Annual Report

2016Corporate Message

NEC Networks & System Integration Corporation will be committed to increasing customer value
by redesigning future communications from the user’s perspective.
NEC Networks & System Integration Corporation is aiming to build a society that enjoys active
communication. We will not merely create highly reliable networks that provide security andreassurance but will redesign future communications from customer perspectives to add value
for customers and advance society.

1 Annual Report 2016

Editorial Policy and Scope of Report

Contents

Editorial Policy

Corporate Message

1

Beginning with the fiscal year (ended March 31, 2016)
covered by this report, NEC Networks & System Integration
Corporation (NESIC) is issuing Annual Report 2016.
Composed of three chapters titled, “History of Our
Growth,” “Our Growth Story Going Forward,” and“Foundation for Growth,” this report features broad coverageof our history, the growth strategy laid out in our midterm
plan, financial and nonfinancial data, initiatives promoting
financial and nonfinancial performance, and governance.
Referring to various types of reporting guidelines, we
strive to provide information that stakeholders across awide spectrum will find valuable. We would like for thisreport to be read as widely as possible, and welcome
opinions and comments.

Editorial Policy and Scope of Report / Contents

2

Message from the President

3

The NESIC Social Value Creation Model

5

Period Covered

Chapter

1 History of Our Growth

History

7

NESIC in Daily Life

9

Three Strengths

11

Financial Information

13

April 1, 2015 to March 31, 2016
(Some information related to the period following that
noted above is also included.)

Scope of Report
NEC Networks & System Integration Corporation andconsolidated subsidiaries

Guidelines

Chapter

2 Our Growth Story Going Forward

Q&A with the President

15

Strategic Businesses under the New Midterm Plan

21

Message from the Director in Charge of Finance24• ISO26000 (Guidance on social responsibility)• GRI G4 Sustainability Reporting Guidelines

Published

Chapter

3 Foundation for Growth

September 2016

NESIC Group Sustainability Initiatives

25

Contact

Developing Diverse Human Resources and Creating
Worker-Friendly Workplaces

27

Information Security, Safety, and Confidence

29

Partnership with Suppliers

31

Partnership with the Earth(Reducing Environmental Impacts)

32

Compliance and Risk Management Initiatives

33

Building Stakeholder Relationships on Trust

34

Corporate Governance

35

Directors & Corporate Auditors

37

Messages from an Outside Director and an Outside Auditor

39

Financial Section

40

Corporate Overview / Stock Information74

To contact us, please visit our website at
http://www.nesic.co.jp/english/index.html
and click on “Contact Us” at the top of the page.

Disclaimer
This report contains forecasts, outlooks, targets, plans, andother forward-looking statements concerning the businessperformance, financial condition, and other aspects 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 preparedand on certain premises judged to be reasonable. These
judgments and premises, by their nature, are subjective
and characterized by uncertainty. Furthermore,
forward-looking statements are not guarantees of future
results and actual performance could be greatly affected byvarious factors.

Annual Report 20162

Message from the President

As a Communications System Integrator, We Work to Create andProvide Social Value, and Enhance Our Corporate Value
Acting on the Aspirations Expressed in Our Corporate
Message, “Re-designing your Communication”

service platform offering rapid maintenance response and a

NEC Networks & System Integration Corporation (NESIC) was

capabilities in these three areas, NESIC’s strength is that it has

founded as a telecommunications infrastructure construction

the organization and skills enabling it to perform every processcompany in 1953. Since then, we have undertaken therelated to ICT systems - consulting, design, integration, andconstruction and maintenance of various types of telecom

installation, as well as operation and maintenance.

infrastructure both in Japan and overseas, built andwide variety of services. Given the ability to draw on

NESIC applies this strength in its three core businesses -maintained ICT systems ranging from networks to entire officeEnterprise Networks, Carrier Networks, and Social

environments for businesses, and expanded into the field of

Infrastructures, the latter of which supports systems used by,

ICT operation and outsourcing services.

for example, central and local governments, broadcasters, andOver the sixty-plus years since our founding, we haverailway and road transportation enterprises. One area we havedeveloped ICT expertise in both information technology andpaid particular attention to in recent years is an initiative

networks, execution capabilities underpinned by a solid track

aimed at innovating work styles. Based on therecord in integration and installation, and a support and“EmpoweredOffice (EO)” concept, we are implementing new

3 Annual Report 2016

expresses our aspiration to benefit society and our customers
through communication.
Our mission, as a “communications system integrator,” isto enable new communication and offer our customers andsociety the various forms of new value that result. Looking to
the future, we will continue our efforts to achieve ongoinggrowth and increases in corporate value to create evengreater value for society.

Helping to Solve Social Issues and Contributing to theDevelopment of a Sustainable Society through All of
Our Business Activities
For NESIC, CSR means providing value to society through ourprincipal business activities, and contributing to thesustainable development of the world and society by working
to solve social issues through all of our business activities.
NESIC works to fulfill these social responsibilities in several
ways. We take steps to strengthen our corporate governanceand risk management, and ensure thorough compliance. We
respect human rights; strive to reduce our environmental
impacts do our best to develop a diverse workforce and create
comfortable work environments; and advance initiatives
aimed at ensuring the safety and quality of our services, andpromoting information security. Furthermore, we endeavor towork styles in our own offices and using what we learn to offer

build trusting relationships with customers, shareholders andsolutions that will help customers change the way theirother investors, suppliers, and local communities.

employees work.

In advancing these activities, it is critical that we

Through these business activities, we have helped tocommunicate with stakeholders to confirm what is expectedbring about prosperous, comfortable lifestyles with easy

or desired of our company, and strive without rest to become

access to vast amounts of information and to interactive

even better at what we do. Every one of our employees, andexchanges; urban environments safe and secure from crime

our organization as a whole, is committed to being constantly

and disasters; greater productivity with better work-life

aware of various social issues, listening to what societybalance in offices and other settings; and reducedemands of us, and identifying and working to solve the mostenvironmental impacts in business activities. We view these aspressing issues first.

forms of value that have emerged from the communication
enabled by the systems and services NESIC offers.
“Re-designing your Communication,” the corporate
message we created on the 60th anniversary of our founding,

Masao Wada
President

Annual Report 2016

4

The NESIC Social Value Creation Model

Providing Value to Stakeholders by
Promoting the Evolution of Communication
NESIC Management ResourcesEnterprise Activities
Financial Base

Stakeholder Relationships Built on TrustBusiness Locations(Operation Centers, Maintenance Network, etc.)

Technology & Know-How

Human Resources & Corporate Culture

Construction
Capabilities

ICT Capabilities

Installation andfacility-management technology
and know-how developedin telecom infrastructure
construction

Having a core of network
technology with rock-solid
reliability, we cover
all areas of ICTEnterprise Networks
business

Carrier Networks
business

ThreeStrengths
pp. 11-12

Support Services
Platform
Variety of operation centers, including
data centers, network operation centers,
and call centers, working in unison with anationwide maintenance network to
support public infrastructure

Social Infrastructures
business

Foundation for Growth (Chapter 3)
Developing Diverse Human Resources andCreating Worker-Friendly Workplaces ( pp. 27-28)
Information Security, Safety, and Confidence (Partnership with Suppliers (p. 31)

Partnership with the Earth(Reducing Environmental Impacts) (5 Annual Report 2016p. 32)

pp. 29-30)

Creating Value through Communication

In our Enterprise Networks Business, we
provide integration, operation, monitoring,and outsourcing services for networks, and IT
and various other forms of office ICT, thatcompanies rely on. By also innovating work
styles to increase productivity through the
integration of office space design, officefacilities and ICT, we enable work-at-home andother alternative ways to promote human
productivity.

Providing value tocustomers and society
Increasing productivity
Building social infrastructure offering
greater safety, security, and comfort
Reducing environmental impacts

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

Increasing the valueof employees
Realizing flexible, satisfying work styles
Developing specialized human resourcesthat promote business growth

NESIC makes daily life safer, more secure, andmore comfortable through system
integration, installation, maintenance,
monitoring, and a wide array of other services
for the ICT infrastructure used by central andlocal governments, broadcasters, expressway
and railway operators, and other providers ofsocial infrastructure.

Promoting diversity and motivation

Increasing shareholder value
Stable returns to shareholders
Compliance and Risk Management Initiatives (p. 33)

Building Stakeholder Relationships on Trust (p. 34)

Corporate Governance (Increasing corporate value throughbusiness growth

pp. 35-36)

Further strengthening of management resources
Annual Report 2016

6

Chapter

1

History of Our Growth

HistoryFounded at the Dawn of Broadcasting and Telecom in Japan,
NESIC Has Grown Continuously over More Than 60 Years by Being a
Key Contributor to the Development of New Ways of Communication
1950s

1960s & 70s

1980s & 90s

A time for building afoundation forcommunication
infrastructure

Period of significant contributions to global
communication infrastructure construction

Period of diversification in communications•Postwar recovery•Contributions to theconstruction of Japan’s
broadcasting andtelecom infrastructure•Rise of international telecom and satellite telecom•Construction of telecom infrastructure acrossthe world•Growing construction of broadcasting,submarine cable, and satellite and microwave
telecom infrastructure•Telecom liberalization and the birth of the New Common
Carriers (NCCs)•Construction for NCCs and expansion of the mobile
telecom network•Expansion of the enterprise system integration business

1953

1975

Nippon Electric Installation
Company founded

Relocation of the head
office to Nishi-Shimbashi,
Minato-ku, Tokyo

1980

Changed the company name to NEC System Integration &Construction, Ltd.

1983

1992

1986

1990

Listed on the Tokyo
Stock Exchange
Second Section

1956

Construction of the firsttelevision broadcasting facility

1968

Construction of satellite
telecom infrastructure forthe 1968 Olympic Games, in
Mexico City

1970

Construction of microwave
telecom infrastructure for five
Central American countries

Business for NCCs
takes on significant scale

1993

Listed on the
Relocated theTokyo Stockhead office to
Exchange First Shinagawa-ku,
SectionTokyo(Assignment to
the First Section)

Integration of intra-office voiceand network systems

1997
Around 1958

Net sales¥200

Installation of crossbar
switching equipment

billion

1989
1992

1974

Net sales¥100billionNet sales¥10billion

7 Annual Report 2016

1976

Established the first overseas
affiliate, in Brazil

1991
Establishment of subsidiaries inThailand and the Philippines

Established NEC System
Integration & Construction
Engineering, Ltd.
(Later changed the company
name to NEC Networks &System Integration Engineering,
Ltd. and merged with NESIC
in 2015)

1995

Acquired Media Service, Ltd.
(now NEC Networks & System
Integration Services, Ltd.)1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

2000s

2010s

Period of explosive growth in communication

Pursuit of value creation via communication•Advance of IP and broadband networks•Expansion of solution service business•Digitalization of terrestrial broadcasting, and informatizationof communities•Cloud gains popularity•Strengthening of service businesses•High-speed performance of mobile networks, development of
next-generation broadcasting specifications

2005

2010

Changed the company name to
NEC Networks & System Integration Corporation

Relocated the head office to Bunkyo-ku, Tokyo

2004

2016

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

FY 2016/3
Net sales

2007¥280.0Started the EmpoweredOffice businessbillion2011

NESIC’s industry sector classification in the stock market waschanged from “construction” to “information & communication”

2013

Announced a corporate message on the occasion of
NESIC’s 60th anniversary

2008

Established nTOC
(Network Total Operation Center)2014

Established sDOC (Service Delivery Operations Center)

2005
Acquired Toyo Networks & System Integration Co., Ltd.
(Merged with NEC Magnus Communications, Ltd. in 2015)

2006
Established a subsidiary in Saudi Arabia

2012
Invested in Q&A Corporation (Acquired in 2013)

2013
Acquired NEC Magnus Communications, Ltd.

2014

2006
Acquired NEC Telenetworks Co., Ltd. (Merged with NESIC in 2007)

2008
Acquired Nichiwa Co., Ltd.

Made NEC Net Innovation, Ltd. into a direct subsidiary

2015
Established a branch of NESIC (Thailand) Ltd.
in Myanmar

Annual Report 2016

8

Chapter

1

History of Our Growth

NESIC in Daily LifeNESIC Contributes to Safety, Security, and Comfort
in Various Contexts of Daily Life
Airports

HotelsBroadcasting

Offices

Visual Docking Guidance
Systems (VDGS), airport
information, and a wide
variety 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.

Office innovation combining
ICT, office facilities, anddesign to resolve diverse
problems and enhance thevalue of work.

Firefighting &Ambulance

Disaster Prevention Mobile Base Stations Shops and Public
Facilities
Warning systems that provide
Installation of mobile baseConstruction of command
systems and radio systems
enabling rapid responses to
119 emergency calls, andprovision of multilingual callcenter services.

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

9 Annual Report 2016

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

Creation of convenient user
environments including
Wi-Fi networks, information
distribution systems, andvalue-added video services.

Working at Home
Recommendations for home-based
work styles that are derived fromwhat we have implemented in
our own offices and make themost of the productive teamwork
and smooth communication thatare the hallmarks of leading
Japanese companies.

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

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Drawing on our three strengths – ICT capabilities, construction capabilities, and support services – NESIC offers 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 with,and maintain and operate,
lunar and asteroid
exploration, and other typesof satellites and probes.

Provision of networks usedby local governments toprotect citizens, provide
municipal services, andpromote citizen convenienceand 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 Center

Data Center

Network Total
Operation Center

Contact Center

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 forseven languages.

Annual Report 2016

10

Chapter1

Three Strengths

History of Our Growth

Drawing on Three Strengths,
NESIC Provides Unique, Innovative Services
ICT Capabilities

Construction Capabilities

Having a core of network technology
with rock-solid reliability, we respond to a

From telecom infrastructure, to officefacility management, we get theWith outstanding capabilities in the design and integration of networks
operated by public 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.

Over the 60-plus years we have been in business, we have accumulated
a wealth of experience and knowledge in working with various types oftelecom infrastructure in Japan and abroad. We draw on all of that
intellectual wealth in integrating mobile base stations, broadcasting
systems, and other types of public infrastructure, and in providing officefacility management services covering all related electrical needs,
furnishings and fixtures, and even space design.

broad range of ICT needs

job done

Employees with managing engineer
or technical supervisor qualifications

Employees with advanced
ICT qualifications

Over

600

ICT
Capabilities

Over

1,400

Construction
Capabilities
Three
Strengths

Support Services

We have the organization
wherewhithal to provide a broad rangeof services customers can count on
NESIC offers operation center functions centralizing everything fromhelp desk to network operation, monitoring, and maintenance services;
a comprehensive technical center serving as a one-stop source for
distribution functions, technical evaluations, testing, SI, maintenanceand repairs; and data centers serving as a platform for outsourcing
services. We have the organization wherewithal to provide customers
with sophisticated support services 24/7.

SupportServices

Nationwide Service Network

Over

400

* Figure is on a non-consolidated basis

sDOC(Service Delivery Operation Center)locationsthroughout
Japan

nTOC
(Network Total Operation Center)s-iDC (Strategic Internet Data Center)* Data figures on this page are as of March 31, 2016.

11 Annual Report 2016

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

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 the latest informationand 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 torealize the work-style flexibility customers seek. With needs to work at home to meet childrearing and elderly
care responsibilities, and other types of work-style needs, approaches for getting work done regardless oflocation are becoming more and more common. At NESIC, we implement work-style innovations at our own
offices and then use what we learn to develop solutions for customers.

Inviting Customers to Our Own EmpoweredOffice Workplaces
When we began offering EmpoweredOffice solutions to customers in
2007, we also implemented EmpoweredOffice solutions at our own head
office. As our business environment changed, we changed our own
EmpoweredOffice implementation to achieve work efficiencies andimprove work styles, and assessed the results. In 2012, we started to
implement EmpoweredOffice solutions at regional divisions and offices
throughout Japan. Now, many customers come to our locations
throughout Japan every day to see how EmpoweredOffice works for us.
To give visitors a chance to experience an office environment that iseven more advanced than our own, and delve more deeply into what
office and work-style innovation could mean for them, we created the
EmpoweredOffice Center.
This facility provides a venue for working with individual customers
to explore ideas for solving problems and meeting needs.

Iidabashi Head Office

EmpoweredOffice Center

EmpoweredOffice Visitors (for all NESIC offices)
Companies

Individuals

Cumulative Visitors Since 2007

7,000

6,170

6,000

6,113

5,000
4,000

3,705

3,000

2,486

2,261

2,000
1,000

791

750

FY 2012/3

FY 2013/3

2,131

2,248

1,330

0
FY 2014/3

FY 2015/3

FY 2016/3

Companies

9,507
Individuals

28,162
Annual Report 2016

12

Chapter

1

Financial Information

History of Our Growth

Economic conditions during the fiscal year ended March 31, 2016

earnings declined. The recording of an extraordinary loss anddiffered greatly by sector. Conditions for businesses in general, andreduction of deferred tax assets, in addition to lower operating

for central and local governments, were solid, but only worsened forincome, resulted in year-on-year declines in both net income

telecom carriers, which greatly restricted investments in network

attributable to owners of parent and ROE.

infrastructure. NESIC, therefore, experienced steady growth in sales

Despite the difficult business conditions mentioned above,

and operating income in its enterprise networks business, but ahowever, there was no change in our emphasis on consistently

major sales reduction in its carrier networks business, due to greatly

paying a growing dividend. As a result, we increased the dividend for

reduced infrastructure investment. At an overall level, sales andthe ninth consecutive year.

Financial Highlights
Orders Received / Net Sales

Operating Income / Ratio to Net Sales
Operating income (¥ billion)

Orders received (¥ billion)
Net sales (¥ billion)

280.1 270.3
215.4 204.7

299.1 292.2

274.9 280.0

Ratio to net sales (%)

241.3 235.7

12.5
9.7

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

Net Income Attributable to Owners of the Parent / ROE
Net income attributable to owners of the parent (¥ billion)
ROE (%)FY 2012/3

14.1

5.3

5.3

5.5

5.0

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

4.8

FY 2012/3

16.2

14.4

Free Cash Flow /Cash and Cash Equivalents at the End of the Fiscal Year
Cash and cash equivalents at the end of the fiscal year (¥ billion)
Free cash flow (¥ billion)

44.4

8.3

37.5

7.8

7.2

8.8

9.6

8.7

5.7

17.8

15.9

6.5

6.6
(1.5)

(5.2)
FY 2012/3

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

Owner’s Equity / Owner’s Equity Ratio

FY 2012/3

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

Annual Dividend per Share / DOE

Owner’s equity (¥ billion)

Annual dividend per share (¥)

Owner’s equity ratio (%)

79.5

43.9

30.3

6.0
4.5

39.0

DOE (%)

85.3

87.5

92.6

92.7

70

64

60
45

53.3

50.9

46.3

45.8

47.2

28
2.7

3.5

3.5

FY 2014/3

FY 2015/3

3.8

1.8
End of2012/313 Annual Report 2016

End of2013/3End of
2014/3End of
2015/3End of
2016/3

FY 2012/3

FY 2013/3

FY 2016/3

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Results by Segment
Other

Enterprise Networks business

2%

39%

Social Infrastructures business34%

Net Sales Breakdownby Segment(FY 2016/3)

Carrier Networks business

25%

Enterprise Networks business

EmpoweredOffice

Net sales¥

Carrier Networks businessTelecom Carrier Network Equipment

109.6 billion

Net sales (¥ billion)

102.8

7%

increase year on year

109.6

Net sales¥

FY 2016/3

NESIC seized on ICT investment rising on
an improvement in business sentiment toproactively respond to management
innovation needs and PBX replacement
demand to expand sales, with a focus on
EmpoweredOffice work-style innovation
solutions.
As a result, net sales in the enterprisenetworks business rose 7% year on year, to¥109.6 billion.

FY 2015/3

Net sales¥

96.3 billion

decrease year on year

Net sales (¥ billion)

86.2

FY 2015/3

CATV System Construction

69.3 billion

20%

Social Infrastructures business1%

decrease year on year

Net sales (¥ billion)

96.8

96.3

FY 2015/3

FY 2016/3

69.3

FY 2016/3

After years of investment focused on
enabling reliable connections to mobile
networks, Japan’s telecom carriers nolonger need to invest so heavily in thisinfrastructure and have greatly reduced
their spending on mobile base stations andother aspects of telecom networks.
Net sales in the carrier networks
business, therefore, declined 20% year on
year, to ¥69.3 billion.

With the May 2016 deadline for firefighting
and emergency radio system digitalizationin sight, investment in these areas largely
ended. However, with a shift in focus tosafety-and-security-themed ICT-related
public investment and earth stations forsatellite communications, the global
business expanded.
Overall, social Infrastructures businessnet sales, at ¥96.3 billion, were basicallyunchanged from the year earlier.

Annual Report 201614

Chapter2

Our Growth Story Going Forward

Q&A with the President

Implementing Our New Midterm Plan to Grow Our Business andReinvent Our Company
Looking back on the previous midterm plan, what did the company achieve and were there any places where
performance came up short?

Qaccomplished what we planned to do, achieving net sales and operating
income (operating income margin) targets a year ahead of schedule. Now, we have to focus on
A We
further cost restructuring and increasing profitability.
The previous midterm plan (covering the fiscal years ended March2014 to March 2016) was formulated during the lead-up to the 60th
anniversary of our founding (which we celebrated in 2013), so we
decided it was appropriate to take that as an opportunity forreigniting sales growth, which had been lagging for several years.
To achieve growth, we looked at the broad array of telecom
infrastructure the NESIC Group works with and set our sights on
making the most of an anticipated wave of investment in areas
where market growth could be expected over the term covered by
the midterm plan. At the same time, we wanted to expand ourservice business as a primary source of growth over the
medium-to-long term. The midterm targets we set were to achieve
net sales of ¥290 billion, operating income of ¥16 billion with anoperating income margin of 5.5%, and ROE of 10%*1. Our focus inachieving these targets fell on four areas – the EmpoweredOfficebusiness offering work-style innovation solutions integrating ICT and
office space design; the technical outsourcing business applying therock-sold technical service capabilities we had developed over our 60
year history; the infrastructure business consisting mainly of theinstallation of firefighting and disaster prevention systems andmobile base stations; and the overseas business, where local
subsidiaries play leading roles.
We achieved the midterm plan targets by vigorously capturing
infrastructure investment and achieving steady expansion of ourservice business. Though to varying degrees, growth objectives wereachieved basically as planned for the four businesses I mentioned

Masao Wada
President

15 Annual Report 2016

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

above. And net sales, operating income, and operating income
margin targets, were reached by the end of March 2015, a year earlier
than planned.
Unfortunately, the fiscal year ending in March 2016, the final fiscal
year covered by the plan, saw a sudden cooling of the investment
environment in the telecom industry and this led to declines in net
sales and operating income for the group. It is regrettable that delays
in responding to the unexpectedly rapid downturn caused a decline
in profitability. So, too, is the fact that conditions in the final year of
the plan prevented us from achieving our ROE target of 10%. Thattarget has been carried forward in the current midterm plan.
Responding to the downturn in business conditions for thetelecom industry, we are focusing on restructuring costs - forexample by bringing production in-house and pursuing efficiencies
related to material costs – and, given positive indications emerging
from the end of the fiscal year just completed, I believe we havecreated a foothold for improving profitability. Strengthening cost
controls is a theme we aim to carry forward as a contributor to theachievement of our present midterm plan targets.
*1 Except for ROE, targets were revised in May 2014, in consideration of M&A initiatives
implemented during the midterm plan covering the fiscal years ended March 2014 toMarch 2016.

Previous midterm plan targets*1

New midterm plan targets*2
ROE

ROE

10%

10%

9.6%
8.8%

8.7%

6.5%

Net sales (¥billion)

290.0

270.3

292.2

280.0

Net sales (¥billion)

300.0

Operating income (¥billion) 235.7

16.0

Operating income
to net sales

5.5%

12.5

Operating income (¥billion)

16.2

14.4

16.5

14.1

5.3%

5.3%

5.5%

5.0%

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

Operating income to
net sales

5.5%

FY 2019/3(Target)Consolidated
Net sales
Operating income
Operating income to net sales
ROE¥300 billion¥16.5 billion
5.5%
10%

Record Highs¥292.2 billion (FY 2015/3)¥16.2 billion (FY 2015/3)
5.5% (FY 2015/3)
9.6% (FY 2014/3)*2 New midterm plan targets are as of May 10, 2016.

Annual Report 201616

Chapter2

Q&A with the President

Our Growth Story Going Forward

Q
from achievements under the previous midterm plan, the new plan focuses on the service,infrastructure, and global businesses.
A Starting

How does the new midterm plan address the business environment and what does it include for the main businesses?

As I just discussed, focused efforts in the service business and theinfrastructure business were instrumental in achieving targets under
the previous midterm plan. Under the new plan, we are working tofurther enhance the strength and depth of these businesses, withadjustments for anticipated changes in the business environment.
Under the new midterm plan, we believe it is, unfortunately,necessary to assume that the severe conditions facing telecom

carriers will continue throughout the period covered by the plan. On
the other hand, we believe there will be growing business
opportunities for the NESIC Group in other enterprise businessservices, and in the social infrastructure and global businesses.
For example, in the enterprise-centric ICT market, we see thegeneral trends toward greater workforce diversity - with growing
numbers of women and senior citizens moving the country toward

Our View of the Market and Opportunities for NESIC
Market Environment
ICT growing moderately with focus shifting from SI andmaintenance, to the provision of services(Presently concerns that economic uncertainty will lead to stagnation)Work styles and employment are diversifying, withgreater participation by women and senior citizens(Growing investment related to telework and work-style innovation)
At the global level, outbound and inbound markets are being revitalized

Investment in social infrastructure is sound(National disaster resilience, regional revitalization, etc.)

NESIC global market definitions
Outbound: ICT markets overseas
Inbound: The domestic ICT market, which is being revitalized because of the increase in
inbound tourists.

NESIC’s business opportunities are expanding in areas other than the domestic carrier market.
(Enterprise, social infrastructure, global)

Basic Strategy under the New Midterm Plan
Previous midterm plan (thru FY 2016/3)

New midterm plan (thru FY 2019/3)

EmpoweredOffice business

Service business• Enterprise Network business expansion and brand power enhancement• B2B service business strengthening and expansion• EmpoweredOffice business • Cyber security business • IoT/MVNO businessTechnical outsourcing business• BPO business expansion and new service development
Infrastructure business• Steady responses to needs for digitalization of firefighting
radio systems, and LTE base stations• Strengthening and deepening of businessin markets with growing investment(Broadcasting/CATV, disaster prevention, railway/road networks)

Global business

Overseas business

17 Annual Report 2016

Infrastructure business• Outbound business expansion centering on ASEAN• Business expansion in Thailand and Saudi Arabia • Myanmar market entry(Thailand: Telecom infrastructure; Saudi Arabia:
Plant telecom, etc.)

Evolution/
Expansion(Telecom infrastructure projectcommission already received)(Targeting 10% of total net sales)• Inbound business expanding with visitors to Japan(Hotels, airports, tourism, multilingual support)

1 History of Our Growth

an all-inclusive workforce – and work-style diversification as driving
demand for ways of working that are not restricted by distance ortime. Systems and networks that respond to this demand, therefore,
will likely take on greater and greater importance.
Looking to the domestic market for social infrastructure, it isexpected that investments in digital radio systems for firefighting andemergency services will be followed by solid growth in national
disaster resilience and regional revitalization, and updating of urban
infrastructure, up through 2020, and that growth will also be seen in
related ICT investment.
In the global market, outbound investment in the form of
telecom, transportation, and other forms of infrastructure investment
are expected to rise, particularly in the ASEAN countries, while
inbound investment continues to grow in response to the increasing

2 Our Growth Story Going Forward 3 Foundation for Growth

numbers of international tourists resulting from the central
government’s drive to make Japan a prime tourism destination.
Our aims, therefore, are to focus on expanding our service,infrastructure, and global businesses, while adapting to thesebusiness environment changes. (Refer to p.21-23 for further
discussion of these three businesses.)
As minimum quantitative targets under the new midterm plan,we aim to achieve net sales of ¥300 billion, operating income of¥16.5 billion, an operating income margin of 5.5%, and an ROE of
10%. Even amid expectations that severe business conditions willcontinue for telecom carriers, we aim to make the fiscal year ending
March 2019 one of record performance and to achieve the ROE
target we failed to reach under the previous midterm plan.

Q
Our advantage is our combination of strengths in ICT capabilities, construction capabilities,
A and support services.
What is the advantage NESIC will exercise in achieving the new midterm plan targets?

The NESIC Group, over the 60-plus years it has been in business, hasbuilt a record of solid performance in telecom infrastructure
construction and installation in locations throughout the world,social infrastructure making daily life safer and more secure, and ICT
systems serving as platforms for enterprise business activities.
Focusing on networks, we have performed system integration work,and provided operation maintenance services, for various types of
ICT. Along the way, we have built a broad customer base including
central and local governments, telecom carriers, and enterprises.
Infrastructure construction capabilities backed by both ICT
technology and construction expertise, a full range of support
services, and a solid customer base are the strengths we will draw onfor growth.
Under our new midterm policy, we will pursue businessdevelopment making the most of these strengths. For example,
when it comes to inbound business serving international visitors toJapan, business opportunities for the NESIC Group begin at thedoorstep to Japan – airports – and extend to transportation systems,
hotels, shops, and all other types of tourism-related services andinfrastructure. With regard to one area in particular, services for the
hotel industry, which is currently experiencing a boom in new
construction, expansion, and renovation, we are leveraging our highmarket share in PBX (private branch exchange) equipment to provide
hotels with a wide array of solutions spanning everything from ICT
systems including telephone, and guestroom Wi-Fi and room
management systems, to guest information services applying our
24/7 multilingual support capabilities.
In the field of cyber security, we offer the unique benefit of our
Network Total Operation Center (nTOC), with 160 operation consoles
and 300 operation engineers to monitor and operate customer
networks, and, within the nTOC, our Security Operation Center (SOC).
This means we are able to remotely and instantly isolate a network
when a virus has been detected, and provide other services on atimely basis. Furthermore, leveraging experience and know-how wehave acquired in serving the NEC Group and countless other users,
we are able to rapidly and accurately analyze and respond to cyberattacks, which are constantly increasing in sophistication.
What sets the NESIC Group apart, therefore, is our combinationof ICT capabilities, construction capabilities, and support services. We
are particularly confident in the ICT capabilities and service quality
we have developed in working with the highly advanced, large-scale
networks of telecom carriers, and believe these assets will enable us
to appropriately adapt to business environment changes and realize
the growth we seek.

Annual Report 201618

Chapter2

Our Growth Story Going Forward

Q&A with the President

Cyber Security Business Platform

One of Japan’s Largest Integrated
Operation Centers
nTOC (Network Total Operation Center)

Working in tandem, the Security Operation Center (SOC) andNetwork Operation Center (NOC) provide unified security monitoring andnetwork operations services.
NOC-SOC Tandem Service Example
Analysis, assessment

Customer
environment

160
operation
consolesSuspicious
activity
detection

300
operation

Detection

SOC

Security device
Collaboration

Communication
terminationengineers

Network device(SDN)

Remote control

NOC

Q
new midterm plan constitutes a program for evolving the entire company, and all our employees, inways that enable us to be even better partners for contributing to our customers’ business development.
A The
What were your main intentions in the new midterm plan?

Until now, the NESIC Group has concentrated on offering systems andservices to support customers’ daily business operations. Going forward,
however, we must evolve into partners capable of contributing tocustomers’ business development by making recommendations to
help them expand their businesses and earnings. The evolution I refer
to must also happen for every one of our employees.
I see the new midterm plan as a program for evolving the entire
company, including all of our employees. This means that every
employee will have a firm grasp of the new midterm plan, share in acommon understanding of the plan, translate the plan into personal
objectives, and then act to achieve those objectives. And every oneof our employees doing that will mean a tremendous increase incapabilities for our company as a whole.

Briefing on the New Midterm Plan
NESIC president Masao Wada visited several company business locations throughout Japan
to explain the plan directly to employees and share its key points and objectives.

19 Annual Report 2016

Based on that intent, I had all of our employees think about how
they would change themselves in implementing the new midterm
plan. And as we began to implement the plan, I personally went tovarious business locations to explain the new midterm plan directly toemployees and share with them its key points and objectives. My aim
in sharing my thoughts in developing the new midterm plan was tohave every one of us act in ways that enable even greater contributions
to the development of customers’ businesses and to society, andultimately create more opportunities for business expansion.
In our head office, and regional offices and divisions throughout
Japan, we have implemented the EmpoweredOffice concept. At
each location, employees themselves have designed their officeenvironments in ways that reflect the characteristics of theirgeographic areas and business activities. A key purpose of
EmpoweredOffice is to create work environments where employees
feel energized, and when customers see with their own eyes how it
benefits our offices, they understand our ideas on work-styleinnovation. Acting as the customer’s partner, we are then able tohelp the customer determine what work styles would be optimal forthem, and then provide the customer with recommendations on
how to realize them. This approach has been very effective inwinning orders for our approach to work-style innovation.

1 History of Our Growth

As Japan continues to contend with a low birth rate and aging
population, it is expected that the country’s working-age population
will decline and clear that work styles must be adapted. At the NESIC

Regional EmpoweredOffice Example
The Hokuriku Regional Office was completely redesigned to create a vigorous, energetic
working environment. With its entranceway redone with a Bengal red traditional lattice workemphasizing vertical members, and other elements symbolizing local culture, the design of
the Hokuriku Regional Office expresses hospitality unique to its location in Kanazawa.

2 Our Growth Story Going Forward 3 Foundation for GrowthGroup, we are responsive to changes in the lives of employees,
workplaces, and needs to adjust work styles. We apply ICT
infrastructure and a human resources system that enable employees
to work at home or in a mobile mode. We make improvements along
the way and use what we learn to make recommendations tocustomers. To describe this more concretely, the idea of working athome, came about as a proof-of-concept project in which employees- mainly women - suggested the idea, designed the system, andmade the necessary improvements. In implementing the new
midterm plan, pursuing the EmpoweredOffice business is more thansimply recommending systems that customers can use to innovate
work styles; it is our opportunity to be a partner customers canconsult even on questions of how to get work done.

Q
A Close dialogue will be our emphasis in responding to the expectations of all stakeholders.
Lastly, is there anything you would like to say to stakeholders?

The NESIC Group aims to be the leading company in business areas
revolving around the customer communication that networks
underpin. The idea that communication can be a medium forproviding value to society is shared throughout our group, and we
aspire to be a company that uses not only its own technology andknow-how but also outside knowledge to create solutions for all
manner of social issues. On the occasion of the 60th anniversary of
our founding, therefore, we devoted substantial time to discussing
what corporate message would best express the way we view ourpast, present, and future and finally decided that “Re-designing yourCommunication” would do that.
I see achieving 100 years of continuous operation as only one
step in the ongoing development of a company. For a company toremain in business 100 years requires solid fundamentals and an
upstanding corporate culture. NESIC’s fundamentals lie in its ICT
capabilities, construction capabilities, and support services, and our
corporate culture is one of putting the customer first and taking onchallenges without fear of changing ourselves. Together, these form
the foundation upon which we will work to be a company that will
see its 100th anniversary.
Succeeding requires that we be a company that continuously
satisfies customers, shareholders, and all other stakeholders. As acompany focused on “Re-designing your Communication,” we will
engage in close communication with all of our stakeholders andproperly respond to their expectations.

Lastly, I would like to acknowledge that a sense of ethics is themost important factor in pursuing business activities. The NESIC
Group engages in business activities for the benefit of customers, andbusiness activities are the medium through which we contribute tosociety. Going forward, every one of our employees will bring a solid
sense of ethics to their business activities and always placecompliance first.

Annual Report 201620

Chapter2

Our Growth Story Going Forward

Strategic Businesses under the New Midterm Plan

Focusing Strengths on Developing Three Strategic Business Areas
to Achieve New Midterm Plan Targets

Strategic Business Area

1

Net Sales Target(¥ billion)

80

Service Business Area

60

The service business area is critical for NESIC to achieve stable growth overthe medium-to-long term.
Here, attention will focus on strengthening B2B services that help
customers achieve greater productivity and create business value. These
include the EmpoweredOffice, cyber security, and IoT/MVNO businesses,
which are all expected to experience market expansion.

70
51

40
20
0

FY 2016/3
ResultFY 2019/3
Target* Target is as of May 10, 2016

EmpoweredOffice
We believe needs for work-style innovation will continue to rise as a high rate of new
office construction and the resulting increase in office relocations energize demand
for greater productivity. Adding to that, we anticipate that changes in society andsocial demands will promote an expansion in demand for mobile, work-at-home,and other new work styles that are not restricted to specific locations.
NESIC is further accelerating internal implementations of telework and othernew work styles as we strive to develop new services. At the same time, we arefurther enhancing our abilities to apply our traditional strengths in ICT and
facilities, and strengthening our capacity to perform consulting services
extending to human resource system and other organizational needs.

Work-at-home know-how
including HR system
considerations

Cyber Security
With ICT now playing a central role for both society and enterprises, threats of cyber attacks are growing
in both volume and sophistication, and demand for security measures to counter them is rising.
As a unique provider of both customer network operation and security monitoring services, NESIC isapplying high-precision analytical and rapid response capabilities, and a considerable track record ofsuccess in Japan, to expand its cyber security business.
Security Operation Center (SOC)

IoT/MVNO
IoT means connecting not only information devices but also various“things” to the internet and engaging them in interactive exchanges
of information. Given the ability to, for example, gather data fromindustrial equipment to prevent breakdowns, or analyze themovements of people and vehicles to create smoother flowing traffic,
the market for IoT is expected to grow.
NESIC aims to expand its IoT/MVNO business by providing

21 Annual Report 2016

integrated services available nowhere else - services ranging frominstalling devices, to connecting to and coordinating with networks,
performing after-sales maintenance, using data centers to collect andanalyze data, and even providing flexible, yet highly secure network
services (MVNO).
*IoT: Internet of Things
MVNO: Mobile Virtual Network Operator

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Illustration of IoT/MVNO Services
Devices

Wireless Network

Cars, delivery vehicles

Cloud (Information Displays, Device Control)
Cloud Services

Vending machines,
electronic display boards

Location display

EnergyMobilenetwork
Measurement
display

Medical, industrial devices

Health care

Other

Device control

Nets Wireless (IoT/MVNO Network)

NESIC provides everything from device procurement and installation, to network system
integration, cloud services, and secure, flexible network services (MVNO).

Strategic Business Area

2

Net Sales Target(¥ billion)

Infrastructure Business Area

In pursuing the infrastructure business, participating in fields where
investment is on the rise is key.
Over the period covered by the new midterm plan, business expansion
efforts will focus on broadcasting and CATV facilities, disaster prevention, androads and railways – all of which are areas consistent with the national disaster
resilience and regional revitalization themes established by the government.

46

50
40
30

29

20
10
0

FY 2016/3
ResultFY 2019/3
Target* Target is as of May 10, 2016

Broadcasting and CATV Facilities

Disaster Prevention

NESIC aims to act with vigor in meeting demand for updating terrestrial digital broadcasting
facilities and for installing fiber-optic CATV cable to distribute next-generation 4K and 8K content.

NESIC aims to tap demand for upgrading
emergency radio systems to digital technology
and has focused marketing attention onmunicipalities that have yet to install disasterprevention systems. Efforts will also be madeto strengthen our capabilities in gathering andanalyzing disaster prevention information.

Growing Demand for CATV Network Construction for High-Volume 4K Broadcasts
4K broadcast(Satellite transmission)
CATV network
adaptation tofiber-optic cableVideo system
adaptation tofiber-optic cable

CATV Operator

Adaptation to fiber-optic cable

IP Notification System(Emergency information
dissemination)

Business Opportunity Expansion Expansion into businesses applying CATV

Roads and Railways
In this market, NESIC is directing its attention to
the adoption of advanced network systems
and SDN technology, as well as expanding into
new areas such as deterioration monitoring.

Annual Report 201622

Chapter2

Our Growth Story Going Forward

Strategic Business Area

3

Strategic Businesses under the New Midterm Plan

Net Sales Target(¥ billion)

Global Business Area

In the global business area, NESIC sees growth opportunities in bothoutbound business, mainly in overseas telecom infrastructure construction,and inbound business, where the rising number of visitors to Japan is
expected to invigorate investment demand.

50

44

40
30

20.5

20
10
0

FY 2016/3
ResultFY 2019/3
Target* Target is as of May 10, 2016

OutboundIn outbound business, NESIC aims to achieve business expansion mainly in the ASEAN countries, where
infrastructure investment is expected to increase. With regard to Thailand and Myanmar, in particular,
establishment of mobile networks by telecom carriers is expected to accelerate, and our efforts to serve thedemand will be led by our local subsidiaries.
Railway and airport projects are also anticipated in ASEAN countries, and, with the benefit of Japan’s Official
Development Assistance, Japanese companies working together will draw on advanced technical capabilities andother strengths to capture business.
Base Station in Myanmar

Inbound
Looking ahead to the 2020 Olympic and Paralympic Games in Tokyo,
and with the central government’s targets for greatly increasing thenumber of visitors to Japan, plans for the aggressive construction of
hotels and other facilities are being put forth.
Starting with PBX systems, room management systems, Wi-Fi and abroad range of other services for hotels, and including VDGS for airports,
Visitor Arrival/Departure (Airport)

information distribution systems for buses and trains, and information
systems for tourism destinations and shops, NESIC provides various
types of ICT facilities and services for tourism-related settings of all kinds.
Multilingual support services and other common platforms are
additional tools we will draw on extensively to tap business opportunities.
*VDGS: Visual Docking Guidance System

Transportation (Train)

Airport Systems

Airport Services

Station Services• VDGS (100% share)• Control systems• Communication systems• Flight information, etc.

• Signage• Terminals for airport staff• Smartphone information
distribution, etc.

• Signage• Station staff tablets• Area Wi-Fi, etc.

Shopping and Dining
Customer Services• Area Wi-Fi• Signage• Coupon distribution• Multi-settlement terminals, etc.

Common Service Platform
Multilingual Services
Transportation (Bus)Bus Operation, Customer Services• Bus location services• Tourism information distribution

23 Annual Report 2016

MVNO Services

Tourism (Destinations)
Tourist Services• Wi-Fi• Tourism information
distribution• Tourism apps
• Signage, etc.

Lodging (Hotel)
Hotel Systems

Hotel Guest Services• PBX• Guestroom Wi-Fi• Room management
system, etc.

• Signage• Tablets for hotel staff• Local attraction
information, etc.

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Message from the Director in Charge of Finance

Enhancing Corporate Value with
Growth Investment Backed by a Solid Financial Basedevelop new services and enhance the recommendations we make tocustomers, so we will make the investments required to advanceJapanese-style work-at-home and other work styles that respond tosociety’s needs. Diversification of needs is also envisioned in our

Tetsujiro Arano

IoT/MVNO business, where it is necessary to create a stronger platform,

Senior Vice President andMember of the Board

including environments where we can undertake proof-of-concept
projects with significant numbers of customers. Regarding M&A, we areprepared to move dynamically on opportunities that fit well with ourstrategies, and can be expected to result in synergies with acceptable risk.
Another key source of competitiveness is our human resources. To
enhance the sophistication of our services, we must augment our human

Not Giving Up on an ROE of 10%

resources with greater numbers of professionally skilled people andAs its capital efficiency target for the midterm plan covering the period

people prepared to work in a global environment. We must also

through March 31, 2019, NESIC has again committed itself to achieving anproactively invest in systems and environments that strengthen

ROE of at least 10%, the only target not achieved under the previous

operations through diversity.

midterm plan.

As we proceed with the investments described above, we must

Increasing the profitability of our core businesses is fundamental tomaintain solid financial condition in order to meet our responsibilities as aachieving that target, so we are also aiming to achieve operating income

company counted upon to provide public infrastructure operators such asof ¥16.5 billion and an operating income margin of 5.5%. The newcentral and local governments, and telecom carriers, with construction

midterm plan anticipates the continuation of severe conditions inand other types of services that must offer impeccable reliability.

businesses that have been relatively profitable for us in the past – those

Investments, therefore, will be made within the scope of free cash flowthat serve telecom carriers. Therefore, to achieve an operating income

resulting from profitability improvements achieved over the three years

margin of 5.5%, which would be a record high for us, we are working tocovered by the midterm plan.

increase sales mainly in strategic business areas, and taking steps such as* Cash and cash equivalents, less interest-bearing liabilities.

shifting to in-house production, to reduce outsourcing costs, andemphasizing bulk procurement, to reduce device and material costs, toAugmenting Stable Shareholder Returns

thoroughly revamp our cost structure and business processes.

Paying appropriate returns to shareholders is a top management priority

Looking back on our business performance over the years, we havefor NESIC, and we would like to add to the stable returns we pay tobeen able to maintain earnings growth despite temporary downturns ininvestors who hold our shares over the long term. Toward that end, webusiness conditions. Ten years ago, we were posting operating income of

aim to pay dividends that rise, with consideration of the DOE

about ¥5 billion. We increased that to ¥10 billion and are now capable of(debt-on-equity) ratio, and are unaffected by short-term fluctuations inposting figures of around ¥14 billion. Implementing the new midterm

earnings. For the fiscal year ended March 31, 2016, therefore, we paid aplan will change us in ways that take us to our next stage of profitability

dividend of ¥70 per share, reflecting a per-share increase of ¥6. For theand produce an ROE of 10%.

fiscal year ending March 31, 2017, we are planning to pay a dividend of¥72 per share, making for a 10th consecutive year of increases in the

Active Pursuit of Growth Investments

per-share dividend.

Active pursuit of growth investments with a clear vision for the future is
critical for maintaining business growth. NESIC, with an owners equity

Going forward, we intend to continue paying returns satisfactory toshareholders, even as we engage in proactive growth investment.

ratio of 47% and net cash* of ¥35.4 billion, as of March 31, 2016, has asolid financial base, which we will use to make ¥20 billion in investments
over the three fiscal years covered by the new midterm plan.

Per-Share Annual Dividend (¥)

64

70

72

45

For us, as a communication system integrator, key sources ofcompetitiveness include our service development capability and service
delivery platform. For our EmpoweredOffice work-style innovation

60

14

20

22

25

26

28

solutions, it is critical that we develop and introduce advanced services
responding to growing needs for new work styles. Exercising a uniqueapproach, NESIC experiments with new work styles in its own offices to

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(Forecast)

Annual Report 2016

24

Chapter

3Foundation for Growth

NESIC Group’s
Sustainability Initiatives
The NESIC Group’s growth is underpinned by sustainability initiatives, which include measures for soundcorporate governance. We, therefore, engage in a wide variety of activities that contribute to the developmentof a sustainable society.

Sustainability Initiatives
We are advancing the wide variety of initiatives shown below, in line with ISO26000 core issues.
CSR Initiatives• Corporate Governance• Compliance and Risk Management Initiatives• Partnership with the Earth (Reducing Environmental Impacts)• Partnership with Customers• Partnership with Local Communities• Information Security, Safety, and Confidence• Developing Diverse Human Resources and Creating
Worker-Friendly Workplaces• Partnership with Suppliers

Details on NESIC’s CSR activities are available
in Japanese on the following webpage:

http://www.nesic.co.jp/csr/index.html

Strengthening and Improving Sustainability Initiatives
In order to pursue sustainability activities that meet with the expectations of society, we incorporate stakeholder opinions,have relevant corporate staff divisions work together to develop necessary measures, and strive to strengthen andimprove our activities.

Dialogue with a Prominent Outside CSR Expert
We had a conversation with Hideto Kawakita, the CEO of theInternational Institute for Human, Organization and the Earth (IIHOE),
and listened to his opinions about our sustainability initiatives.
Date:
May 26, 2016
NESIC Representatives: Tetsujiro Arano, Senior Vice President
Komei Sakanashi, Associate Senior VP
Heads of six relevant corporate staff divisions

Details on Mr. Kawakita’s opinions and on NESIC’s conversation withhim are available in Japanese on the following webpage:

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

25 Annual Report 2016

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Board Reports on Sustainability Initiatives

Construction of a PDCA Cycle for Sustainability Initiatives

In accordance with one of the principles of Japan’s Corporate

The Sustainability Promotion Working Group has been formed toGovernance Code, regular reports on sustainability initiatives are

improve sustainability activities by establishing materiality standards

presented to the Board of Directors.

and applying a PDCA cycle.

Going forward, the opinions of board members will be reflectedin the management and implementation of sustainability initiatives.

Relevant corporate staff divisions assess the results of theiractivities over the past fiscal year, develop activity plans (including
KPIs), and strive to raise the level of their initiatives.

Defining Materiality
The NESIC Group has defined materiality for the matters it should

Identification of Priority Issues Related to Company Businesses

address as its highest priorities for the fiscal year ending March 31,

Organize issues in relation to the company’s businesses and highlight thehighest priorities.

2017. Materiality standards and the process for determining

Materiality Determinations by the Management Quality
Improvement Committeemateriality will be revised as necessary.
Materiality Determination Process
Identification of Social Issues
Prioritize social issues by applying the following process.
• Summarize stakeholder input• Identify global issues related to SDGs (Sustainable Development Goals)• Define issues in relation to ISO26000 core subjects

In its January 2016 meeting, the Management Quality Improvement
Committee made determinations on materiality. Regarding importance forthe company, determinations were made from the perspectives of risk borneand value provided. Regarding stakeholder expectations and importance forstakeholders, determinations were made based on matters raised instakeholder dialogue and on input by the Institute for International
Socio-Economic Studies, the NEC Group’s think tank.

10 Material Issues
Extremely High

Stakeholder Expectations/Importance for Stakeholders

Respecting the human rights of all people

Improving productivity for society and customers

Promoting governance and complianceContributing to the development of infrastructure to
improve safety, security, and comfort for society

Promoting ongoing human resources development
and diversity
Improvement of career-continuation support andworking environments
Encouraging suppliers to give greater consideration
to sustainability

Contributing to reductions in environmental impacts
Provision of products and services that contribute tosafety and security (product safety and quality,
information security)
Stakeholder engagement

Extremely High

Importance for the Company’s Business (Assessed from the Perspectives of Risk Borne and Value Provision)

Annual Report 2016

26

Chapter

3Foundation for Growth

Developing Diverse Human Resources and Creating Worker-Friendly Workplaces

Basic StanceDiversity Management

The NESIC Group’s greatest management resource for supportingIn April 2010, NESIC set up an organization for diversity promotion.

sustainable growth is its people. Working from a foundation ofConsistent with our “Stance on Advancement of Diversity,” presented

respect for human rights, we implement measures for continuously

below, we are focusing our efforts on promoting the development of

increasing the value of our employees.

a workplace environment that allows female workers to fully exercise
their abilities, and on continued awareness-raising activities for the

Human Resource Development

effective utilization of diversity in business.

NESIC develops human resources capable of contributing to the

Stance on Advancement of Diversity

growth of the company, and does so in a manner that satisfies both

“NEC Networks & System Integration Corporation believes thatallowing employees with diverse individualities to fully exercise
their abilities will lead to the further enhancement of its corporate
competitiveness. With the aim of responding to the diverse needsof customers and continuing to grow as a company by adopting
diverse perspectives, each of our employees will promote diversity.”

our customers and employees. We practice human resource
development that enables employees to make the most of theirtalents and capabilities. Based on the NEC Group’s core values of“self-help” and ”collaboration,” we continue to emphasize a culture of
rising to challenges without fear of changing ourselves.

Training for New Hires

Promoting Workplace Participation andCareer Advancement for Women

The goal we aim to achieve over three years is to have new hires

To promote active participation by women we are working to add

learn to exercise leadership, and think and act autonomously. To

women to our management, expand our hiring of women, anddevelop these capabilities, new hires complete a training curriculum

advance the careers of women.

in which they work closely with a “coach” assigned to advise andguide them.

Companywide Training (Management Quality)
To develop people who are competent leaders and managers, we
conduct the following types of training.
• Leadership training (Assistant managers)

In support of those efforts, we hold career seminars for female
employees and training on diversity and various other topics for managers.
Women as a Percent of Management
FY 2014/3

FY 2015/3

FY 2016/3

1.8%

2.2%

2.2%

* Target is to reach 5% by March 31, 2021. (General Employer Action Plan for Compliancewith the Act on Promotion of Women’s Participation and Advancement in the Workplace)• Management training (Section managers)• Upper management training (Department managers), Senior
management training

On May 27, 2016, Japan's Ministry of Health, Labour and Welfare
presented NESIC with the highest level (level 3) of “Eruboshi” certificationin recognition of our efforts to promote active participation by female

Technical Training (Operational Quality)

employees in accordance with the Act on Promotion of Women's

The following initiatives are being advanced to develop professionals

Participation and Advancement in the Workplace.

who can support business operations with advanced execution
capabilities.

Employment of People with Disabilities
and of the Elderly

Enhancement of Service Business Skills/
Enhancement of Global Human Resources

As of March 31, 2016, NESIC’s workforce included 81 people with• Seminars for acquiring high-priority professional qualifications

disabilities, 2.06% of total employees. Supporting the independence• Development of project management personnelof people with disabilities is a corporate social responsibility, and we• Support for acquiring external professional qualifications

actively work to increase our employment of people with disabilities.

• Overseas business training programs (Short-term, long-term)

In addition, through our Senior Partner System, we were, as of March• Temporary assignment to NESIC overseas subsidiaries (Approx. 1 year)

31, 2016, continuing to employ 70 workers who had reached the
mandatory retirement age. Our efforts to expand the employment ofworkers who have reached retirement age will continue.

27 Annual Report 2016

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Encouraging Employees to Take Annual Paid Holidays

Work-Life Balance

NESIC encourages employees to take paid holidays, as summer

At NESIC, we believe a good work-life balance is crucial for enablingvacation, during the months of July, August, and September and,each individual employee to fully exercise their capabilities, and we areunder the collective labor agreement, sets companywide paid holidays

working to enhance our systems for supporting employees induring August. Employees are also encouraged to take paid holidays

balancing work and home responsibilities, meeting childcare or nursing

during the second and third weeks of June and October. Employee

care responsibilities, participating in volunteer activities, investing inawareness of paid holidays and the periods noted above is promoted

career advancement, and various other aspects of their lives.

through postings on the intranet and via other means, as well.
Average Numbers of Paid Holidays Granted and Taken

Balancing Work and Childcare
Numbers of Employees Who Have Taken Childcare Leave andPercentages of Those Who Return to WorkFY 2015/3

FY 2016/3

Employees Taking Childcare Leave 30 (including 4 men) 40 (including 3 men)
Percentage Returning to Work

100%

100%

FY 2015/3

FY 2016/3

Average Days Granted

21.1

21.1

Average Days Taken

14.1

14.2

Percent of Paid Holidays Taken

66.8%

67.3%

Initiatives to Promote Health

NESIC is enhancing systems to enable

Mental Health Care Initiatives

employees with children to feel easy about

NESIC has changed the focus of its mental health care measures frombalancing work and childcare, and is taking

treatment to prevention, as it works to promote the mental health ofsteps to support these employees. In

its employees. For employees seeking mental health advice, we haverecognition of our efforts to establish a

industrial physicians and other mental health professionals available

system that is open to diversity in work styles,

for initial consultations. And when an employee is returning to work

enhance systems to support childcare, andcreate an environment in which employees
feel easy about taking childcare leave andreturning to work, we have been granted the“Kurumin” certification under Japan’s Act on
the Advancement of Measures to Support
the Raising of Next-Generation Children.

“Kurumin” MarkThe “Kurumin” mark is asymbol of the certification
granted to companies thathave established an action
plan, and achieved targets,in accordance with Japan’s
Act on the Advancementof Measures to Support
the Raising of
Next-Generation Children.

Balancing Work and Nursing Careafter a prolonged absence due to a mental health issue, we put
together a support team, including an industrial physician, theemployee’s supervisor, and a representative of the personnel
department, to help ease the employee back into the workplace.

Telework Proof-of-Concept Initiate toPromote Work-style Innovation-Contributing to greater productivity
NESIC embarked on a telework proof-of-concept initiative as a

Numbers of Nursing Care Seminars Held and Participants
FY 2015/3

FY 2016/3

Numbers of Nursing Care Seminars

1

2

Participants

80

154

work-style innovation project aimed at increasing productivity andcreating a work environment enabling employees to fully exercise
their capabilities. In recognition of our
promotion of telework, this initiative
was selected as a winner of the 16th

NESIC is enhancing its systems to support

Telework Promotion Award

employees balancing work and nursing(Encouragement Award in thecare responsibilities, and promotes

telework implementation category)

employees’ understanding of the systems

sponsored by the Japan Telework

via the intranet while hosting relevant
seminars for employees.

“Tomonin” MarkThe “Tomonin” Mark canbe used by companies
committed to developing
a workplace environment
ensuring the balancing ofwork and nursing care.

Foundation. We will now use theresults of our internal experiment todevelop solutions that contribute to
greater productivity for customers.

16th Telework Promotion Award

Annual Report 2016

28

Chapter

3Foundation for Growth

Information Security, Safety, and Confidence

Basic Stance

Information Security Self-Inspections
Abiding by the NEC Group’s information security standards, all

The NESIC Group believes that maintaining impeccable quality in the

NESIC departments conduct self-inspections to determine whether

systems and services we provide to customers, and dependable

they are properly implementing information security measures.

information security for business, personal and all other customer

These self-inspections allow each department to identify its

data, are the foundation underpinning the trust that is essential forstrengths and weaknesses, and then take steps needed to improvebuilding trusting relationships with stakeholders.

information security.

NESIC, therefore, has implemented a broad spectrum oftypes of work we perform, and secure information, so that customers

Strict Controls on Information Devices andPersonal Information

can be confident in the systems and services we provide.

To prevent information leaks, NESIC exercises strict controls on themeasures to ensure safety in the construction, integration and othermovement of personal computers, USB memory sticks, and other

Main Initiatives in Information Security

information devices to locations outside of company premises.
When business activities necessitate that information devices be

Stringent Information Security Measurestaken off site, employees are required to take the least amount of

The NESIC Group has compiled booklets containing rules to observe

information needed and must implement encryption measures.

in our relationships with customers. One, "Basic Rules for Customer

Information devices taken off site are tracked with a dedicatedRelated Work and Trade Secrets," is for the NEC Group. The other,

management system.

"Basic Rules for Customer Related Work," is for business partners.

When personal information is received from a customer, it must

These booklets are distributed to employees of the NESIC Groupbe registered in the “Personal Identifiable Information Control

and employees of companies to which we outsource work,

System,” a dedicated system for this purpose.

throughout Japan.

The proper functioning of the systems mentioned above was

At a more specific level, the booklets are compilations of theconfirmed in internal audit procedures focusing on information

rules on systems, networks, customer information, and corporate

security and protection of personal information in the fiscal year

confidential information that apply throughout the NEC Group. Every

ended March 2016.

individual employee performing work for NESIC is required tounderstand all of the rules

National Personal Identification Number System

contained in the booklets

When the Japanese government announced that it would introduce

and to pledge compliancea national personal identification number system, the NESIC Group

with them. A dedicatedassembled a project team with members drawn from throughout its

Electronic Pledge System, isorganization. The team developed a process for preparing a reportused to facilitate complianceon legal matters concerning employees, sole proprietors and others,with this requirement.

and security management measures for that process.
This work helped to significantly lower the risk that personal

Information Security Education
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 2016, all NESIC Group employees
in Japan underwent DVD-based training on handling personal
information and participated in training on information security andprotection of personal information.

29 Annual Report 2016

identification numbers could be leaked.
Creation and Application of DVD-based Information
Security Materials
NESIC has created DVD-based training materials on information
security, including the protection of personal information. Used inpractical training, these materials,
streamed internally, are viewed by
employees, who then discuss
information security in their own
workplaces and try to develop ways ofcorrecting problems.
Information Security DVD

1 History of Our Growth

Main Initiatives in Safety and Quality
Process Transition Determination
NESIC establishes clear quality and control standards, and specifies
matters required to meet certain standards for each process of a
project, and sets checkpoints between processes.
Our project management scheme, in which process transition
determinations are made to ensure standards have been met before

2 Our Growth Story Going Forward 3 Foundation for Growth

Outstanding Safety and Quality Awards for Divisions
Every year, awards are presented to divisions and group companies with outstanding
performance in areas of safety and quality and their achievements are announced
throughout the group.
Safety and Quality Workshops
Outside experts are invited to lead safety and quality workshops, where they discuss bestpractices outside of the company or provide participants with opportunities to learn from
actual examples.
Safety and Quality Awareness Survey
Surveys are regularly conducted on topics such as the degree to which importantmeasures are understood and the extent to which information on safety and quality is
being shared. Survey results are then used to shape awareness measures going forward.

going on to the next process, contributes to the maintenance ofhigh quality.

Learning from Serious Accidents in the Past
As part of our efforts to eliminate safety and quality problems, we

Project Inspections

established the Safety & Quality Promotion Center in our head office

NESIC conducts internal third-party project inspections to help

building to provide opportunities to learn from serious accidents andensure compliance with Japan’s Industrial Safety and Health Law andkeep the lessons alive. The center contributes to the elimination ofConstruction Industry Law, as well as our own rules, and ultimately

safety and quality accidents, and enhances our credibility withprevent compliance violations.

customers, by providing a

Going beyond the discovery and correction of unsatisfactoryvenue where individual

conditions, project inspections also take note of excellence in

employees can learn

processes and tools. Project inspection findings are sharedlessons of the past andthroughout the company through monthly postings on our internal

think about actions thatwebsite, and other means as well, to help improve safety and quality

should have been taken.

activities in each of our departments.

Safety & Quality Promotion Center

On-Site Safety Patrols

Safety & Quality Promotion Center Exhibits

To eliminate safety and quality problems, NESIC conducts thoroughLearning from past serious accidents

checks of individual processes and has top company managers andTo learn from past accidents that must never be forgotten and renew

the heads of business sections systematically conduct on-site safety

our determination to prevent their recurrence, the center exhibits

patrols in an effort to prevent accidents.

accident artifacts and provides descriptions of the responses

In the fiscal year ended March 2016, the performance of thesemounted.

safety patrols, with greater frequency than in the previous fiscal year

Initiatives to eliminate accidents

and in excess of the number included in plans, contributed to a

In an effort to promote awareness of personal safety and health, andsignificant year-on-year reduction in accidents.

encourage individuals to think about their daily activities and noticeareas where improvements are required, the center provides

Enhancing Safety and Quality Awarenesshands-on learning content that employees may freely access. Slide-

Various measures are being pursued to foster a common awarenessand animation-based accounts of accidents, and examples of closeof safety and quality problems and solutions, and outstanding

calls, are also available.

activities, among individual employees and organizational units of

Self-commitment

the NESIC Group.

To promote personal action that precludes accidents, employees are

Companywide Safety Convention
Once a year, the company’s top managers and the managers of all of its businesssections come together to receive the latest information on safety and quality initiatives
in each of the company’s organizational units and be present for the presentation ofawards to employees who have produced outstanding safety-related results.

encouraged to make a personal safety and quality pledge and post it
on a designated wall in the center. This activity itself enhances
personal safety and quality awareness.

Annual Report 2016

30

Chapter

3Foundation for GrowthPartnership with Suppliers

Basic Stance

Advancement of Product Safety and Quality, andInformation Security

The suppliers that support our business activities are important

Within NESIC, we regularly share information and viewpoints tostakeholders for NESIC.

improve, and regularly undertake, activities to prevent problems in

NESIC Group is committed to contribute to both a rise of thethe areas of product safety and quality, and information security.

corporate value of NESIC Group and a mutual growth withThrough regular inspections and surveys, we are also working to

supply-chain partners, through the procurement activity. Therefore,

promote improvements in supplier activities, as well.

we work with suppliers to advance sustainability throughout the
supply chain.

Supplier Inspections and Surveys Conducted during the
Fiscal Year Ended March 31, 2016
Inspection Type

Requirements of CSR
NESIC Group will promote improvements of human rights, labor,

Quality
Information Security

environment and anti-corruption and other social responsibility
through the procurement activities, with the cooperation of its
supply-chain partners, for pursuit of sustainable and ethical

Implementation Details

Industrial Waste Disposal
Contractors

85 companies
Documentation inspection

56 companies

Onsite inspection

4 companies

Field audit

4 companies

procurement. We, therefore, encourage suppliers to act withawareness of the following matters of corporate social responsibility.
Requests to Supply-Chain Partners• General CSR Requirements• Product Quality and Safety• Environmental Conservation• Information Security• Fair Trade and Corporate Ethics• Occupational Health and Safety• Human Rights and Labor

Dialogue with Suppliers
Adding to communications related to regular business activities,
we create various opportunities for dialogue with suppliers toshare information.

Business Direction Briefings
NESIC holds semiannual business direction briefings for principal
suppliers, whom we see as important partners. These briefings serveas an opportunity for us to encourage cooperation with our

Advancement of Environmental Conservation

compliance-centric business approach.

To advance environmental conservation, NESIC engages inprocurement activities that abide by the NEC Group’s Green
Procurement Guidelines and Standards Pertaining to Procurement
Restrictions for the Inclusion of Chemical Substances in Products, andasks that suppliers act in ways that are consistent with theseguidelines and standards.
Business Direction Briefings for Principal Suppliers

31 Annual Report 2016

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for GrowthPartnership with the Earth (Reducing Environmental Impacts)

Priority Themes

ISO14001 Certification

The NESIC Group is advancing various activities to reduce

Efforts are being made to obtain the ISO14001 environmental

environmental impacts and promote environmental protection in

management system certification for the NESIC Group, including

other ways, as well, under the following high-priority themes.

affiliates. By December 2015, two affiliates had obtained the NESIC
Group certification and plans are to increase this number. We are also

High-Priority Themes

working to achieve certification under the ISO14001/2015 standard(1) Strengthening CO2- reducing initiatives to realize a
low-carbon society(2) Reducing environmental impacts through activities aimed at
reducing costs and enhancing quality(3) Strengthening operations and management of environmental
management systems(4) Maintaining platforms and strengthening systems(5) Greater thoroughness in environmental compliance(6) Promotion of greater environmental awarenessamong employees

beginning in 2017.

Ecosystem and Biodiversity
Conservation Activities
In 2012, we launched the Rice Paddy Cultivation Project to bringdormant rice paddies in Ibaraki Prefecture, back into production andrecreate conditions favorable for various forms of life to restore theecosystem. This project also constitutes a program in which
employees and their families

Reducing CO2 Emissions

can experience a rural

NESIC is working to cut its CO2 emissions by reducing its electricity

ecosystem. Participants engage

usage, improving the fuel economy of company-owned vehicles,

in work that begins with

reducing the environmental impact of logistics activities, using

planting and extends throughtradable green certificates, and implementing carbon offset measures.

harvest, and carry out

At the same time, through EmpoweredOffice and other solutions
we offer, we are helping customers reduce their CO2 emissions.
Carbon Statistics*1

guidance of local experts.

Planting Rice in a Paddy with PlantingLines Laid Out

Weeding to Promote the Growth of
Rice Plants

Celebrating the Project’s
Fifth Anniversary(Figures are for NESIC alone.)CO2 emissions:

CO2 emissions reduction contribution:

13,351 t

15,019 t

1 Office energy usage

8,916 t2 Logistics-related CO2 emissions

175 t

3 Paper usage

91 t

4 Business travel (transportation) 3,647 t
5 Company-owned vehicles(commercial)ecosystem surveys, under the

522 t

1 Reductions in customer
CO2 emissions*2

13,922 t

2 Renewable energy purchases

11 t

3 Tree-planting(Carbon offset procurement)

10 t

4 Teleconference system usage*3

1,076 t*1 Comparison of NESIC’s CO2 emissions from business activities to its contributions to
CO2 emissions reductions, during the fiscal year ended March 31, 2016.
*2 CO2 emissions reductions expected from customers’ use of environmentallyconscious products and services provided by NESIC.
*3 CO2 emissions reductions related to internal use of teleconference systems.

Environmental Report
Details on NESIC’s environmental and social contribution activities areavailable in Japanese on the following webpage.

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

Annual Report 201632

Chapter

3Foundation for GrowthCompliance and Risk Management Initiatives

Basic Stance

Advancing Risk Management

A corporate culture in which compliance is embraced is a

The Management Quality Improvement Committee comes together

fundamental element for establishing trust in a company.

for quarterly meetings at which it hears reports by marketing and

At the NESIC Group, managers at all levels from the top down

sales units, operations units, subcommittees and other bodies onmake compliance their number one priority and repeat that stance

improvement measures taken and risks identified. The committee

within their units to have all employees embrace compliance.

then considers and discusses actions to take going forward.
Three high-priority risks identified by the Management Quality

Charter of Corporate Behavior, Code of
Conduct and Compliance Education
The Charter of Corporate Behavior clearly states the issues that we

Improvement Committee for the fiscal year ending March 31, 2017
are given below. The marketing and sales unit, operations units, andcorporate staff are now working together to prevent these risks frombeing realized.

should proactively address in order to meet our corporate social
responsibilities. With that as a foundation, the Code of Conduct has
been established to help ensure that individual employees makedecisions, and act, responsibly at all times.
Clear understanding of the Code of Conduct is promoted
through annual businessperson education held in a face-to-faceformat, and through job-level specific group education, as well as
online programs for all employees. In addition, numerous education
programs are conducted on topics such as the Subcontract Act, theConstruction Industry Act, the Worker Dispatching Act, and fair trade.

compliance problems in corporate activities may be discovered earlyon and ethical problems and legal violations may be prevented
altogether. The Corporate Ethics Hotline is an internal reporting andconsultation resource for employees to use when they are concernedthat 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.

Risk Management System (as of July 2016)
Corporate Auditors
Corporate Auditing
Division

President

ReportManagement Quality Improvement Committee

Audit
Request/orderimprovement

Organizers: Legal & Compliance Division,
Corporate Finance & Controller Division,
CSR Promotion & Corporate Communications Division
Order companywide deployment

The NESIC Group has established its Corporate Ethics Hotline, so that

•Risk of accounting improprieties•Risk of safety and quality problems•Risk of violations of the Construction Industry Act

Report issues/problems

Corporate Ethics Hotline

Priority Risks

Activities to improve management
quality in individual NESIC units(Marketing and Sales Development Unit,
individual operations units, corporate staff)

Quality Management Committee
Information Security Committee
Branding & CS Promotion Committee
Personnel Quality Improvement Committee
Management Quality Improvement &Affiliate Subcommittees
Management systems
organized byaffiliate and byfunctional area Activities to improve management

Clearly communicate directions and measuresquality at individual affiliates

Clearly communicate directions and measures

NESIC Group employees

Compliance Awareness Survey of Employees
A survey of employees is conducted to gauge their awareness ofcompliance and determine the extent to which complianceawareness has taken hold within the NESIC Group in Japan.
Results of these surveys are compared to those from similar
surveys at other companies to assess compliance awareness for the
NESIC Group as a whole, and within individual organizations, andthen develop organization-level improvement measures.

33 Annual Report 2016

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Building Stakeholder Relationships on Trust

Communication with Stakeholders

Connections to Local Communities

NESIC actively engages in communication with customers,

In contributing to local communities, our approach is to be proactive

shareholders and other investors, suppliers, and other stakeholders,

and to move forward gradually, beginning with what is immediately

and reflects their opinions and desires in our business activities.

possible.

Supporting Recovery in Areas Hit by the Great East
Japan Earthquake

Customers
Shareholders andother investors

Employees

Disaster Recovery Volunteerism as Training for New-Hires
Since April 2012, a little over a year after the Great East Japan
Earthquake struck, NESIC has been sending new hires to assist withrecovery work in disaster-hit areas. Our aim is to provide these

NESIC Group

employees, all of whom are volunteers, with an opportunity toconsider how we as a business entity should contribute to society,

NPOs andindependent
experts

Suppliers

and learn the basic attitudes (safety consciousness, the “go-and-see”
principle, etc.) required of our employees.

Local communities

This initiative was highlighted at the Japan management
Association’s KAIKA Awards 2014 as an exceptional example of anactivity designed to solve a social problem.

Customer Satisfaction
To provide customers with higher-quality solutions and be a trusted
partner, NESIC conducts surveys and reflects the results in actions toimprove customer satisfaction.

Annual Customer Survey
NESIC regularly asks customers to rate our business activities. We
then use their input to identify matters requiring attention andDisaster Recovery Volunteerism as Training for New-hires

implement improvement measures.
Local Food Fair

Survey on Business Operations

We hold the Tohoku Local Food Fair at our Iidabashi Head Office

When a project is completed or it is time to renew an agreement,

building to give people in Tokyo a way to support remote

NESIC asks customers to evaluate the quality of our businessdisaster-stricken areas. Japan’s Ministry of Agriculture, Forestry andoperations, products, and services, and uses customer input toFisheries, recognizing that this program supports the ministry’s

make improvements and develop solutions for problems customers“Support by Eating” campaign, presented NESIC with a certificate ofare facing.

appreciation on March 4, 2015.

Local Food Fair

Annual Report 201634

Chapter

3Foundation for Growth

Corporate Governancecorporate auditors properly fulfill the function of overseeing the

Basic Stancedirectors’ performance of their duties.

NESIC believes that enhancing corporate governance is critical forachieving continuous increases in corporate value. We, therefore,

Executive Committee andBusiness Execution Committee

strive to have a management system that enables quick

NESIC has adopted an executive officer system to clearly demarcate

decision-making for responding promptly to changes in the operating

the supervisory function and the business execution function and hasenvironment, and we work to ensure management soundness andformed the Executive Committee consisting of mainly executive

transparency by practicing timely, appropriate disclosure.

officers at the senior vice president level and higher and corporate

realizing an advanced society with vibrant communication and forauditors, to discuss key management and operating issues.
We have also established the Business Execution Committee toCorporate Governance Systemmonitor the progress of business execution and report on significant

Board of Directors and Audit & Supervisory Board

matters to strengthen management functions.

The Board of Directors is composed of 9 directors (eight men and
one woman), including two outside directors. In addition to

Corporate Auditing Division

maintaining the number of directors at an optimum level for quick

The Corporate Auditing Division has been established as an internal

decision-making, NESIC has reduced the terms of directors to one

audit unit independent from the business execution divisions. It

year in order to clarify the management responsibilities of theexamines through internal audits whether business execution is

directors, and strengthen its management structure.

being conducted legally and properly according to relevant laws,

The Board of Corporate Auditors consists of four corporate

regulations and Company rules.

auditors, including three outside auditors. It decides audit policies,
and hears reports on audit work performed by each auditor.

Accounting Auditors

Corporate auditors attend Board of Directors’ meetings and other

The Company has engaged KPMG AZSA LLC as its accounting

important meetings, examine significant documents related to final

auditor. KPMG AZSA LLC expresses its views on the financial

decisions, and hear reports by directors and employees on thestatements and related matters from an independent viewpoint.

performance of their duties. Through activities such as these,
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)

Board of Corporate Auditors(Corporate Auditors)

Supervise

Audit

Business Execution

Accounting Auditor

Cooperate

Executive Committee(Executive Officers)

Business Execution Committee
Management Quality Improvement Committee

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

Cooperate

Corporate Auditing Division

Management sectionsof affiliated companies

Manage/Monitor

Affilliates
Internal Reporting Consultation Office (Corporate Ethics Hotline)

35 Annual Report 2016

Cooperate

Audit

Cooperate1 History of Our Growth

Independent Officers

2 Our Growth Story Going Forward 3 Foundation for Growthcurrent assessment is that the board is operating properly and iseffective in its performance. To further enhance the effectiveness of

To further strengthen its corporate governance, NESIC in 2006 adopted

the board, certain improvements, such as revisions in its operation

the practice of nominating independent officers – outside directors or

and composition, have been implemented.

corporate auditors who, in accordance with Tokyo Stock Exchange

Establishment of an Advisory Panelrequirements, are unlikely to have conflicts of interest with general

An advisory panel composed mainly of outside directors

shareholders. NESIC has expanded the number of independent officers(independent officers) has been established to discuss theto four, included two directors and two corporate auditors.

nomination and compensation of directors and corporate auditors.

To strengthen the corporate governance system, we have, as of

NESIC believes that having the Board of Directors consider theJune 2016, nominated an independent director who is experienced inopinions of the panel in making final decisions further enhances

corporate management and will be able to apply his broad experiencetransparency.

and expert perspectives for the benefit of NESIC’s management. The

Officer Training

new independent director joins incumbent independent officers,

NESIC has long created opportunities for directors and corporate

including two attorneys and a university professor.

auditors to acquire necessary knowledge and information, and ismoving forward with the provision of more such opportunities.

Compliance with Japan’s
Corporate Governance CodeDialogue with Shareholders and Other Investers

With the finalization of the Corporate Governance Code for

NESIC has formulated a disclosure policy and holds meetings,

companies listed on exchanges in Japan, NESIC is working tobriefings on financial results and management strategies, andappropriately implement the code and further enhance its own

general shareholders’ meetings with the aim of providing

corporate governance by closely complying with its requirements.

shareholders and other stakeholders with accurate, timely
explanations of business performance and management direction.

Main Points of Enhancement or Improvement

Dialogue with capital markets is promoted by the IR staff,

Assessment of Board Effectivenessworking under the leadership of the Associate Senior Vice President in

Beginning with the fiscal year ending March 31, 2016, we arecharge of Accounting, Finance, and IR to arrange briefings, and private

conducting a survey of all members of the Board of Directors tomeetings for investors with the president and other top managers.

analyze and assess the effectiveness of the board as a whole. The
Reasons for Nominations of Independent Officers
Meetings Attended

Name

Reason for Nomination

Yumiko Ichige

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

12/12

—

Hisayoshi Fuwa

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

——

Yuji Kikuchi

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

12/12

13/13

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.

10/10

10/10

Board ofBoard ofDirectors Corporate Auditors(Note 1) Figures for Board of Directors and Board of Corporate Auditors meeting attendance are for the fiscal year ended March 31, 2016.
(Note 2) Hisayoshi Fuwa was newly appointed as a director at the 84th General Meeting of Shareholders, held on June 21, 2016.
(Note 3) Masayuki Horie was newly appointed as a corporate auditor at the 83rd General Meeting of Shareholders, held on June 23, 2015. Board of Directors and Board of Corporate Auditors
meeting attendance figures for him reflect his service since that time.

Annual Report 2016

36

Chapter

3Foundation for Growth

Directors & Corporate Auditors

Masao Wada

Masafumi Gouji

President

Senior Vice President andMember of the Board

Yoichi Sato
Senior Vice President andMember of the Board

Tetsujiro Arano
Senior Vice President andMember of the Board

37 Annual Report 2016

Yushi Ushijima
Member of the Board

1 History of Our Growth

2 Our Growth Story Going Forward 3 Foundation for Growth

Yumiko Ichige

Junichi Okuyama

Outside Director

Corporate Auditor(Outside Auditor, Full-time)

Partner, Nozomi Sogo Attorneys at Law

Hisayoshi Fuwa

Shoichi Fukaya

Outside Director

Corporate Auditor (Full-time)

Masamitsu Kisaki

Yuji Kikuchi

Member of the Board

Corporate Auditor(Outside Auditor)

General Manager, Corporate Strategy
Division, NEC Corporation

Partner, Tokyo Hatchobori Law Office

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

Annual Report 2016

38

Chapter

3Foundation for Growth

Messages from an Outside Director and an Outside Auditor
NESIC began appointing independent officers in 2006, when it added its first independent auditor, to strengthen its corporate governance byincorporating external viewpoints. Below, an independent director and an independent auditor discuss their opinions on the value of thisgovernance initiative and issues going forward.

What are your thoughts on governance at NESIC (NEC Networks & System Integration
Corporation)? How are you trying to apply your expertise and experience in yourposition as an outside director?
I think NESIC is a company that is proactive about corporate governance. Agendas, for example, are always distributed
prior to the board meeting in a briefing. Questions and issues are addressed by staff or exectives before the board
meeting, so ample information and opportunities are provided for us - outside officers - to express our opinions.
As an attorney and outside director, I recognize that one of my main roles is monitoring the company’s
decision-making process from a legal point of view. More specifically, I pay attention to whether conditions are
fulfilled, or not, for application of the “Business Judgment Principal,” the theory of precedent regarding directors’
responsibilities and duty of diligence. Management decisions in pursuit of gain always have some kind of risks
attached. If (1) the base facts for the decision and possible risks have been properly recognized and accounted forand (2) rational decisions have been made based on the recognized facts and risks, and on a comprehensive
consideration of factors such as disadvantages caused by the realization of such risks and potential businessadvantages of the project, the “Business Judgment Principal” applies. In meetings of the Board of Directors, the roleof an outside director is to enhance the precision of management decisions by contributing to the discussion fromlegal and other expert perspectives, and pointing out oversights if any have been made.

Yumiko Ichige
Outside Director
Partner, Nozomi Sogo Attorneys at Law

What are your expectations regarding NESIC?
I think NESIC is typical of a traditional Japanese company in a positive sense - its character is to be careful anddiligent, and its employees perform their work with great precision. On the other hand, given the speed of market
changes and technology innovations, the ability to respond to changes with rapidity is very important. Companies
cannot rest on past successes; they must be able to exercise new perspectives in pursuing businesses without
delay, and I believe that requires diversity in the decision-making process. Indeed, I see one of my roles ascontributing the perspective of a woman. Advancing diversity, by increasing employee motivation and making thecompany more international, will make NESIC into a stronger organization in the future.

What is the status of governance and internal controls at NESIC?
I believe that governance and internal control should be seen as resulting from people who have the will anddesire to make them happen; they are not simply mechanisms. Furthermore, they are not like a bit of medicine
that can be taken for immediate improvements in performance and ROE; governance and internal control must bepracticed as a matter of daily routine, and care must be taken to ensure that they do not become seen as just abunch of prohibitions.
At NESIC, top management takes into account the strengths and weaknesses of the corporate culture inemphasizing compliance in everything. This, together with the pursuit of human resource development thatenables synergies by matching the strengths of individual employees to the directions the organization ispursuing, is an important indicator that governance and internal controls are seen as fundamentally important tothe company’s identity.

How are you trying to apply your expertise and experience in your position as an
outside auditor?
I have specialized in the academic fields of internal control theory and audit theory. As an independent auditor, I
believe my lack of knowledge concerning the details of the company’s internal circumstances works to myadvantage, allowing me to say what I think and feel from my perspective as an expert.
That NESIC has created an atmosphere in which outside officers can freely express themselves in meetings ofthe Board of Directors and of the Board of Corporate Auditors is a positive thing. It is possible, though, that I could
lose my external perspective as I get deeper into the company’s internal functions over time. My aim, therefore, is tocontinue to be an auditor who always considers the expectations of shareholders and can speak from theperspective of an outside stakeholder.

39 Annual Report 2016

Masayuki Horie
Outside Auditor
Professor, College of Commerce,
Nihon University

Financial Section
Consolidated Eight-Year Summary

41

Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors’ Report

43
45
46
47
49
51
73

Annual Report 201640

Consolidated Eight-Year Summary

FY 2009/3

FY 2010/3

FY 2011/3

Orders¥245,257¥222,046¥212,277

Net sales

249,070

217,727

217,948

Gross margin

35,47032,93833,132

Operating income

10,968

9,867

10,835

4.4

4.5

5.0

4,995

5,644

4,660

Total assets¥147,251¥146,543¥149,464

Net assets

69,12973,84977,005

Owner’s equity

68,51873,21376,445

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

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

Free cash flow

4,759

14,184(3,499)Cash flows from financing activities(2,096)(1,382)(337)

Cash and cash equivalents at end of year

16,59029,51425,587

EPS¥100.41¥113.50¥93.72BPS

1,377.68

1,472.14

1,537.19

22.00

25.00

26.00

ROE *2

7.5

8.0

6.2

ROA *3

7.3

6.7

7.3

Owner’s equity ratio

46.5

50.0

51.1

DOE

1.6

1.8

1.7

Payout ratio

21.9

22.0

27.7

5,906

5,998

5,939

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 ¥113.68 = US$1.00 as of March 31, 2016.
*2 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 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

41 Annual Report 2016

FY 2012/3

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3(Thousands of U.S. dollars) *1¥215,373¥241,271¥280,071¥299,097¥274,946$2,418,601

204,658

235,716

270,326

292,164

279,961

2,462,719

32,07937,182

44,69048,11045,162397,281

9,747

12,483

14,41816,158

14,111

124,137

4.8

5.3

5.3

5.5

5.0

—

4,474

7,246

8,257

7,791

5,996

52,749(Thousands of U.S. dollars) *1¥149,130¥167,472¥189,059¥201,964¥196,569$1,729,144

80,07485,974

89,166

94,173

94,397

830,383

79,50385,26687,51492,55992,738815,783(Thousands of U.S. dollars) *1¥18,595¥ (1,723)¥23,313¥2,460¥9,435$83,004(2,648)(3,429)(5,504)(3,929)(2,822)(24,831)

15,946(5,152)

17,809

(1,469)6,613

58,172(3,979)(2,066)(3,824)(4,127)(1,402)(12,334)

37,45630,31544,43438,95143,889386,084(U.S. dollars) *1¥89.98¥145.73¥166.06¥156.72¥120.80$1.06

1,598.77

1,714.74

1,760.06

1,864.61

1,868.25

16.43

28.00

45.00

60.00

64.00

70.00

0.62

5.7

8.8

9.6

8.7

6.5

—

6.3

7.7

8.2

8.3

7.1

—

53.3

50.9

46.3

45.8

47.2

—

1.8

2.7

3.5

3.5

3.8

—

31.1

30.9

36.1

40.8

57.9

—

5,936

6,024

7,164

7,260

7,464

—

49,773,807

49,773,807

49,773,807

49,773,807

49,773,807—

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Corporate Overview / Stock Information (As of March 31, 2016)

Name
Head Office

Established
Registered as a
Stock Company
Representative
Capital
Number of Employees
Fiscal Year
Regular General
Shareholders Meeting
Listing
Independent Auditors
Transfer Agent

NEC Networks & System Integration Corporation
Iidabashi First Tower,
2-6-1 Koraku, Bunkyo-ku, Tokyo
112-8560, Japan
URL: http://www.nesic.co.jp/english/
December 1,1953

8,753
100,000,000 shares

Issued49,773,807 shares

Trading Unit

100 shares

NEC Magnus Communications., Ltd.
Nichiwa Co.
Q&A Corporation
NEC Networks & System Integration Services, Ltd.

Overseas
NESIC BRASIL S/AAnnual meeting held in June
Tokyo Stock Exchange, First Section
Ticker Code: 1973
KPMG AZSA & Co.
Sumitomo Mitsui Trust Bank, Limited
1-4-1, Marunouchi, Chiyoda-ku, Tokyo
100-8233, Japan

Common Stock AuthorizedJapan

NEC Net Innovation, Ltd.

November 26,1953
Masao Wada, President¥13,122,000,000
7,464 (Consolidated)
5,109 (Non-consolidated)
April 1 - March 31

Number of Shareholders

Principal Consolidated Subsidiaries

NESIC (Thailand) Ltd.
NESIC PHILIPPINES, INC.
NESIC (GUANGZHOU) CO., LTD.
Networks & System Integration Saudi Arabia Co. Ltd.

Principal Shareholders (Top 10 )Name of Shareholderof
Number of Percentage
SharesShares Held Total
Outstanding(Thousands)(%)*2

19,106

38.49

Japan Trustee Services Bank, Ltd.
(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)

1,877

3.78

Japan Trustee Services Bank, Ltd.
(Trust account)

1,456

2.93

Japan Trustee Services Bank, Ltd.
(Trust account9)

1,436

2.89

Sumitomo Realty & Development Co., Ltd.

1,200

2.42

J.P. MORGAN BANK LUXEMBOURG S.A.
380578

1,057

2.13

Employees’ Stock Ownership Plan

664

1.34

GOLDMAN SACHS INTERNATIONAL

574

1.16

MELLON BANK, N.A. AS AGENT FOR ITS
CLIENT MELLON OMNIBUS US PENSION

525

1.06

NEC Corporation*1

Breakdown of Shareholders by TypeTreasury stock

Central government /local public bodies

0.27%

0.00%

Individuals and others

8.64%

Financial
institutions

Foreign entities(Institutions,individuals)

21.24%

27.75%

49,773,807 shares

Investment
securities
firms

1.03%

Other institutions

41.07%

Monthly Stock Price Range

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, 2016 was 51.49%.
2 The percentage of total shares outstanding is calculated based on the number of shares excluding
treasury stock (134,925 shares).

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 2011/3

FY 2012/3

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

Annual Report 201674

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