have been required tostrengthen their corporate
governance. NESIC has been taking
steps in this regard. It was one of the first companies to begin
appointing independent directors/auditors, and it has increased
their number. It has recently established an advisory panel
consisting of mainly of independent outside directors to discussnomination and compensation. We asked Outside
Directors Yumiko Ichige and Hisayoshi Fuwa toprovide their opinions about our corporate
governance and management.

Hisayoshi Fuwa
you tell us your views about
Q1 Could
the characteristics of our corporate
governance and the changes since
you became outside directors?

with executive officers and heads of divisions. I appreciate that.
I also appreciate the opportunity to communicate withfrontline employees, including visits to the Company’s exhibitions,work-style innovation model offices, and product maintenance

Ms. Ichige: NESIC began to appoint independent directors/auditors

sites. Management is sincerely engaged in PR activities inin 2006. I feel the Company is actively strengthening its corporate

consideration of ordinary shareholders and deals with the opinion

governance. Last year, Mr. Fuwa, who has experience in corporateof capital markets, and that is good.

management, joined the Board of Directors. After that, our board

Ms. Ichige: I agree. When I took office, explanations about themembers are exchanging more in-depth discussions and opinions,

agenda of the board meeting before the meeting were given to

including those about management strategies, the organizationindividual directors and auditors separately. At present, a face-to-faceneeded to implement them, and personnel strategies.

meeting to brief all independent directors and auditors at the same

When I took the post of outside director of NESIC, the othertime is held before the board meeting. I can hear questions andindependent outside director was only one male, who was university

opinions of other directors and auditors and can share perceptions

professor with expertise in internal control. Now, the board is diversified

of issues, which is very helpful. In addition, we exchange opinions

and discussions on strategies are well balanced. This year, a female CEO

with corporate auditors twice a year. At the meetings, we hearof other company has joined to our board as an independent outside

explanations about management issues that the Board of Corporate

director, and I expect more productive discussions.

Auditors detects in audits. These meetings are very meaningful.

Mr. Fuwa: I have been an outside director for a year. I feel that NESIC isa company that shows consideration to those participating in board
meetings, including outside directors, helping them to understandeach single issue in the items by explaining them before meetingsand providing opportunities for discussion. When outside directors
try to understand individual management issues, they can hearconcrete perceptions of challenges and strategies in open discussions

39

Annual Report 2017

management structure changed on
Q2 TheJune 23, 2017. What are yourimpressions and expectations? How
were you involved as outside directors?

Ms. Ichige: I kept saying that executive officers who began theirHisayoshi Fuwa (left)
May 2011	President, Representative Director of the Board andChief Executive Officer (CEO), JVC KENWOOD Holdings, Inc.
(currently JVC KENWOOD Corporation)	President and Representative Director of the Board,
Victor Company of Japan, Limited
President, Kenwood Corporation
President, J&K Car Electronics Corporation
Oct. 2011	President and Representative Director of the Board,
JVC KENWOOD Corporation
June 2012 Special Adviser, JVC KENWOOD Corporation
June 2016 Outside Director of the Company (present position)
Significant concurrent positions outside the Company
Outside Director, Tokyo Electron Device Limited

Yumiko Ichige (right)
Apr. 1989 Registered as an attorney
Joined IBM Japan, Ltd.
Dec. 2007 Partner, Nozomi Sogo Attorneys at Law (present position)
Apr. 2009 Vice President, Daini Tokyo Bar Association
Sept. 2010 Deputy Secretary General, Japan Federation of Bar Associations
June 2012 Outside Director of the Company (present position)

Yumiko Ichige

Significant concurrent positions outside the Company
Outside Auditor, AEON MALL, Co., Ltd.
Outside Director (Audit and Supervisory Committee Member),
SANYO TRADING CO., LTD.
Outside Director (Audit and Supervisory Committee Member),Sushiro Global Holdings Ltd.

career at NESIC should account for a greater percentage of the

Ms. Ichige: I agree. With regards to NESIC’s relationship with NEC,board members for diversity. I also said female directors should

checking any and all conflicts of interest is very important. In

increase. What I said has come true, and I appreciate that.

addition, we need to discuss our position in the group’s medium- to

It is wonderful that Mr. Yushi Ushijima, one of executive officers

long-term growth strategies and how we can leverage thewho began his career at NESIC, has become president, and I believeadvantages owing to the fact that we belong to the NEC Group.

that employees have been encouraged. I expect that Mr. Ushijima

Mr. Fuwa: The first year after the change in the management

will show his long-term strategies such as visions of the Company instructure is very important. Immediately before taking office as

ten years and in twenty years and that he will share the visions andpresident of NESIC, Mr. Ushijima has improved results at subsidiarystrategies with board members, shareholders, employees, and other

Q&A Corporation as president by making changes. I believe that hestakeholders. I also hope that the president will seek to enhance thewill make changes at NESIC as well. Mr. Ushijima has an opportunity

supervisory function of the Board of Directors based on such shared

to raise questions— “why” and “how” questions—about thevisions and strategies. To that end, I believe that regularCompany’s traditional management. I believe that changes willcommunication between the independent outside directors,

result in an improvement in profitability and growth at NESIC. I am

Chairman Masao Wada and Mr. Ushijima is important. I would like tolooking forward to seeing how he will lead employees to address

discuss this more actively at meetings of the Board of Directors.

issues such as diversity, improvement in productivity, and theMr. Fuwa: I am also pleased that a person who began his career atcultivation of human resources, which are closely connected to

NESIC has become president.

innovation in work styles, one of our priorities.

NESIC’s relationship with the NEC Group—what are theI have great expectations of Mr. Wada. I hope that the

expectations of NESIC in group strategies and how will NESIC

chairman will create a good, alert relationship between thecooperate with the NEC Group and take advantage of its

business execution side and the outside directors to promotestrengths—is all the more likely to be implicit knowledge because

in-depth discussions about the midterm plan and quarterly results.

NEC respects the independence of NESIC’s management. It is

Mr. Wada took the lead in bolstering internal control, always

expected for senior management to exchange opinions, while

telling employees to give first priority to compliance. I look forward

taking the position of minority shareholders into consideration.

to Mr. Ushijima following his example.

Annual Report 201740

Chapter2Foundation for Business

A Dialogue between Outside Directors

has impressed you most in the
Q3 Whatpast year?

associated risks from an internal perspective. Promoting the sharing

Mr. Fuwa: As an outside director, I feel that projects related to work-

auditors and the internal audit unit will improve governance.

style innovation made progress in the past year. I was impressed alsoof information and perceptions between the outside directors/
As an attorney, I check whether risks are considered in theby the entry into the large-scale mega solar plants construction

process of decision-making, or whether decisions are made based

business. I believe that the Company will be able to make the most of

on an understanding of the opinions of the legal section, the legal

the technology that it has developed in the building of network

advisor, and other experts. As far as agenda items of meetings ofsystems. I hope that it will expand the solar power generation

the Board of Directors are concerned, I appreciate that the Company

business, including not only the construction and maintenance ofconsiders risks. However, at the level of management at individual

solar power generation plants but also services related to the facilities.

front sites, there are certain challenges, including the elimination of

Ms. Ichige: As to the discussions about mega solar projects, our“cost control failures.” I feel that we need to raise risk awareness andinterest was focused on positive aspects at the beginning, but asrisk management awareness both qualitatively and quantitatively.

the discussion continued, we came to see the direction of risk and

Mr. Fuwa: I think we should determine core values throughcountermeasures. I believe that the Board of Directors’ roles as bothfurther classification, discussion and analysis and make them thethe accelerator and the brakes will remain important.

seeds of growth.

Let me add a different view point to what Mr. Fuwa said. We held

Considering a slowdown in the Carrier Networks and Social

a meeting with senior female staff members based on my proposal,

Infrastructures businesses up to the previous fiscal year (ended

and that was very meaningful. At the Company, diversity is considered

March 2017), I think we face an urgent need to focus on newimportant in terms of its operations and business category. I havebusiness opportunities in the Carrier Networks and Social

made remarks repeatedly to promote women’s participation from

Infrastructures businesses. I hope that the Company will generate

different perspectives. At the meeting, I was able to hear their worries

growth in new business fields, such as the development of new

and expectations, find commonalities of the theme, and reported

solutions related to innovation in work styles, and improve theissues to the Board of Directors. Now, the Company has two female

profit ratio using new technologies and new solutions.

outside directors. I would like to continue to express opinions actively

Ms. Ichige: I also view focusing on new business opportunities as aso that internal women should work in a position where they canchallenge. It is important to develop strategies ahead of changes inparticipate in making decisions on business execution such as

the business environment. We need to be careful, but we will missexecutive officers, in addition to outside directors on board.

opportunities if we do not act quickly. Discussing strategies will
become increasingly important.

Q4

41

What are your views on challenges
related to our corporate governanceand management?

Mr. Fuwa: Business growth and improvements in profitability arecorrelated. We are seeking to achieve growth chiefly by developing
new businesses, and we have many challenges to improve themargin. I will be active in making remarks about how we can

Ms. Ichige: We need to encourage information sharing with theachieve growth in business and profits and about strategies forinternal audit unit. The internal audit unit has a deep understanding

using resources to contribute to the continuity, growth, andof the progress in the Company’s management issues anddevelopment of our businesses.

Annual Report 2017

Financial Section
Consolidated Nine-Year Summary 

43Consolidated Financial Statements
Consolidated Balance Sheets 

45Consolidated Statements of Income 

47Consolidated Statements of Comprehensive Income 48

Consolidated Statements of Changes in Net Assets 49Consolidated Statements of Cash Flows 51

Notes to Consolidated Financial Statements 

53

Independent Auditor’s Report 

74

Annual Report 201742

Consolidated Nine-Year Summary

FY 2009/3

FY 2010/3

FY 2011/3

FY 2012/3

Orders received¥245,257¥222,046¥212,277¥215,373

Net sales

249,070

217,727

217,948

204,658

Gross margin

35,47032,93833,132

32,079Operating income

10,968

9,867

10,835

9,747

4.4

4.5

5.0

4.8

4,995

5,644

4,660

4,474

Total assets¥147,251¥146,543¥149,464¥149,130

Net assets

69,12973,84977,00580,074

Owner’s equity

68,51873,21376,44579,503

Cash flows from operating activities¥6,953¥16,070¥ (1,595)¥18,595

Cash flows from investing activities(2,193)(1,885)(1,904)(2,648)

Free cash flow

4,759

14,184(3,499)15,946

Cash flows from financing activities(2,096)(1,382)(337)(3,979)Cash and cash equivalents at end of year

16,59029,51425,58737,456

EPS¥100.41¥113.50¥93.72¥89.98BPS

1,377.68

1,472.14

1,537.19

1,598.77

22.00

25.00

26.00

28.00

ROE *2

7.5

8.0

6.2

5.7

ROA *3

7.3

6.7

7.3

6.3

Owner’s equity ratio

46.5

50.0

51.1

53.3

DOE *4

1.6

1.8

1.7

1.8

Payout ratio

21.9

22.0

27.7

31.1

5,906

5,998

5,939

5,936

49,773,807

49,773,807

49,773,807

49,773,807

Performance Indicators (Millions of yen)

Operating income to net sales (%)
Net income attributable to owners of the parent
Financial Condition (Fiscal year end) (Millions of yen)

Cash Flows (Millions of yen)

Per-Share Indicators (yen)Cash dividends
Key Indicators (%)

Other
Number of employees
Number of shares outstanding*1 U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥112.19 = US$1.00 as of March 31, 2017.
*2 ROE (Return on Equity) : Net income attributable to owners of the parent / Owner’s equity during the term [Average of owner’s equity at the beginning of the term and at the end of the term] x 100*3 ROA (Return on Assets) : Ordinary income / Total assets during the term [Average of total assets at the beginning of the term and at the end of the term] x 100*4 DOE (Dividend on Equity): Total annual dividends / Owner’s equity during the term [Average of owner’s equity at the beginning of the term and at the end of the term] x 100

43Annual Report 2017

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

FY 2017/3(Thousands of U.S. dollars) *1¥241,271¥280,071¥299,097¥274,946¥279,241$2,489,001

235,716

270,326

292,164

279,961

257,9122,298,885

37,182

44,69048,11045,162

42,585379,579

12,483

14,41816,158

14,111

9,974

88,902

5.3

5.3

5.5

5.0

3.9

—

7,246

8,257

7,791

5,996

6,549

58,374(Thousands of U.S. dollars) *1¥167,472¥189,059¥201,964¥196,569¥197,469$1,760,130

85,974

89,166

94,173

94,397

96,674

861,698

85,26687,51492,55992,73894,611

843,313(Thousands of U.S. dollars) *1¥ (1,723)¥23,313¥2,460¥9,435¥22,634$201,747(3,429)(5,504)(3,929)(2,822)(2,697)(24,039)(5,152)

17,809

(1,469)6,613

19,936

177,703(2,066)(3,824)(4,127)(1,402)(4,144)(36,937)

30,31544,43438,95143,88959,648531,669(U.S. dollars) *1¥145.73¥166.06¥156.72¥120.80¥131.94$1.17

1,714.74

1,760.06

1,864.61

1,868.25

1,906.03

16.98

45.00

60.00

64.00

70.00

72.00

0.64

8.8

9.6

8.7

6.5

7.0

—

7.7

8.2

8.3

7.1

5.1

—

50.9

46.3

45.8

47.2

47.9

—

2.7

3.5

3.5

3.8

3.8

—

30.9

36.1

40.8

57.9

54.6

—

6,024

7,164

7,260

7,464

7,572

—

49,773,807

49,773,807

49,773,807

49,773,807

49,773,807—

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47

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49

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51

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53

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Corporate Overview / Stock Information (As of March 31, 2017)

Name

NEC Networks & System Integration Corporation

Principal Consolidated Subsidiaries

Head Office

Iidabashi First Tower,
2-6-1 Koraku, Bunkyo-ku, Tokyo
112-8560, Japan
URL: http://www.nesic.co.jp/english/

Established

December 1, 1953

Registered as a Stock
Company
CapitalNovember 26,1953

Japan
NEC Magnus Communications, Ltd.
NICHIWA Co.
NEC Net Innovation, Ltd.
Q&A Corporation
NEC Networks & System Integration Services, Ltd.

¥13,122,000,000

Number of Employees 7,572 (Consolidated)
5,089 (Non-Consolidated)
April 1 - March 31
Fiscal Year
Annual meeting held in June
Ordinary General
Shareholders Meeting
Tokyo Stock Exchange, First Section
Listing
Ticker Code: 1973
KPMG AZSA LLC
Accounting Auditors

Transfer Agent

Overseas
NESIC BRASIL S/A
NESIC (Thailand) Ltd.
NESIC PHILIPPINES, INC.
Networks & System Integration Saudi Arabia Co.Ltd.
ICT Star Group Myanmar Co., Ltd.

Sumitomo Mitsui Trust Bank, Limited
1-4-1, Marunouchi, Chiyoda-ku, Tokyo
100-8233, Japan

Number of Shareholders

Principal Shareholders (Top 10)

8,180

Common Stock Authorized 100,000,000 shares
49,773,807 shares
IssuedTrading Unit

Percentage
Number ofof Total
Shares Held
Shares(Thousands) Outstanding(%)*2

Name of Shareholder

100 shares

Breakdown of Shareholders by TypeNEC Corporation

19,106

38.49

Treasury stock

Japan Trustee Services Bank, Ltd.*1(Sumitomo Mitsui Trust Bank, Limited beneficiary
trust account, NEC Corporation retirement benefit
trust account)

6,400

12.89

The Master Trust Bank of Japan, Ltd. (Trust account)

2,854

5.75

Japan Trustee Services Bank, Ltd. (Trust account)

1,832

3.69

Japan Trustee Services Bank, Ltd. (Trust account No.9)

1,387

2.79

Sumitomo Realty & Development Co., Ltd.

1,200

2.42

Employees’ Stock Ownership Plan

692

1.39

NORTHERN TRUST CO. (AVFC) RE IEDU UCITS CLIENTSNON LENDING 15 PCT TREATY ACCOUNT

598

1.21

THE BANK OF NEW YORK MELLON 140044

597

1.20

BNYMSANV RE BNYMTD RE CF MORANT WRIGHTNIPPON YIELD FUND

495

1.00

Central government /Local public bodies

0.27%

0.00%

Individuals
and Others

Financial
institutions

8.22%

30.72%
49,773,807 shares

Foreign entities(Institutions,Individuals)

Investment
securities
firms

18.74%

Other institutions

41.19%

0.85%

Notes
1 Shares held by Japan Trustee Services Bank, Ltd. (Sumitomo Mitsui Trust Bank, Limited beneficiary
trust account, NEC Corporation retirement benefit trust account) give NEC Corporation material
voting rights because NEC Corporation has contributed shares of the Company to its retirement
benefit trust. The percentage of material voting rights held by NEC Corporation as of March 31,2017 was 51.49%.
2 The percentage of total shares outstanding is calculated based on the number of shares excluding
treasury stock (136,011 shares).

Monthly Stock Price Range

Opening Price > Closing Price

Closing Price > Opening Price

(¥)

2,500

High
Opening

2,000

Closing
Low

1,500

High
Closing

1,000

Opening

500

Low

0
FY 2012/3

75

Annual Report 2017

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

FY 2017/3

2-6-1, Koraku, Bunkyo-ku, Tokyo
112-8560, Japan
Telephone: +81-3-6699-7000
Website: http://www.nesic.co.jp/english/
171100400-BC-00