Q&A at IR Briefing for Financial Results for the Fiscal Year Ended March 31, 2015
(FY2014)
May 8, 2015
NEC Networks & System Integration Corporation
Date and Time: Friday, May 8, 2015 from 10:30-11:30(The current fiscal year refers to the fiscal year ending March 31, 2016 and thepreceding fiscal year refers to the fiscal year ended March 31, 2015.)
Questioner A
Q: With respect to the stance on the reduction of expenses, the promotion ofstreamlining expenses, including SG&A, appeared to have contributed to animprovement in profits. I thought that your stance was previously to bolster sales
using expenses, and I wonder if your stance has changed.
A: There have been no major changes in our stance, and we have consistently taken
measures in these two aspects, with external efforts to expand sales and internal
efforts to streamline expenses (reducing cost of sales and SG&A). Our stance,increasing profits by expanding the top line, has not changed, but we believe that, inthe same way as the Carrier Networks business did in the preceding fiscal year, it isnecessary to aggressively promote the streamlining of expenses in a businessenvironment where sales are stagnant. We think that the increase in profits in thepreceding fiscal year certainly reflected the effects of both sales expansion and thestreamlining of expenses.
Q: I understand that, in the same manner as the preceding fiscal year, you are expecting
to post extraordinary losses in the current fiscal year again. I believe that they aretransient losses, but can you explain what kind of expenses they are?
A: We absorbed and integrated subsidiaries in February and April this year. Temporary
expenses related to these events will be incurred. The main items of the expenses areitems related to retirement benefits, and this is merely a matter of the timing of theincurrence, because we are only recognizing unrecognized liabilities that would
eventually need to be recognized at the time of absorption and integration. The
expenses were incurred during the preceding fiscal year and will be separately
incurred in the current fiscal year and they are still transient expenses. We expect torecord extraordinary losses of approximately 1.5 billion yen for the new fiscal year.

Q: The stewardship code and the corporate governance code have been announced andare drawing increasing attention. I understand that the Company is increasing
dividend payments and has maintained a high ROE, but is the Company going to
make any changes in response to the development described above?
A: Our stance, aiming to bolster profits and increase shareholder returns, remains
unchanged. Having said that, based on the understanding that awareness in thecapital market is rising, we would like to further enhance transparency and we plan
to examine methods for shareholder returns and other issues.

Questioner B
Q: You have achieved, ahead of schedule, the goals for net sales, operating income andoperating margin that were set in the current medium-term business plan, so now
what are your ideas about the goals for the next medium-term business plan? I
believe that specific plans are currently under review, so please explain changes fromthe previous plan, the priority of goals and other ideas.
A: We are currently examining the next medium-term business plan as a three-year plan
starting from the fiscal year ending March 2017, and there will be no changes in ourstance of focusing on both aspects, the top line and profits, or our policies for thepriority businesses, strengthening the service business and expanding theinfrastructure business. However, the market situation is changing. In the period of
the current medium-term business plan, demand for the digitization of fire-fighting
radios and mobile communications base stations strengthened. Now, what kind ofchanges will take place in the market over the period of the new medium-termbusiness plan? We are discussing this now. Regarding the issue of changes, theoverseas market is one of the markets in which changes will take place in the future.
In response, we have opened an office in Myanmar, one such market, and started totake the necessary measures. Another area where changes will take place is public
investments in Japan, and we will pursue initiatives in this area in line with thegovernment’s key investment categories. Moreover, in the network area, we expectthat SDN, a new technology, will become popular, primarily in the private sector. We
would also like to focus on the MVNOs that are expected to become active, centeredon M2M.
Q: Am I right in my understanding that the overseas business once had difficulties
generating profit, but it is now profitable in the same manner as the domesticbusiness?

A: We are developing our overseas business based on the stance of obtaining the market
first and then improving profitability. As a result, even though the overseas businessstill has not matched the profitability of the domestic business, it is generating steadyprofits.
Q: Please elaborate on the future outlook of capital spending in Japan. It appears thattelecommunications carriers will continue to restrain capital spending in the future,and the scale of investments by private companies varies by region.
A: Overall, capital spending by telecommunications carriers has been declining and webelieve that it will remain severe in the future. In particular, investments in mobilecommunications base stations are likely to continue to be restrained in the future,
because the area coverage rate has already reached a necessary and sufficient level.
We think that it will still take some time before investments start recovering on theback of the introduction of new technologies, including LTE-AD and 5G, and, until
then, carriers are likely to only make the minimum investments necessary. In thisenvironment, the kinds of investments have been changing. For example,investments in indoor base stations that are installed mainly in buildings to deal with
non-receptive areas are expected to continue to increase in the future.
Looking at the situation of orders received by the Company, it has been improving inalmost every industry, indicating a sufficient recovery in investments by privatecompanies centered in major companies, and we believe that this will continue in thefuture.
Q: The fire-fighting system business has peaked out, so what kind of themes do you
think will emerge for the next growth?
A: The fire-fighting system business consists of two sectors, the radio system and thecommand system, and the sector that has peaked is the one related to the radiosystem. On the other hand, under the themes of area expansion and collaboration, webelieve that the command sector business will remain at a certain level in the future.
In businesses other than the fire-fighting system business, we have high expectations
for the themes of national resilience, disaster prevention and disaster mitigation inbusinesses related to public spending. For example, because there are certain local
governments that have not yet introduced a disaster prevention radio system, themarket for this system is likely to remain active in the future.
Moreover, looking at the slightly distant future, the broadcasting sector has theinvestment theme of 4K and 8K services, and this makes the sector a market withbusiness opportunities. 4K and 8K are still at the experimental stage, but when theyfind widespread application in the future, it will be necessary to use a CATV network
because large-volume data cannot be transmitted through the current radio network.

This is a field in which the Company excels.
We also expect demand related to the Tokyo Olympic Games. In the infrastructure
sector, WiFi and other networks will need to be developed in facilities such as
stadiums, public facilities and hotels. Moreover, in the service sector, multi-language
services that will be necessary in places that many foreigners will visit, including
tourist spots and hotels, are expected to grow in the future.