Questions & Answers at the Financial Results Briefing for the First Quarterof the Fiscal Year Ending March 31, 2025
July 30, 2024

Questioner A
Q: What is the background to the strong orders received in the first quarter? And whatshould we expect from the second quarter and beyond?
Ａ: In DX Solutions (DXS), we have steadily expanded in strategic areas including workstyle
DX and government DX. In addition to solid developments in the first quarter, we also
received some large orders leading to a particularly significant expansion. From thesecond quarter and beyond, we will focus on expanding these strategic areas.
In Network Solutions (NWS), there was a year-on-year decline because some demand
still remained in our business for telecom carriers in the previous first quarter, butconditions have already bottomed out as we head into the future. However, although themarine sector is in a transitional phase, the field of social infrastructure is increasing due
to aerospace and national security, and we are trying to accelerate this going into thesecond half of the year.
Looking at Environmental & Social Solutions (ESS), there was a reactionary decline fromthe absence of large projects that we acquired in the first quarter of the previous year,
but we saw a strong performance with firefighting networks and other areas, leading to a
20% increase when the reactionary decline from the past large projects is excluded. We
expect orders from the firefighting sector to be concentrated in the first half of the year,
and we will link those orders with sales in the latter part of the second half of the year.
Ｑ：What is the situation regarding profit margins? In the first quarter gross profit margin in
DXS declined, but in most years there is a seasonal impact biased towards the second
half of the year. Am I right in thinking this will improve going forward?
Ａ： We believe the decline in first quarter profitability in DXS is temporary. While costs haveincreased due to the reallocation of some resources and we have been recording a lot ofsales for low-profit projects including a strategic one, as these were at a small scale in
the first quarter, the impact is felt more significantly in terms of profit margins. As grossprofit margin at the time of order receipt and gross profit margin in the order backlog are
improving, we think this will enable us to show year-on-year gains in the second quarterand beyond.
In NWS, we have started to see the effects of restructuring including the resource shift
implemented in the previous fiscal year, and profitability in the telecom carrier businesshas improved. We also saw an impact at our manufacturing subsidiary, where sales ofticket vender machines with high gross profit margins have increased against thebackdrop of demand due to the release of newly designed banknotes.
In ESS, the efficiency of fixed costs improved thanks to higher sales, and businessefficiency improvements including demand-driven resource optimization and enhanced
project management have contributed to profitability improvements. We will continue
with these efforts in the future.
Ｑ：In the current fiscal year, has your performance been stronger than internal expectations
towards your forecast operating income of ¥29 billion?
Ａ： We saw steady results in the first quarter, but since it was a quarter in which sales
volume itself was small, our progress toward our full-year target falls within expectations.
We will make a strong push from the second quarter onwards including the accelerationof our strategies.

Questioner B
Ｑ：Regarding improved gross profit margin in NWS, which had the larger impact, thestructural reform of the telecom carrier business or the increased sales of ticket vendermachines at your subsidiary? And do you expect sales of ticket vender machines tocontinue at this pace from the second quarter and beyond?
Ａ： If we made a point of separating the two, the ticket vender machines would be thelargest contributor, but we have made convincing improvements to profitability in thetelecom carrier business. As for the ticket vender machine business, we expect results tobe flat year on year in the second quarter and decline in the second half of the year.
Ｑ：You seem to have achieved strong performance in the service business with orders
expanding. What kind of orders have been on the rise?
Ａ： In DXS, there has been an increase in service projects such as workstyle DX forgovernment, and we have also seen strong performance with orders from themanufacturing sector. On the other hand in NWS, service orders for telecom carriers
have declined.

Questioner C
Q: You noted that one of the factors behind deteriorating gross profit margins in DXS was
the reallocation of resources from SG&A to the cost side. How much of an impact has
this had? And do you see that impact continuing in the second quarter and beyond?
Ａ： The monetary impact in the first quarter was a little over ¥100 million. This is in part
because sales volume is low in the first quarter. This leads to an outsized impact ongross profit margin, and this factor reduced it by around 0.5 percentage points. While
there will continue to be some impact in the second quarter and beyond, with sales
volume picking up in the future, the extent of the impact will lessen. In addition, we
expect to recover some of the ground lost by expanding our business in the area of highadded value as an effect of these reallocations.
Ｑ：Sales in the Others segment have reached more than half of the full-year forecasts forthe segment. Will the pace of sales slow going forward as you approach those full-year
forecasts?
Ａ： In the Others segment, sales are mostly focused on small added-value equipment.
When we deem it necessary in terms of sales strategy, such as building relationships
with customers or laying the groundwork for recurring business in the future, we deal inthose areas. As a result, there is a possibility that performance will accumulate beyond
our full-year forecasts for the segment.
Ｑ：Is there any change to your relationship with NEC?
Ａ： We are not in a position to comment about NEC's thinking, but at this point there is nochange to our relationship.
Questioner D
Q： What is the reasoning and background behind the reallocations in DXS?
Ａ： Within our DXS policy of expanding performance in high profitability strategic areas suchas workstyle and government DX or network security, we implemented the reallocationto accelerate the expansion of these strategic areas by bringing resources closer to theprovision of solutions to customers.
Questioner E
Q： You mentioned that orders for firefighting and disaster prevention systems have been on
the rise. Specifically what kind of projects have seen increases? Also please elaborateon the background to the increase.
Ａ： Around ten years ago there was demand for the digitalization of firefighting wirelessnetworks, and now those systems are due for upgrades. This is mainly focused on thebuilding of firefighting command and control systems. This fiscal year we expect orders
to increase mainly in the first half.
Q： The other day there were news reports about the development of automated logistics
spaces on expressways. Does NESIC expect to receive any similar orders related to theadvancement of road infrastructure?

Ａ： To date most of our road ICT-related work has been in electronic road signs and theconstruction of networks connecting them, and going forward we will work from that as abase to pursue DX and more advanced solutions. For example, we want to expand ouractivities utilizing our strengths in advanced network technologies such as local 5G, aswell as in the DX field including traffic congestion predications and accident prevention
through the AI analysis of camera footage. One of our growth strategies in ESS is thepursuit of DX for social infrastructure areas such as this.
Q： Since the first quarter has a smaller weighting on the full year, it may be difficult to judge
your progress as good or bad based on the first quarter financial results, but do you
recognize your progress as on track to meeting your full-year targets?
Ａ： While our business results are biased towards the second half of each fiscal year, webelieve we got off to a steady start toward our full-year targets this first quarter.

Questioner F
Q： Since factors such as increases in base pay have a large impact on the first quarter interms of factors increasing costs this year, I think there was an expectation that the firstquarter results would show a more subdued start. But it appears your first quarter results
show you have gotten off to a steady start. In what areas did you perform better thaninitial forecasts?
Ａ： Since the first quarter is one with a lower volume of sales, slight upward or downward
variations can have a significant impact on the quarterly results. In light of those risks, inthe first quarter there are parts we looked at conservatively, but our view is that ourprogress fell largely within expectations.
Q： Regarding DXS, you mentioned that profitability has improved for recent orders, buthave you passed on cost increases such as higher personnel expenses to your sales
prices?
Ａ： We negotiate with customers about increased personnel expenses and have steadily
passed on those increases in sales prices, so we recognize that the higher costs arereflected in prices.
Ｑ：Regarding the improved profitability when receiving DXS orders, have you madeimprovements to a level where you can be as happy as expected? Or, is there room forfurther improvement going forward?
Ａ： Regarding the first quarter results, gross profit margin excluding one-off effects hasimproved, and in terms of our annual targets, we have set slightly higher targets, so werecognize the need to accelerate improvements to profitability going forward byenhancing added value such as the expansion of growth areas.
Ｑ：Products such as VMware have experienced sharp price hikes. Have you passed on
those increases in your sales prices?
A: There has been a slight impact, but basically we have reflected the increases in oursales prices. We don't think there is an impact that will significantly influence ourbusiness results.

Questioner G
Q： In relation to your national security business, there are national initiatives underway toimprove profit margins of companies involved with defense projects. Do you expect profit
margins to improve going forward for any of your defense projects?
A： Regarding the national security business, going forward we will be pursuing dual aims,
expanding sales volume and improving profitability, by expanding our activities in thefield of system integration.

End