d
r
a
w
o
t
e
v
o
M e next stepth
ANNUAL REPORT 2021
NEC Networks & System Integration Corporation

d
r
a
w
o
t
e
v
o
M e next stepth
NEC Networks & System Integration Corporation (NESIC) is working to become a communication services
orchestrator that finds solutions to social issues rooted in communication. Each and every member of NESIC
is committed to the challenge of creating value that only it can provide, and we intend to utilize the expertise and experience we have developed through our various customer-centric solution, including work-stylereforms through self-implementation at NESIC, as footholds to help us take further leaps forward in our nextstage of evolution.

Proposing New Work Styles
Since the future demands hybrid work styles that integrate
the real with the virtual, I hope to create an environmentthat allows everyone to flourish using both methods, andmake this environment available to society.

Work-Style Design Group
Empowered Business Promotion Division
Business Design Operations Unit

Chizue Igarashi

New Value from Co-Creation
We intend to tackle customer issues by creating
new teams aligned with our organization thatwork together with customers to prompt bothco-creation and solutions to these issues, allowing us to create unprecedented value unique tothe Company.

2nd Marketing & Sales Department
Manufacturing & Process Solutions Marketing & Sales DivisionMarketing & Sales Operations Unit

Shuntaro Konno

Operational Reforms Create Time,
which Creates New Value
I would like to promote operational reforms
in our internal departments, such as our decision to go paperless and the standardizationof our processes and procedures—changes
that will grant us the time to create new value
and enrich lifestyles.

Accounting & Finance Group
Corporate Finance & Controller Division

Emina Ogawa

B

ANNUAL REPORT 2021

2nd Solutions Department
Enterprise Solutions Division
Digital Solutions Business Unit

Yuki Ono

Wireless Networks as the Foundation for
Building a Better Society

2nd Systems Department
Public Solutions Division
Network Infrastructure Business Unit

Vannia Cuadra

Supporting Safe and Secure Community
Development with Disaster Prevention
Technology

We are proposing wireless networks as a means toimprove work efficiency in a variety of places, fromnursing care facilities on a national scale to small
kindergartens. In this way, we will provide value that
only our company, with its nationwide business base,can provide.

We will help build a safe and secure society byleveraging digital transformation (DX) technology
to establish more sophisticated fire and ambulance
emergency network systems, alongside other activities that will raise the level of disaster prevention andmitigation by local governments. In the future I also
hope to expand the scope of these activities outsideof Japan.

Utilizing DX to Realize Smart Cities
We are taking advantage of NESIC’s unique technological capabilities in both DX and infrastructure tosolve problems—not only those facing Japan, butalso those in various regions and cities around theworld—aiming to realize a sustainable society.

Global Systems Division
Engineering & Support Services Business Unit

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

Corporate Message

The NEC Networks & System Integration Corporation Group Statement andCorporate Message were crafted based on the NEC Way withdiscussions involving all employees.

ANNUAL REPORT 2021

01

Our History
NESIC has been creating and refining new strengths while looking to the future. We have continued to change
and grow, adding new strengths in tune with the times to our core business of innovating and developing
communications. Starting from a foundation in construction technology, NESIC has obtained information communication technology (ICT) and built a unique position as a systems integrator with construction capabilities.
In recent years, the Company has gained the ability to create new kinds of solutions that combine its accumulated technological capabilities and know-how gained through self-implementation and co-creation withpartners. Leveraging these advantages, NESIC aims to realize an inclusive and sustainable society createdthrough communications as a communication services orchestrator that solves social issues.

Refinement of Construction
Technologies as a Telecom
Infrastructure Constructor

Technological
Capabilities &Credibility

NESIC was established in a spin-off of the telecommunications engineering division from NEC Corporation in 1953. The Company has steadily
built up its construction capabilities, centered on NEC products, while
tapping into growing demand for telecommunications infrastructure in

Sysquality technologies, which are symbolic of the NEC Group.

Nationwide
Business
Capabilities

0 s–

History of Honing Core
Competence

196

3–

195

ture

ruc

ast
Infr
eas onsr
Ove tructi
s
Con

on
ng: nicati
ndiu
Fou omm ncoTele tructi
s
Con

tor
gra

nte

I
tem

Japan and overseas. We have also maintained and advanced high-Technological
Capabilities &Credibility

0 s–

199

Growth through Construction
Capabilities and Refinement of ICT
Alongside advances in technology, NESIC broadened its reach in
the telecommunications infrastructure field to such areas asmobile base stations. The Company also expanded business toprovide ICT to corporations by creating voice networks, enabling
it to provide construction, system integration (SI), and maintenance services. Accordingly, we have set up sales bases acrossthe country and broadened our nationwide responsiveness.

Main Initiatives 1950 –1990
Nippon Electric Installation Company establishedin a spin-off from NEC Corporation

 hanged the company name to NEC System
C
Integration & Construction, Ltd.

Conducted first overseas project (construction
and installation of switching equipment in thePhilippines)

Listed on the Tokyo Stock Exchange trengthened sales structure for private sector
S
by creating a specialized division

Constructed the first television
broadcasting facility AA onstructed satellite telecom infrastructure forC
the1968 Olympic Games, in Mexico City BC usiness for New Common Carriers (NCCs) took on
Bsignificant scale and received major orders from new private communications companies

 onstructed microwave telecom infrastructureCfor five Central American countries (simultaneous
construction in multiple countries)
 cquired special construction business andA
general construction business licenses for sevencategories of construction business einforced nationwide network by setting up
Ra business unit for regional sales

 onstructed communications equipment on Mt. Everest (enabling broadC
cast from the peak of Mt. Everest for the first time)BExpanded the enterprise system integration business C
Established S-iDC (Strategic Internet Data Center), NESIC’s first data centerEstablished the first overseas affiliate, in Brazil

Net Sales

Over ¥10 billion
1974

Over ¥100 billion
1989

Changes in the Business Environment

1950s

1960s–1970s

1980s–1990s

Reconstruction after World War II

Increase in international communications
and satellite communications

Telecom liberalization

Era of construction in broadcasting andtelecommunications infrastructure

02

ANNUAL REPORT 2021

Expansion in demand for telecommunications
infrastructure construction worldwide

Birth of NCC

Over ¥200 billion
1997

Technological
Capabilities &Credibility

Nationwide
Business
Capabilities

0 s–

201
Sol

n
utio

r

vide
Pro

0 s–

202

a
ing rvices
m
o
e
nS
Bec
ard nicatio
w
To mu
tor
Com estrah
OrcBusiness
Creation
Capabilities

Creation of New Businesses through Technological
Capabilities and Nationwide Responsiveness
NESIC has reinforced its strengths by building a full-service network of about 400 support and service
bases across Japan through aggressive M&As, including a merger in 2007 with NEC Telenetworks Co.,
Ltd., a company with strength in the service field, and turning Q&A Corporation, which operates
contact centers, into a subsidiary in 2013. Furthermore, NESIC has greatly expanded the products
and services it offers, including through turning the innovative technologies of startups into services
while advancing co-creation with partners, as well as creating EmpoweredOffice work-style innovation solutions and other new businesses that leverage its unique technological capabilities.

Main Initiatives 2000 –2020
 hanged the company name to NEC Networks & System Integration
C
CorporationL aunched EmpoweredOffice work-style innovation solutions business andimplemented it internally in certain sections DEstablished nTOC (Network Total Operation Center) E racticed EmpoweredOffice in all sections upon transfer of head office toPBunkyo Ward Tokyo (Iidabashi Head Office)Implemented initiatives in high-speed mobile networks andnext-generation roadcasting ESIC’s industry sector
Nclassification in the stock
market changed from“construction” to “information & communication”

Introducted telework system Companywide (spawned from a “Women’s
Project Experiment” idea created by female employees)
 stablished CVC Fund to create new businesses through open innovationEwith startup firms
 stablished K&N System Integrations Corporation as a joint venture inE
mobile infrastructure construction G
L aunched joint business in low-power, wide-area (LPWA) communications
protocol for IoT
 ntered onshore fish farmingEbusiness utilizing ICT
 ealigned head office toRchallenge itself to new work
styles including disributed work
locations stablished sDOC
E
(Service Delivery Operations
Center) FDLaunched MVNO service for IoT

E

F

G

300 billion

Over ¥

2000s

2010s

Advance of internet protocol (IP) and broadband
networks

Expansion of the use of cloudIntegration of communications and broadcasting

2020

IoT and Fourth Industrial Revolution

ANNUAL REPORT 2021

03

Our Competence01
Technological
Capabilities &Credibility

02

03

Nationwide
Business
Capabilities

Business
Creation
Capabilities

Our business is characterized by the factthat we provide comprehensive services
ranging from the introduction of systems
to installation and day-to-day support toa wide range of customers, including
enterprises, telecom carriers, government
agencies, and social infrastructure providers.
We have cultivated our unique strengths
through the pursuit of customer first in allof our businesses.

TECHNOLOGICALCAPABILITIES & CREDIBILITYNESIC has built a unique position as a system integrator with construction capabilities by fusing together
its ICT, which is kept in tune with the changing times,
with its telecommunications construction technologies, which have been accumulated since its founding.
NESIC has a wide range of technological capabilities
centered on communications, from ICT services forcorporations, to mission critical communications infrastructure for public use such as the networks of telecom carriers and fire and ambulance emergency
network systems. The technological capabilities wehave accumulated to satisfy the stringent requirements
and expectations of customers of the NEC Group arealso utilized in services and various vendor products
inside and outside Japan in tune with the needs ofother customers. These capabilities are also being
used for cloud-based services, which many companies
have begun to adopt lately, and cutting-edge / venturetechnologies, and have led to the provision of optimal
solutions for customers.
As society becomes more pleasant and convenientwith “Digital x 5G,” NESIC’s technological capabilities
in telecommunications infrastructure, which require
high reliability, will remain a source of its competitiveness, along with its know-how in digital services.

Technological Capabilities for Integrating
Diverse Products and Services
Governments andSocial Infrastructure
Providers

Telecom
Carriers

Companies

Provision of optimal solutions
Cloud
Services

NEC
Products

NESIC
ICT &
Construction
Capabilities

Cutting-Edge /VentureTechnologies

04

ANNUAL REPORT 2021

Domestic
VendorProducts

Global
Products

NATIONWIDE BUSINESSCAPABILITIESBUSINESS CREATIONCAPABILITIESIn order to support infrastructure that underpins safety
and security in society and the networks of telecom
carriers, including the salespeople and systems engineers who respond to customers across the country,
we have put into place a service network with about
400 locations in Japan, in addition to help desk services for network servers and security; operation centers that collectively address needs for network
operation, monitoring, and maintenance services; andcomprehensive technical centers able to provide onestop services from technology assessments to repairs
with logistics functions. Our 24/7 full-service structureis able to dispatch people and deliver products within
two hours anywhere in Japan—a unique strength that
underpins the development of society for creating
welcoming and convenient lifestyles.

At the root of our corporate culture is our ambition toplay a direct role in solving issues for our customers
and in society as a whole. We have never stopped
changing, constantly taking on new business challenges with the aim of solving such issues.
We develop solutions while co-creating with partners, such as startup firms that have cutting-edge
technologies, and various vendors of hardware andsoftware. Before providing these solutions to customers, we put them into practice first ourselves and atpartner firms in order to evaluate and verify their easeof use and effectiveness. The know-how gained fromthis allows us to offer optimal solutions to our customers. These initiatives translate into a capacity tocreate new businesses in a way that only NESIC can
accomplish.
With all eyes on the coming Digital x 5G era, NESIC
will strengthen its business creation capabilities inorder to provide new services that leverage its technological capabilities and expertise in both fields.

Full-Service Structure that Supports Mission
Critical Communications Infrastructure

Creation of Business through Co-Operationand Self-Implementation with Our Partners
24/7 full-service
structure able to respondBusiness Creation

withina couple of hours
anywhere in Japan

Co-Creation
with Partners

Self-Implementation

Domestic Service Bases
about 400

Hardware /Software

Customers

NESIC
Startup
Firms

Technological
Capabilities &Credibility

ICT /Construction
Partners

Nationwide
Business
Capabilities

Cloud
Services

Networks

Cutting-Edge /VentureTechnologies

ANNUAL REPORT 2021

05

Sustainability of Strengths

Increasing Sustainability of Strengths
NESIC takes various measures to maintain and improve its strengths in technological capabilities &
credibility, nationwide business capabilities, and business creation capabilities.

Strengthening

Technological Capabilities & Credibility

Training of personnel in 5G

Enhancing information security

In November 2020, the Shin-Kawasaki Technical-Base (Kawasaki

Countering cybersecurity risks is one of the most important

City) was established to facilitate training and the technicalissues for management to address, and a variety of initiatives

verification and assessment of cutting-edge technologies (wire-

are constantly being taken in this regard.

less, virtualization, slicing, etc.) in multivendor environments.

Target: Quadruple the number of 5G-related engi-

NESIC joined the Nippon CSIRT Association to reinforce its crisis
management structure for countering cybersecurity risks thatneers by the fiscal year ending March 31, 2022

have become more advanced and detrimental lately. On October

Results: Increase of 2.8x year on year

1, 2020, NESIC built and began operating the NESIC-CSIRT*2,
which uses the Company’s SOC*1, of which security services are(from 100 engineers at the end of March 2020 to 278* at the end of March 2021)* Includes business partners

already being offered to customers.

P33

*1 S
 OC: Security Operation Center
Organization that detects and analyzes cyberattacks, and advises on how to respond,

Number of employees who obtained core technicalwith 24/7 monitoring of networks and devices*2 C
 SIRT: Computer Security Incident Response Teamqualifications

A team dedicated to handling information security problems within an organization by
responding to security incidents, preventing accidents, and improving the quality of security.

Managing engineer or technical supervisor qualifications:
Approx. 1,400

Employees with advanced ICT qualifications:
Approx. 800

Maintaining

Nationwide Business Capabilities pproximately 400 bases
Anationwide
sDOC Comprehensive Technical Centers

Nationwide sales, systems engineers and systems
Kitting

integrators, and maintenance structure

Repair

Logistics

One-stop center for technical evaluation, mainte-

Service delivery

NESIC has approximately 400 maintenance service

nance, and repairs, in addition to 24/7 logistics
functionsbases across Japan that support social infrastructure, in addition to sales personnel and systems
engineers who help customers across the country.

nTOC Network Total
Operation Center
Help desk for networks, security

Nationwide
service
network
Contact
centerOperational
service

Monitoring
service

Support services

Operational
service

Cloud
service

Hosting
service

Data center services

S-iDC Data Center
Provides convenient and stable
services with three-region mutualand business systems

backups in Tokyo, Osaka, and24/7 operations, monitoring, andYamanashi

maintenance services

06

Maintenance

ANNUAL REPORT 2021

Reinforcing

Business Creation Capabilities

Advance inclusion & diversity (I&D)*
Pursue well-being of employees
 pdate work environments and frameworks for fosteringUinnovation
P52* NESIC uses the expression inclusion & diversity, with inclusion coming before diversity, based on the belief that thevalue of diversity can only be achieved with inclusion.

Co-creation with partners
We are accelerating co-creation with partners by leveraging our ability to identify
customer needs ahead of time.

P40

An Example of Co-creating Innovation with A Domestic Venture Company

Challenging new work styles with virtual workplaces
The COVID-19 pandemic has drastically changed traditional work styles, when going to the office and meeting people
face to face was normal, prompting the spread of telework / remote work over the internet from home or anywhere else
outside the office. Meanwhile, new problems have begun to surface, such as lower quality communications and management, as well as a decline in the sense of belonging to the company.
Against this backdrop, NESIC, along with Synamon, Inc. (headquarters: Shinagawa, Tokyo; Representative Director
Wataru Takehi), launched in December 2020 a joint demonstration of a virtual workplace that combines real and virtual
workplaces, with the objective of creating new work styles that drive co-creation and new ways of communicating.
Synamon is a Japanese venture firm that offers virtual reality (VR) collaboration services for business settings. This
co-creation was realized through venture sourcing and collaboration sessions by using a platform designed to promote
matching and open innovation between large companies and venture companies.
Since 2007, NESIC has accumulated extensive knowledge, experience, and know-how, through the self-implementationof EmpoweredOffice and distributed work practices before proposing solutions to
its customers. By combining this with Synamon’s virtual technologies, we aim tocreate collaborative spaces not bound to time, distance, or location, creating environments that facilitate co-creation by nurturing a sense of unity among team members and allowing workers to think and act on their own, in addition to solving
issues that arise when working online.
While deploying the advanced technologies of venture firms, NESIC will strive tospur innovation in new work styles that is several steps ahead of the current ways
of working.

Group work that is difficult in remote environments
can be accomplished in virtual reality

ANNUAL REPORT 2021

07IndexGeneral Standard Disclosures

This Report

Web

Strategy

P10 M
 essage from the
President
P18 Materiality
P28 Risk and Opportunity

Investor Relations
https://www.nesic.co.jp/english/ir/

Ethics and Integrity

P60 Corporate Governance

About Us
https://www.nesic.co.jp/english/corporate/

Investor Relations

About UsGRI Standards

CSR > Compliance/Risk Management
https://www.nesic.co.jp/english/csr/compliance.html
Governance

P60 Corporate Governance

About Us > Corporate Governancehttps://www.nesic.co.jp/english/corporate/governance.html

Stakeholder Engagement

P54 Communication with
Stakeholders

Investor Relations
https://www.nesic.co.jp/english/ir/
CSR

CSR > The NESIC Group’s CSR > Stakeholder Engagement
https://www.nesic.co.jp/english/csr/engagement.html
CSR > Procurement
https://www.nesic.co.jp/english/corporate/procurement.html
CSR > Social Contributions
https://www.nesic.co.jp/english/csr/contribute.html
Reporting PracticeThis Report[(ANNUAL REPORT 2021)]

CSR > Annual Reports
https://www.nesic.co.jp/english/csr/report.html

Management Approach

P18 Materiality

CSR > NESIC Group’s CSR
https://www.nesic.co.jp/english/csr/nesicgroupcsr.html

P50 Environment

CSR > Environment
https://www.nesic.co.jp/english/csr/environment.html

Environment
Greenhouse Gas (GHG) Emissions
Energy Management

Environment

Water & Wastewater
Management

SASB (refer to materiality map for technology and information sectors)

Waste & Hazardous Materials
Management
Social Capital
Customer Privacy

P28 Risk and Opportunity

CSR > Information Security/Personal Information Protection
https://www.nesic.co.jp/english/csr/security.html

Information Security/
Personal Information
Protection

Privacy Policy
https://www.nesic.co.jp/english/privacy.html
Data Security

P06 Sustainability ofStrengths
P28 Risk and Opportunity

CSR > Information Security/Personal Information Protection
https://www.nesic.co.jp/english/csr/security.html

P52 Society

CSR > Human Resources Development
https://www.nesic.co.jp/english/csr/empowerment.html

Human Capital
Labor Practices

CSR > Human Rights
https://www.nesic.co.jp/english/csr/empowerment-humanrights.html
Employee Health & Safety

P52 Society

Employee Engagement,
Inclusion & Diversity

P52 Society

CSR

CSR > Safety & Quality
https://www.nesic.co.jp/english/csr/safetyquality.html

Business Model & Innovation
Supply Chain Management

P50 Environment
P54 C
 ommunications with
Stakeholders

CSR > Procurement
https://www.nesic.co.jp/english/corporate/procurement.html

Materials Sourcing & Efficiency

P50 Environment

CSR > Procurement
https://www.nesic.co.jp/english/corporate/procurement.html—

CSR > Compliance/Risk Management
https://www.nesic.co.jp/english/csr/compliance.html

Procurement

Leadership & GovernanceCompetitive Behavior

08

ANNUAL REPORT 2021

Compliance/
Risk Management

CONTENTS

Introduction
01 Move toward the next step
02 Our History
04 Our Competence
06 Sustainability of Strengths
08 Index

Medium- to Long-Term
Growth Strategy, Earnings Trend
10 Message from the President
16 Our Connection to Daily Life
18 Materiality
20 Initiatives to Provide Value to Society
through 2030

26 Value Creation Model
28 Risk and Opportunity
30 NESIC’s Strategic Road Map
32 Progress of the Medium-Term Management
Plan Beyond Borders 2021

34 Financial and Capital Strategy
38 Financial & Non-Financial Highlights

Special Feature
40 Resolving Social Issues through Local 5G

42 Banding Together as an Organization to
Help Resolve the Issues of Our Clients

Overview by Business Segment
44 Digital Solutions Business
46 Network Infrastructures Business48 Engineering & Support Services BusinessInitiatives for Growth at NESIC
50 Environment
52 Society
54 Communications with Stakeholders
56 Roundtable Discussion between
Outside Directors

60 Corporate Governance
66 Directors & Corporate Auditors
68 Stock Information
69 Corporate Overview
70 Financial Section

Editorial Policy
NESIC has published its ANNUAL REPORT as an integrated reportsince 2016.
For this report, NESIC reports on a wide range of corporate activities,
including its business strategy for the creation of social value and for our
growth over the medium to long term, as well as the initiatives it pursues forthat strategy to succeed. In ANNUAL REPORT 2021 we introduce our initiatives aimed at resolving social issues through communication and to continue to create new value, and lay out our steady progress toward theDigital x 5G era.
With the aim of furthering everyone’s understanding of the NESIC Group,
we endeavor to disclose highly valuable information while making iterative
improvements based on feedback we receive through dialogue with investors and other stakeholders. Accordingly, we request your feedback after
reading this report.
Full details, including details on our financial results and medium-termbusiness strategy, are available on the “Investor Relations” section of our
website. In addition, the “CSR” section of our website provides more detailon our initiatives related to corporate social responsibility.

Period Covered
April 1, 2020 to March 31, 2021 (Certain information related to the period
following that noted above is also included.)

Scope of Report
NEC Networks & System Integration Corporationand consolidated subsidiaries

Guidelines
International Integrated Reporting Council (IIRC) (Current VRF*)
Integrated Reporting FrameworkGlobal Reporting Initiative (GRI Standard)
SASB (Current VRF*) Materiality Map
ISO 26000(Guidance on social responsibility)
Guidance for Collaborative
Value Creation* Value Reporting Foundation

Contact
Investor Relations
https://www.nesic.co.jp/english/ir/
Responsible department: IR Group of the Corporate Finance & Controller
Division
CSR-Related Information
https://www.nesic.co.jp/english/csr/
Responsible department: Corporate Communications Division

Disclaimer
This report contains forecasts, outlooks, targets, plans, and other forwardlooking statements concerning the business performance, financial condition, and other aspects of the management of the NEC Networks & System
Integration Corporation Group. These forward-looking statements are basedon information NEC Networks & System Integration Corporation had as of
the time this report was prepared and on certain premises judged to bereasonable. 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 by various factors.
Note: Company names, product names, and logos are contained in this report
Note: Department names and job titles are accurate as of September 30, 2021.

About the CoverThe cover of this report was designed to reflect
the opinions of NESIC. For this edition, the cover
expresses the determination to move forward asa unified Group and accelerate co-creation witha variety of stakeholders, aiming to reach its ideal
standing in society. From the very beginning of thisreport, in which employees talk about the value
unique to NESIC, it expresses NESIC’s stance, tolook forward and take on the challenge of adeveloping a sustainable society while achieving
its own sustainable growth.

ANNUAL REPORT 2021

09

Message from the President

We will continue to help address
the issues of society throughcommunications and the enhancementof our unique added value.
Yushi Ushijima
President

Q 	Please share with us your overall

became even clearer to us at NESIC,A 	We achieved the targets set out inthrough communications is our trademark,assessment of FY2021/3.

where resolving the issues of society

our Beyond Borders 2021 medium-and this translated into our successful

term management plan (FY2020/3

results over the past year. We played ato FY2022/3) a year ahead of sched-leading role in society in terms of work-ule by addressing social issues andstyle innovation, for which we began car-reinforcing our business capabilities.

rying out self-implementation in 2007. In
particular, our efforts from 2019 to intro-

The fiscal year ended March 31, 2021 wasduce a new type of work style in the forma year in which the world was hit hard byof distributed work, which makes compre-

the effects of the COVID-19 pandemic.

hensive use of digital technology, began to

We saw our lifestyles and social norms

pay dividends, as we were able to steadilytake a drastic shift as we battled against

address the demand for DX in line withthis new virus. The rise of telework startedsocial issues such as the work styles in thisto raise questions about our conventional

new normal we are living today. We also

work style, which has been accepted with-reaped the benefits of the front-loaded

out question until now, as a wave of new

demand for the GIGA School Program, atechnologies such as Zoom began to havegovernment-funded program that promotesa major influence on the business scene.

the use of ICT in education. As a result, weAmid such unprecedented changes insociety, the value we can offer to society
10

ANNUAL REPORT 2021

renewed our previous record highs by asignificant margin and achieved the targets

in our Beyond Borders 2021 medium-term

were able to strengthen our business struc-management plan a year in advance.

ture beyond our expectations was a tre-

On the earnings front, we made signifi-

mendously positive sign, giving me acant strides with the strengthening of ourrenewed appreciation for the true potential

business capabilities. In particular, I believeof our employees.

the reorganization, which took place alongside the launch of Beyond Borders 2021 inApril 2019, paid off in a major way. The
transformation from a market-specific organization to a technology- and function-Q 	What is NESIC’s stance on the roadahead to 2030?

A	“Helping address the issues ofsociety through communications”

specific organization in order to optimize

is our uncompromising stancethe entire corporate structure has allowed

here at NESIC.

us to centralize and make more efficientuse of resources, thereby strengthening ourAlong with the emergence of pandemics,

organization. Moreover, by embracing DX

the drastic population growth, climate

to energize our self-implementation ofchange, and the resulting destruction ofwork-style innovation even further, we notecosystems and food shortages, as well as

only strengthened our ability to addressa variety of other issues that cast doubt onsocial issues through self-implementation

the sustainability of our planet and the

but were also able to enhance productivity.

prosperity of its future have come to lightAs our entire organization unites as one toin recent years. In Japan, we cannot disre-

tackle new social issues, the fact that we

gard the existence of issues such as labor
ANNUAL REPORT 2021

11

Message from the President

shortages stemming from demographic

through 2030,” and “Initiatives for growth atchanges as well as torrential rainfall, earth-

NESIC,” our two frameworks for the materi-quakes, and other natural disasters. As weality issues that must be addressed

proceed ahead to 2030, new social issues

throughout the Group. Communication iswill likely emerge one after another andan essential element of our lifestyles andour social structure and lifestyles will

the key to resolving all of the issues sur-undergo major changes.

rounding society. Two years have passed

The rapid evolution of technologies will

since identifying our current materiality

play a significant role in addressing such

issues and materiality itself has graduallysocial issues. Staying ahead of the compe-

been embedded into our organization.

tition in taking full advantage of such tech-

However, each employee must be able tonologies to help address the issues ofform a concrete image of how they cansociety through communications reflects

address such materiality issues throughour unique stance here at NESIC.

their own actions. To that end, I hope to

The current medium-term management
plan was formulated to serve as the firstdeliver a more in-depth message to ouremployees.

step on our road to 2030, the target year
for the Sustainable Development Goals(SDGs). In tandem with our current

Q 	Please describe your road map togrowth toward 2030 and the progress made to date.

medium-term management plan, we established our new vision for society, “An inclusive and sustainable society createdthrough communications,” as well asA	We will embrace the world ofDigital x 5G and address a wide
range of issues throughout society.

“Initiatives to provide value to society
Our strategy looking ahead to 2030 is tobring Digital x 5G into fruition. Through thefusion of widely spreading digital technology and high-speed network infrastructure
representing 5G, we will address our materiality issues of “Creating work environments in which everyone can takeinitiative,” “Developing pleasant and plentiful communities with cutting-edge technologies,” and “Providing robust services
that underpin safety and security in evolving society.”
As I mentioned earlier, our current
Beyond Borders 2021 medium-term management plan is the first step on our longterm road map toward reaching our 2030
goal. In order to thrive in the coming

can
t we
a
h
t
e
e l i ev e
a wid
b
g
y
n
l
i
u
v
ol
I tr
to res
e
t
u
ib
sues.
s
contr
i
l
a
i
of socegnar

Digital x 5G era, we are honing ourstrengths with an eye on digital services
and 5G infrastructure, and are making
headway towards addressing our materiality
issues.
In the digital area, orders related to DX
grew dramatically, particularly through theintroduction of Zoom to facilitate theneeds for telework amid the COVID-19 era,

12

ANNUAL REPORT 2021

while the customer base continued toplatform, which links a range of cloud-expand for small and medium-sized busi-

based services rather than utilizing themness (SMB) clients, which were not a part

individually, allows users to experienceof our target market until now. In responsewhat true convenience is all about. As new

to this growing demand, we also estab-

cutting-edge venture technologies makelished systems for inside sales and cus-

their way onto the scene, the ability to

tomer support portals that facilitate

utilize the latest and optimal technologies

solutions to social issues for a wider range

to offer timely solutions in line with market

of customers. In the area of 5G, wechanges and customer needs is a major

strengthened our partnerships with tele-strength of NESIC, a company that doescom carriers, while proceeding with prepa-

not have its own specific products or

rations for full-scale 5G investment byservices.

expanding our business into value-added

In order to provide such customer-centric

sectors and establishing a relationship ofservices, we have continued to place

trust with new telecom carriers. Moreover,emphasis on “self-implementation,” whichin terms of local 5G, which is nearing prac-

has become a very part of our DNA. Ourtical use, we are stepping up the pace of

work-style innovation, which we began

trial operations based on the significanceundertaking in 2007 based on our spirit ofof creating and horizontally rolling out

sparing no effort on behalf of our custom-

effective services on commercialization.

ers, also underwent our unique process ofWhen accelerating our trial operations, webeing put into practice in-house, fully

homed in on the areas where we could

tested, and assessed in terms of advan-

provide value to society by leveraging ourtages and disadvantages before being

strengths in work-style innovation andoffered as a solution to customers. We arecommunity building.

also working to expedite our self-imple-

In our next medium-term management

mentation and accumulation of know-how

plan (FY2023/3 to FY2025/3), along with

with partners. In 2019, we began imple-

our achievements up to that point, we will

menting distributed work, whereby

successfully execute our Digital x 5G strat-

employees work individually at an officeegy to provide solutions to an even wider

located near their homes through the use

range of social issues and thereby continueof cutting-edge digital technology to elimi-

to solidify our foundation for realizing sus-nate the drawbacks associated withtainable growth.

remote work, such as lack of communication. Moreover, in pursuit of “The best staff

QA	What is your approach to differenti-

in Japan,” such staffing divisions as humanating yourself from your many com-

resources, procurement, and accounting

petitors in both the digital and 5G

personnel have been reforming businessfields?

processes from scratch, and the know-how

	The know-how we have accumulated

gained through these efforts are provided

through self-implementation is uniquein the form of solutions to our customers.

to NESIC and is what differentiates us

Through the consulting activities of ourfrom the competition.

staffing divisions, which share similar issues
as our customers, we offer solutions that

Our raison d'etre is the ability to create

are slightly different from our competitors,

user-friendly, high-value-added services byresonate with our customers, and are

uniting the products, services, and cutting-unique to NESIC, a company that hasedge technologies of our various businessinstilled self-implementation into its own

partners. This is the reason why we callcorporate culture. As we move forward,

ourselves a “Communication services

we will continue to self-implement by stay-orchestrator.” And our multi-cloud service

ing one or two steps ahead of society and

ANNUAL REPORT 2021

13

Message from the President

work to fine-tune our strengths in this area.
In the areas of telecommunications andQ 	How will you go about strengthening
the foundation for steadily executing
your strategies?

social infrastructure, we will draw on thestrengths of our self-implementation capabilities, which are built on the extensiveA	We must continue to improve thewell-being of our employees andknowledge of our customers’ businesses,

remain committed to our goal ofaccumulated through the development andbecoming an attractive company.

operation of networks in lieu of our customers, to expand our business into value-“Initiatives for growth at NESIC,” one of ouradded services.

pillars for materiality, serves as a guideline

Another distinctive trait of ours is thefor strengthening the foundation necessary

ability to become a hybrid-style business,for successfully executing our strategies.

which leverages its conventional strengths“Sound and highly transparent manage-

in systems integration and network infra-

ment,” “Strengthen innovation capabilities

structure development while expanding

to create new value,” and “Create a culture

the range of cloud-based services. Digital x

where employees can take initiative,” the

5G, which stems from the fusion of systemthree themes comprising this materiality

integration and development of digitalframework, are closely linked to one

services and 5G infrastructure, is certainly

another.

an area where such strengths will play an

At NESIC, our employees are our most

instrumental role. For instance, in local 5G,

important asset. As society’s expectations

our ability to provide a comprehensiveof IT companies diversify in tune with therange of solutions that span the develop-

rapid evolution of technology, we must

ment of infrastructures such as base sta-

continue to innovate like no other. And, intions and core networks and the provisionorder to do so, we must nurture a corpo-of services on such infrastructures is a

rate culture that embraces new challenges

trademark of ours. Our multi-cloud services

without the fear of failure or change. The

are built to link not only cloud-based ser-efforts of each individual to challenge andvices but also conventional networks,

succeed as a result will contribute to their

including voice networks and video net-sense of fulfillment. An attractive company

works such as river surveillance cameras.

that offers a comfortable work environment

This is an exceptional strength of ours andwill be able lure new employees, which

an element of our business that differenti-

will enhance its ability to provide better

ates us from our competitors, and is imper-

services and raise the level of customer

ative to the building of communities.

satisfaction. A virtuous cycle that ensures

Leveraging our self-implementation capa-a greater sense of fulfillment in employees

bilities, we will continue to develop recur-

will begin to take shape in such an environ-ring relationships with our customers as anment. For example, our staffing divisions

indispensable partner and transition to aalso serve as consultants for our custom-

one-of-a-kind and unparalleled hybrid-styleers, through which they contribute to ourbusiness. In so doing, we will deliverprofit growth rather than simply functioning

unique added value, bolster our competi-

as a cost center. I believe this contributes

tiveness, and enhance our earnings

to a greater sense of fulfillment in thepotential.

employees of these divisions. We are also
starting to see a virtuous cycle take shapeacross our organization, with the successof the staffing divisions in attracting exceptionally talented personnel serving as aprime example. According to our many

14

ANNUAL REPORT 2021

employees who are assigned to our customers on-site in support of their operations, the flexible and innovative work
styles we have in place at our headquarters are difficult to implement in their current work setting. However, through theestablishment of specialized divisions suchas the Corporate Culture Design Office andthe Well-Being Promotion Office, alongsideconducting effective communication andputting the right systems in place, we areworking unstintingly to create a workplaceenvironment that brings out the best ineach individual, ensures a sense of fulfillment, and all employees can take pride in.

Q	Please offer your perspective on

A	We will aim to become a company

sustainable increases in corporate
value.
that constantly strives to evolve withspeed and agility, similarly to the

ew
y
ace n
r
oup b
b
r
m
g
e
a
l
s
il
.
We w
ther a
e
heart
g
o
o
t
t
s
e
e
em
ng
n!” thchalleoitcour “Agnikta

likes of venture companies.
In order to address social issues from a
broader perspective and constantly growbecome the “No. 1 communications com-with our sights set on the future, I always

pany.” As we speak, discussions on theenvision the type of company we want tonext medium-term management plan

be from the ground up without being satis-

involving diverse personnel, from our juniorfied with the status quo and constantly

employees to highly experienced staff, arestriving to achieve that goal as quickly as

already underway across the entire organi-

possible. Failure is not when the result of

zation to decide our future direction as ayour hard work and the decision to take oncompany.

new challenges does not go according to

In 2021, we will take our “Action!” theme

plan. Rather, failure is when you decide notto heart as we leap forward from our stage

to challenge yourself at all.

of preparation to our stage of execution.

Even if we were to expand into a large

Through telework and other remoteenterprise, I still want NESIC to think andworking environments, face-to-face interac-

act like a newly established venture com-

tions at the office, a hybrid-type work set-pany. Whether it is a member of manage-

ting that combines on-site and digital work

ment or a junior employee, head officestyles, and a variety of other opportunities

staff or front-line personnel, I want eachto engage in communication with cowork-

individual to reflect on and discuss theers, I would like to see everyone join forces

type of company we must become to fulfill

to plan our course of action toward new

our role in society. If we are able to dosocial issues and our next step going for-that, I believe we will outpace the changes

ward as an organization.

taking place in our business environmentand become a solid organization. And
based on such a mindset, we will aim to

ANNUAL REPORT 2021

15

Our Connection to Daily LifeNESIC Contributes to a Safe, Secure, and Plentiful
Tomorrow in Various Contexts of Daily Life.
1 Broadcasting2 	Work-Style Innovation

3 Airports

4 Hotels

Construction, operation,and maintenance of digital
TV broadcasting facilities,
relay stations, and studio,
facilities, as well as installation of fiber-optic cable forcutting-edge 4K and 8K
broadcasting

By bringing together various cloud-based tools and applying
cutting-edge technologies, we create an environment thatallows people to work from any location, such as home orsatellite offices, by merging the real and the virtual, a place
where people can co-create as a team that transcends
organizational and corporate boundaries, and a way ofworking that generates innovation by solving the issues ofcommunication, management, and administrative work.

Visual Docking Guidance
Systems (VDGS), air traffic
control systems, airport
information, and a broadarray of other services

Comprehensive hotel
solutions such as telephones and switchingequipment, room management systems, and systems
for providing guests withinformation

3

1

4

2

5

9

8

6

7
7

5 	Mobile

Communications
Network
Installation of mobile basestations indispensable fordaily communication via
smartphone and flip phone,and overall network support,
together with system
integration of core
networks

16

ANNUAL REPORT 2021

6 	Fire-Fighting &7 	Railways & Roads

8 	Disaster Prevention

9 	Shops & Public

Ambulance

Support for public transportation by constructing andmaintaining telecommunications networks and othersystems for railway andhighway traffic control

Warning systems thatprovide information at timesof emergency (earthquake,tsunami, typhoon, etc.) via
simultaneous announcements over disaster prevention communication
systems for greater safety
and security in daily life

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

Construction of command
systems and radio systems
enabling rapid responses to
119 emergency calls, andthe provision of multilingual
call center services

Facilities

NESIC utilizes its strengths in technological capabilities & credibility, nationwide business capabilities,
and business creation capabilities to provide customers with total solutions that help increase their­productivity and resolve their issues.

10 Plants

11 Oceans

12 Space13 	Local Governments & Education

Provision of IoT systems
able to detect and manage
the location of people andthings in real time at plants
and other production sites

Installation of submarine
cables that support international communication, andsupport for earthquake
warning systems by integrating submarine
seismometers

Supports communicationand operational control
with various artificial
satellites and spacecraft,including asteroid
exploration

Provision of networks to local governments that
support convenient and worry-free lifestyles,
including its resident protection service, andideas for invigorating regions, such as tourist
information services. Provision of venues forlearning by helping schools with IT deployments
and assisting online classrooms

12

11

13

10

16
15

17

14

14 	Network Total

Operation Centers24/7 customer network
support ranging fromsecurity monitoring to
network operation

15 	Comprehensive

Technical Centers
Comprehensive technicalservices ranging from
distribution control functions that run 24/7, to newtechnology evaluation andSI, and maintenance andrepair16 Data Centers

17 Contact Centers

Keeping of customers’ IT
assets in secure, robust
environments, and provisionof wide-ranging operation,
outsourcing, and cloudservices

ICT system failure response,
help desk, and othersupport services for customer system administrators and system users, andinterpretation services in
multiple languages

NESIC’s service platform

ANNUAL REPORT 2021

17

Materiality
Along with the medium-term management plan Beyond Borders 2021 that was unveiled in May 2019, NESIC
has identified six materiality issues as key initiatives for contributing to the sustainable development of society
and realizing sustainable growth itself. Thereafter, viewing the COVID-19 pandemic as a major paradigm shift,
NESIC is reaffirming its roles and responsibilities in society in this “new normal.” Discussions were held withmanagement to share a Companywide image of initiatives to make materialities more concrete. As an indicatorof progress toward realizing three materialities related to the “Initiatives to provide value to society through2030,” NESIC is setting targets for increasing the number of disclosures about specific examples of initiatives.

Megatrends alling birthrate andF
aging population
Shrinking labor force

Materiality Identification Process

STEP 01

Verify global issues based on megatrends and discussions withinvestors and other external parties

Social Issues

STEP 02
 epopulation andD
aging of rural areas oncentration ofC
population in cities

Confirmation of social issues(overseas / domestic)

Interviews and internal discussion on
important initiatives at NESIC

Interviews with top management and free discussions among top
management were held on the vision for society and the vision for
NESIC, within the context of important initiatives that theCompany should undertake.

Digital divide

STEP 03

Climate change

A list of candidate materiality issues was created based on thevision for society and the Company initiatives to be undertaken to
realize the visions that were examined in Steps 01 and 02, which
was followed by discussions with top management.

Technological Trends

STEP 04
Digitalization

Initiatives for growth at NESIC
To continue growing as a company through such value creation efforts, NESIC must further strengthen its own businessfoundation. To this end, the Company has selected the following three priority initiatives. We believe communication,such as through co-creation and dialogue, is important forour own growth as a company.

18

ANNUAL REPORT 2021

Interviews with outside directors

The candidate materiality issues proposed in Step 03 wereexplained to the outside directors, who offered their insight.

STEP 05
Advanced networks

Candidate materiality issues andinternal discussions

Identification of materiality issues

The Executive Committee determined materiality issues based oninternal and external opinions. The issues were reported to theBoard of Directors.

Sound and highly transparent management
Strengthen governance through dialogue withstakeholders
Promote compliance with an eye on diversity

Initiatives to provide value tosociety through 2030
NESIC has selected three initiatives toprioritize in its provision of value tosociety via communications through 2030.

Create work environments inwhich everyone can takeinitiative
We aim to provide environments
where everyone, regardless of age,gender, or nationality, can work
proactively and to the best of theirabilities without regard to location.

Vision for Society

An inclusive and sustainable society
created through communications
Initiatives to Provide Value to Society through 2030
 reate work environments in which everyone can takeC
initiative
 evelop pleasant and plentiful communities with cuttingDedge technologies
 rovide robust services that underpin safety and security inP
evolving society

Develop pleasant and plentiful
communities with cutting-edge
technologies
We aim to help develop communities, such as smart cities, where
people can lead exciting and fulfilling
lives with safety and convenience,
and where various information
services are provided on robust
communication platforms using thelatest mobile technologies, etc.

Provide robust services that
underpin safety and security inevolving society
We will support the development
and advancement of ICT essential for
economic growth by creating safe
and secure services that offer highquality and national reach.

Initiatives for Growth at NESICSound and highly transparent management
Strengthen governancethrough dialogue withstakeholders romote compliance with anPeye on diversity

Strengthen innovation
capabilities to create
new value

Create a culture where
employees can takeinitiative

Promote a culture that

Improve the well-being ofencourages change andembrace of new challenges
 ccelerate co-creation andA
the use of various services inour own business practices tobetter understand the customers’ point of view

Strengthen innovation capabilities
to create new value

employees
 ncourage frank and openE­discussions, and enhance thecorporate culture as a facilitator of self-growth

Create a culture where employees cantake initiative

Promote a culture that encourages change and embranceImprove the well-being of employeesof new challenges

Encourage frank and open discussions, and enhance theAccelerate co-creation and the use of various services

corporate culture as a facilitator of self-growthin our own business practices to better understand thecustomers’ point of view

ANNUAL REPORT 2021

19

Initiatives to Provide Value to Society through 2030

Create work environments inwhich everyone cantake initiative

Vision for Society

An inclusive and sustainable society
created through communications
Create work environments inwhich everyone can take initiative

20

ANNUAL REPORT 2021

Utilizing the know-how it has accumulated through self-implementation
since 2007 and digital technologies, NESIC provides solutions for work
styles in the new normal, such as the realization of co-creation environments
and business processes that lead to stronger capabilities for innovation.
Our unique approach to proposing solutions is to have employees in staffing divisions going through trial and error to solve their own issues, and thensharing their experience with customers to help solve their problems.

Initiatives to realize this materiality (number of new releases)

Provision of new services

Experiments

10 PoC

12 PoC

September 2020 to August 2021

Start of hybrid work demonstration experiment combining realand virtual work styles
Creating work styles for the new normal that drive innovation


From our July 20, 2021, news release

With the objective of driving innovation, NESIC has defined

To bring these concepts to fruition, NESIC is conducting thethe concept of how to work in the new normal era and has

following demonstration experiments in hybrid work

started demonstrations that embody the concept.

systems:

As a result of telework spreading during the pandemic,
work efficiency and productivity has improved at companies.
Turning to the people who work at companies, however,• Support training of young employees in hybrid work
environments

various distortions have become apparent from prolonged• Contribute to business expansion by stimulating informa-

teleworking, such as growing unease about communications

tion sharing and support cross-organizational teams toand work styles. These distortions have an impact on personnel training and the ability to innovate, which are essential to corporate growth, and as such, they may become
serious management issues at many companies in the near
future.
The concepts behind the new work styles proposed by
NESIC recognize that the issues faced by its customers are
not simply related to work styles, but influence the core ofcorporate management. By applying our expertise to merge

create new activities• Establish virtual offices that are globally connected acrossorganizations, companies, and national borders, and create
speedy innovation through co-creation by using these offices• Creation of co-creation discussion areas with customers
that bring together people, places, and digital technologies,
and the promotion of value creation that goes beyond
physical office spaces• Construction of the optimal work environment thattelework and office work together, we aim to make innova-

supports activities of office workers and teleworker teams

tion a constant factor that is central to corporate growth.

at the Nihonbashi Innovation-Base

Concepts behind new work styles

NESIC is contributing to realize “Create work environments• Transform the nature of communities inside companies into

in which everyone can take initiative,” by realizing hybrid

one that promotes growth in human resources• Form teams of people with the same objectives and issues
that transcend organizational and company boundaries• Create innovation in co-creation spaces that highly inte-

work styles that drive innovation through invigorating discussions, while leveraging the benefits of telework that make iteasier for people to juggle work with childrearing andcaregiving.

grate digital and real spaces

ANNUAL REPORT 2021

21

Initiatives to Provide Value to Society through 2030

Develop pleasant andplentiful communities with
cutting-edge technologies

Vision for Society

An inclusive and sustainable society
created through communications
Develop pleasant andplentiful communities with
cutting-edge technologies

22

ANNUAL REPORT 2021

Combining the latest in digital technologies with high-speed network infrastructure such as 5G, we will work with our partners to solve various issues
in local communities and contribute to the development of smart cities andother new-age towns, thereby realizing more affluent lives for people.

Initiatives to realize this materiality (number of new releases)

Provision of new services

Experiments

5 PoC

3 PoC


September 2020 to August 2021

Demonstration experiment using street lights equipped with
ICT functions at Shinshu Sky Park
Aiming to create exciting, plentiful, and attractive communities with DX technologyFrom our April 20, 2021, news release

From April 2021 to March 2022, NESIC, along with GIGA

2 Increase satisfaction of park visitors

PRIZE Co., Ltd., Secual, Inc. and TOYBOX Shinshu Sky Park

By changing the color of lighting in accordance with theService Center, are conducting a demonstration experiment

weather, season, and time of day, the park becomes evenof DX services that utilize data obtained from street lights

more pleasant. Through collaboration with sports events andequipped with ICT functions at Shinshu Sky Park (Matsumoto

local events held within the park, we aim to provide a park

City, Nagano Prefecture) with the intention of creating anenvironment that visitors can fully experience with all their

exciting, plentiful, and attractive community.

senses, and encourages them to come back again. Free

This demonstration experiment aims to solve issues ofcreating communities where residents can enjoy a prosperous

Wi-Fi through wireless access points offers park visitors
connections to the internet.

life in safety and security. The project will provide a variety
of services by adding various functions to the street lights

3 Increase efficiency of management operations

used as infrastructure to illuminate the city, such as disasterWe aim to increase management efficiency by unifying man-prevention and crime prevention tools, and regional net-agement and visualizing the status of street lights. The net-

works that function as communication infrastructure to theworked cameras can also be used for the managementcity. This demonstration experiment entailed the installation

office to monitor conditions within the park. We aim toof Secual Smart Poles as street lights equipped with ICT

increase work efficiency by enabling the monitoring of wider

functions within the Shinshu Sky Park, an area where local

areas without having to make the rounds in person.

residents can rest and interact. The objectives are as follows:
We will continue to pursue the creation of a fun, prosperous,

1 Ensure safety and security for park visitors

and attractive community by combining the knowledge

Conditions within the park can be monitored in real time

gained from the demonstration experiments with various

using networked cameras installed on the street lights. The

communication methods in an optimal way.

videos are analyzed with AI technology to detect intrusions,analyze congestion, and attributes to prevent crime within
the park. It is also possible to ensure the safety of park
visitors as a countermeasure against COVID-19 by detecting
congestion based on the number of park visitors and thestatus of their stay.

ANNUAL REPORT 2021

23

Initiatives to Provide Value to Society through 2030

Provide robust services that
underpin safety and securityin evolving society

Vision for Society

An inclusive and sustainable society
created through communications
Provide robust services that
underpin safety andsecurity in evolving society

24

ANNUAL REPORT 2021

NESIC contributes to the realization of a sustainable society by constructing
and maintaining safe and secure ICT infrastructure that is highly resilient tonatural disasters, such as heavy rainfall, earthquakes, and strong winds, byutilizing the latest digital technologies, backed by its reliable infrastructure
construction capability and service bases across the country cultivated overmany years.

Initiatives to realize this materiality (number of new releases)

Provision of new services

Experiments

10 PoC

6 PoC
September 2020 to August 2021

Launch of building degradation diagnostic services with drones inpartnership with MS&AD InterRisk Research Institute & Consulting, Inc.


From our January 20, 2021, news release

In a partnership with MS&AD InterRisk Research Institute &Solar power systems, which have become more prevalent

Consulting, Inc., in January 2021, NESIC started to provide ain recent years, can be damaged, leading to fires sparked byjointly developed service for diagnosing building degrada-

rooftop solar panels or lower output due to partial damage

tion with drones.

to the panels. To reduce damage, it is necessary to periodi-

In this service, aerial images taken by NESIC using drones

cally inspect the panels, but they are installed in high places

are analyzed based on the building deterioration evaluation

or over a broad area. This makes visual inspection withmethodologies owned by MS&AD InterRisk Research

conventional equipment inefficient, and harder to findInstitute, Inc. and the deterioration status of the buildings

defects. In light of this situation, NESIC started to provide

are diagnosed. The service facilitates the verification ofservices to look for degradation by using drones to takedegradation in parts of buildings that are hard to visually

pictures of hard-to-view areas.

inspect by a person, such as the rooftops, external walls,
and solar panels installed on structures.
In recent years, large-scale typhoons have caused damage
to the roofs and external claddings of buildings. To reducethe damage to buildings caused by strong winds, it is impor-

Using this service, inspections with the drones and Zoom
video conferencing software allow remotely located administrators, in addition to on-site workers, to view the aerial
images in real time on PCs, tablets, or smartphones.
In the future, we will further simplify this service by utiliz-

tant to identify any degraded areas at an early stage anding AI and other technologies, and will widely expand thisconduct preventative maintenance and repairs. However, it isservice both in Japan and overseas. Through this service, we

hard to visually inspect rooftops and external sides of build-

support safety and security in society by increasing theings in high places, so degradation inspections are not car-efficiency of and saving labor in diagnosis work for verifying

ried out on a regular schedule, resulting in inadequate

degradation in buildings.

preventative maintenance in some cases. This situation
could lead to higher costs with repeat partial repairs every
time they are damaged, compared with a planned largescale fix.

ANNUAL REPORT 2021

25

Value Creation Model

NESIC’s vision for society is “An inclusive and sustainable society created through communications.” To realize thisvision for society, we have established a value creation model based on co-creation and putting ideas into practicewith partners, integrating various technologies, and providing them to customers as easy-to-use solutions.
NESIC creates new businesses and services through its value proposition model, and will provide value to society
in core areas through 2030, namely “Create work environments in which everyone can take initiative,” “Develop
pleasant and plentiful communities with cutting-edge technologies,” and “Provide robust services that underpin
safety and security in evolving society.”

I N P U T​

Hardware /Software

M E A N S O F VA LU E C R E AT I O N

NEC Group

Networks

Startup Firms

Cloud Services

Think and put into
practice with partners

ICT / Construction

Cutting-Edge /Venture Technologies

Co-Creation

Customers

Partner Capital (Social Capital)

Integration

Technological Capabilities& Credibility

Nationwide
Business
Capabilities

Business
Creation
Capabilities

Manufactured Capital

Human Capital

Financial Capital

24/7 service bases
Nationwide sales andsystems engineer network

Technological capabilities
and know-how that
support innovation

Solid financial
foundation

SelfImplementation

Aggressive investment

Our Capital

Materiality Issues(Initiatives for growth at NESIC)P18–2526

ANNUAL REPORT 2021

To continue providing this value to society, “Strengthening our innovation capabilities to create new value,” aswell as “Creating a culture where employees can take initiative,” are of particular importance to our own growth,
starting with “Sound and highly transparent management.”
By sustaining this value creation model, we intend to contribute to the development of society and achievementof SDGs, while aiming to enhance our corporate value over the long term.

OUTCOME

Create work environments inwhich everyone can take initiative

Develop pleasant andplentiful communities with
cutting-edge technologies

5G

Provide robust services
that underpin safety andsecurity in evolving society

Realization of Medium-Term
Management Plan
Beyond Borders 2021

Sound and highly
transparent management

Strengthen innovation
capabilities thatcreate new value

createDigitalMateriality Issues

lusiveGrowth Domains

An incValue Provision for 2030

and sustainad throble sough cociety
mmun
ications

O U T P U T​

Create a culture where
employees can takeinitiative

ANNUAL REPORT 2021

27

Risk and Opportunity

NESIC will constantly monitor risks and opportunities in these rapidly changing times with the aim offlexibly adapting to change and sustaining growth.

Megatrends alling birthrate andF
aging population
Shrinking labor force

Opportunities for NESIC

Changes in work styles atenterprises
Stronger needs for work-styleinnovation in local governments

Social Issues

 rowth in DX in educationalG
settings
Depopulation and aging of regions
Concentration of population incitiesRisks for NESIC

Digital shift in community
developmentDecline in productivity
Problems securing personnel andpassing along technology

Needs for work anywhere, including workcation in outlying areas

Digital divide

Climate change

Digital shift in community development and corporate activities withstronger awareness of need forresilienceDiversification and stabilization ofincome opportunities
 tronger needs for security-relatedSbusiness

Technological Trends

Digitalization

 rowing needs for data-drivenGbusiness

Disruption to supply chains due
to natural disasters
Impact on BCP

Change in legacy or conventional
systems integration modelData security breaches
Privacy protection failures xpand business related toE
Digital x 5G

Advanced networks
 xpand business related to highEspeed communications (5G, etc.)

28

ANNUAL REPORT 2021

Changes or contraction in existing network construction business model for telecom carriersInitiatives at NESIC

 rovide solutions to enterprises for work-style innovationP( P21)
Provide solutions to local governments for work-style innovation
 upport for ICT infrastructure development for educationalS
settings
 ccelerate work-style innovation through self-implementationA( P21)
Improve employee skills and engagement by promoting theirwell-being and I&D
Expand solutions related to community development ( P23)
Provide solutions for remotely supporting ICT infrastructure(maintenance, operations, and security) as lifelines

Provide solutions for disaster prevention and mitigation ( P25)
Provide environmentally friendly solutions by using DX
Implement hybrid workRespond to climate change based on TCFD recommendations

 hift to solution and service provision business model using
S
DX technologies ( P32)
Provide security solutions
Strengthen in-house information security ( P6)

Provide Digital x 5G solutions ( P32, 40)

Provide support for 5G technology testing ( P6, 33)
Training of 5G engineers ( P6, 33)
Expand business into value-added areas by forging partnerships
with telecom carriers and using DX

NESIC aims to improve the well-being and capacity for innovation of its employees by putting into practice work-styleinnovation with the latest digital technologies in its own
operations. Based on the outcomes of its own trials withnew technology, the Company creates invigorating work
environments by making these digital technologies accessible to anyone, anywhere, and then offers these solutions tosociety. NESIC will co-create with its partners with the aim ofcreating communities, such as smart cities where people canlead exciting and abundant lifestyles, through digital services
paired to the latest high-speed communications infrastructure, such as 5G.

NESIC places an emphasis on the risks and opportunities
presented by climate change. NESIC is keen to reduce environmental impact through work styles for the new normal,
and help create resilient communities that prevent andminimize the impact from risks such as natural disasters. We
are also taking steps to address climate change in line with
TCFD recommendations.

With the accelerated use of digital technologies like AI andIoT as a tailwind, NESIC is transitioning its business modelfrom one focused on systems integration of products to arecurring solutions and service model centered on digitaltechnologies. While putting new ideas into practice inhouse, NESIC provides safe and reliable services from its
own service platforms that emphasize information security,
the foundation of a digital society.

One of NESIC’s unique features is its strength in both digital
services and 5G infrastructure. The Company has accumulated know-how in the construction of advanced ICT infrastructure, including networks for telecom carriers. Integrating
this know-how and its ability to develop businesses with its
accumulated experience and co-creation with partners, with
Digital x 5G as a medium- to long-term growth driver, NESIC
strives to help solve social issues by addressing everythingfrom information infrastructure to services.

To latch onto business opportunities from the proliferation of
5G, NESIC is moving to expand into high-value-added business domains while reinforcing its long-term relationships oftrust with telecom carriers. At the same time, we will accelerate initiatives in testing to commercialize services forsolving social issues with local 5G. The Company is setting
up bases for training 5G personnel and verifying 5G technologies in a push to strengthen its business foundation.

ANNUAL REPORT 2021

29

NESIC’s Strategic Road Map

Achievements and Issues in the Previous Medium-Term Management Plan
In the previous medium-term management plan, from the fiscal year ended March 31, 2017 through the fiscal year
ended March 31, 2019, NESIC did not achieve its management targets due to the delay in responding to rapid deterioration in the business environment. However, we took steps to make a strong start to the current medium-term management plan, including improving profitability and return on equity (ROE), as well as launching the DX businesses andaccelerating co-creation with partners.

Launching full-scale
efforts for Digital x 5G
Overview of current medium-term management plan

Strengthen competitiveness andgrowth potential for Digital x 5G era
Strengthening of the base, schemes,
and structures to create advanced
technologies and new businesses

Acceleration of innovation
through All-NESIC

Changing gears forsustainable profit growth

Beyond Borders 2021

STEP 1

Digita
c
e
T
l
a
t
i
k
g
r
i
o
D
w
t
e
5G N

Current Medium-Term Management Plan(from the fiscal year ended March 31, 2020 to the fiscal year ending March 31, 2022)

30

Growth in digital area,
centered on work-style innovation

Preparing for the full-scale
penetration of 5G

NESIC is starting the challenge of creating com-

For telecom carriers, NESIC is building on its rela-pletely new work styles with distributed work,

tionships of trust ahead of full-scale investment inleveraging DX technology, in an initiative to promote

5G. In the Local 5G, NESIC is focusing on areas

innovation and solve social issues in Japan, such aswhere it can leverage its comprehensive capabilities

overconcentration in Tokyo. This initiative allowed(full-stack systems integration capabilities), which

the Company to address demand for telework

range from infrastructure including base stations andduring the pandemic. As a partner for our custom-

core networks to services for enterprises. We haveers, we increased added value by providing cutting-begun full-scale demonstration experiment, focusingedge cloud-based services and by starting to offer

on areas where we have expertise, such as work-styleplatform services as the basis for contributing toinnovation and services for local governments. We

the enhancement of our customers’ competitive-

are accelerating the training of personnel fluent inness by integrating these cloud-based services in

5G and technical verifications at newly establishedmultiple ways.

technology base.

ANNUAL REPORT 2021

o
l
o
hn

An inclusive and sustainable society
created through communications

2030

al × 5G

s
e
i
s
og
e
i
g
o
l
o
n
h
c
Te
2
STEP

Next Medium-Term Management Plan(from the fiscal year ending March 31, 2023 to thefiscal year ending March 31, 2025)

Sustainable
Society

STEP 3
Period from the End of the Next
Medium-Term Management Plan
until 2030
Accelerate value provision with eyeon 2030NESIC aims to disseminate and ingrain the value it
provides across a broader spectrum of society, inEstablish a “Strong NESIC” by increasing
co-creation value in unique ways

line with its vision for society in 2030 based onmateriality issues.

Under the next medium-term management plan,

Climate change / decarbonization

NESIC aims to bring Digital x 5G to fruition andCommunity development

create unique value through co-creation. We will

Work styles / lifestyles

hammer out the specifics for related services and

Health / well-being

use cases, and devise co-creation models. ThroughSecurity / safety

these initiatives, our aim is to establish a “Strong

Smart industry

NESIC” with a rock-solid position that enables theprovision of optimal solutions while envisioning afuture centered on communications toward theIn these and other ways, we will provide value thathelps solve social issues.

realization of our vision for society in 2030.

Future Steps
Toward its vision of “An inclusive and sustainable society created through communications,”
NESIC will expand the value of co-creation only it can provide, and by establishing a“Strong NESIC,” the Company aims to more broadly and deeply distribute the value it provides.
ANNUAL REPORT 2021

31

Progress of the Medium-Term Management Plan Beyond Borders 2021

Quantitative Progress
Big jump to new record performance and front-loaded achievement of medium-term target
Proactively acquired GIGA school demand, strategic areas grew such as DX field
Strengthening of business capabilities (profitability) progressed much faster than expected

Progress of the Medium-Term Management Plan
Net sales (left)

Operating income (right)(¥ billion)

Management
Targets of theMedium-Term
Management Plan(announced in May 2019)the current medium-term management plan period
350

GIGA school

339.1

303.6
300

277.9

267.9

(7.5%)(5.4%)

12.8

11.1

250

25.6

16.2

320.0

Net sales

310.0

30

26.0

Operating income

25

20.0

(8.1%)

20
15(4.6%)(4.1%)

35

10
200

2018/3

2019/32020/32021/32022/3 (Forcast)

7.6%

8.7%

8.8%

13.5%

—

ROE

(FY)

5

Over 10%* Forecasts are as of April 27, 2021.

Progress on Growth Strategy: Digital Area
Due to the impact of the COVID-19 pandemic, the trend toward digitalization has accelerated beyond our initial expectations and, as a result, NESIC has seen a clearer shift in its business from a product SI model to a solution service
model that utilizes DX technologies. Our businesses using DX technologies have expanded rapidly by tapping into theneeds of our customers for the new normal work style and, in addition to penetrating existing customers, we have succeeded in cultivating the small and medium-sized businesses (SMB) market, which we had not previously targeted. We
also worked to create promising new solution services through our self-implementation and co-creation implementation,
which led to better-than-expected progress, including a doubling of DX-related orders from the previous fiscal year.
Customer baseService (selling of multiple items)

Business growth

Number of DX customers

Enrich product lineup

DX-related orders received

End of Mar. 2020

End of Mar. 2021

1,200

15,700
Expand service lineup from theviewpoint of work-style innovation &community development

DX penetration to existing

Zoom P hone
D oc uSi gn
VID IZ MO

customers+
Cultivate SMB market

eeas yK low dHy br i d
YU N JI DE L I

Cross selling & upselling

Faster progress than
expected
Approx.
¥13 billion.

2.2 fold

Approx.
¥6 billion.

Structures
Erect inside sales structure

Symphonict e-store & service portal(2,000 orders received in first six months after start)

2019/32020/32021/3(FY)

32

ANNUAL REPORT 2021

Progress on Growth Strategy: 5G Area
In the current medium-term management plan, the 5G area, another pillar of the growth strategy that is positioned as apreparation period for full-scale implementation, progressed as planned. For telecom carriers, it is important to strengthen
our position as a strategic partner. From this perspective, NESIC was able to build trusting relationships with newcustomers by leveraging its existing assets, while KNSI*1 made progress not only in expanding its market share in thebase station field, but also in capturing new areas with high added value. In the area of local 5G, which has high market
potential, we have accelerated the field trials of utilization models mainly in the areas of work-style innovation andcommunity development, where we have competitive advantages. In terms of human resources, we have establishedthe Basic Technology Center and the 5G Lab, and are using them to develop personnel in the 5G area.
Carriers’ infrastructure

Local 5G

Build closer ties with carriers

Create services for solving social
issues through POCs

(as strategic partner)
Accelerating
POCs for commercial services in the workstyle and community areasCultivate
new customers(such as Rakuten) with theuse of existing assets
Rising KNSI’s position<Work-style innovation>• Tokyo Metropolis• Mitsui Fudosan

1.5

KNSI’ssales(Smart buildings/offices) etc.

fold

2020/3<Community development>
2021/3* K&N System Integrations Corporation(KNSI) is a joint venture with KDDI
Corporation.

(FY)• CATV TOKUSHIMA• Layers Consulting and other partners

Strengthening of businessfoundations
Set up a base fordeveloping 5G personnel and for technological verification
5G Lab made open as a placeof demonstration, evaluationand verification (5G Lab in
Shin-Kawasaki Technical-Base)Personnel development
Personnel
with
5G skills(oyster farming) etc.

2.8

Increasedfoldfrom the previous
year’s level(from 100 to 278*)
Aiming to increase them four
fold in the fiscal year ended
March 31, 2022

* Including those from business partners

Progress on Growth Strategy: Strengthen Business Capabilities
NESIC has made progress in strengthening its business capabilities in terms of both cost efficiency and added value.
The reorganization implemented in April 2019 has been effective in strengthening business execution capabilities andstreamlining resources, and the use of digital technologies is contributing to productivity improvements in the work-styleinnovation that we are implementing. In addition, our co-creation and self-implementation have not only led to thecreation of high-value-added services, but also to the strengthening of consulting capabilities through the use of theknow-how gained from these efforts. For example, based on the results of their own trial and error, our staff members
provide consulting services on how to improve the efficiency of staff work, which is an issue for many customers, andthis has generated a high level of empathy among customers. Our unique approach of co-creation and implementation
has greatly contributed to strengthening our business capabilities.
Streamlining & cost control

Increase extra valueMaximize
effect ofreorganization

Introduce competitive
services• Regroup by technology &function to eliminate overlap
and sectionalism• Co-creation and implementation
with customers and partners• Collaborate with cloud vendors
and build friendly relationships
with startups

Implement work-styleinnovation• Increase productivity with theactive use of DX

Improve resources (fixed cost)
efficiency
Improve project quality

Implement work-styleinnovation(Using staff know-how of selfimplementation for consulting)

Improved profitability

Increase in earning capacity
Gross margin
16.5% 16.5%

18.9 %
17.2%

17.9%

Operating income
to sales

7.5%
5.4%

3.9%

4.1%

4.6%

Run upperiodPeriod ofcurrent
medium-term plan

2017/3 2018/3 2019/3 2020/3 2021/3 (FY)ANNUAL REPORT 2021

33

Financial and Capital Strategy

NESIC aims to achieve sustainability
management through the organic
integration of financial value,
non-financial value / ESG.
Hiroyuki Sekizawa
Senior Vice President and Member of the Board

Approach to Sustainable Shareholder Value / Corporate Value Enhancement
In order to achieve sustainable growth, NESIC believes in
the importance of integrating “maximizing financial value,”such as sales and profit growth and capital efficiency,with “strengthening non-financial value,” focusing onmateriality, which consists of initiatives to provide value
to society and initiatives for growth at NESIC. We arereinforcing our efforts based on the idea that a virtuous
cycle of corporate value expansion, from non-financial tofinancial, and then back to non-financial enhancement,
as well as the correct recognition of this by our stakeholders, will lead to the sustainable enhancement ofcorporate value and shareholder value.

Sustain Improvement in Corporate Value

Financial value

MarginROE

ANNUAL REPORT 2021

• Reinforce existing businesses• Create new businesses

Cost ofsales ratio• Improve cost structure(increase efficiency of material
and outsourcing costs,
advance in-house production)

SG&A
expenseefficiency• Increase operating expense
efficiency• Reduce admin. staff expenses

Working
capitalefficiency• Improve cash-conversion cycle

Fixed
asset
efficiency• Further strengthen governanceof investments• Reduce assets

TurnoverLeverage

34

Growth in
net sales• Utilize debt while considering
financial soundness

Non-financial value

Through expansion of
non-financial capital

Reinforce
portfolio
management

Sharpen core competencies
such as personnel training,
improve ESG

Throughengagement

Improve information
disclosure through IR and
PR activities

Progress on Maximizing Financial Value Focused on Improving ROE
NESIC has positioned ROE as a key performance indicator(KPI) for the objective of increasing shareholder value
while constantly realizing and expanding returns inexcess of the cost of capital. To integrate this ROE
benchmark in actual business activities, we are developing measures to increase the profit margin on sales andasset efficiency, which are components of ROE, in ourbusiness divisions and implementing the PDCA cycle. In
order to consistently increase ROE and expand profits, a
key task for management is to constantly optimize thebusiness portfolio with an eye on capital efficiency.
In the fiscal year ended March 31, 2021, orders
received, net sales, and all profit items significantly surpassed the previous year’s record high performance,
thanks to the expansion of our focus areas such as DX
services and infrastructure development for telecom
carriers, the proactive response to the GIGA School
Program, where investments were concentrated, as wellas significant progress in strengthening business capabilities
and a decrease in loss reserves for unprofitable projects.
ROE improved significantly from 8.8% to 13.5%, achieving
all the Company’s financial targets in the medium-term
management plan one year ahead of schedule.
In particular, the profit margin on sales is showing
results in terms of both cost efficiency and the added
value of the services provided, which is making a significant contribution to the improvement of ROE. In terms of
cost efficiency, the organizational reform led to increased
efficiency of fixed costs through the flexible use ofresources, improved the quality of projects by promotingof the cross-deployment of knowledge, and reduced
additional costs.
At the same time, as a part of measures to preventthe spread of COVID-19, the Company accelerated
investment in work-style and business process reforms,
including the use of DX technology to improve the efficiency of work and communication and the digital signatures, which we have been working on for some time, inorder to improve productivity throughout the Company,
from the front line to the staff. As an effort to increase
added value, we have succeeded in introducing competitive services through co-creation with cloud vendors andstartups. We are strengthening our proposal capabilities
and adding value by optimally combining these services
to address various issues through self-implementationand co-creation practices with customers and partners.
In the staffing divisions, we have moved forward withnew ways of working during/after the pandemic, going
through investments and the trial-and-error process of
deployments. By sharing issues and solutions withcustomers, NESIC has gained recognition as a strategic
partner, which has begun to contribute to new orders
and improving profitability ( P42-43). As a result of
these initiatives, the gross profit margin improved by 1.0
percentage points year on year, and the operating marginrose a solid 2.1 percentage points to 7.5%, far exceeding
the 6.5% target outlined in the medium-term management plan.
ROE
(%)
16

13.5
12

8

7.0

7.6

8.7

8.8

4

0

2017

2018

2019

2020

2021

(FY)

In the fiscal year ending March 31, 2022, the Company
expects orders and net sales to decline in a snapbackfrom GIGA school-related demand. However, we aim tosustain growth in profits by further increasing profitability
through improvements in the sales mix and value added,
driven by growth in priority fields of DX / work-styleinnovation and 5G / telecommunications infrastructure.
With the aim of improving asset efficiency, NESIC is
keen to improve the cash conversion cycle (CCC) ina bid to increase the efficiency of working capital. The
Company worked to strengthen systems and structures,such as adding CCC improvement activities to internal
performance evaluations, while seeking out early returns
by concentrating activities on problematic areas andcross-deploying know-how gained through these efforts.
In order to consistently show results, it is imperative thateach and every employee on the front lines engage inactivities without holding back. For this reason, we also
promoted understanding of CCC through educational
activities and the publication of five comics in the current
fiscal year that can be easily learned using Slack. As aresult of these initiatives, CCC was 88 days in the fiscal
year ended March 31, 2021, an improvement of five days
compared with the previous fiscal year. The Company’s
cash flow tends to fluctuate considerably depending on
the timing of payments and receipts for large projects.

ANNUAL REPORT 2021

35

Financial and Capital Strategy

NESIC is making concerted efforts to smooth out thesefluctuations by strengthening CCC initiatives and expanding its service-oriented business model, which will reduce
variability in sales and receipts. While aggressively investing in businesses for the Digital x 5G era, NESIC is also
strengthening its criteria for investment decisions andevaluating progress after investments are made.
To optimize the business portfolio, we have set a
hurdle rate that takes into account the weighted average
cost of capital (WACC) and the current ROE, and analyzing and evaluating each business from the perspective ofreturn on invested capital (ROIC) and growth potential.
For those businesses where issues are identified, we aretaking measures such as drastically reviewing the organizational functions of the business units. NESIC started
out in the construction and installation of large-scaletelecommunications infrastructure, which has alreadybecome legacy systems. Since then, the Company has
grown by changing and expanding business domains intune with the times, including the DX and 5G fields, acentral focus today. NESIC aims to optimize its businessportfolio by constantly analyzing and fixing issues, withthe aim of rapidly making decisions that lead to sustained growth even in a business environment where
the pace of change is accelerating.

NESIC has the responsibility to always provide highly
reliable services, starting with the construction of public
infrastructure for national and local governments, as well
as for telecom carriers, and this requires a sound financial foundation. To prepare for sudden requirements forfunds, our basic policy is to keep cash on hand that isequivalent to about two months of net sales. We maintained this level by expanding profits while investing for
growth in the fiscal year ended March 31, 2021. If theneed for funds arises, such as for a major investment, theCompany prioritizes the use of loans to the extent that
financial soundness is not eroded, while considering
shareholder value, in addition to the use of cash equivalents in amounts that exceed two months of net sales.
Cash Conversion Cycle

(day)

Fiscal year
Fiscal year
ended March ended March
Improvement
31, 2020
31, 2021
CCC

93

88

5

Accounts receivable
turnover (days)

129

126

3

Inventory turnover(days)

16

12

4

Trade payables turnover(days)

5250–2Progress in Efforts to Enhance Non-Financial Value / ESG Management,
Centered on Materiality Issues
The importance of non-financial value and environment,social, and governance (ESG) has increased in recent
years. By taking the perspective of solving social issues,
NESIC will be able to not only expand its businesses
with value-added solutions, but also motivate its employees and create a sense of unity in the organization, which
will lead to stronger competitive advantages and enable
the Company to achieve sustainable management thatgrows in tune with society. The pandemic has made meeven more convinced of these ideas. We believe increasing non-financial value and strengthening ESG will reduce
future risk for the Company and society as a whole, andlead to greater corporate value through business expansion and lower cost of capital.
NESIC’s long-term vision for society is “An inclusive andsustainable society created through communications,”
and has identified materiality issues for 2030 ( P18–19).
The Company is proactively reinforcing technologicalcapabilities and training personnel that support innovation and promoting the well-being, health, and I&D of its
employees, while creating solutions for social needs andexpanding businesses. In light of the demands of capital
markets regarding the environment and against the backdrop of climate change approaching crisis proportions,
NESIC is reviewing its priorities again with the aim of
reducing not only its own environmental footprint, butalso those of its partners, across the entire supply chain,
36

ANNUAL REPORT 2021

from procurement to logistics, construction / SI and maintenance. Furthermore, NESIC is proactively contributing
through the creation of solutions that help its customers
solve environmental problems. In this way, we intend topromote comprehensive climate change measures in linewith TCFD recommendations and enhance disclosure( P50–51).
NESIC believes that strengthening its non-financial
value and ESG from a materiality issue standpoint willlead to growth in net sales and higher ROE as a driver ofbusiness expansion. If we do not properly disclose thesechanges, however, NESIC will not be able to accurately
convey its achievements to stakeholders, including shareholders and investors. While deliberating over the next
medium-term management plan, NESIC intends to disclose non-financial KPIs for improving engagement withstakeholders. In terms of engagement, we conducted
proactive IR activities and met with nearly 1.5 times as
many investors and analysts as in the previous fiscal year,
and I also had discussions with many investors. I myself
have made it a point to have conversations with moreinvestors ( P55). We will continue to strive to enhance
our corporate value by strengthening constructive dialogue and information dissemination with our shareholders, investors, and other stakeholders in an integrated
financial and non-financial manner.

Shareholder Returns
While securing funds for investment in growth based ona sound financial base and comprehensively taking into
account consolidated business performance, free cash
flow, and shareholders’ expectations, NESIC will continue
to pay stable dividends to our shareholders who support
us over the long term by emphasizing the dividend on
equity (DOE) as a dividend indicator rather than thedividend payout ratio, which is dependent on short-termbusiness performance.
In the fiscal year ended March 31, 2021, NESIC hasraised the DOE, which we use as a reference index, from
3.8% to 4.5%, taking into account the fact that we havestrengthened our business capabilities and raised our
profit level. As a result, the annual dividend for the fiscal
year ended March 31, 2021, increased to ¥35 per share.
For the fiscal year ending March 31, 2022, we plan toraise the dividend for the 15th consecutive year to ¥38
per share. Decisions on share buybacks will be madebased on a comprehensive review of investment ingrowth and share price, as well as the cost of capitaland expansion of shareholder value.

In terms of shareholder return, NESIC believes it isimportant to increase total shareholder return (TSR),
and we are paying close attention to it. TSR is currently
improving significantly, but the Company will continue
to work towards continuous improvement by further
enhancing financial and non-financial value and strengthening engagement.
Cash Dividends per Share*
(¥)

38.0

Plans to increase dividends for
15th consecutive year

35.0

27.3

4.7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(Plan)(FY)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

* Figures prior to the fiscal year ended March 31, 2020, have been adjusted
to reflect the three-to-one stock split on June 1, 2020.
* Estimates as of April 27, 2021.

Total Shareholder Return (TSR)(Times)8.0
7.0

Beyond Borders 2021 medium-term
management plan was announced
in May 2019

NESIC
TOPIX
* Price including dividends relative to TOPIX, withthe closing price on March 31, 2010, set at 1.

6.0
5.0
4.0
3.0
2.0
1.0
0.5

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

(FY)

* Total shareholder return (TSR): Total shareholder return, including capital gains and dividends* Method for calculating TSR: NESIC: Cumulative dividends paid and changes in share price; TOPIX: Calculation by share price index with dividends(prepared by NESIC based on Bloomberg data)

Outside Evaluations

JPX-Nikkei 400

SNAM Sustainability
Index

Certified Health andProductivity Management
Organization 2021

Highest-grade “Eruboshi”
certification

SUSTAINA ESG AWARDS
2021 GOLD CLASSOverall Category

SUSTAINA ESG AWARDS
2021 SILVER Industries

Top Hundred Telework
Pioneers“Platinum Kurumin”
certification mark

ANNUAL REPORT 2021

37

Financial & Non-Financial Highlights

Financial Data

Orders Received / Net Sales
In addition to the expansion of DX-related
and telecom businesses, the GIGA school
projects contributed to record highs in bothorders and sales.

(¥ billion)
400

300

Operating Income /Operating Margin

Net Income Attributable to
Owners of the Parent

In addition to the increase in sales, weachieved record income and a significant
improvement in operating margin due toimproved business capabilities in terms ofboth cost efficiency and added value in ourbusinesses.

In addition to the increase in operating
income, net income attributable to ownersof the parent also reached a new record
high due to a decrease in extraordinary
losses such as impairment losses associatedwith the closure of a training center.

(¥ billion / %)(¥ billion)
9

30

336.9
339.1

25.6
7.5

305.0
303.6
284.7
279.2 287.8
277.9
267.9
257.9

12
20

200

3.9
10

6

5.4

10.0

4.1
11.1

4.6

8.9

16.2
8

12.8

6.5

9.4

7.4

3

100

4

0

0

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

Orders received

Net sales0

2017/3 2018/3 2019/3 2020/3 2021/3 (FY)2017/3 2018/3 2019/3 2020/3 2021/3 (FY)Operating income (left)
Operating margin (right)

Owner’s Equity /Owner’s Equity Ratio

ROE / ROANet Cash Provided

With an owner’s equity ratio of 49.4%, wewill maintain a solid financial base as acompany that supports the infrastructure ofsociety.

As a result of the improvement in profitability and working capital efficiency throughthe strengthening of business capabilities,
capital efficiency has improved, with ROE
exceeding the medium-term management
plan target of 10%.

Free cash flows increased mainly due toincreased profits. We are also focusing on
improving working capital efficiency to
reduce fluctuations caused by large projects.

(¥ billion / %)(%)(¥ billion)

100

160

123.7

120

80

94.6

99.5

47.9

47.8

104.9
48.5

12

60

9

13.5

47.9

49.4

10.6
8.7
7.0

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FYE)

Owner’s equity (left)
Owner’s equity ratio (right)

ANNUAL REPORT 2021

17.4

15

12.9

5

–10
2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

6.2
2.0

2.8

0
–5

0

13.1

8.4
4.8

6.1

3

ROE
ROA

19.9

10
7.1

5.4

22.6

8.8

7.6

6
5.1

20

25
20

110.4

40

0

15

80

40

38

15.7

16

–2.7

–2.8
–5.6

–6.7

–4.3

2017/3 2018/3 2019/3 2020/3 2021/3 (FY) et cash provided by (used in) operatingN
activities
Net cash provided by (used in) investing
activities
Free cash flows

Non-Financial Data

[Non-consolidated]

Power Consumption

Greenhouse Gas Emissions

We are conscious of the need to protect the
global environment and are working to
reduce our power consumption.

We are working to reduce greenhouse gas
emissions in order to contribute to therealization of a low-carbon society.

(1000kWh)(t-CO2)

20,00020,00015,00013,12915,171

The ratio of women employees and managers is on the rise, and the field of womenactivities is expanding.

(Employees / %)

17,582
15,661 15,436

Number of Employees / Ratio of
Women / Ratio of Women in
Management Positions

5,089 5,009

15,0004,500

12,597

12,47814.7

10,00010,000

7,810
6,505

8,094 7,644

Number of New Graduate Hires /Number of Mid-Career Hires
Both the number of new graduates andexperienced workers hired has increased,
and a diverse range of human resources areworking across generations.

(Employees)
160

1,500

120

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

112

109
97

97

96

3.0

3.7

4.2

4.6

6

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FYE)

Average Monthly Overtime (Per
Employee) / Ratio of Paid Leave
Per Person / Ratio of Male
Employees Taking Paternity Leave

Number of Grievance Reporting(Sexual Harassment and Human
Relations / Corporate Ethics)

We are striving to realize efficient and effective work styles to improve work-lifebalance.

We have set up hotlines for sexual harassment, human relations, and corporate ethics,
in an effort to ensure transparency andsound management.

(Hours / %)(Case)

20

15

22.3
20.3

70

18.9
67

19.7
69

100

100

80

80

60

60

19.0
72

60

10
40

18

Number of employees (left)
Ratio of women (right)R atio of women in management positions(right)

80

80

16.8

Scope1+2
Scope3** Scope 3: Figures for categories 4, 6, and 7;
only data for the fiscal year ended March 31,
2019 and beyond are disclosed.

25

131

16.2

6,283

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

15.7

12

2.8
0

15.1

4,996
4,841 4,871

3,000

5,000

5,000

24

6,000

18,484

54
40

40

20

20

68

61

51

29

41
5

25

3.9

8
0

1.9

3.9

9.3

11.5

0

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

Number of new graduate hires
Number of mid-career hires

20

2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

Average monthly overtime (per employee) (left)
Ratio of paid leave per person (right)Ratio of male employees taking paternity leave(right)

24

22

26

18

0
2017/3 2018/3 2019/3 2020/3 2021/3 (FY)

Sexual harassment and human relations
Corporate ethics

ANNUAL REPORT 2021

39

Special Feature

01

Co-Creation Discussion

Resolving Social Issues through Local 5G

Hironori Sakou

Officer in Charge of 5G Implementation
Regional Revitalization Bureau’s Digital Tokushima Promotion Division
Policy Development Division
Tokushima Prefecture

Kazuhiko Oda

Assistant General Manager
Digital-Town Promotion Division
Business Design Operations Unit
NEC Networks & System Integration Corporation

Through co-creation with partners, NESIC is working to deliver greater value in the areas of work-style innovation and community development. In Tokushima Prefecture, a local 5G Sub 6 band (4.7 GHz band) system has
been established through a collective effort with CATV TOKUSHIMA, Inc., the first such system to be developedby a local government in Japan. Based on “Tokushima 5G Revolution,” local 5G is being utilized in the businessactivities of the Tokushima Prefectural Government Office as well as in the healthcare, disaster-prevention, andagricultural fields. In this special feature, we will discuss NESIC’s co-creation initiatives with Tokushima
Prefecture for resolving the issues of its region.

Development of the First Major Local
5G Infrastructure in Japan by a Local
Government
Mr. Sakou In 2002, Tokushima
Prefecture set out to establish opticalfiber networks based on its declaration of the prefecture-wide CATV
Network Scheme and has sincedeveloped one of the finest opticalfiber networks in Japan. With the aimof resolving such issues as the declining birthrate, aging population, andlarge-scale natural disasters, we areintegrating new technology in theform of 5G and the network

infrastructure that has been widelyadopted throughout our prefecture inan effort to proceed further ahead
with the Tokushima 5G Revolution. In
terms of establishing a local 5G environment within Tokushima Prefecture,
NESIC has appropriately taken thelead in developing networks, selecting the appropriate devices in linewith the situation, and carefully
establishing the necessary systems,
and I sincerely appreciate that.
Oda That is great to hear. I am truly
honored to be able to contribute to
the development of a local 5G

We will strive to resolve the issues of our region
by continuing to expand our use of local 5G andpushing forward with the Tokushima 5G Revolution.
Mr. Sakou

40

ANNUAL REPORT 2021

environment that is unprecedented inscale for a local government. In orderto implement local 5G throughout
society, it is imperative that comprehensive and continuous support isprovided for a range of areas, fromacquiring 5G licenses through toestablishing the infrastructure, developing and testing devices, and ensuring their operation and maintenance,
through a proper understanding offederal rules and regulations and theparticular circumstances of eachgovernment body. Through the recognition of our wealth of experienceand know-how in such areas, I hope

NESIC has been able to earn theacknowledgment of Tokushima
Prefecture as a partner alongside
CATV TOKUSHIMA.

We look forward with great
anticipation to NESIC’s continuous

Approach to Resolving
Regional Issues
Mr. Sakou With local 5G base stations already established in 10 locations within our prefecture (as ofAugust 2021), we will turn our attention to gradually putting them into
action so that we can begin addressing the issues of our region. Amongsuch regional issues we have highhopes for is the medical field.
Telemedicine, which makes use of
local 5G, has been gaining recognition
in recent years. This is due to theuneven distribution of medical
resources to local regions, which is
becoming a serious issue. We will
funnel our efforts into seeking solutions to this issue and do whatever
we can to ensure that the residents ofthese regions, including remote areas,
are able to receive equal medical
treatment. In addition, the establishment of a connected medical environment, such as for the sharing of
medical data between hospitals,
through the use of local 5G, must beplaced at the top of our agenda fromthe viewpoint of preparing for largescale natural disasters.
Oda When we first heard about
Tokushima Prefecture’s intentions forthe establishment and use of local 5G,
this system was just starting to makeits mark and topics that looked aheadto the future, such as telemedicine
and automated driving, were often
taking precedence in discussions.
Because of that, we first took note ofsupport as we look to implement
local 5G in a variety of settings.
Mr. Sakou

what Tokushima Prefecture wanted toaccomplish and the issues that it wastrying to address, which informed ourapproach to resolving these issues. By
teaming up with CATV TOKUSHIMA
and conducting a series of tests on
local 5G, we explored methods for theeffective use of local 5G in a variety offields through co-creation.
Mr. Sakou There are a number ofother issues we must address as well.
If we look at disaster prevention for
instance, the abnormal weather inrecent years has triggered the occurrence of numerous floods. While we
moved quickly to install river monitoring cameras connected to local 5G, I
believe we will see a growing need fordisaster prevention systems that makeuse of drones in the years ahead.
Moreover, we would like to establish
an infrastructure that supports thelifestyles of residents through relianceon 5G environments, such as the promotion of smart agriculture, whichmakes use of AI and drones in the
agricultural, forestry, and fishery sectors,
as well as the automation of production lines in the manufacturing sector.

Through “co-creation,”
we will verify effective ways to
use local 5G and help it becomea fundamental part of people’s lives.
Oda

Oda While 5G and local 5G are
generating exposure for such technological features as high speed andlarge capacity, ultra-low latency, andconcurrent connections, we must firstensure the reliability and stability of
their operations if they are to become
firmly established as an infrastructurethat supports the lifestyles of residents, as you just mentioned. We lookforward to continuing to contribute to
the growth of Tokushima Prefecture on
the back of our long-cultivated ability
to develop highly reliable network
infrastructures.
Direction Going Forward
Mr. Sakou As the local 5G environment takes shape in Tokushima
Prefecture, our focus next year will beon implementing it in more specificsettings. To that end, it is essential todevelop content that meets the needsof each municipality in the prefecture.
I look forward with great anticipation
to NESIC’s continuous support in thisregard.
Oda We will gladly continue to help
promote Tokushima 5G Revolution
through the concerted efforts of ourentire organization. In conjunction,
we will draw on the establishment of
the local 5G Sub 6 band system inTokushima Prefecture as a model casefor rollouts to other local governments
as well as to “Develop pleasant andplentiful communities with cuttingedge technologies” and “Provide
robust services that underpin safety
and security in evolving society,” twoof NESIC’s key materiality initiatives.
On behalf of NESIC, I would like tothank you for your time today.

ANNUAL REPORT 2021

41

Special Feature

02

Co-Creation Discussion

Banding Together as an Organization to Help Resolve the Issues of

Hideki Kobayashi

Masao Nakayama

General Manager
IT Division
Sumitomo Wiring Systems, Ltd.

Senior Manager
Information Systems Planning
Department
IT Division
Sumitomo Wiring Systems, Ltd.

Nobuki Yada

Manager
Administrative Management Section
Information Systems Planning
Department
IT Division
Sumitomo Wiring Systems, Ltd.

At NESIC, the members of our staffing division along with representatives from the sales and business operations units
visit and help address the issues of our clients by drawing on their self-implementation experiences. In this section, we
will discuss NESIC’s collective efforts for co-creation with Sumitomo Wiring Systems, Ltd. toward the digitalization of its
operations and renewal of its office environment.

Delivering Unique Value throughSelf-Implementation
Mr. Kobayashi Our relationship withNESIC has been inseparable thanks to
its multifaceted support over the years
in the development of ICT infrastructure, ranging from the adoption of thetelephone exchange to theimplementation of teleconferencing
systems, as well as solutions integrating telephones and such telecommunications infrastructure. This time, withthe goal of digitalizing the operationsof our entire organization, we at the IT
Management Division took the lead byengaging in trial experiments with thesupport of NESIC in identifying issues
and devising solutions to such issues.
Mr. Yada From a nontangible aspect,
we were able to develop a system forcompleting paperless contract agreements with business partners throughthe adoption of the DocuSign digital
signature system. This has eliminatedthe need to come to the office simply

42

ANNUAL REPORT 2021

for the sake of a signature and is atremendous step on our road to workstyle innovation.

Mr. Nakayama We are truly encouraged by NESIC’s ability to respondflexibly and immediately to our issues,
which it strives to resolve in earnest at
all times in light of the rapid changes

Our Clients

Mr. Yada During the implementation
process, the fact that we were able todirectly consult with NESIC’s staff, whohave actually partaken in legal compliance, the setting of internal rules,
and the establishment of operations,allowed us to consider taking specificmeasures that were based on facts
and experience.
Mr. Nakayama When I was able
to visit and get a first-hand look at
NESIC’s headquarters, what I saw was
an office that was highly functional,
conducive to open communication,and tailored to the next generation.

Taiyo Watanabe

Manager
Staff Innovation Promotion Division
NEC Networks & System
Integration Corporation

taking place in society due to suchfactors as the COVID-19 pandemic.
Watanabe I am delighted to hear
that. We are glad that you identified
with our approach to work-style innovation and to be able to help yourcompany go paperless and renew
your office environment. Although I ama member of the Staff Innovation
Promotion Division, one of the staffing
divisions within NESIC, I was fully
inspired to work together with themembers of the sales units andSumitomo Wiring Systems, Ltd. in
keeping with our policy of banding
together as an organization to address
the needs of our clients. In order todigitalize operations, there were hurdles to overcome in the form of establishing internal rules and adopting a
digital signature system. However, we
worked to alleviate such burden by
sharing the issues we uncovered
through our self-implementation.

From a tangible point of view, theideas we receive from NESIC on ways
to improve our office environment
based on its track record and experience are very detailed and highly
reliable, including for office solutions
to telework-related issues.
Watanabe Our strength as a company is exactly what you just mentioned, the ability to share theknow-how we have accumulated
through self-implementation with ourclients. We at the staffing divisions inparticular share not only the merits ofour self-implementation results but
also the drawbacks and challenges
that came to light. In this manner, we
strive to provide solutions from theperspective of the user, which I believe
is a value unique to NESIC.

Division will be counted on to play amore significant role than ever withemphasis on DX. An important mission to fulfill going forward is the promotion of “offensive IT,” entailing theactive proposal of solutions toward
improving operating efficiency andother matters through the use of digital technology, in place of the conventional “defensive IT,” which caters to
the needs of the business divisions, aswell as the establishment of a robust
business foundation that underpins
global business growth.
Mr. Yada At Sumitomo Wiring
Systems, we are committed to resolving the issues of society through ourbusiness activities in accordance with
our eight priorities for corporate social
responsibility (CSR) activities. Having
said that, it is important that eachmember of our organization continues
to contribute to social issues in theirrespective ways through their businessactivities without taking on overwhelming challenges from the get-go.
The work-style innovation initiatives
we are promoting with NESIC willcertainly contribute to the realizationof the SDGs.
Watanabe As a member of thecorporate staff, I believe we can provide value to society by taking theinitiative in ambitiously pursuing newstyles of working on our own andsharing the outcomes with thoseoutside our organization. By moving
quickly to uncover issues that have yet
to be identified by Sumitomo Wireless
Systems and being the first to offer
solutions to such issues, I hope wecan contribute to developing thefoundation necessary for its next 100
years. On behalf of NESIC, I would liketo thank everyone for their time today.

Embracing Co-Creation toward
Further Growth
Mr. Kobayashi Sumitomo Wiring
Systems celebrated the 100th anniversary of its founding in 2017 and isembarking on its journey toward thenext 100 years. In order to grow ourcompany even further in the years
ahead, we at the IT Management

ANNUAL REPORT 2021

43

Overview by Business Segment—Digital Solutions Business

Digital Solutions BusinessBusiness Overview
The Digital Solutions Business offers systems and services for
ICT, such as corporate networks and IT, that are essential forbusiness. Using cutting-edge digital technologies, such as AI,
the IoT, and robotic process automation (RPA), NESIC proposes
work styles that lead to higher productivity and the evolutionof businesses, as well as work styles that allow employees towork anywhere and anytime. We support diverse, advanced,
and new normal ways of working in response to social issues,
such as balancing childcare or nursing care while working

Breakdown of
net sales

37%
Net sales¥126 billion(FY2021/3)

to the best of their ability, in addition to addressing thesocial issue of preventing the spread of COVID-19 and otherinfectious diseases.

Opportunities / ThreatsExpanding demand for DX and the work-styleinnovation for “With/­after-Covid-19.”
Shifting needs from product SI to a serviceprovision model that utilizes cloud services

Strengths / Feature
Extensive customer base and track record
cultivated through premises-based switchingsystems (PBX) and network systems
Capabilities to apply the high level of technology
and service infrastructure required to the NEC
Group, to systems and services on a multi-vendor
basisKnow-how cultivated through Companywide

Seiji Shiga
Senior Vice President
Executive General Manager,
Digital Solutions Business Unit

44

ANNUAL REPORT 2021

self-implementation related to DX and work-styleinnovation

Review of Fiscal Year Ended March 31, 2021
In the fiscal year ended March 31, 2021, the Digital Solutions

school demand at a consolidated subsidiary. Operating

Business made clear progress in strengthening the DX

income increased by ¥2.1 billion from the previous fiscal year

domain. Net sales rose by 12% year on year to ¥126.0 bil-to ¥13.8 billion due to increased sales and cost reductions

lion, despite a decrease in demand for replacement of lessthorough SI process improvements. The operating margin

urgent ICT equipment due to the impact of the COVID-19

also improved by 0.6 percentage points due to growth in the

pandemic. The main reasons for this increase were thehighly profitable services business and the expansion of the

expansion of the demand for Internet environment enhance-

DX domain centered on cloud computing services, suchment and DX / work-style innovation against the backdrop

as Zoom and Box, the core of our work-style innovationof the spread of telework, as well as the inclusion of GIGA

services.

Orders Received / Net Sales

Operating Income / Operating Margin(¥ billion)(¥ billion / %)15

150

128.3 126.0
106.6
100

115.2 112.8

120.0 116.0

11.7

102.1

10

15

14.0

13.8

12.1%

9.0

12

10.9%

10.3%

9

8.9%
5

50

6

0

0
2019/32020/3

Orders received

Net sales

2021/32022/3 (Forecasts)(FY)

2019/3Operating income (left)

2020/32021/332022/3 (Forecasts)(FY)

Operating margin (right)* Forecasts are as of April 27, 2021.

Initiatives for Fiscal Year Ending March 31, 2022
In the fiscal year ending March 31, 2022, we expect net sales

our on-site capabilities and expand high value-added ser-to decline because of the absence of sales from the GIGA

vices that contribute to the enhancement of customers’

School Program in the previous fiscal year of nearly ¥15

business value. Through these efforts, we will establish ourbillion, but we aim to increase profits by expanding moreposition as a partner that earns empathy and the trust of our

profitable DX and work-style innovation businesses and BPO

customers, and expand our businesses by building a “recur-business operated by ICT. Utilizing the know-how we havering” relationship not only in the area of work-style innova-

accumulated through our self-implementation and co-creation

tion, but also in a variety of other businesses such as ICT

implementation in the area of work-style innovation, we aim

infrastructure renewal and proposals for security measures.

to strengthen consultation capabilities with the strength of

For the Future
Currently, there is a trend toward cloud computing in the IT

technology, cost, and quality of ICT infrastructure. Based onfield. In anticipation of this trend, we have been working tothis capability, we will expand high value-added services

shift to a solution service delivery model that utilizes DX

such as a multi-cloud service, which is one of our new

technology.

strengths, consultation that utilizes our self-implementation

These efforts have led to the capture of demand related toand on-site support, offerings for the optimization of ICT

the new normal work style, which has rapidly expanded in

facilities through AI analysis of various operational informa-

the wake of COVID-19 pandemic. At the same time, expecta-tion data, and business process improvement that strength-

tions for the social value created by NESIC are increasingens customers’ businesses. We will continue to strengthen

further.

our relationship as a trusted partner to our customers andWe have been serving many customers for a long time

work to solve more social issues.

with our SI capability to comprehensively optimize the

ANNUAL REPORT 2021

45

Overview by Business Segment—Network Infrastructures BusinessNetwork Infrastructures BusinessBusiness Overview
The Network Infrastructures Business builds systems andprovides services for public use network infrastructure, which
requires the latest technology and high reliability, including

Breakdown of
net sales

26%

networks for telecom carriers and ICT infrastructure that
supports society, such as national and local governments,
as well as broadcasters. We contribute to providing safe
and comfortable daily lives.

Net sales¥89.2 billion(FY2021/3)

Opportunities / ThreatsOngoing investment to expand 5G area
Breaking free from vendor lock-in throughopenness and virtualization
Accelerating the development of social infrastructure to realize Society 5.0 and Super Cities

Strengths / Feature
Multivendor SI capabilities that leverage the
NEC Group’s overwhelming communications
technological capabilities
Wide range of wireless technologies from Wi-Fi tosatellite communications
A broad customer base in social infrastructure andability to understand customers’ operations

Kazuhiko Takeuchi
Senior Vice President and Member of the Board
Executive General Manager,
Network Infrastructures Business Unit

46

ANNUAL REPORT 2021

acquired through many years of maintenance andoperation

Review of Fiscal Year Ended March 31, 2021
In the fiscal year ended March 31, 2021, we were able tovalue-added operations based on our achievements anddeliver results in terms of both business growth, mainly forstrengthened relationships. Operating income also increased

telecommunications carriers, and the preparation for future

and profitability improved, despite increased investment inbusiness opportunities. For telecom carriers, businessgrowth such as the establishment of a new 5G Lab andexpanded steadily as we built trusting relationships with ahuman resource development, due to the expansion of highnew carrier by leveraging such accumulated assets as tech-value-added businesses and sales growth with a muscular

nological know-how. At KNSI*, in addition to expanding the

profit structure.

base station construction business, we were able to expand
our businesses into new areas by being entrusted with high* KNSI: K&N System Integrations, Inc., a joint venture with KDDI Corporation

Orders Received / Net Sales

Operating Income / Operating Margin(¥ billion)(¥ billion / %)
15

150

100

87.7

80.8 79.5

95.3
83.1

89.2

100.0

96.0

15

10

9.8%
5

50

12

10.0

9.3

8.1

10.4%

10.4%
9

5.1
6.4%

6

0

0
2019/32020/3

Orders received

Net sales

2021/32022/3 (Forecasts)(FY)

2019/3Operating income (left)

2020/32021/332022/3 (Forecasts)(FY)

Operating margin (right)* Forecasts are as of April 27, 2021.

Initiatives for Fiscal Year Ending March 31, 2022
In the fiscal year ending March 31, 2022, we expect thesocial infrastructure development such as the conversion ofbusiness environment to remain strong in both the telecom

CATV to fiber-to-the-home (FTTH) to eliminate the digital

carrier and social / public infrastructure sectors, even as thedivide. The current medium-term business plan is positioned

COVID-19 pandemic continues. We aim to maintain ouras a preparation period for the future, and we will continue

growth trend by expanding our business based on the results

to invest aggressively in 5G and DX human resource develop-of strengthening ties with telecom carriers in the previous

ment, but we will also aim for sustainable profit growth byfiscal year, strengthening our efforts in the 5G businessexpanding sales while maintaining profitability.

including local 5G, and proactively responding to demand for

For the Future
The Network Infrastructures Business is engaged in a wide

telecommunications infrastructure field and customer busi-

range of highly public businesses, including networks forness know-how with the Companywide DX platform,

telecom carriers and fire-fighting and disaster prevention

we will create DX services and promote the servitization ofsystems, and is in contact with many social issues, such as

existing businesses. We will also make preparations for thecommunity development and the realization of a safe and5G field, including local 5G, to seize future business opportu-

secure society. We are aiming to expand businesses by lever-nities and take on the challenge of new businesses thataging our ability to solve these social and customer issues.

solve social issues through Digital x 5G, a combination of DX

To achieve this, it is essential to create new customer value.

and 5G, to achieve sustainable growth in both society andBy combining our advanced technological capabilities in thebusinesses.

ANNUAL REPORT 2021

47

Overview by Business Segment—Engineering & Support Services BusinessEngineering & Support Services BusinessBusiness Overview
The Engineering & Support Services Business provides maintenance, operating and monitoring, outsourcing, and other support services as well as construction for our ICT systems andBreakdown of
net sales

34%

services. Our overseas business, which centers on the construction of ICT infrastructure, and our regional businesses in
East and West Japan are also included in this business. To protect social and public infrastructure, NESIC has built a 24/7

Net sales

full-service structure able to respond within a couple of hours¥114.1 billion

anywhere in Japan, including operation centers that take an(FY2021/3)

integrated approach to network management and security
monitoring, and comprehensive technical centers in charge oflogistics and technical services. In this way, we support theprovision of social value throughout the Company.

Opportunities / ThreatsIncreasing investment in ICT for the realization ofa green society, digitalization in local governments, and disaster prevention and mitigation
Shrinkage of legacy system maintenance due toshift from product SI business to cloud services

Strengths / Feature
A nationwide support service system that canhandle everything from enterprise to missioncritical telecommunications infrastructure• Our 24/7 full-service structure• Nationwide response within two hours by approximately 400 locations
Japan’s leading nationwide construction resource

Hiroshi Nagao
Senior Vice President
Executive General Manager,
Engineering & Support Services Business Unit

48

ANNUAL REPORT 2021

Review of Fiscal Year Ended March 31, 2021
In the fiscal year ended March 31, 2021, the Engineering &In addition to the increase in net sales, operating income

Support Services Business saw significant growth in bothincreased by a provision for losses on unprofitable projects

sales and profits, due in part to temporary demand relatedof approximately ¥1 billion, an improvement of approxi-

to the GIGA school projects. Net sales increased substan-mately ¥3 billion from the previous fiscal year. The remaining

tially despite the impact of the COVID-19 pandemic, which

unprofitable loss related to the construction projects forcaused some customers to halt their investments. The rea-mega-solar power plants remained as an issue. However, thesons for this increase are the proactive response to the GIGA

construction work has made significant progress and we are

School Program concentrated in the current fiscal year.

accelerating our efforts to complete the projects.

Orders Received / Net Sales

Operating Income / Operating Margin(¥ billion)(¥ billion / %)
15

150

100

92.0

88.3 89.0

97.4

103.7

15

12.0

11.8

114.1
100.0 98.0

10

5

12

10.4%

7.4

50

12.2%

6.7
8.3%

9

6.9%
6

0

0
2019/32020/3

Orders received

Net sales

2021/32022/3 (Forecasts)(FY)

2019/32020/3Operating income (left)

2021/332022/3 (Forecasts)(FY)

Operating margin (right)* Forecasts are as of April 27, 2021.

Initiatives for Fiscal Year Ending March 31, 2022
For the fiscal year ending March 31, 2022, net sales areoperating income, as in the case of net sales, there will be

expected to decrease due to absence of approximately

a reaction to the GIGA School Program. However, since this¥25 billion from temporary demand related to the GIGA School

business has a high equipment sales ratio and was less prof-

Program and mega-solar projects in the previous fiscal year.

itable than other businesses, we aim to secure profits higher

However, we believe that we will be able to recover to somethan in the previous fiscal year by expanding sales in otherextent by taking in projects that were halted in the previous

areas and improving the sales mix through the completion of

fiscal year and by reallocating resources that were concen-

the mega-solar projects.

trated on GIGA schools to local public projects. In terms of

For the Future
The Engineering & Support Services Business is a business

Expectations for digital technology have increased greatly

that supports the entire company by consolidating construc-in preparation for the new normal life style. With the starttion resources in addition to a nationwide support service

of investment in 5G, the realization of our strategy ofbase. Our main goal is to improve profitability by efficiently

Digital x 5G will begin to take shape. While the role of the

deploying construction resources that have been concen-

Engineering & Support Services Business is to firmly support

trated in this segment, and by improving project quality

Digital x 5G as the foundation of the entire company, we are

and working to imbue multiple skills in our employees. The

also determined to expand the value we provide to society

results of these efforts contributed to the improvement inin the regional areas we are in charge of, including municipal

profitability in the previous fiscal year. We will utilize the

DX and smart cities in the region.

Basic Technology Development Center completed in
November 2020 to train our engineers and further strengthen
our business capabilities.

ANNUAL REPORT 2021

49

Environment

Continuously working to reduce the environmental footprint of its business activities, NESIC aims to realize
a sustainable society by helping to reduce environmental burdens and mitigate climate change while solving
issues for its customers, such as by providing solutions and services in tune with the environment.
Environmental Policy
The NESIC Group contributes to the realization of “An inclusive and sustainable society created through communications”
by working to reduce the environmental impact and the impact of climate change through all of its business activities.
1. In providing ICT solutions and services, we recognize that each stage of the life cycle has environmental impact, andwill endeavor to reduce environmental impact by conserving resources, saving energy, and preventing environmental
pollution from waste.
2. We will comply with laws, regulations, and agreements related to the environment, as well as agreements withstakeholders, and manage activities, solutions, and services with the potential to impact the environment.
3. We will disclose our environmental initiatives to a wide range of stakeholders.
4. We will contribute to protect the environment by raising awareness of the environment among all employees andtaking steps to mitigate climate change and preserve biodiversity.
5. We will strive to continuously improve our environmental management system and enhance our environmental
performance by setting targets and implementing activities to reduce our environmental impact.

Initiatives to Address Climate Change
NESIC has formulated a policy to address climate change for the purpose of advancing sustainable management andrealizing a sustainable society. We are engaged in activities to control risks associated with climate change, and also tocreate and tap into opportunities. The Company will augment its disclosures of information about these activities basedon TCFD recommendations.

Governance
Measures Proposal

Measures Promotion

The Central Environmental
Management Committee

Staffing Division

Countermeasures
Execution
Marketing & Sales
Operations Unit

Digital Solutions
Business Unit

Business Strategy
Formulation

Engineering & Support
Services Business Unit

The Management Quality
Improvement Committee

Business Strategy Formulation and Execution
The Board of Directors

The Business Strategy
Examination Council

Risk Management
The Management Quality Improvement Committee identifies
risks related to climate change and shares these risks with
the Central Environmental Management Committee, theentity that debates the Company’s environmental activities.
The Business Strategy Examination Council, the body thatdebates the Company’s business strategies and policies

50

ANNUAL REPORT 2021

reported to the Board of Directors based on the Corporate
Governance Code.

Strategies, Metrics, and Targets
Action1 Risk controls

Network Infrastructures
Business Unit

Business Design
Operations Unit

Risk Management

based on them, discusses and clarifies measures, which are

Action2 Creation and acquisitionof opportunities

I. NESIC aims to reduce CO2 emissions in its business activities by
55% by 2030, compared with thelevel in the fiscal year ended
March 31, 2020.
This is a midway target on thepath to achieving net zero emissions by 2050.

III. NESIC will reduce the environmental impact caused by thebusiness activities of its customers by providing its products andservices, thereby indirectly
helping mitigate climate change.

II. NESIC will rapidly implement
measures to use alternatives that
impact the environment less.
(Switch to renewable energy
sources of electricity for its
business locations, switch toelectric work vehicles, etc.)

IV. The Business Strategy
Examination Council and theCentral Environmental
Management Committee vigorously debate measures in I-III
above, and report to the Boardof Directors based on the
Corporate Governance Code.
Details are also proactively
disclosed.

The financial and non-financial highlights contain data on electricity
consumption and greenhouse gas emissions ( P39)

Environmental Contributions by Solving Customer Issues
NESIC directly contributes to reducing environmental impacts through its own business activities and indirectly reduces
environmental load by providing solutions that help our customers solve their issues. While promoting full use of ICT bycustomers, NESIC aims to enhance its corporate value by developing businesses that contribute to reducing environmental burdens through the co-creation of a sustainable society with its customers.

Improve energy efficiency

Reduce movement of goods and people

Solar power generation for own use

TeleworkInfrastructure for recharging electricvehicles (EVs) aperless workflows, document
Pmanagement systems

Using cloud-based services

Environmental measurement andforecastingCloud-based services

Pond and river monitoring system

Conserve energy use in data centersIndustrial robots for inspecting solar
panelsReduce Environmental Impact through Its Own Business Activities
NESIC is engaged in a variety of initiatives based on its Environmental Policy to reduce the burden of its business activities
on the environment. On helping to reduce environmental burdens, in addition to taking steps to address climate change
and conserve resources, the Company conducts procurement activities in accordance with the Green Procurement
Guidelines. Also, the Company asks its suppliers to cooperate with the NEC Group on sustainable management basedon NEC’s Guidelines for Responsible Business Conduct in Supply Chains, and collects and recycles NEC-made information
communications equipment (National Permit System).

Reduce Environmental Load across Supply Chain
Design, procurement

Logistics

Energy-conserving design, green procurement

Construction

Maintenance, operation, 3R

CO2 reduction, LCA*, product lifetime extension

Waste reduction, proper disposal

Activities to reduce environmental impact in each process
Requests

Proposals

Partners, manufacturers, logistics

Customers* LCA: Life Cycle Assessment

TOPICS
Paperless initiatives with the introduction of DocuSign

Utilization of immersion cooling systems and proof-of-concept for the

For signing and impressing seals on contracts and the reports ofrealization of compact data centers through collaboration among

partner companies, NESIC has introduced DocuSign eSignature

three companies(DocuSign), an electronic contract signing service provided byKDDI Corporation, Mitsubishi Heavy Industries, Ltd., and NESIC have

DocuSign, Inc. By using DocuSign to leave evidence of intentions inteamed together to conduct trials of compact data centers that use

electronic files, we are reducing the consumption of paper resources

immersion cooling systems to cool servers with liquids, as an attempt

by eliminating the need for conventional paper stamps. It is also

at reducing power consumption and CO2 emissions in data centers to

unnecessary for someone to be in the office to press stamps toprotect the global environment, with the objective of rolling out the

documents, facilitating telework and eliminating the need to travel.

compact data centers in Japan in the fiscal year ending March 31,

Utilizing the know-how we have gained using this in-house, we can

2023. We estimate the compact data centers will consume 35%

confidently provide the service to our customers.

less electricity, and this achievement would help solve the issue of   P42–43 Special Feature 02 Co-Creation Discussion

lowering power consumption in data centers, thereby reducing
environmental load by restricting CO2 emissions.

ANNUAL REPORT 2021

51

Society

Human Resource and Organizational Strategy to Sustainably Drive Innovation
Our employees are the most important business resource here at NESIC. We strive to have work environments
where diverse employees can work without worry and apply their unique skills to the best of their ability andaccelerate co-creation, innovation, and new value creation. With innovation at stake, our employees communicate
more effectively in our atmosphere of I&D and well-being for everyone. Through these activities, our diverse
employees are free to express themselves and bounce ideas off each other, making our offices an invigorating,exciting, and pleasurable place to work, which leads to more innovation and the creation of new value, whileconstantly improving engagement and establishing a virtuous cycle. The entire Company is taking on the challenges of this initiative under the leadership of the president, who personally conveys information to employees.

Action! Lighting a fire in the hearts of each and every one of us

Co-creating value and driving innovation

Inclusion&
Diversity

Well-Being

Taking on challenges only NESIC can do
Giving and receiving gratitude

Preparing Environments and Frameworks for Innovation•P romoting autonomous work styles
In addition to encouraging employees to engage in working at
home and distributed work, NESIC has newly introduced a super• Human Resource system that supports careeradvancement
SystemOutlineflex system and hourly based paid leave system that allows
employees to work as they see fit without having core work hours.

• One-on-one meetings
In the fiscal year ending March 31, 2022, NESIC introducedThis system allows employees to apply forInternal Job Posting internal jobs on their own, responding tointernal needs for personnel resulting from
Systemmoves into new business fields and greater
focus on priority businesses.

one-on-one meetings between managers and their subordinates to improve problem-solving skills and business execution
capabilities, while also maintaining relationships of trust
between managers and subordinates and increasing the moti-

Job Challenge
SystemThis system encourages employees to take on
new roles (new sections), mainly through skills
development and career formation.

Position Entry
SystemThis system allows employees to apply fordesired positions within the Company.

Career Reviews

These reviews of work-related interests, aptitude, and desires for transfers of employees
are used by their managers in career development and personnel training processes.

vation of subordinates, as more employees are allowed to work
more autonomously than before with teleworking and a superflex system in place. Prior to its introduction, the Company had
provided training to managers to improve their one-on-one
communications skills, with a 96% participation rate.

• Strengthen personnel trained in 5G and core technologies as cornerstones for innovation   P6, 33

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ANNUAL REPORT 2021

Aiming to Be No. 1 in Communications• Timely dissemination of information through the SNS note

• Invigorating internal discussions with Slack

The Company has distributed SNS note since April 2020 as a

We extensively use Slack software to encourage internal

timely public disclosure of information, and an internal news-

communications across organizational boundaries.

letter for employees. NESIC has published a total of 59 arti-• Dissemination of internal information through“Ushijima Radio” talk show and “Ushitube” videos,with the president as a personality

cles as of September 31, 2021, introducing a wide range of
topics, from the Company’s measures to employee activities.

• Psychological Safety Seminar held

We are distributing talks between President Ushijima and

NESIC held a seminar about the importance of psychologicalguest employees. Furthermore, we are working on adding

safety, designed to encourage frank and open discussions

new contents such as live streaming of the president

among the approximately 700 employees who participated.

answering employees’ opinions and questions, and on-site
introductions.

I&D Promotion• Acceleration of in-house initiatives and promoting
deeper level of I&D, centered on I&D Promotion
Committees• I&D dialogue event held

In addition to promoting gender and age diversity, we alsodetail to better understand the importance of I&D and open up

promote I&D in terms of individuality and to communicate

discussion.

our sense of values on deeper levels of diversity.

• Creation of I&D Portal on internal website• Introduction of mentor system (support for careeradvancement of female employees)

NESIC disseminates information about I&D, introducing

Mentors, or employees who have a wealth of knowledge

I&D-related events.

An event was held for employees to exchange opinions with
Outside Director Muramatsu who understands I&D in great

employees with unique personalities and information about

and business experience, are paired with mentees (inexperienced employees) to help solve issues related to the career
progression of female employees and address workplaceand other concerns, with the aim of fostering an organizational culture that empowers female employees.

•R atio of women in management positions
2026 target:

10% (4.6% as of March 31, 2021)•A greement with Challenge 203030 ** A challenge set up by Keidanren for companies to have at least 30%
women in board member positions by 2030

Pursuit of Well-Being of Employees• Creation of Well-being Promotion Office (April 2021)• Dialogue with expert on topic of well-being

The Well-being Promotion Office aims to achieve “Improve

Professor Takashi Maeno (Keio University), a thought leader

the well-being of all employees,” one of the Company’son the well-being of employees, and President Ushijima heldmateriality issues. It formulates Companywide policies anda dialogue together on the topic of the well-being of employ-strategies for the well-being of employees, monitors prog-

ees. In addition, Outside Director Muramatsu, who knows

ress, and follows through with a PDCA cycle.

sustainability very well, and President Ushijima discussed the• Fostering of culture that respects and praises eachother with “Compliment someone sessions”

Company’s policies in this context.

Praising and expressing gratitude to each other is a funda-•R atio of employees

mental element of how employees work autonomously andtaking paid leaveco-create together. We are promoting “Compliment someone

2026 target

sessions,” at round-table meetings and Slack, and the “GoodJob” posting event we held on Slack drew almost 1,500

100%“compliments” and “messages of gratitude” in nine months.

(60% in fiscal year
ended March 31, 2021)
Dialogue with experts

ANNUAL REPORT 2021

53

Communications with Stakeholders

Communications with Customers
Main Initiatives Customer Satisfaction Survey
Through regular annual surveys and evaluations of the solutions and services we provide, we identify our strengths andweaknesses in dealing with customers, which we use to
make improvements and strengthen our communication
with them.
<Results of latest survey>
In the latest customer satisfaction survey, ratings improved
from the previous year on almost all questions, with morethan 93% of customers marking “satisfied” as their reply. The
score improved substantially for “ability to provide as a strategic partner,” which has been designated by the Company
as a priority area for improving customer satisfaction.

Customer Satisfaction Awards
NESIC aims to create a virtuous cycle for improving customer
satisfaction by presenting awards to employees in a bid toincrease their motivation and encourage best practices. The
award is given to cases in which the Company’s response,

Examples of Customer Satisfaction Awards
Contribution to solving customer-specific issues
NESIC enhanced the communications platforms withinemergency healthcare centers for core regional medical
institutions in mountainous areas of Japan, and also built
new communications platforms in response to thepandemic.
NESIC communicated with customers many times throughonline meetings and other means, and came up with a plan
to solve communications issues and ensure reliable communications systems for hospitals that receive medical
helicopters that serve mountainous areas where mobile
phone service is unreliable. The proposal became larger inscale than originally planned to include communications
with a new PCR test building, but our proposal was adopted
with an understanding of its significance and effectiveness.
NESIC has been thanked by its customers for making asignificant contribution to the sustained health and welfare
of local residents.

solutions and services are highly evaluated by customers andcontribute to the SDGs

Communications with Suppliers
For the project orders it receives, NESIC utilizes labor suppli-

These suppliers are important stakeholders who are

ers who subcontract for on-site work, such as installation

essential to our business execution. While communicating

and construction, as well as suppliers of hardware and soft-

with suppliers through business trend briefings, visits, andware for system integration projects.

surveys, we are strengthening the cooperation structure
throughout the supply chain with the objective of contributing to SDGs. In this way, our procurement activities are
sustainable and fair.

Main Initiatives for Suppliers Hold business trend briefings (once a year)
Letter of appreciation ceremony (held once a year)
Share business information at New Year meeting(once a year)
Hold safety conferences (four times a year)
Business trend briefing for suppliers held online

54

ANNUAL REPORT 2021

Hold Companywide safety conference (once a year)
Product matching fair with key partners (held once a year)

Communications with Shareholders and Investors
NESIC has a disclosure policy of explaining its business con-2020. In the fiscal year ended March 31, 2021, discussions

ditions and management policies to shareholders and othercovered the Network Infrastructures Business, which looks

stakeholders in an accurate and timely manner. Management

promising in terms of 5G and smart cities. To prevent theperiodically engages in dialogue with shareholders and inves-spread of COVID-19, NESIC was among the first companies

tors on capital markets in Japan and overseas, including

to hold online meetings and briefings, starting with thethrough briefings and interviews.

Digital Solutions Business briefing it held in March 2020

In dialogue with participants in capital markets, in addition(along with an Nihonbashi Innovation Base tour). The

to dialogue by the investor relations section, we regularly set

number of engagements with market participants increased

up briefings for investors, individual meetings, and othersignificantly thanks to the higher efficiency of online meetings,

opportunities for dialogue with the president and otheras well as the growing interest of capital market participantssenior management, as well as engagement with investors

in the Company’s core businesses. The opinions and requests

responsible for ESG in cooperation with the department inreceived from these meetings are reported to all executives,charge of sustainability. To further understanding of our coreincluding independent directors and auditors, from the investor

businesses, we have held briefings led by executives inrelations section, and reflected in efforts to strengthen

charge of business units since the fiscal year ended March 31,

management and improve corporate value.

Number of IR meetings(excluding large-scale meetings)(cases)
205

250
200

133

150
100

76
63
Online briefing for Network Infrastructures Business(Kazuhiko Takeuchi
Senior Vice President and Executive General Manager)

50
0

14

25

32

36

2018/3

2019/32020/32021/3(FY)

Management response

Examples of Opinions Received at Meetings with Investors and NESIC’s Responses

OpinionResponses to these opinions:Regarding the environment, the sector has a relatively small

New pages were added for environment-related information

impact in terms of environmental risks, so publishing informa-(tion on the website should be sufficient. However, the integrated

climate change and other environmental issues. Page 8 features

report is a good medium for discussing the environmental value

a QR code that links to the Company’s website, making it easierthat NESIC provides.

to access information about the environment and other topics

P50-51), discussing the Company’s initiatives to addresson the website.

OpinionResponses to these opinions:Please disclose the state of progress on materiality issues in the

Regarding the three materiality issues identified in “Initiatives tocontext of medium- to long-term aims.

provide value to society through 2030,” NESIC disclosed figures
for initiatives featured in external releases of information as one
management indicator for realizing each materiality issue, basedon an examination of KPIs to specifically measure progress(

P20–25).

ANNUAL REPORT 2021

55

Roundtable Discussion between Outside Directors

NESIC’s three outside directors sat down to share their thoughts on the performance of the Company inthe fiscal year ended March 31, 2021, and on the issues to be addressed going forward.

Outside Director

Michiko Ashizawa
October 1996:	Joined International Department, Century Audit
Corporation (currently KPMG AZSA LLC)
* Resigned in May 2001
September 2003:	Joined Industrial Revitalization Corporation of Japan* Resigned in January 2006
February 2006:	Joined Advantage Partners LLP (currently Advantage
Partners, Inc.)* Resigned in January 2007
April 2013:	Associate professor in Faculty of Liberal Arts (currently
the School of Economics and Business Administration)
at Yokohama City University (present position)
Associate Professor in Graduate School of International
Management at Yokohama City University(present position)
September 2016:	Part-time instructor in Graduate School of Business
Administration at Keio University (present position)
June 2018:	Outside director of the Company (present position)

Review of the Fiscal Year Ended March 31, 2021
Ashizawa It was a year in which the Company’s initiatives that began even prior to COVID-19 flourished dueto the needs of society in this era. The accumulation of
know-how through the implementation of work-style innovation in-house and the fact that NESIC is identified as thefirst company to discover Zoom were, I believe, the reasons why the Company was able to expand its customer
base. Also, the breakdown of its vertical organization
structure by means of the reorganization and thepromotion of interdepartmental cooperation haveenhanced operating efficiency and facilitated a range ofhigh-value-added solutions. The outcomes of such efforts
enabled the Company to realize the targets set out in its
medium-term management plan a year ahead of schedule.

Muramatsu When COVID-19 first emerged, NESIC
discussed measures it was going to take to address therisks involved. However, a risk management structure wasalready in place to ensure the continuation of business
operations by way of its self-implementation of workstyle innovation. So instead, the Company quickly turned
56

ANNUAL REPORT 2021

its attention to how they could take advantage of thepotential business opportunities, which was a major
turning point. Under the new normal, the efforts of theyounger employees at NESIC have injected tremendous
energy into the organization, adding to my faith in the
Company’s ability to adapt successfully to the changes
taking place in its business environment.

Yoshida Based on my first year here as an outside
director, I have been greatly impressed with the level oftransparency in providing information to the outside
directors and because of this, I have been able to geta grasp of business activities and management issues
rather quickly. Discussions at the Board of Directors’
meetings are held in an open and lively manner within apositive atmosphere. What has impressed me the mostis the efforts of each individual to firmly reflect on thetype of company they want NESIC to become, its roles
and responsibilities as a company, and the contributions
that can be made to society through its business activities. I believe the Company’s success over the course ofthis year stems from its emphasis on the importance ofrealizing an “An inclusive and sustainable society createdOutside Director

Outside Director

Kuniko Muramatsu

Mamoru Yoshida

November 2003:	Officer, Ethics Office, Texas Instruments
Japan Limited* Resigned in September 2009
October 2009:	Chief researcher, Business Ethics ResearchCenterJanuary 2010:	Representative director, Wellness Systems
Institute Co., Ltd. (present position)
April 2016:	Chair of the board, NPO GEWEL* Resigned in March 2019
April 2018:	Senior researcher, Business Ethics ResearchCenter (present position)
June 2019:	Outside director of the Company(present position)

June 2009:	Officer, Panasonic Corporation
Vice president, Panasonic AVC Networks Company, in charge ofConsumer Business
June 2012:	Director, managing executive officer, Panasonic Corporation
President, Panasonic AVC Networks Company
April 2013:	Director, managing executive officer, chief technology officer(CTO), Panasonic Corporation
April 2015:	Director, managing executive officer, Panasonic Corporation
Senior vice president, Appliances Company; president,
Air-con Company, in charge of TV Business
June 2015:	Managing executive officer, Panasonic Corporation
Senior vice president, Appliances Company; president,
Air-con Company, in charge of TV Business
June 2016:	Senior audit & supervisory board member, Panasonic Corporation(resigned in June 2020)
June 2020: O utside director of the Company (present position)

through communications.” It is rewarding to know that
NESIC certainly has the potential for even further growth
going forward.

Advancement of Digital x 5G
Ashizawa In regard to Digital x 5G, what stood out tome the most was the number of local 5G trial operations
held through co-creation with partners, such as with
Tokyo Prefecture for use in its promotion of new work
styles and with Tokushima Prefecture for use in healthcare, disaster prevention activities, and a wide range ofother areas.

Muramatsu By means of Digital x 5G, it looks likethese trial operations will lead to the realization of theCompany’s three “Initiatives to provide value to society
through 2030” ( pages 20-25).

Yoshida This is a good example of the Company demonstrating its strengths in being able to provide solutions
for a wide range of customer needs, from 5G infrastructure through to digital services. Meanwhile, digitaltechnology and 5G are topics of discussion throughout
the entire industry and not only within the Company. The
type of technologies to utilize, the areas to deploy themin, and the type of solutions to generate through suchtechnologies, as well as the approach that must be taken
to create areas that will most certainly succeed throughDigital x 5G, no matter how small the market, are key
issues that management will need to address.

Ashizawa Rather than confining itself to such specificthemes as disaster prevention and mitigation, theCompany can address a wider range of issues in eachregion by making full use of its collaboration with customers and partners. This is made possible through
NESIC’s commitment as a multivendor and the instillingof co-creation into its corporate culture.

Muramatsu That is certainly a strength of NESIC. The
fact that the Company offers multivendor services provides customers with more incentive to engage in cocreation. Moreover, the Company is backed by NEC‘sstrong reputation for technological capabilities, which
certainly adds to the positive synergy.
ANNUAL REPORT 2021

57

Roundtable Discussion between Outside Directors

Yoshida In terms of 5G, the Company has NEC’sstate-of-the-art technology at its disposal. As such,
the Company can focus on making full use of suchtechnology with its customers, rather than having todevelop its own core technology. That said, it is essentialthat the Company maintains and strengthens its
relationship with the customers it acquired through the
influence of Zoom and continues to expand its businessby ensuring the highest levels of quality and efficiency.

Protection of Minority Shareholders
Ashizawa While there are a number of advantages tobeing an NEC Group subsidiary, there is also the risk ofundermining the interests of minority shareholders, as
reflected in the issues surrounding the revised Corporate
Governance Code. Discussions must be carried out witha view to enhancing corporate value for the benefit of all
stakeholders and this information must be explained indetail to those outside the organization. Accordingly, thedetails of the Company’s transactions with NEC, which
has reported on them separately to date, were compiled
and reported together and reconfirmed for their appropriateness from the perspective of minority shareholders.

Muramatsu It is imperative that the Company continues to strengthen its monitoring function from the perspective of minority shareholders and enhance thequality of its governance. As an outside director, my toppriority is to always voice my opinions in a strict mannerand I believe I have been doing just that; however, ourdiscussions over this past year were particularly intense.

Yoshida In regard to the protection of minority shareholders, I will draw on my managerial background at amajor electronics manufacturer to continue to promote
lively discussions on how the Company can exploit its
synergies as a member of the NEC Group and maximize
value for its minority shareholders.

Promotion of Diversity
Ashizawa The discussions at the Board of Directors’
meetings are very lively indeed. I believe an effective
governance system is in place, as outside directors areable to freely express their views and offer advice, which
is promptly taken into consideration in the Company’s
decisions. On the other hand, issues remain in terms ofdiversity from the perspective of not only gender equality
but also concerning the age and background of employees and a variety of other areas.

Muramatsu I fully agree. Diversity is not an issue withus three outside directors due to our varying expertiseand backgrounds. However, diversity must be embraced
even more throughout the entire organization if theCompany is to continue innovating with cutting-edge
technology. The details of its evaluation system,
employee development targets, and other elements of
its human resource strategy must be communicatedmore clearly. I hope to share more insight in this area
along the path to formulating the next medium-term
management plan. Also, rather than setting uniform
rules throughout the entire organization, I believe theCompany must work to emphasize the specific nature ofeach business.

Yoshida Employee diversity is not about going out ofyour way to hire individuals for the sake of reaching
diversity-related targets. Rather, it is about undergoinga process of putting the proper framework in place,developing employees, and providing an extensive range
of opportunities from a diversity point of view. Similarly
with the Board of Directors, a system should not be inplace simply for the sake of form. Rather, a system that is
optimally designed to generate sustainable increases incorporate value must be pursued and this needs to be
explained clearly to those outside the organization.

Ashizawa This is a topic that garners a lot of attention
at the Board of Directors’ meetings. My belief is that it isimportant to boldly take on new challenges from a formal
aspect in order to win out in the face of competition in a
rapidly changing industry. Changes may arise naturally,
and can also enhance autonomy and motivation. Fromthe perspective of employee autonomy, I am closely
monitoring the activities of the Corporate Culture Design
Office and the Well-Being Promotion Office. These organizations, which were formed through the ideas of theCompany’s younger employees, are conveying the freewheeling thinking of such employees to the rest of theCompany through their own expressions.

Becoming a No. 1 Communications Company

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ANNUAL REPORT 2021

Muramatsu Last year, I indicated that the Company
needs to communicate information on the social significance of its business activities, and this is starting to takeshape. President Ushijima’s strong message on transforming the corporate culture toward becoming the No. 1
communications company has firmly permeated throughout the Group. I have had the opportunity to freely interact with employees in a variety of departments andpositions and was impressed by the atmosphere, where
people could openly and frankly exchange opinions.

dork an
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tentiafull poI came to realize that a culture of spontaneously spurringchange through the efforts of each employee is being
cultivated here at NESIC.

Ashizawa The Company is transitioning from a pyramidorganizational structure, in which decisions take a while
to be made, to a flat organizational structure, in which
actions are autonomously taken by those on the front
lines. Through such means, the Company’s commitment
to adapt quickly to the rapid changes taking place in thedigital domain is quite noticeable.

Yoshida Both of you are absolutely right. As President
Ushijima is already aware, if the business continues togrow at this rate, the frontline employees will be preoccupied with fulfilling their own tasks, without any leeway
for dealing with new things on their own. For that reason,
the Corporate Culture Design Office was establishedspecifically to handle such issues. Also, the next mediumterm management plan will be formulated through theparticipation of various individuals, including NESIC’s
younger employees, which I am looking forward to.

perspective. In terms of the onshore fish farming business, the way you perceive long-term risks and opportunities may differ from an ESG perspective. Offering views
that differ from those on the front lines is our role asoutside directors.

Yoshida Today, DX is being driven by advances in IT
and movement to the cloud as the new normal takes
shape. However, the use of data to enhance value andhuman-centered activities will become even more important as we proceed. And, as embodied in its approach tomateriality, it is reassuring to see the Company change
for the better for the sake of its employees. Due to thedemands of busy schedules, there is the risk of being
satisfied with our current ways. It is important that theCompany sows the seeds from a variety of angles for its
growth three or five years down the line.

Ashizawa The next medium-term management plan
will be unveiled next year. While it is difficult to accurately foresee the future three years from now, the sharing of NESIC’s ambitious vision of “An inclusive andsustainable society created through communications” andthe efforts of each individual to swiftly take action willtranslate into the further growth of the business.
I believe the source of inspiration for that is a free andopen culture where even the Company’s younger
employees are able to contribute, so I hope efforts are
made to continue to refine this area.

Muramatsu In order to create innovation through diversity, the existence of a workplace environment where
every individual, regardless of age, is able to demonstrate
their full potential is a must. The realization of ICT that iseasy to use and convenient for people of all generations
will not only benefit the Company but also help resolve
the social issues of Japan as a whole.
I have high hopes for the future in that respect.

The Future of NESIC
Ashizawa Narrowing down its areas of strength while
continuing to thrive as a business is no easy task to say
the least. In particular, it is difficult to determine the turning point of changes in the market environment simply
through the eyes of the Company’s earnest and devoted
frontline employees. Moreover, the message theCompany is trying to send to its customers may become
obscured. I will offer my views by constantly being awareof how NESIC is perceived by those outside theCompany and by taking a step back from a comprehensive perspective.

Muramatsu From a comprehensive point of view, amore proactive stance must be taken toward the disclosure of ESG information and management decision-making. For instance, the thought processes behind
disclosing information in accordance with the TCFD and
conducting scenario analyses can be utilized in othertypes of decisions that must be made from a long-term

activere proomAakent be t
s
u
m
e
stanc
losuree disc
h
t
d
r
towa
ation
informof ESG
ment
anage
and m
ing.
n-mak
io
is
c
de

ANNUAL REPORT 2021

59

Corporate Governance

Basic Approach to Corporate GovernanceWe believe that enhancing corporate governance is criticalbusiness interests as an independent company. NESIC has

for NESIC to realize an affluent society with vibrant communi-

adopted a Board of Corporate Auditors for the purpose of

cation and for sustaining increases in corporate value.

strengthening management supervisory functions. NESICNESIC is able to benefit dually from being a member ofhas also set up Advisory Panel for Nominations andthe NEC Group and being a listed company on the stock

Remuneration with independent outside directors represent-

exchange (ing a majority of members, one of whom chairs the panel. In

P65). We are therefore well aware of theimportance of protecting the rights of general shareholders.

the fiscal year ended March 31, 2021, with the aim of further

Starting with the appointment of independent auditors in

improving transparency in management, NESIC formulated a

2006, we have been increasing the number of independent

policy for deciding the details of director remuneration anddirectors and auditors. The ratio of independent outside

clarified the remuneration amounts and the decision-making

directors is currently one-third of the total number of direc-

process (tors. Candidates for the position of director are nominatedP63–64).

Starting with business execution that prioritizes compli-

with due consideration paid to diversity, such as their experi-ance first and foremost, NESIC will examine and build anence, knowledge, specialization, and gender. This structure

optimal corporate governance structure while listening tofacilitates lively discussions at meetings of the Board of

market demands.

Directors, and also decision-making based on its own

History of Reinforcing Corporate Governance
2000
Clarified andstrengthened
Board of Directors’
functions

2000

2005

2010

2015

2020

Introduced executive officer system
2005 Reduced maximum number of directors from 20 to 10. Shortened terms of directors to one year
2016 Started to evaluate the Board of Directors’ effectiveness
Systemized training of directors and auditors
2006
First independent
auditor2015
Two independent auditors

Improved
managementtransparency

2016
Set up advisory panel
2008
First independent director

2012
Two independent directors

2008College (internal controls)

Improved diversity
on Board of
Directors*

2017
Three independent directors

2018College(business administration)

2012
Attorney

Strengthened
remuneration
system linked tocorporate value

2017
Corporate
management

2019
CSR /
Corporate management

2017
Introduced stocklinked remuneration system

2019
Introduced
transfer-restricted stock
remuneration system* Only for independent outside directors 

MaleChanges in Structure of Board of Directors (ratio of independent outside directors)
End of June 2020to present

67%

End ofJuly 201778%

End ofJune 2008

88%

60

ANNUAL REPORT 2021

20%

40%

60%

FemaleInside the company
Outside the company

33% Three out of nine directors (70%

End ofJune 2012

02020
Corporate
management

2016
Corporate management

80%

30%

Three out of ten directors (22%

Two out of nine directors (12%

One out of eight directors (

100%

)
)
)
)

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

Elect / Dismiss

Elect / Dismiss

Management andSupervision

Board of Directors

Audit(Directors)

Board of Corporate Auditors

Cooperate(Corporate Auditors)

3 Outside

2 Outside

Directors

Auditors

Supervise

Cooperate
Audit

Business Execution
Executive Committee

Accounting
Auditors

Business Execution Committee(Executive Officers)

Management Quality
Improvement Committee

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

Cooperate

Cooperate

Corporate
Auditing Division

Management Section of
Affiliated Companies

Audit

Manage / Monitor

Affiliates
Corporate Ethics Hotline (Hotline for internal reporting and consultation)1

Directors and Board of Directors

As the principal decision-making authority
within the Company, the Board of Directors
makes decisions on important matters basedon the procedural rules of the Board of
Directors, and it is also positioned as a venue
for deepening discussions about the broader
direction of corporate strategy, including the
medium-term business plan. NESIC endeavors
to strengthen the management structure bysetting the terms of directors to one year andclarifying the management responsibilities ofeach director.

2

 orporate Auditors andC
Board of Corporate Auditors

The Board of Corporate Auditors decides
auditing policies and reports on the audits
performed by individual auditors. Corporate
auditors participate in meetings of the Board of
Directors and other important meetings, review
important documents related to final decisions,and listen to reports on business execution bydirectors and employees. This system is able toadequately monitor the directors as they
perform their duties.

3

Executive Officers,
Executive Committee,
and Business Execution Committee

The Company has adopted an executive officer
system to clearly demarcate the supervisory
function and the business execution function.
NESIC has also formed the Executive
Committee to discuss policies pertaining to key
management and operating issues, consisting of
mainly executive officers at senior vice president
level and higher and corporate auditors. The
Business Execution Committee was set up tomonitor the progress of and report on significant matters concerning business execution.
NESIC continues to strengthen management
functions.

Advisory Panel for Nominations and Remuneration
Members: 	Three independent outside directors (one of whom chairs the panel) and one representative director are members on the panel.
Purpose:Enhance transparency of nomination of directors and auditors and director remuneration
Description:	Following sufficient discussion, the panel gives its opinions to the Board of Directors about the fairness of procedures for nominating candidates for director and auditor, and whether policies and procedures for deciding remuneration are adequate. The
Board of Directors decides on nominations and remuneration after considering the opinions of the advisory panel.

Agenda Items of Board of Directors
Board of Directors meetings are held once a month in principle. Each meeting of the Board of Directors takes approxi-

ExampleIn the fiscal year ended March 31, 2021, in response to the com-mately two to three hours each time (five to six hours in total

ments received from independent directors in the previous fiscal

if a pre-meeting briefing attended by independent directors

year, such as the need to strengthen I&D and to foster a cross-and independent auditors is included) for active discussions.

divisional organizational culture in the previous fiscal year, theIn the fiscal year ended March 31, 2021, in addition to mattersof legal importance in decision-making, the Board of Directors
deliberated upon and received reports about progress on themedium-term management plan, initiatives in sustainability,

Board of Directors reported on the results of our sustainability
improvement activities (such as strengthening internal penetration
by opening the I&D portal, introducing a mentor system, and invigorating cross-organization dialogue by using Slack) and discussed
future issues and initiatives.

reviews of director remunerations, and the evaluation of theeffectiveness of the Board of Directors.
ANNUAL REPORT 2021

61

Corporate GovernanceIndependent Outside Directors and Auditors
To further strengthen its corporate governance, since 2006,

The independent outside directors and auditors have

NESIC has sequentially nominated qualified independent

diverse knowledge and experience in corporate management,

directors and auditors who do not have any conflicts of inter-accounting, business management, sustainability manage-

est with general shareholders. NESIC has a total of five inde-

ment, corporate governance, and risk management.

pendent directors and auditors, comprising three directors

Independent outside directors provide advice and make(out of nine directors) and two auditors (out of four auditors),

decisions from the perspective of an outsider, while indepen-

who satisfy the requirements for independent directors anddent outside auditors conduct audits of business execution byauditors, as defined by the Tokyo Stock Exchange. One third

directors from a fair and objective standpoint as an outsider.

of its directors are independent outside directors and over

Both independent outside directors and auditors function

20% are women.

adequately in providing highly effective supervision of thebusiness execution side.
Attendance during
FY2021/3

Name

Reason for Nomination

Main Concurrent Positions

Board ofBoard ofCorporate
Directors
Auditors

MichikoAshizawa

Michiko Ashizawa has the ability to provide appropriate
advice and proposal to the Company’s management froman objective standpoint, backed by her specialized knowledge in business administration. She is expected tocontinue to supervise management toward improvements in
the Company’s corporate value.

• Associate Professor, School of Economics and Business Administration,
Yokohama City University• Associate Professor, Graduate School of International Management,
Yokohama City University• Part-Time Instructor, Graduate School of Business Administration, Keio University• Outside Director (audit and supervisory committee member), Netyear Group
Corporation• Outside Auditor, NHK Spring Co., Ltd.

13/14

—

KunikoMuramatsu

Kuniko Muramatsu provides appropriate advice for theCompany’s management from an objective standpoint,backed by her experience in corporate management, global
insight, and advanced knowledge of ESG matters, such assustainability management, and the promotion of compliance and diversity. She continues to supervise management
toward improvements in the Company’s corporate value.

• Representative Director, Wellness Systems Institute Co., Ltd.
• Senior Researcher, Business Ethics Research Center• Outside Director, YOKOWO CO., LTD.
• Outside Director, Kyushu Railway Company

14/14

—

MamoruYoshidaMamoru Yoshida provides appropriate advice and supervises the Company’s management from an objective
standpoint, backed by his extensive experience in business
management, technology management, manufacturing,marketing, and new business creation. He continues tosupervise management toward improvements in the
Company’s corporate value.

11/12

—

Yuji
KikuchiYuji Kikuchi has specialized knowledge of the Companies
Act and corporate governance as an attorney. He is
expected to supervise business execution from a fair andobjective standpoint as an outsider through his extensive
knowledge and experience.

• Partner, Tokyo Hatchobori Law Office• Outside Director, KH Neochem Co., Ltd.

14/14

14/14

Masayuki
Horie

Masayuki Horie possesses deep insight on internal controls
and IT risk management in corporate management as auniversity professor. He has the ability to monitor thebusiness execution of directors from a fair and objective
standpoint as an outsider, backed by his knowledge andexperience.

• Professor, College of Commerce, Nihon University• Outside Auditor, INTELLIGENT WAVE INC.

14/14

14/14

—

Notes: 1. Mamoru Yoshida’s attendance at the Board of Directors meetings is for after her appointment as director at the 88th General Meeting of Shareholders
held on June 24, 2020.
2. Main concurrent positions as of June 24, 2021.

Invigorating Discussions by Board of Directors / Support System for Independent Directors and Auditors to Fully Function
We recognize the importance of having all members of theauditors to engage with the Company, NESIC creates

Board of Directors, including outside directors, endeavor toopportunities for information to be exchanged among

reach decisions based on the Company’s own management

only the independent directors and auditors. Advice for thefrom the standpoint of protecting minority shareholders in a

Company’s management that was discussed at thesevenue conducive to raising questions and having constructive

exchanges is then passed onto the Representative Director

dialogues. We are therefore taking the following steps toand reflected in the Company’s management.

strengthen systems that support active deliberation at theBoard of Directors’ meetings.

auditors are given opportunities to receive the necessary

Before meetings of the Board of Directors are convened,

information and gain knowledge to advise management. In

NESIC distributes briefing materials to participants before-

the fiscal year ended March 31, 2021, three training sessions

hand and holds pre-meeting briefings each month (lasting

were held about business strategy and improvements to theabout three hours) for independent directors and auditors

corporate culture. Independent directors and auditors havewith the aim of enhancing deliberations by the Board of

adequate access to information about the Company’s his-

Directors. At these briefings, participants receive explana-

tory, business outline, financial data, business strategies,

tions of the agenda items before the Board of Directors andbusiness environment, competitive landscape, and internal

are updated on the Company’s current business execution.

organizations.

In addition to these venues for independent directors and62

Moreover, to further improve their skills, all directors and

ANNUAL REPORT 2021

Policies and Procedures for Nominating Directors
Nomination Policies and Procedures

directors, and the Board of Auditors deliberates and consents

When nominating candidates for director or auditor, NESIC’s

to the nomination of corporate auditors, which are submitted

Board of Directors makes decisions after a comprehensive

for approval by the General Meeting of Shareholders.

evaluation based on finding the right person for the job,taking into account the desired qualifications shown below,

Dismissal Policies and Procedures

while seeking people who can contribute to the Company’s

On dismissing a director, NESIC Board of Directors explains

business development with a combination of essential skills

the reasons for their dismissal to the advisory panel, whichand experiences needed to lead.

mainly consists of independent outside directors, in the

Headed by an independent outside director, the advisory

event that a director is not adequately carrying out theirpanel’s members, which consist mainly of independent outside

duties. After receiving suitable advice, the Board of Directors

directors, discuss nominations and voice their opinions. The

makes a decision and moves to dismiss the director, which

Board of Directors deliberates on the agenda for nominating

requires approval by the General Meeting of Shareholders.

Director Remuneration
Basic Policy on Director Remuneration 
To maintain competitiveness in the industry and provide incentives to improve performance, remuneration for the Company’s
directors is based on an appropriate compensation structure that takes into account their responsibilities and achievements andis closely linked to the Company's business performance. At the 89th General Meeting of Shareholders held on June 24, 2021,
investors approved a resolution to review the compensation structure for directors, recognizing the necessity of maintaining
appropriate levels of remuneration in order to further strengthen corporate governance and secure talented personnel.

Decision-Making Methods and Process for Remuneration <Method for calculating remuneration>•	Fixed compensation (monthly compensation)<Decision-making process>At the Board of Directors meeting held in February 2021,

Fixed compensation is paid each month as a salary in

NESIC passed a resolution governing how to decide theamounts based on basic remuneration commensurate withparticulars of remuneration for each director. Based on thisrank, duties, and responsibilities, plus consideration for thedecision-making policy, the advisory panel debated how to

individual performance of each director.

determine remuneration in the fiscal year ended March 31,•	Performance-linked compensation (bonuses)

2021, and issued an opinion, which was taken up and dis-

Bonuses are paid at a certain time every year in amounts

cussed at a Board of Directors’ meeting held later. The

decided for each individual based on their rank and evalua-

Representative Director, who is delegated by the Board oftion of performance. Growth in net sales and operating

Directors decided the allocation of fixed compensation

income is used in this calculation because they are key indi-

and bonuses. For stock-based remuneration, the Board ofcators for achieving the Company’s medium-term manage-

Directors decided the number of shares to be allocated toment plan. The base amount is equivalent to 40% of theeach director based on their rank.

bonus paid in the previous fiscal year multiplied by year-onyear growth in net sales, and 60% of the bonus paid in theprevious fiscal year multiplied by year-on-year growth inoperating income.
Indicator

Breakdown of Director Remuneration(excluding directors in non-executive positions)(Fiscal year ended March 31, 2021)

Fiscal year
ended March
31, 2020

Fiscal year
ended March
31, 2021

Year-on-year
growthNet sales (¥ billions)

303.6

339.1

111.7%

Operating income(¥ billions)

16.2

25.6

157.4%•	Non-monetary compensation (stock compensation)
At a certain time each year, directors receive

Fixedcompensation
Approx. 35%

Restricted-transfer
stock remuneration(long-term incentives)
Fiscalyear ended
March 31,2021

Approx.15%

Performance-linked
remuneration(short-term incentives)
Approx. 50%

restricted-transfer stock remuneration based on their rankwith the objective of providing incentive for constantly

Remuneration for directors in non-executive positions is a

improving the Company’s corporate value and aligning the

fixed amount not linked to the Company’s performance invalues of directors with those of shareholders.

light of their role of supervising business execution.
ANNUAL REPORT 2021

63

Corporate GovernanceDirector and Auditor Remuneration in Fiscal Year Ended March 31, 2021
Breakdown of total remuneration (¥ million)
Total remuneration(¥ million)

Directors
Outside directors
Auditors
Outside auditors
Total

Performance-linked
compensation(bonuses)

Fixed compensation(monthly)

Non-monetary compensation (stocks)

Number of eligible
directors (people)

218

95

98

24

13

24

24

–

–

4

44

44

–

–

5

10

10

–

–

2

262

139

98

24

18

34

34

–

–

6

Notes: 1. Directors who also serve as employees do not receive a salary (including bonus) as an employee.
2. Includes four directors and one auditor who retired as of the 88th General Meeting of Shareholders held on June 24, 2020.
3.	Directors (excluding directors in non-executive positions) receive bonuses as performance-linked compensation and stock with transfer restrictions as
non-monetary compensation.

Evaluation of the Board of Directors’ EffectivenessTo improve the functions of the Board of Directors, since

improvement measures needed to realize these roles andthe fiscal year ended March 31, 2016, NESIC has evaluatedfunctions. Based on the outcome of this process, specificand examined the effectiveness of the Board of Directors.

measures for improvement are discussed in pre-meeting

Below, we summarize the results of the effectiveness eval-briefings and meetings of the Board of Directors.

uation and the process of analysis conducted in the fiscal
year ended March 31, 2021.

(2) Summary of results of evaluation
The summary of the evaluation of the Board of Directors’

Improvement Activities Undertaken

effectiveness in the fiscal year ended March 31, 2021 isin Fiscal Year Ended March 31, 2021 

as follows:

In the evaluation of the effectiveness of the Board of•	The Board of Directors makes decisions that are

Directors for the fiscal year ended March 31, 2020, issues

important to business execution, and vigorously

were identified that included clarifying roles in determining

discusses Companywide business strategies and otherthe direction of business strategy, updating environments

important matters and engages in appropriate

for risk-taking, creating opportunities for training andsupervision of business execution.

educating directors and auditors, and the exchanging•	The Board of Directors is able to conduct the necessary

information among independent outside directors anddebates about important matters to fulfill its responsibilities.

auditors. To address these issues, NESIC proceeded with•	Issues identified in the effectiveness evaluation in themeasures to enhance and accelerate the provision of

fiscal year ended March 31, 2020, namely clarifying

information to enable more in-depth discussions on busi-

roles in determining the direction of business strategy,

ness strategies and the examination of risk verification andupdating environments for risk-taking, opportunities forcountermeasures at the Board of Directors meetings, held

training and educating directors and auditors, andtraining sessions (three times) to enhance awareness of

exchanging information among independent outsidebusiness strategies and improve the corporate culture, anddirectors, have been improved upon with measures thatcreated venues for independent outside directors andwere executed as planned.

auditors to exchange information.

		 As a result, it was found that the Board of Directors is
being appropriately and effectively operated overall.

Effectiveness Evaluationin Fiscal Year Ended March 31, 2021 (3) Future measures(1) Analysis and evaluation process

To further improve the operations of the Board of

The evaluation of the Board of Directors’ effectiveness for

Directors, the following improvement measures are being

the fiscal year ended March 31, 2021, consisted of a ques-

taken during the fiscal year ending March 31, 2022.

tionnaire given to all directors and auditors, and individual• Formulate annual agenda for discussions, review methods

interviews based on the results of the questionnaire. The

for managing agenda items in light of the roles andquestionnaire and individual interviews served to clarify

functions of the Board of Directors and review curriculum

the roles and primary functions of the Company’s Board offor director and auditor training

Directors, and elicited opinions about the issues and64

ANNUAL REPORT 2021

• Review role of Board of Directors in process for formulating the next medium-term management plan, discuss
issues for the next medium-term management plan andlong-term issues for improving corporate value• Provide information to facilitate appropriate supervisionof business execution and decision-making and update
support systems (multiple discussions of importantmatters, augment pre-meeting briefings, better formatting of documents, off-site meetings, etc.)

Supplemental Information 
Period for evaluation of effectiveness(fiscal year ended March 31, 2021)
Questionnaire and interviews for eachdirector and auditor:

from February to
March, 2021

Effectiveness evaluation report for fiscal
year ended March 31, 2021
Discussion of measures for fiscal year
ending March 31, 2022 (by the Board of
Directors):

April 2021

Relationship with Parent Company
As a member of the NEC Group, NESIC benefits greatly from

70% of net sales. In particular, one of NESIC’s uniquebeing in charge of system integration and maintenance ser-strengths is its provision of the NEC Group’s relentlessvices among the services provided by NEC Group compa-

focus on quality to the development of multivendor ser-nies, and from being able to tap into recognition of the NEC

vices. Business transactions with the parent company arebrand and having access to business resources, such as

decided based on proper negotiations while referencing

technological capabilities and human resources. In addition

prevailing market prices. Terms and conditions are on

to the field of 5G, which has drawn attention of late, NECequal ground with other business partners and to avoid

has exceptional technological capabilities in the digital realm,

conflicts of interest, the Board of Directors verifies all busi-

including facial recognition technology, which NESIC canness transactions with the NEC Group. As a listed com-

actively deploy more than ever to increase corporate value.

pany, NESIC engages in dialogue with shareholders andWith that said, however, NESIC is an independent listed

investors to keep their opinions and expectations in mind

company that engages in business while making business

when managing business. We believe this effort makes thedecisions on its own accord. This translates into credibility

Company stronger and leads to higher corporate value.

as a listed company from our customers and businessIn order to benefit from these advantages as a member

partners, while improving the morale of our employeesof the NEC Group and as a listed company, NESIC must

and making it easier to hire talented human resources.

have systems in place for protecting the rights of general

With a wide range of products and services that goshareholders. With this in mind, the Company is strength-

beyond NEC products, NESIC is able to create value added

ening its corporate governance structure by, for example,

by providing solutions in tune with the needs of its cus-enhancing the composition of its independent directors

tomers and society. Independent businesses generate over

and auditors, as noted above.

Shares Held for Strategic Reasons
NESIC may own shares in other companies for the purpose

In the fiscal year ended March 31, 2021, the Board ofof building, maintaining, and strengthening business ties andDirectors meeting held on May 2020 received reports andrelationships.

debated the status of strategic shareholdings.

Shares held for strategic reasons are examined in detail

Regarding the execution of voting rights for these strategic

every year by the Board of Directors in terms of whether theshareholdings, management decides whether to vote inpurpose of owning these shares is appropriate, and whether

approval or disapproval of proposed matters based on a

the gains and risks from owning these shares align with theircomprehensive evaluation of whether it contributes tocost of capital. Based on the outcome of this examination,

medium- to long-term improvements in the company instocks that are determined to have inadequate reasons

which it holds shares and the corporate value of the NESIC

for holding onto become candidates for divestiture andGroup.

reduction.

Strategic shareholdings (as of March 31, 2021)
Four listed companies¥68 million

ANNUAL REPORT 2021

65

Directors & Corporate Auditors (As of June 24, 2021)

Directors

Yushi Ushijima

Osamu Noda

Hiroyuki Sekizawa

Kazuhiko Takeuchi

President

Senior Vice President
and Member of the
Board

Senior Vice President
and Member of the
Board

Senior Vice President
and Member of the
Board

Michiko Ashizawa

Kuniko Muramatsu

Mamoru Yoshida

Junji Ashida

Member of the Board(Outside Director)

Member of the Board(Outside Director)

Member of the Board(Outside Director)

Member of the Board

Toru Kawakubo
Member of the Board

66

ANNUAL REPORT 2021

Corporate Auditors

Naoki Iwasaki

Yohei Otani

Corporate Auditor(Full-Time)

Corporate Auditor(Full-Time)

Yuji Kikuchi

Masayuki Horie

Corporate Auditor(Outside Auditor)

Corporate Auditor(Outside Auditor)

Main background and specializations that NESIC expects of outside directors and outside auditors

Outside Auditors

Outside Directors

Business
administrationand planning

Finance andaccounting

Legal affairs

Internal
controls andriskmanagement

CSR

Technologicalstandpoint /Newbusinesses

Diversity

MichikoAshizawa
KunikoMuramatsu
MamoruYoshidaYuji Kikuchi
MasayukiHorie* This table does not show all of the knowledge of the outside directors and outside auditors. It highlights their backgrounds and specializations with
an emphasis on the oversight functions of outside members.

ANNUAL REPORT 2021

67

Stock Information (As of March 31, 2021)

Number of Shareholders

23,135

Common Stock Authorized

300,000,000 shares*

Issued149,321,421 shares*

Trading Unit

100 shares* On June 1, 2020, NESIC conducted a three-for-one common stock split. On this date, the total number of issuable
shares increased by 200,000,000 shares and the total number of shares issued increased by 99,547,614 shares.

Major Shareholders (Top 10)
Number of
Shares Held(Thousands)

Percentage ofTotal Shares
Outstanding *2

NEC Corporation

57,32038.49

Custody Bank of Japan, Ltd. (Sumitomo Mitsui Trust Bank,
Limited beneficiary trust account, NEC Corporation
retirement benefit trust account)

19,200

12.89

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

8,352

5.61

Custody Bank of Japan, Ltd. (Trust account)

5,599

3.76

Sumitomo Realty & Development Co., Ltd.

3,600

2.42

Employees’ Stock Ownership Plan

1,857

1.25

THE BANK OF NEW YORK MELLON 140044

1,807

1.21

GOVERNMENT OF NORWAY

1,672

1.12

Custody Bank of Japan, Ltd. (Trust account 9)

1,617

1.09

JPMC GOLDMAN SACHS TRUST JASDEC LENDING
ACCOUNT

1,501

1.01

Name of Shareholder

Notes:*1 Shares held by Custody Bank of Japan, 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, 2021 was 51.42%.
*2 The percentage of total shares outstanding is calculated based on the number of shares excluding treasury stock(390,930 shares) and shares that are in the company’s name in the shareholder registry but are not substantiallyowned (300 shares).

Breakdown of Shareholders by Type
(%)

100

80

0.3
8.2

0.3
7.1

18.7

21.9

0.3
7.4

0.3
6.8

17.2

20.0

0.3
10.3
19.2

60
41.2

41.2

41.1

41.2

41.3

40
0.9

0.7

20
30.7

28.8

2017/3

2018/3

0.4

33.6

0.2

1.0

31.5

28.0

2020/32021/30
2019/3Financial institutions
Investment securities firms
Other institutions
Foreign entities (institutions, individuals)
Individuals and others
Treasury stock

68

ANNUAL REPORT 2021

（年3 月期末）(FYE)

Corporate Overview (As of March 31, 2021)

Name

NEC Networks & System Integration
Corporation

Head Office

Major Consolidated Subsidiaries
Japan

Iidabashi First Tower, 2-6-1 Koraku,
Bunkyo-ku, Tokyo 112-8560, JapanNEC Magnus Communications, Ltd.
NICHIWA Co.

Established

December 1, 1953

NEC Net Innovation, Ltd.

Registered as a Stock

November 26, 1953

NESIC advanced aquaculture, Inc.
NetsForest RAS Technologies, Inc.

Company
Capital¥13,122,000,000

Number of Employees

4,996 (Non-consolidated),

Q&A Corporation
K&N System Integrations Corporation
NEC Networks & System Integration Services, Ltd.

7,537 (Consolidated)
Fiscal Year

April 1–March 31

Ordinary General

Annual meeting held in June

Overseas
NESIC BRASIL S/AShareholders Meeting

NESIC (Thailand) Ltd.

Listing

Tokyo Stock Exchange, First Section

NESIC PHILIPPINES, INC.

Ticker Code1973

Networks & System Integration Saudi Arabia Co. Ltd.

Accounting Auditor

KPMG AZSA LLC

Transfer Agent

Sumitomo Mitsui Trust Bank, Limited

ICT Star Group Myanmar Co., Ltd.

1-4-1, Marunouchi, Chiyoda-ku, Tokyo
100-8233, Japan

Outside Evaluations

JPX-Nikkei 400

SNAM Sustainability
Index

Certified Health andProductivity Management
Organization 2021

Highest-grade “Eruboshi”
certification

SUSTAINA ESG AWARDS
2021 GOLD CLASSOverall Category

SUSTAINA ESG AWARDS
2021 SILVER Industries

Top Hundred Telework
Pioneers“Platinum Kurumin”
certification mark

Editorial Postscript
As the issues surrounding sustainability become increasingly prominent due the COVID-19 pandemic, companies are required
more than ever to incorporate sustainability into their core management practices. In this integrated report, we have added a
new page on the environment, enhanced the disclosure of ESG information including our response to climate change, attempted
to disclose the progress of our efforts to provide value to society toward 2030, and made other improvements to disseminate
information with higher value based on the demands of society and the opinions of our stakeholders.
We will continue to aim for a “An inclusive and sustainable society created through communications,” and steadily move
forward to the next medium-term management plan and beyond.

Next step
ANNUAL REPORT 2021

69

70

ANNUAL REPORT 2021

Financial
Section72 CONSOLIDATED TEN-YEAR SUMMARYCONSOLIDATED FINANCIAL STATEMENTS
74 CONSOLIDATED BALANCE SHEETS
76 CONSOLIDATED STATEMENTS OF INCOME
77 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
78 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
80 CONSOLIDATED STATEMENTS OF CASH FLOWS
82 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
105 INDEPENDENT AUDITOR’S REPORTANNUAL REPORT 2021

71

CONSOLIDATED TEN-YEAR SUMMARYFY2012/3

FY2013/3

FY2014/3

FY2015/3

Orders received¥215,373¥241,271¥280,071¥299,097

Net sales

204,658

235,716

270,326

292,164

Gross profit

32,07937,182

44,69048,110Operating income

9,747

12,483

14,41816,158

4.8

5.3

5.3

5.5

4,474

7,246

8,257

7,791

Total assets*2¥149,130¥167,472¥189,059¥201,904

Net assets

80,07485,974

89,166

94,173

Owner’s equity

79,50385,26687,51492,559Cash flows from operating activities¥18,595¥ (1,723)¥23,313¥ 2,460

Cash flows from investing activities(2,648)(3,429)(5,504)(3,929)

Free cash flows

15,946(5,152)

17,809

(1,469)Cash flows from financing activities(3,979)(2,066)(3,824)(4,127)

Cash and cash equivalents at end of year

37,45630,31544,43438,951

EPS¥ 29.99¥ 48.57¥ 55.35¥ 52.24

BPS

532.92571.58586.68621.53

9.33

15.00

20.00

21.33

ROE*4

5.7

8.8

9.6

8.7

ROA*5

6.3

7.7

8.2

8.3

Owner’s equity ratio

53.3

50.9

46.3

45.8

DOE ratio

1.8

2.7

3.5

3.5

Payout ratio

31.1

30.9

36.1

40.8

5,936

6,024

7,164

7,260

49,773,807

49,773,807

49,773,807

49,773,807

Performance Indicators (Millions of yen)

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

Performance Indicators (Millions of yen)

Per-Share Indicators (Yen)*3

Cash dividends
Key Indicators (%)

Other
Number of employees
Number of shares outstanding (FYE)*1 U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥110.71 = US$1.00 as of March 31, 2021.
*2 Partial revisions to accounting standards for tax-benefit accounting (Corporate Accounting Standard No. 28, February 16, 2018) have been adopted fromthe fiscal year ended March 31, 2019. Accordingly, the figures for the fiscal year ended March 31, 2015 to the fiscal year ended March 31, 2018 have been retroactively
adjusted to comply with this revision.
*3 On June 1, 2020, NESIC conducted a 3-for-1 common stock split. Per share indicators are calculated on the assumption that the stock split was conducted at the beginningof the fiscal year ended March 31, 2012.
*4 ROE (Return on Equity): Net income attributable to owners of the parent / Owner’s equity during the term [Average of owner’s equity at the beginningof the term and at the end of the term] x 100*5 ROA (Return on Assets): Ordinary income / Total assets during the term [Average of total assets at the beginning of the term and at the end of the term] x 100

72

ANNUAL REPORT 2021

FY2016/3

FY2017/3

FY2018/3

FY2019/3

FY2020/3

FY2021/3(Thousands of U.S. dollars) *1¥274,946¥279,241¥287,831¥284,739¥304,978¥336,877$3,042,877

279,961

257,912

267,939

277,949

303,616

339,109

3,063,038

45,162

42,58544,26547,681

54,374

63,929577,445

14,111

9,974

11,057

12,774

16,24525,563230,900

5.0

3.9

4.1

4.6

5.4

7.5

—

5,996

6,549

7,357

8,885

9,422

15,745142,218(Thousands of U.S. dollars) *1¥196,505¥197,386¥207,643¥216,171¥230,244¥250,338$2,261,204

94,397

96,674

101,732

107,608

113,510

127,117

1,148,197

92,73894,611

99,473

104,888

110,366

123,682

1,117,170(Thousands of U.S. dollars) *1¥ 9,435¥22,634¥ 4,779¥ 8,396¥12,935¥17,383$157,013(2,822)(2,697)(2,802)(5,604)(6,726)(4,289)(38,740)

6,613

19,936

1,976

2,791

6,208

13,093

118,263(1,402)(4,144)(4,366)(5,615)(2,300)(2,388)(21,569)

43,88959,64857,28154,35458,321

68,426

618,065(U.S. dollars) *1¥ 40.26¥ 43.98¥ 49.41¥ 59.67¥ 63.28¥105.73$0.95

622.75635.34668.01704.40741.12830.47

7.50

23.33

24.00

24.66

26.00

27.33

35.00

0.31

6.5

7.0

7.6

8.7

8.8

13.5

—

7.1

5.1

5.4

6.1

7.1

10.6

—

47.2

47.9

47.8

48.5

47.9

49.4

—

3.8

3.8

3.8

3.8

3.8

4.5

—

57.9

54.6

49.9

43.6

43.2

33.1

—

7,464

7,572

7,657

7,743

7,818

7,537

—

49,773,807

49,773,807

49,773,807

49,773,807

49,773,807

149,321,421—

ANNUAL REPORT 2021

73

CONSOLIDATED BALANCE SHEETSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
As of March 31, 2020 and 2021

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2021

2021

Cash and cash equivalents¥ 58,321¥ 68,426$  618,065

Notes and accounts receivable (note 23)

112,358

123,313

1,113,837

Electronically recorded monetary claims

728

1,256

11,344Inventories (note 6)

13,158

11,509103,956

Other current assets

7,359

7,388

66,732

(77)

(87)

(785)

191,847

211,806

1,913,160

ASSETS
Current assets:

Allowance for doubtful accounts
Total current assets

Non-current assets:
Property and equipment
Land

1,429

1,507

13,612

Buildings and structures

9,930

10,881

98,283

161

249

2,249

15,40015,900143,618

Construction in progress

482

890

8,039

Other

605

671

6,060

(19,067)(19,255)(173,922)

8,942

10,84597,958

5,847

4,908

44,332

1,454

1,973

17,821

Machinery, equipment and vehicles
Tools, furniture and fixtures

Accumulated depreciation
Property and equipment, net

Intangibles, net of accumulated amortization (note 7)

Investments and other assets
Investment securities (notes 4 and 5)

168

313

2,827

Deferred tax assets (note 9)

16,52015,198137,277

Other assets (note 23)

5,519

5,347

48,297

Asset for retirement benefits (note 10)

(56)

(54)

(487)

Total investments and other assets

23,606

22,777205,735

Total non-current assets

38,39738,531

348,035¥230,244¥250,338$2,261,204

Allowance for doubtful accounts

Total assets

74

ANNUAL REPORT 2021

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2021

2021

¥  4,632¥  6,360$   57,447

298

3,298

29,789Notes and accounts payable (note 23)

41,66644,188399,132

Electronically recorded obligations

1,441

2,649

23,927

Advances received (note 23)

6,181

7,708

69,623

Accrued income taxes (note 9)

3,580

5,954

53,780Accrued bonuses to directors

139

159

1,436

Accrued warranty on products

105

83

749

Accrued losses on sales contracts (note 6)

2,159

512

4,624

Provision for compensation for damage

1,326

711

6,422

218

6

54

Other current liabilities

18,376

19,841

179,215

Total current liabilities

80,12891,474

826,248

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term bank loans (note 8)
Current installments of long-term debt (note 8)

Provision for office transfer costNon-current liabilities:
Long-term debt (note 8)

3,764

466

4,209

Liability for retirement benefits (note 10)

31,21529,233

264,050

Other liabilities (notes 9 and 11)

1,625

2,046

18,480Total non-current liabilities

36,60531,745

286,740

Total liabilities

116,734

123,220

1,112,997

13,122

13,122

118,525

Capital surplus

16,664

16,680150,663

Retained earnings

84,972

96,589872,450

(271)

(266)

(2,402)

114,488

126,125

1,139,237

30

169

1,526

Shareholders’ equity (note 12):
Common stock:
Authorized 300,000,000 shares; issued and outstanding
49,773,807 shares at March 31, 2020 and
149,321,421 shares at March 31, 2021

Treasury stock, at cost; 134,067 shares at March 31,
2020 and 390,930 shares at March 31, 2021
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized holding gains on available-for-salesecurities (note 4)

25

—

(392)

(533)

(4,814)(3,783)(2,080)(18,787)(4,121)(2,443)(22,066)

3,143

3,435

31,027

Total net assets

113,510

127,117

1,148,197

Total liabilities and net assets¥230,244¥250,338$2,261,204

Deferred gains or losses on hedges
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits (note 10)
Total accumulated other comprehensive income
Non-controlling interests

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
* The Company conducted a 3-for-1 stock split of common stock with an effective date of June 1, 2020. The number of common stock and treasury stock as
stated above as of March 31, 2020 do not take the stock split into account.

ANNUAL REPORT 2021

75

CONSOLIDATED STATEMENTS OF INCOME
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2021

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2021

2021

Net sales (note 23)¥303,616¥339,109$3,063,038

Cost of sales (notes 6 and 23)

249,242

275,179

2,485,583

54,374

63,929577,445

38,12838,366

346,545

16,24525,563230,900

Gross profit
Selling, general and administrative expenses(notes 15 and 16)
Operating income
Other income (expense):
Interest income

38

22

198

Interest expense

(112)

(97)

(876)

Dividends income of insurance

117

142

1,282

Reward income

52

67

605

Mid cancellation income

—

97

876

Loss on disposal of non-current assets

(184)

(191)

(1,725)

Other, net

(218)

(111)

(1,002)

Subtotal

(307)

(69)

(623)

15,93825,493

230,268

—

228

2,059

—

228

2,059

Impairment loss (note 17)

1,788

—

—

Provision of allowance for compensation
for damage (note 18)

1,253

976

8,815

Ordinary Income
Extraordinary income
Gain on sale of shares of subsidiaries and associates
Subtotal
Extraordinary loss

372

—

—

3,415

976

8,815

12,522

24,745

223,511

Current

5,657

7,894

71,303

Deferred(2,894)

465

4,200

2,763

8,360

75,512

9,759

16,385

147,999

336

639

5,771

¥  9,422¥ 15,745$  142,218

Office transfer cost
Subtotal
Income before income taxes
Income taxes (note 9):

Subtotal
Net Income
Net Income attributable to:Non-controlling interests
Owners of the parent
Per share information (note 12, 20):

Yen

U.S. dollars

Net assets (basic)¥741.12¥830.47$7.50

Net income (basic)

63.28

105.73

0.95

Cash dividends

27.33

35.00

0.31

See notes to consolidated financial statements.
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

76

ANNUAL REPORT 2021

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2021

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2021

2021

¥9,759¥16,385$147,999

Net unrealized holding loss on available-for-sale securities

(1)

139

1,255

Deferred gains or losses on hedges

25

(25)

(225)

Foreign currency translation adjustments

185

(219)

(1,978)Adjustments for retirement benefit

(89)

1,703

15,382

Share of other comprehensive income of entities
accounted for using equity method

0

(0)

(0)

Total other comprehensive income arisingduring the year

120

1,598

14,434¥9,879¥17,983$162,433¥9,436¥17,423$157,375

443

560

5,058

Net Income
Other comprehensive income arisingduring the year (note 19):

Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

ANNUAL REPORT 2021

77

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2021

Numbers ofshares ofcommon stock(Thousands)

Balance at April 1, 201949,773

Millions of yen
Shareholders’ equity
Commonstock

CapitalsurplusRetainedearnings

Treasurystock¥13,122¥16,659¥79,520

Total¥(279)¥109,022

Changes arising during the year:
Cash dividends(3,971)

Profit attribute to owners of the parent

9,422(3,971)
9,422

Purchase of treasury stock
Disposition of treasury stock

5

(4)

(4)

11

16

Net changes in accounts other thanshareholders’ equity
Total changes during the year
Balance at March 31, 2020

—

—

5

5,452

7

5,465

49,773

13,122

16,664

84,972(271)

114,488

Changes arising during the year:
Cash dividends(4,169)(4,169)Profit attribute to owners of the parent

15,745

15,745Purchase of treasury stock
18

Disposition of treasury stock(3)

Change in scope of consolidation
Increase due to stock split

(3)

(3)

8

27

41

37

99,547

Net changes in accounts otherthan shareholders’ equity
Total changes during the year
Balance at March 31, 2021

99,547—

15

11,616

5

11,637

149,321¥13,122¥16,680¥96,589¥(266)¥126,125

Noncontrollinginterests

Total
net assets¥2,719¥107,608

Millions of yen
Accumulated other comprehensive income

Balance at April 1, 2019

Net unrealized
holding gains
on availablefor-salesecurities

Deferred
gains or losses
on hedges

Foreigncurrencytranslation
adjustments

Accumulated
adjustments
for retirement
benefits¥31¥      —

¥(471)¥(3,694)

Total¥(4,134)

Changes arising during the year:
Cash dividends(3,971)

Profit attribute to owners of the parent

9,422

Purchase of treasury stock(4)

Disposition of treasury stock16

Net changes in accounts other thanshareholders’ equity
Total changes during the year
Balance at March 31, 2020

(1)

25

79

(89)

13

423

437

(1)

25

79

(89)

13

423

5,902

30

25

(392)

(3,783)(4,121)

3,143

113,510

Changes arising during the year:
Cash dividends(4,169)Profit attribute to owners of the parent

15,745Purchase of treasury stock(3)

Disposition of treasury stock

27

Change in scope of consolidation

37

Net changes in accounts otherthan shareholders’ equity
Total changes during the year
Balance at March 31, 2021

78

ANNUAL REPORT 2021

139

(25)

(140)

1,703

1,677

292

1,969

139

(25)

(140)

1,703

1,677

292

13,607¥169¥      —

¥(533)¥(2,080)¥(2,443)¥3,435¥127,117

Thousands of U.S. Dollars (note 3)
Shareholders’ equity

Balance at April 1, 2020

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$118,525$150,519$767,518

Total$(2,447)$1,034,125

Changes arising during the year:
Cash dividends(37,656)(37,656)

Net income

142,218

142,218

Purchase of treasury stock

(27)

(27)

72

243

Disposition of treasury stock

162

Change in scope of consolidation

(27)

370

—

135

104,92245

105,112$118,525$150,663$872,450$(2,402)$1,139,237

334

Net changes in accounts otherthan shareholders’ equity
Total changes during the year
Balance at March 31, 2021

Thousands of U.S. Dollars (note 3)
Accumulated other comprehensive income

Balance at April 1, 2020

Net unrealized
holding gains
on availablefor-salesecurities

Deferred
gains or losses
on hedges

Foreigncurrencytranslation
adjustments

Accumulated
adjustments
for retirement
benefits

Total

Noncontrollinginterests

Total
net assets

$ 270

$ 225

$(3,540)$(34,170)$(37,223)$28,389$1,025,291

Changes arising during the year:
Cash dividends(37,656)

Net income

142,218

Purchase of treasury stock(27)

Disposition of treasury stock

243

Change in scope of consolidation

334

Net changes in accounts otherthan shareholders’ equity
Total changes during the year
Balance at March 31, 2021

1,255

(225)

1,255
$1,526$(1,264)

15,382

15,147

2,637

17,785(225)(1,264)

15,382

15,147

2,637

122,906—$(4,814)$(18,787)$(22,066)$31,027$1,148,197

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

ANNUAL REPORT 2021

79

CONSOLIDATED STATEMENTS OF CASH FLOWSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2021

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2021

2021

Net income before income taxes¥12,522¥ 24,745$ 223,511

Depreciation and amortization

3,572

3,256

29,410

247

238

2,149

1,788

—

—

Cash flows from operating activities:

Amortization of goodwill
Impairment loss
Increase (decrease) in allowance for doubtful accounts

(13)

10

90

(Increase) decrease in asset for retirement benefits

208

(102)

(921)

Increase (decrease) in liability for retirement benefits

450

454

4,100

Increase (decrease) in accrued bonuses to directors

21

19

171

Increase (decrease) in accrued warranty on products

(8)

(21)

(189)

178

(1,646)(14,867)

1,326

(615)

(5,555)

(62)

(47)

(424)

Increase (decrease) in accrued losses on sales contracts
Increase (decrease) in provision
for compensation for damage
Interest and dividend income

112

97

876

(5,719)(12,908)(116,592)

29

1,645

14,858

Increase (decrease) in notes and accounts payable

2,010

3,799

34,314

Other, net

1,500

4,072

36,78018,16722,998207,731

62

47

424

Interest expense(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories

SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

80

ANNUAL REPORT 2021

(112)

(97)

(876)

(5,182)(5,565)(50,266)

12,935

17,383

157,013

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2021

2021

Cash flows from investing activities:
Purchase of property and equipment
Proceeds from sale of property and equipment(3,004)(3,025)(27,323)

19

11

99

(995)

(663)

(5,988)Proceeds from sales of intangibles

0

0

0

Purchase of investment securities

(936)

(450)

(4,064)

Payments for sales of shares of subsidiaries resulting
in change in scope of consolidation

(68)

—

—

Proceeds from sales of shares of subsidiaries
and associates

—

330

2,980

Loans receivable made

(2)

(17)

(153)

Purchase of intangibles

1

1

9

(1,741)(477)(4,308)(6,726)(4,289)(38,740)

Net increase (decrease) in short-term bank loans

2,268

2,477

22,373

Repayments of long-term debt

(264)

(298)

(2,691)

Proceeds from long-term debt

200

—

—

(4)

(3)

(27)

(3,965)(4,162)(37,593)

(23)

(23)

(207)

3

—

—

Collection of loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activities:

Proceeds from sale and purchase of treasury stock, net
Dividends paid to shareholders
Dividends paid to non-controlling interest
Proceeds from share issuance to non-controlling interest

(514)

(379)

(3,423)(2,300)(2,388)(21,569)

58

(66)

(596)

Net increase (decrease) in cash and cash equivalents

3,967

10,63896,088Cash and cash equivalents at beginning of year

54,35458,321

526,790—(532)(4,805)¥58,321¥ 68,426$ 618,065

Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash andcash equivalents

Decrease in cash and cash equivalents resulting
from exclusion of subsidiaries from consolidation
Cash and cash equivalents at end of year

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

ANNUAL REPORT 2021

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
March 31, 2020 and 2021

1. BASIS OF PREPARATION
NEC Networks & System Integration Corporation (the“Company”) and its domestic subsidiaries maintain theirbooks of account in conformity with accounting principles generally accepted in Japan. Its foreign subsidiaries
maintain their books of account in conformity with thoseof their countries of domicile.
The accompanying consolidated financial statements
have been compiled from the consolidated financial
statements prepared by the Company as required under
the Japanese Financial Instruments and Exchange Law
and, have been prepared in accordance with accounting
principles generally accepted in Japan, which are different
in certain respects as to the application and disclosure
requirements of IFRSs.
As permitted by the Japanese Financial Instruments
and Exchange Law, amounts of less than one million yen
have been omitted. As a result, the totals shown in theaccompanying consolidated financial statements (both inyen and U.S. dollars) do not necessarily agree with thesum of the individual amounts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation
The Company has 18 subsidiaries (companies overwhich the Company can control their operations) as ofMarch 31, 2021 (19 subsidiaries as of March 31, 2020)(the “Group”).
(Changes in the scope of consolidation)
Q&A Works Co., Ltd. that had been included in the previous fiscal year’s consolidated financial statements was
excluded from the scope of consolidation because of
decline in the ratio of voting rights held by the Company
resulted from Q&A Works Co., Ltd.’s capital increase
through third-party allocation in June 2020. Q&A WorksCo., Ltd. is now included in affiliates accounted for using
equity method from the current fiscal year.
The accompanying consolidated financial statements
include the accounts of the Company and the significant
companies controlled directly or indirectly by theCompany. All significant intercompany balances andtransactions have been eliminated in consolidation.
The financial statements of the 6 subsidiaries with
year-end of December 31 have been used for consolidation. All material transactions that occurred in the period
from such year-end to March 31, which is the Company’s
year-end, have been adjusted.
The difference between the carrying amount andthe underlying net assets at fair value at the respective
dates of acquisition is allocated to identifiable assets
and liabilities based on fair market value at the dates ofacquisition. The unallocated portion of the difference,
which is recognized as goodwill, is amortized by thestraight-line method over a period of up to 20 years inwhich the future benefit of each investment is expected.
The Company also has 3 affiliates accounted for using
equity method.

82

ANNUAL REPORT 2021

If the year-end of affiliates differs from that of theCompany, financial statements prepared by their­year-end are utilized in consolidation.
(Changes in the scope of affiliates accounted for using
equity method)(1)	Q&A Works Co., Ltd. that had been included in theprevious fiscal year’s consolidated financial statements was excluded from the scope of consolidation
because of decline in the ratio of voting rights held by
the Company resulted from Q&A Works Co., Ltd.’scapital increase through third-party allocation in June
2020. Q&A Works Co., Ltd. is now included in affiliates accounted for using equity method from thecurrent fiscal year.
(2)	Imagica Alobase Co., Ltd. that had been an affiliate
accounted for using equity method was excluded
from the scope of affiliates as a result of the Company’s
disposal of all the shares by sale in June 2020.
(b) Foreign currency translation
Monetary assets and liabilities denominated in foreign
currencies are translated into yen at the exchange rates
prevailing at the balance sheet dates. All revenues andexpenses associated with foreign currencies are translated at the rates of exchange prevailing when suchtransactions were made. The resulting exchange gainor loss is credited or charged to income.
The revenue and expense accounts of the foreignsubsidiaries are translated into yen at the average­exchange rates prevailing during the year, and, except
for the components of shareholders’ equity, the balance
sheet accounts are translated at the rates of exchange
in effect at the balance sheet date. The components
of shareholders’ equity are translated at their historicalexchange rates. Translation adjustments, except forthe portion included in non-controlling interests, are­presented as a separate component of net assets inthe accompanying consolidated financial statements.
(c) Cash equivalents
Cash and cash equivalents include all highly liquid investments – generally with original maturities of three months
or less – that are readily convertible to known amountsof cash and have negligible risk of changes in value dueto their short maturities.
(d) Investment securities
Marketable securities classified as available-for-sale securities are measured at fair value with any changes in unrealized holding gain or loss, net of the applicable income
taxes, included directly in net assets. Non-marketablesecurities classified as available-for-sale securities arecarried at cost. Cost of securities sold is determined by
the moving-average method. Investments to investment
limited partnerships (that are regarded as securities
under Article 2, Paragraph 2 of the Financial Instruments
and Exchange Act.), are recognized at an amount equivalent to the Company’s percentage share of the net assetsof such partnerships, based on the latest financial statements available at the reporting date stipulated in a partnership agreement.

(e) Inventories
Work in process is stated at the lower of cost or net
selling value determined on a specific project basis.
Purchased goods and materials are stated at the lowerof cost or net selling value determined primarily by themoving-average method.
(f) Depreciation and amortization
Depreciation of property and equipment is principally
computed by the straight-line method.
Significant renewals and improvements are capitalized.
Maintenance and repair costs are charged to expense.
The useful lives of property and equipment are­summarized as follows:
Buildings and structures3 to 50 years
Machinery, equipment and vehicles
4 to 17 years
Tools, furniture and fixtures
2 to 20 years
Intangibles are amortized by the straight-line method
over their estimated useful lives.
Software for sale is amortized based on projectedsales volumes over the estimated effective periods(within 3 years). Software for internal use is amortized by
the straight-line method over the estimated useful lives(within 5 years).
(g) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an
amount determined based on the historical experienceof bad debt with respect to ordinary receivables, and an
estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers
which are experiencing financial difficulties.
(h)Accrued warranty on products
Accrued warranty on products is provided for at the estimated warranty cost.
(i) Accrued losses on sales contracts
Accrued losses on sales contracts are provided for in theamount of estimated losses for work in process at thebalance sheet date. Among sales orders of the Company
on hand at the balance sheet date, for projects in which
the estimated cost is expected to exceed the amountof the sales order, such excess costs on sales contracts
are accrued.
(j) Provision for compensation for damage
Provision for compensation for damage is provided for at
the amount of estimated compensation for damage.
(k) Provision for office transfer cost
Provision for office transfer cost is provided for at theamount of estimated losses occurred in the process ofoffice transfer,(l) Leases
Leased assets under finance lease transactions that do
not transfer ownership are depreciated by using thestraight-line method over the lease term as their useful
lives with zero residual value.

(m) Research and development costs
Research and development costs are charged to expense
as incurred.
(n) Retirement benefits
Liability for retirement benefits is provided mainly at an
amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets atthe balance sheet dates. The retirement benefit obligation
is attributed to each period by the straight-line method
over the estimated years of services of the eligible employees. Actuarial gain or loss is amortized from the subsequent year that it occurs by the straight-line method
within the average remaining years (10 to 18 years)of service of the employees. Past service costs are­amortized beginning from the year it is incurred by thestraight-line method within the average remaining years(12 to 18 years) of service of the employees.
Certain consolidated subsidiaries use a simplified
method for calculating retirement benefit asset and­liability and retirement benefit costs.
For lump-sum payment plans, the payment for voluntary retirement at fiscal year-end is deemed as retirement
benefit obligation, and for annuity payment plans, theactuarial obligation on pension finance calculation in
the recent years is deemed as the retirement benefit
obligation.
(o) Income taxes
Deferred tax assets and liabilities are determined basedon the differences between financial reporting and thetax bases of the assets and liabilities and are measured
using the enacted tax rates and laws which will be ineffect when the differences are expected to reverse.
(p) Derivative financial instruments
Derivatives are recorded at their fair value with any
changes in unrealized gain or loss charged or credited
to income, except for those which meet the criteria fordeferral hedge accounting under which unrealized gainor loss, net of the applicable income taxes, is directly
included in net assets.
Methods for significant hedge accounting(i) Hedge accounting method
	Deferral hedge accounting is applied. For forward
exchange contracts, the allocation method is applied
if the criteria for the allocation method are met.
(ii) Hedging instruments and hedged items
	Hedging instruments: Forward exchange contracts
	Hedged items: Any monetary receivables and payables and planned trading transactions that are­denominated in foreign currencies.
(iii) Hedging policy
	The Company uses derivative transaction in accordance with internal policies to mitigate and avoid
the foreign exchange fluctuation risk.
(iv) Hedging evaluation
	Hedge effectiveness is evaluated by comparing thetotal changes in values of hedging instruments andhedged items for the periods from the commencement of hedge contracts to the evaluation dates. For
forward exchange contracts which meet the criteria
ANNUAL REPORT 2021

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

for the allocation method, the evaluation of hedge
effectiveness is omitted.
(q) Revenue recognition
The percentage-of-completion method is applied if theoutcome of the construction activity can be estimatedreliably, otherwise, the completed-contract method isapplied. The percentage of completion as of the end of
the reporting period is estimated based on the percentage of the cost incurred to the estimated total cost.
(r) Accrued bonuses to directors
The Company and its domestic consolidated subsidiaries
provide accrued bonuses to directors based on the­estimated amounts to be paid in respect of the year.
(s) Accounting for consumption taxes
Consumption taxes generally withheld upon sale, as
well as those paid for purchases of goods or services,
are recorded as a liability or an asset, and are excluded
from relevant revenue, costs, or expenses.
(t) Reclassifications
Certain reclassifications have been made to the consolidated financial statements for the year ended March 31,
2020 to conform to the presentation for the year ended
March 31, 2021.
“Insurance benefit” under “Other income (expense)”
which was presented separately in the year ended March
31, 2020, are included in “Other, net” from the year
ended March 31, 2021 due to a decrease in materiality.
To reflect this change in presentation, certain reclassifications have been made to the consolidated financial
statements for the year ended March 31, 2020. As aresult, the amount of ¥65 million of “Insurance benefit”
and ¥195 million of “Other” in the year ended March 31,
2020 were reclassified into ¥261 million of “Other”.
“Foreign exchange loss”, “Loss on valuation of investment securities”, and “Compensation for damage” under“Other income (expense)” which were presented separately in the year ended March 31, 2020, are included in“Other, net” from the year ended March 31, 2021 due toa decrease in materiality.
To reflect this change in presentation, certain reclassifications have been made to the consolidated financial
statements for the year ended March 31, 2020 to conform to the presentation for the year ended March 31,
2021. As a result, the amount of ¥95 million of “Foreignexchange loss”, ¥116 million of “Loss on valuation of
investment securities”, ¥108 million of “Compensation fordamage”, and ¥159 million of “Other” under “Other
income (expense)” in the year ended March 31, 2020
were reclassified into ¥479 million of “Other”.
(u) Significant accounting estimates
1.	The percentage-of-completion method for revenue
recognition(1)	Carrying amounts in the current year’s consolidated
financial statements
	Carrying amounts in the consolidated
financial statements
¥105,736 million ($955,071 thousand)
84

ANNUAL REPORT 2021(2)	Information on the nature of significant accounting
estimates for identified items
	Other information that assists users of financial statements in understanding the nature of the estimates
	Revenue is recognized by the percentage of completion method as of the end of the reporting period thatis estimated based on the percentage of the cost
incurred to the estimated total cost. Estimates andunderlying assumptions are reconsidered if necessary
and the effect of the changes to accounting estimatesis recognized in the reporting period in which theamount can be estimated reliably. Also, the initial
estimates may be changed due to the changes inoriginal estimates and underlying assumptions of the
future total cost such as design change or a natural
disaster. Thus, the changes could materially affect theCompany’s consolidated financial statements in future
periods.
2. Accrued losses on sales contracts(1)	Carrying amounts in the current year’s consolidated
financial statements
	Carrying amounts in the consolidated
financial statements
¥512 million ($4,624 thousand)(2)	Information on the nature of significant accounting
estimates for identified items
	Other information that assists users of financial statements in understanding the nature of the estimates	Among sales orders on hand at the balance sheet
date and for projects in which the total estimatedcost is expected to exceed the contract amount, suchexcess costs on sales contracts are accrued for future
losses that would occur in the following fiscal years.
		 In estimation of accrued losses on sales contracts,
the Company manages the risk control for each contract through the process of the projects and for projects in which the estimated cost is expected to
exceed the contract amount, such excess costs onsales contracts are accrued. Also, the initial estimatedaccrued losses may possibly be revised due to thechanges in estimates and underlying assumptions of
the future total cost such as design change or a natural disaster. Thus, the changes could materially affect
the Company’s consolidated financial statements infuture periods.
(v) Accounting standards and guidance issued but not
yet adopted
The following accounting standards and guidance were
issued but not yet adopted.
1.	“Accounting Standard for Revenue Recognition” (ASBJ
Statement No. 29 (revised 2020), March 31, 2020)
	“Implementation Guidance on Accounting Standard
for Revenue Recognition” (ASBJ Guidance No. 30(revised 2021), March 26, 2021)
	“Implementation Guidance on Disclosures about Fair
Value of Financial Instruments” (ASBJ Guidance No. 19(revised 2020), March 31, 2020)

(1) Overview
	International Accounting Standards Board (IASB) andthe Financial Accounting Standards Board (FASB) had
jointly developed comprehensive accounting standards on revenue recognition and had issued“Revenue from Contracts with Customers” (which iscalled “IFRS 15” in IASB, and “Topic 606” in FASB) in
May 2014, and IFRS 15 applies to an annual reporting
period beginning on or after January 1 2018, andTopic 606 applies to an annual reporting period beginning after December 15, 2017. In these circumstances, the ASBJ has developed comprehensive
accounting standards on revenue recognition and has
issued the above accounting standard and implementation guidance.
	  The ASBJ followed two policies in developing a newrevenue standard. Basically, incorporate all IFRS 15
requirements for international comparability as one of
the benefits from conformity with IFRS 15, and consider additional alternative treatments where theywould make application easier for the practice ofbusiness in Japan, within the extent of that would not
significantly hinder international comparability.
(2) Effective date	Effective from the beginning of the fiscal year ending
March 31, 2022.
(3) Effects of the application of the standards
	The Company and its consolidated domestic subsidiaries are currently in the process of determining theeffects of these new standards on the consolidated
financial statements.
2.	“Accounting Standard for Fair Value Measurement”(ASBJ Statement No. 30, July 4, 2019)	“Accounting Standard for Measurement of Inventories”(ASBJ Statement No. 9 (revised 2019), July 4, 2019)	“Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10 (revised 2019), July 4, 2019)
	“Implementation Guidance on Accounting Standard
for Fair Value Measurement” (ASBJ Guidance No. 31,
July 4, 2019)
	“Implementation Guidance on Disclosures about Fair
Value of Financial Instruments” (ASBJ Guidance No. 19(revised 2020), March 31, 2020)(1) Overview
	International Accounting Standards Board (IASB) andthe Financial Accounting Standards Board (FASB) had
issued mostly the same detailed guidance on measurement of fair value (which is called “IFRS 13 Fair
Value Measurement” in IASB, and “Topic 820 Fair
Value Measurement” of Accounting Standards
Codification in FASB). In these circumstances, the ASBJ
has achieved to ensure consistency with international
accounting standards on guidance and disclosure
related to fair value measurement, mainly of financial
instruments and has issued the above accounting
standard and implementation guidance.

		 The ASBJ utilized a unified measurement method
as basic policy in developing accounting standard forfair value measurement to improve comparability offinancial statements among companies in domestic
and overseas. Basically, incorporate all IFRS 13 requirements for international comparability, and consider
other treatments for individual items where theywould make application easier for the practice ofbusiness in Japan, within the extent of that would not
significantly hinder international comparability.
(2) Effective date	Effective from the beginning of the fiscal year ending
March 31, 2022.
(3) Effects of the application of the standards
	Application of these new standard and guidance
would not affect the consolidated financial
statements.
(w) Changes in presentation method(Adoption of “Accounting Standard for Disclosure of
Accounting Estimates”)
The Company and its subsidiaries adopted ASBJ
Statement No. 31 “Accounting Standard for Disclosure of
Accounting Estimates” (March 31, 2020) to the consolidated financial statements for the current consolidated
fiscal year, and therefore significant accounting estimates
are disclosed in the note to the consolidated financial
statements.
The note does not include information for the priorconsolidated fiscal year in accordance with the transitional provision set out in paragraph 11 of the AccountingStandard.
(x) Additional information
As for the influence by Novel Coronavirus Disease (hereinafter, the Disease), there was no significant impact to
the Group in the year ended March 31, 2021.The Disease
would have pervasive influence on economy and corporate activities and it is difficult to forecast how the
Disease would spread further or when the situation
would get resolved. Under this circumstance, the Grouphas made the accounting estimates such as recoverability of deferred tax assets on the assumption that the
influence would not be material at the moment.

3. U.S. DOLLAR AMOUNTS
The translation of yen amounts into U.S. dollar amounts
is included solely for the convenience of readers outside
Japan and has been made, as a matter of arithmetic
computation only, at ¥110.71 = U.S.$1.00, the approximate rate of exchange on March 31, 2021. The translation should not be construed as a representation thatthe yen amounts have been, could have been, or couldin the future be, converted into U.S. dollars at that or
any other rate.

ANNUAL REPORT 2021

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. INVESTMENT SECURITIESThe components of unrealized gain or loss on marketable securities classified as available-for-sale securities on March
31, 2020 and 2021 are summarized as follows:
Millions of yen
March 31, 2020

Carrying
value

Acquisition
cost

Unrealized
gain (loss)

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Subtotal

¥116

¥ 80

¥ 35

116

80

35

39

58

(18)

39

58

(18)

¥156

¥138

¥ 17

Securities whose acquisition costexceeds their carrying value:
Equity securities
Subtotal
Total

Millions of yen
March 31, 2021

Carrying
value

Acquisition
cost

Thousands of U.S. dollars
Unrealized
gain (loss)

Carrying
value

Acquisition
cost

Unrealized
gain (loss)

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Subtotal

¥138

¥108

¥29

$1,246$  975

$261

138

108

29

1,246

975

261

9

15

(5)

81

135

(45)

9

15

(5)

81

135

(45)

¥148

¥124

¥24

$1,336$1,120$216

Securities whose acquisition costexceeds their carrying value:
Equity securities
Subtotal
Total

Sales of securities classified as available-for-sale securities for the years ended March 31, 2020 and 2021 are­summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2020

2021

¥1

¥23

$207

Gain (Loss) on sales

0

(1)

(9)

Unlisted equity securities of ¥380 million and ¥336
million ($3,034 thousand), investment partnership of¥672 million and ¥1,019 million ($9,204 thousand), corporate bond type bonds with stock acquisition rights of¥108 million and ¥221 million ($1,996 thousand) at
March 31, 2020 and 2021, respectively, are not includedin the above table because there is no market value
thereof and future cash flows cannot be estimated­therefor, thus, making it extremely difficult to measure
the fair value.
Impairment loss recognized on investment securities
during the fiscal year ended March 31, 2020, theCompany recognized impairment losses of ¥0 millionand ¥107 million on available-for-sale securities with andwithout market value, respectively. During the fiscal year
ended March 31, 2021, the Company recognized

86

2021

Proceeds from sales

ANNUAL REPORT 2021

impairment losses of ¥0 million ($0 thousand) and ¥44
million ($397 thousand) on available-for-sale securities
with and without market value, respectively.
Marketable securities whose fair value as at fiscal
year-end has declined by 50% or more, the carrying value
are reduced to its fair value, except in cases where thedecline in fair value is expected to be recoverable. If thedecline in their market value is between 30% and 50%,
the carrying value are reduced to the amount that isnecessary, except in cases where the decline in fair value
is expected to be recoverable. Non-marketable securities
are impaired if the net asset per share has declined by
50% or more due to deterioration of issuers’ financial
conditions.

5. INVESTMENT IN AN AFFILIATEThe aggregate carrying amount of investment in an affiliate as of March 31, 2020 and 2021 are ¥137 million and ¥247
million ($2,231 thousand), respectively.

6. INVENTORIESa) Inventories on March 31, 2020 and 2021 are as follows:
Thousands of
U.S. dollars

Millions of yen

Work in process
Purchased goods and materials
Total

2020

2021

2021

¥ 8,259¥ 8,052$ 72,730

4,898

3,456

31,216¥13,158¥11,509$103,956b) Losses from revaluation of the lower of cost or net selling value included in cost of sales for the years ended March
31, 2020 and 2021 were ¥–37 million and ¥–76 million ($–686 thousand), respectively.
c) Losses on sales contracts included in cost of sales for the years ended March 31, 2020 and 2021 were ¥1,511 million and ¥132 million ($1,192 thousand), respectively.
d) Accrued losses on sales contracts and work in process corresponding to the loss contract are not offset in the­accompanying consolidated balance sheets.
Work in process inventories corresponding to accrued losses on sales contracts on March 31, 2020 and 2021
are as follows.
Thousands of
U.S. dollars

Millions of yen
2020

Work in process

2021

2021

¥31

¥36

$280

7. GOODWILL
Goodwill on March 31, 2020 and 2021 is recorded in the accompanying consolidated balance sheets under the following captions:Thousands of
U.S. dollars

Millions of yen
2020

Intangibles, net of accumulated amortization

¥899

2021

2021

¥623

$5,627

According to Article 32 of the “Practical Guidelines on Accounting Standards for Capital Consolidation Procedures in
Preparing Consolidated Financial Statements” (Accounting Practice Committee Statement No. 7 amended on November
28, 2014 by the Japan Institute of Certified Public Accountants), goodwill is amortized.

ANNUAL REPORT 2021

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans and long-term debt are unsecured.
The weighted average interest rates of current installments of long-term debt for the years ended March 31, 2020
and 2021 were approximately 0.5% and 0.4% and those of long-term debt for the years ended March 31, 2020 and
2021 were approximately 0.4% and 0.5%, respectively.
The annual maturities of long-term debt on March 31, 2021 are as follows:
Millions of yen

Thousands of
U.S. dollars

2022¥3,298$29,789

2023

264

2,384

2024

201

1,815

2025

—

—

2026 and thereafter——Year ending March 31,As of March 31, 2020 and 2021, the Group have entered contracts for committed credit lines totaling ¥8,000 millionand ¥8,000 million ($72,260 thousand), respectively with two domestic banks and have unused committed lines ofcredit amounting to ¥8,000 million and ¥8,000 million, respectively.

9. INCOME TAXES
Income taxes applicable to the Company and its domestic subsidiaries comprise corporation, enterprise, and inhabitants’ taxes, which, in the aggregate, resulted in a statutory tax rate of approximately 30.6% and 30.6% for 2020 and
2021, respectively. Income taxes of the foreign subsidiaries are based generally on the tax rates applicable in theircountries of incorporation.
The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2020 and
2021 differed from the statutory tax rate for the following reasons:
2020

2021

30.6%

30.6%

Expenses not deductible for tax purposes

1.5

0.6

Inhabitant tax per capita levy

1.2

0.6

Tax credit

(1.4)

(0.3)

Increase/(Decrease) in valuation allowance(10.4)

1.3

0.2

0.1

Statutory tax rate
Effect of:Amortization of goodwill

88

Other, net

0.4

0.9

Effective tax rate

22.1%

33.8%

ANNUAL REPORT 2021

Tax effects of significant temporary differences and tax loss carry-forward that resulted in deferred tax assets or
liabilities on March 31, 2020 and 2021 are as follows:
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

Deferred tax assets:¥ 2,515¥ 2,786$ 25,164

Social security contribution on employees’ bonuses

352

389

3,513

Allowance for doubtful accounts

25

28

252

Accrued employees’ bonuses

Accrued enterprise tax
Loss on revaluation of inventories

297

417

3,766

1,299

1,279

11,552

Unrealized profit on inventories

21

21

189

Accrued losses on sales contracts

656

153

1,381

Depreciation

331

298

2,691

Asset retirement obligations

368

494

4,462

Liability for retirement benefits

9,623

8,982

81,130Stock dividends

106

106

957

Impairment loss on investment securities

62

63

569

Impairment loss on assets

539

539

4,868

Allowance for compensation for damage

406

217

1,960

Provision for office transfer cost

68

2

18

Tax loss carry-forward (Note 2)

1,159

1,126

10,170

574

604

5,455

Other

18,40917,512

158,179

Valuation allowance on tax loss carry-forward (Note 2)

(352)

(623)

(5,627)

Valuation allowance on total deductible temporary differences and other

(976)

(960)

(8,671)

Subtotal (Note 1)(1,328)(1,584)(14,307)

Total

17,081

15,927

143,862

Subtotal

Deferred tax liabilities:
Asset for retirement benefits

(43)

(71)

(641)

Restoration cost for asset retirement obligations

(203)

(354)

(3,197)

Goodwill

(151)

(100)

(903)

Liability adjustment account

(134)

(126)

(1,138)

Other
Total
Net deferred tax assets

(27)

(76)

(686)

(560)

(729)

(6,584)¥16,520¥15,198$137,277(Note)
1. Valuation allowance on tax loss carry-forward was increased by ¥256 million ($2,312 thousand). The increase mainly results from reassessment of recoverability of deferred tax assets.
2. The amounts of tax loss carry-forward and related deferred tax assets by carry-forward period
Millions of yen

Due within
one year

Due after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

Total

Tax loss carry-forward (*1)¥    5¥    10¥    2¥35¥759¥    346¥1,159Valuation allowance

(5)

(10)

(2)

(0)

(0)

(333)

(352)

Deferred tax assets

—

—

—

34

758

13

807(*2)

March 31, 2020

ANNUAL REPORT 2021

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Millions of yen

Due within
one year

Due after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

Total¥   10¥    1¥   5¥   748¥    0¥   360¥1,126

Valuation allowance

(10)

(1)

(1)

(299)

(0)

(310)

(623)

Deferred tax assets

—

—

4

448

—

49

502(*2)

Due within
one year

Due after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

Total

Tax loss carry-forward (*1)$   90$    9$45$   6,756$    0$   3,251$10,170

Valuation allowance

(90)

(9)

(9)

(2,700)(0)(2,800)(5,627)

Deferred tax assets

—

—

36

4,046

—

442

4,534(*2)

March 31, 2021

Tax loss carry-forward (*1)

Thousands of U.S. dollars

March 31, 2021

(*1) Tax loss carry-forward is after multiplying the statutory tax rate.
(*2)	Deferred tax assets of ¥807 million and ¥502 million ($4,534 thousand) are recognized for tax loss carry-forward of ¥1,159 million and ¥1,126 million($10,170 thousand) for the years ended March 31, 2020 and 2021, respectively, which are after multiplying the statutory tax rate, of the consolidated
subsidiaries.
		 As for the above tax loss carry-forward, valuation allowance has not been recognized for the part that deemed to be recoverable since future taxable
income will be available.

10. RETIREMENT BENEFIT PLANS
The Company and its consolidated subsidiaries havefunded or unfunded defined benefit plans and defined
contribution plans.
Lump-sum or annuity payments are paid from thecorporate defined benefit pension plans, all of which
are funded based on the employees’ job grade andlength of service.
Lump-sum payments are paid from unfunded­lump-sum payment plans based on the employees’
job grade, performance and length of service.

Certain consolidated subsidiaries use a simplified
method for calculating retirement benefit asset and­liability and retirement benefit costs.
For lump-sum payment plans, the payment for voluntary retirement at fiscal year-end is deemed as retirement
benefit obligation, and for annuity payment plans, theactuarial obligation on pension finance calculation in
the recent years is deemed as the retirement benefit
obligation.

The information for the Company’s and the consolidated subsidiaries’ defined benefit plans on March 31, 2020 and
2021 for the years then ended is as follows.
(1) Movement in retirement benefit obligations
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

¥60,226¥60,209$543,844

Service cost

2,604

2,844

25,688Interest cost

528

519

4,687

Actuarial gain or loss

(426)

(345)

(3,116)(2,720)(3,123)(28,208)

Retirement benefit obligation at beginning of year

Benefits paid
Other
Retirement benefit obligation at end of year
(Note) The above table excludes certain plans that have adopted the simplified method.

90

ANNUAL REPORT 2021

(2)

95

858

¥60,209¥60,199$543,753

(2) Movements in plan assets
Thousands of
U.S. dollars

Millions of yen

Plan assets at beginning of year

2020

2021

2021

¥30,358¥29,587$267,247

751

734

6,629

(1,356)

1,539

13,901

Expected return on plan assets
Actuarial gain or loss
Contributions paid by the employer

1,115

1,123

10,143

Benefits paid

(1,278)(1,396)(12,609)

(2)

6

54

¥29,587¥31,596$285,394

Other
Plan assets at end of year
(Note) The above table excludes certain plans that have adopted the simplified method.

(3) Reconciliation of changes in liability for retirement benefits whose plans adopted the simplified method
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

¥376

¥424

$3,829Retirement benefit costs

103

(32)

(289)

Benefits paid

(39)

(44)

(397)

Other

(15)

(30)

(270)

¥424

¥316

$2,854

Liability for retirement benefits at beginning of year

Liability for retirement benefits at end of year

(4) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for retirement benefits
Thousands of
U.S. dollars

Millions of yen
2020

2021

Funded retirement benefit obligation¥   32,026¥   32,089$   289,847

Plan assets(30,018)(32,089)(289,847)

2,007

0

0

29,03828,919261,213

Net liability for retirement benefits¥   31,046¥   28,919$   261,213

Liability for retirement benefits¥   31,215¥   29,233$   264,050

Unfunded retirement benefit obligation

Asset for retirement benefits
Net liability for retirement benefits

2021

(168)

(313)

(2,827)¥   31,046¥   28,919$   261,213(Note) The above table includes certain plans that have adopted the simplified method.

(5) Retirement benefit costs
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

Service cost

¥2,604¥2,844

Interest cost

528

519

4,687

Expected return on plan assets

(751)

(734)

(6,629)Net actuarial loss amortization

1,283

1,063

9,601

Past service costs amortization

(496)

(496)

(4,480)Retirement benefit costs calculated by the simplified method

103

(32)

(289)

Other
Retirement benefit costs$25,688

(2)

(14)

(126)

¥3,269¥3,149$28,443

ANNUAL REPORT 2021

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(6) Adjustments for retirement benefit
Thousands of
U.S. dollars

Millions of yen
2020

Past service costs2021¥   (496)

352

2,948

26,628¥(143)¥2,452$22,147

Actuarial gains and losses
Total

2021

¥(496)$ (4,480)(7) Accumulated adjustments for retirement benefit
Thousands of
U.S. dollars

Millions of yen
2020

Unrecognized prior service costs
Unrecognized actuarial gains and losses
Total

2021

¥(1,227)2021¥   (731)$ (6,602)

6,650

3,701

33,429¥  5,422¥2,969$26,817(8) Plan assets(a) The components of plan assets
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

Debt securities¥13,845¥13,681$123,575

Equity securities

3,972

4,914

44,386

General account

3,591

3,593

32,454

Alternative

83,099

7,904

9,200

Other

273

205

1,851

Total

¥29,587¥31,596$285,394(Note) Total plan assets include ¥220 million and ¥121 million ($1,092 thousand) in a retirement benefit trust established for the corporate pension plan as ofMarch 31, 2020 and 2021, respectively.
Alternative is mainly investment to hedge fund.

(b) Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan assets have been
considered in determining the long-term expected rate of return.
(9) Actuarial assumptions
The principal actuarial assumptions on March 31, 2020 and 2021 (expressed as weighted averages) are as follows:


2020

2021

Discount rate

0.9%

0.9%

Long-term expected rate of return

2.5%

2.5%

Expected increase rate of salary

4.1%

4.0%

The amounts to be paid by the Company and its consolidated subsidiaries to the defined contribution plans were¥478 million and ¥495 million ($4,471 thousand) for the years ended March 31, 2020 and 2021.

92

ANNUAL REPORT 2021

11. ASSET RETIREMENT OBLIGATIONS
The asset retirement obligations are based on estimated future restoration obligations related to leasehold contracts ofhead office and other facilities.
The obligations are calculated based on the estimated office rental period of 3 years to 20 years and a discounted
rate of 0.0% to 2.2%.
The following table provides Company’s total asset retirement obligations for the years ended March 31, 2020
and 2021:
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

¥  873¥1,188

Obligations incurred by asset acquisition

423

576

5,202

Obligations settled

(64)

(193)

(1,743)

Accretion expense

8

8

72

Remeasurements

(52)

9

81

Others

—

(6)

(54)

¥1,188¥1,582$14,289

Balance, beginning of year

Balance, end of year

12. SHAREHOLDERS’ EQUITY
Under Japanese laws and regulations, the entire amount
paid for new shares is required to be designated ascommon stock. However, a company may, by resolution of
the Board of Directors, designate an amount not e­ xceeding
one half of the price of the new shares as additional paid-in
capital, which is included in capital surplus.
The Companies Act provides that an amount equal to
10% of distributions from retained earnings paid by theCompany and its Japanese subsidiaries be appropriatedas a legal earnings reserve. No further appropriations are
required when the total amount of the additional paid-in
capital and the legal earnings reserve equals 25% of theirrespective stated capital. The Companies Act also

$10,730

provides that additional paid-in capital and legal earnings
reserve are available for appropriations by the resolutionof the shareholders. The legal earnings reserve amounted
to ¥546 million ($4,931 thousand) as of both March 31,
2020 and 2021. Legal earnings reserve is included inretained earnings in the accompanying consolidatedbalance sheets.
Cash dividends charged to retained earnings for theyears ended March 31, 2020 and 2021 represent dividends paid out during those years. The amount available
for dividends is based on the amount recorded in the
Company’s non-consolidated books of account in­accordance with the Companies Act.

The movement of treasury stock is as follows:
Shares


2020

2021

At beginning of year

138,615

134,067

1,352

269,901

Increase - purchase of odd lot shares
Decrease - sale of odd lot shares
At end of year

5,900

13,038134,067

390,930(Note) The Company conducted a 3-for-1 stock split of common stock with an effective date of June 1, 2020. The number of treasury stock as stated above asof March 31, 2020, do not take the stock split into account.

a) Dividends paid during the year ended March 31, 2020
The following was approved by the Board of Directors on April 26, 2019.
(a) Total dividends¥1,985 million(b) Cash dividends per common share¥13.33(c) Record date
March 31, 2019(d) Effective date
May 31, 2019
The following was approved by the Board of Directors on October 29, 2019.
(a) Total dividends¥1,985 million(b) Cash dividends per common share¥13.33(c) Record date
September 30, 2019(d) Effective date
December 3, 2019
(Note) The Company conducted a 3-for-1 stock split of common stock with an effective date of June 1, 2020. Cash dividends per common share as statedabove were calculated as if the relevant stock split was conducted at the beginning of the year ended March 31, 2020.

ANNUAL REPORT 2021

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSb)	Dividends to be paid after March 31, 2020 although record date for payment falls
within the year ended March 31, 2020
The following was approved by the Board of Directors on April 28, 2020.
(a) Total dividends¥2,084 million(b) Dividend source
Retained earnings(c) Cash dividends per common share¥14.00(d) Record date
March 31, 2020(e) Effective dateJune 3, 2020
(Note) The Company conducted a 3-for-1 stock split of common stock with an effective date of June 1, 2020. Cash dividends per common share as statedabove were calculated as if the relevant stock split was conducted at the beginning of the year ended March 31, 2020.

c) Dividends paid during the year ended March 31, 2021
The following was approved by the Board of Directors on April 28, 2020.
(a) Total dividends¥2,084 million ($18,823 thousand)(b) Cash dividends per common share¥14.00 ($0.12)(c) Record date
March 31, 2020(d) Effective dateJune 3, 2020
The following was approved by the Board of Directors on October 29, 2020.
(a) Total dividends¥2,085 million ($18,832 thousand)(b) Cash dividends per common share¥14.00 ($0.12)(c) Record date
September 30, 2020(d) Effective date
December 2, 2020
(Note) The Company conducted a 3-for-1 stock split of common stock with an effective date of June 1, 2020. Cash dividends per common share as statedabove were calculated as if the relevant stock split was conducted at the beginning of the year ended March 31, 2020.

d)	Dividends to be paid after March 31, 2021 although record date for payment falls
within the year ended March 31, 2021
The following was approved by the Board of Directors on April 27, 2021.
(a) Total dividends¥3,127 million ($28,244 thousand)(b) Dividend source
Retained earnings(c) Cash dividends per common share¥21.00 ($0.18)(d) Record date
March 31, 2021(e) Effective dateJune 3, 2021

13. CONTINGENT LIABILITIESOn March 31, 2020, the Company was contingently liable as guarantor of indebtedness of the Company’s employees in
the aggregate amount of ¥0 million. On March 31, 2021, there is no amount to report.

14. LEASES(1) Finance leases
Under finance leases that do not transfer ownership of the leased property to the lessee
Most of finance lease transactions are telecommunications equipment in Digital Solution Business, and capitalized
lease assets and lease obligations in the balance sheet. Finance lease assets that do not deem to transfer ownershipof the leased property to the lessee are depreciated using the straight-line method over the period of the lease, withzero residual value.

94

ANNUAL REPORT 2021

(2) Operating leases
Future minimum operating lease payments after March 31, 2020 and 2021 for non-cancelable operating leases are
summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Due within one year
Due over one year
Total

2020

2021

2021

¥ 3,046¥ 2,654$23,972

10,565

7,928

71,610¥13,612¥10,583$95,592

15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The significant components of selling, general and administrative expenses for the years ended March 31, 2020 and
2021 are as follows:
Thousands of
U.S. dollars

Millions of yen

Employees salary
Provision for bonuses to directors
Retirement benefit costs
Provision of allowance for doubtful accounts

2020

2021

2021

¥16,553¥18,053$163,065

144

146

1,318

1,180

1,004

9,068

—

4

36

16. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses amounted to ¥720 millionand ¥962 million ($8,689 thousand) for the years ended March 31, 2020 and 2021, respectively.

17. IMPAIRMENT LOSSThe Company recognized an impairment loss on the following asset group for the year ended March 31, 2020.
Location

Isehara-city, Kanagawa Pref.

Use

Training facilities

Type

Millions of yen

Thousands of U.S. dollars

Land and Buildings, etc.

¥1,788$16,429

The Company conducts an impairment test by grouping the assets, mainly based on business segment classification, as a minimum unit that generates independent cash flows. As for the above assets, the Company reduced thecarrying amount of the assets related to the determination of closing training facilities to the recoverable amount andrecognized an impairment loss of ¥1,788 million as an extraordinary loss in consolidated statement of income. The
details of impairment loss are ¥981 million for Land, ¥805 million for Buildings and Structures, and ¥2 million for Tools,
furniture, and fixtures.
In addition, the recoverable amount is measured using net realizable value and the amount for Land and Buildings isbased on a valuation conducted by an independent real-estate appraiser.
There is no amount to report for the year ended March 31, 2021.

18. PROVISION OF ALLOWANCE FOR COMPENSATION FOR DAMAGE
Provision of allowance for compensation for damage is provided for constructions based on the estimated loss amountreasonably calculated at the end of the current fiscal year.

ANNUAL REPORT 2021

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. OTHER COMPREHENSIVE INCOME
The reclassification adjustment and the related income tax effects allocated to each component of other comprehensive income for the years ended March 31, 2020 and 2021 are as follows:
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

Net unrealized holding gains on available-for-sale securities:¥  (2)¥  199Reclassification adjustment for gain/loss realized in net income

0

2

18

Before tax amount

(2)

201

1,815

Unrealized holding gain (loss) arising during the year

$ 1,797

Tax effect

0

(62)

(560)

Net-of-tax amount

(1)

139

1,255

Deferred gains or losses on hedges
Deferred gains or losses on hedges arising during the year

38

—

—

Reclassification adjustment for gain/loss realized in net income

—

(38)

(343)

Before tax amount

38

(38)

(343)

Tax effect

(13)

13

117

Net-of-tax amount

25

(25)

(225)

Foreign currency translation adjustments arising during the year

185

(219)

(1,978)

Reclassification adjustment for gain/loss realized in net income

—

—

—

185

(219)

(1,978)

(0)

—

—

185

(219)

(1,978)Adjustments for retirement benefit arising during the year

(930)

1,885

17,026

Reclassification adjustment for gain/loss realized in net income

786

567

5,121

Before tax amount

(143)

2,452

22,147

Tax effect

53

(748)

(6,756)Net-of-tax amount

(89)

1,703

15,3820(0)0¥    120¥1,598$14,434

Foreign currency translation adjustments:

Before tax amountTax effectNet-of-tax amount
Adjustments for retirement benefit:

Share of other comprehensive income of entities accounted for using equity method
Share of other comprehensive income of entities accounted for using
equity method arising during the year
Total other comprehensive income

20. AMOUNTS PER SHARE
Yen

U.S. dollars

2020

2021

Net income per share¥ 63.28¥105.73

2021

$0.95

Net assets per share

741.12830.477.50(Note) The Company conducted a resolution to implement a 3-for-1 stock split of common stock with an effective date of June 1, 2020. Net income per shareand Net assets per share were calculated as if the relevant stock split were conducted at the beginning of the previous consolidated fiscal year ended
March 31, 2020.

96

ANNUAL REPORT 2021

The basis of calculation for net income per share is as shown below.
Thousands of
U.S. dollars

Millions of yen
2020

Net income attributable to owners of the parent
Amounts not attributable to common stock
Net income attributable to owners of the parent related to common stock
Average number of shares during the term (thousands of shares)

2021¥  9,422

2021¥ 15,745$142,218

—

—

—

9,422

15,745142,218

148,915

148,927

148,927(Note) The Company conducted a 3-for-1 stock split of common stock with an effective date of June 1, 2020. Average number of shares during the term wascalculated as if the relevant stock split were conducted at the beginning of the previous consolidated fiscal year ended March 31, 2020.

21. FINANCIAL INSTRUMENTS
Conditions of Financial instruments(1) Management policy
The Group makes short-term deposits or uses high-security
financial instruments for fund management purposes.
The Group obtains funding for capital expenditureplans mainly through bank loans.
The Group utilizes derivative financial instruments
to hedge various risks as described in detail below anddoes not enter derivatives for trading or speculative
purposes.
(2) Financial instruments and risks
The notes, accounts receivable and electronically­recorded monetary claims are exposed to credit riskof customers. Operating receivables and payables­denominated in foreign currencies are exposed to foreign
currency fluctuation risk.
Marketable and investment securities, except for
short-term investments, are held for business and capitalalliances with business associates and are exposed tostock market fluctuation risk.
Maturities of notes, accounts payable and electronically recorded obligations are within one year.
Debts are for funding capital expenditure, and theirmaximum maturities are 4 years and X years after thebalance sheet date for the years ended March 31, 2020
and 2021, respectively. Part of the obligations has floatinginterest rates and is exposed to interest rate risk.
To hedge the foreign exchange rates fluctuation risk
associated with operating receivables and payables­denominated in foreign currencies, forward foreign­exchange contracts are used.
Hedge accounting is applied for certain derivativetransactions. Please refer to note 2 (p).
(3) Financial instruments risk management
1) Credit risk
To mitigate and quickly capture collectability issues,
the Group regularly monitors customers’ credit status,and performs due date controls and balance controls
for each customer.

When the Group utilizes derivatives or deposits
money and purchases securities for cash management
purposes, to mitigate the counterparty risk, the counterparties to these transactions are financial institutions
with high credit ratings.
2) Market risk
The Group comprehends foreign currency fluctuation risk
by currency and by month, and to mitigate the risk, theGroup enters a forward exchange contract for hedging
the cash flow fluctuation risk associated with operatingreceivables and payables denominated in foreign
currencies.
To mitigate the stock market fluctuation risk, theGroup regularly monitors stock prices and financial statusof its business associates and continuously considers
whether the Group should hold the stock.
Derivative transactions entered by the Group are inaccordance with policies and rules that provide for risk
management, approvals, reporting and verifications.
3) Liquidity risk
To mitigate the liquidity risk, the Group prepares andupdates its funds management plan on a timely basis,and maintains an appropriate level of liquidity through its
cash and cash equivalents and unused committed lines.
(4) Supplemental explanation regarding fair value of­financial instruments
Fair value of financial instruments is measured basedon the quoted market price, if available, or reasonably
assessed value if a quoted market price is not available.
Fair value of financial instruments for which quoted
market price is not available is calculated based on certain assumptions, and the fair value may differ if different
assumptions are used. In addition, the contract amountof the derivative transactions described below in note 22
DERIVATIVES does not represent the market risk of thederivative transactions.
(5) Concentration of credit risk
At both March 31, 2020 and 2021, 24% and 22% of­operating receivables were receivables from a certain
major customer (NEC Corporation).

ANNUAL REPORT 2021

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value of financial instruments
The carrying amount on the consolidated balance sheets, fair value, and differences as of March 31, 2020 and 2021
are as follows.
Financial instruments, of which the fair value is extremely difficult to measure, are not included. (Please see(2) “Financial instruments of which the fair value is extremely difficult to measure”)
Millions of yen
March 31, 2020

Carrying
amountFair value¥ 58,321¥ 58,321¥—

113,068

113,068

—

156

156

—

¥ 171,545¥ 171,545¥—

Differences

Assets:(1) Cash and cash equivalents(2) Notes and accounts receivable

112,358(3) E lectronically recordedmonetary claims

728

Allowance for doubtful accounts(*1)(17)(4) Investments securities
Total
Liabilities:(1) Notes and accounts payable¥ 41,666¥ 41,666¥—(2) E lectronically recorded
obligations

1,441

1,441

—

(3) Short-term bank loans

4,632

4,632

—

(4) C
 urrent installments oflong-term debt

298

298

—

(5) Long-term debt

3,764

3,763

(1)

Total

¥ 51,803¥ 51,802¥(1)

Derivative transactions(*2)

¥

¥

¥—

March 31, 2021

Carrying
amountFair value¥ 68,426¥ 68,426

37

37Millions of yen

Thousands of U.S. dollars
Carrying
amountFair value$ 618,065$ 618,065$——

Differences

Differences

Assets:(1) Cash and cash equivalents(2) Notes and accounts receivable(3) E lectronically recordedmonetary claims

1,113,837

1,256

11,344(75)

Allowance for doubtful accounts *

( 1)

(677)

124,495

124,495—

1,124,514

1,124,514

148

148

—

1,336

1,336

—

¥193,069¥193,069¥—$ 1,743,916$1,743,916$—(4) Investment securities
Total

¥—

123,313

Liabilities:¥ 44,188¥ 44,188¥—$ 399,132$ 399,132

$—

(2) E
 lectronically recorded
obligations

2,649

2,649

—

23,92723,927—(3) Short-term bank loans

6,360

6,360

—

57,47757,477—(4) C urrent installments oflong-term debt

3,298

3,298

—

29,78929,789—(1) Notes and accounts payable

466

465

(0)

4,209

4,200

Total

¥ 56,962¥ 56,961¥(0)$ 514,515$ 514,506

Derivative transactions(*2)

¥

¥

¥—

$

$

(5) Long-term debt

0

0

0

0

(*1) Allowance for doubtful accounts are deducted from the above Notes and accounts receivable and Electronically recorded monetary claims.
(*2) Derivative receivables and liabilities are on a net basis.

98

ANNUAL REPORT 2021$—

(Note 1) Fair value measurement of financial instruments, investment securities and derivative transactions
Assets:Liabilities:
1) Cash and cash equivalents
1) Notes payable and accounts payable2) Notes receivable and accounts receivable2) Electronically recorded obligations3) Electronically recorded monetary claims
The carrying amount approximates fair value because of
the short maturity of these instruments.

3) Short-term bank loans4) Investment securities
The fair value of equity securities is calculated by thequoted market price. Please see note 4 INVESTMENT
SECURITIES for information by category.

4) Current installments of long-term debt
The carrying amount approximates fair value because of
the short maturity of these instruments.
5) Long-term debt
Fair value of long-term debts is based on the present
value of future cash flows discounted using the current
borrowing rate for similar debt with comparable maturity.
Derivative transactions:
Please see note 22 DERIVATIVES.

(Note 2) Financial instruments of which the fair value is extremely difficult to measure
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

Unlisted equity securities¥517¥  584$5,275Investment partnership

672

1,019

9,204

Corporate bonds with equity purchase warrant

108

221

1,996

The above securities are not included in ”Assets:(4) Investment securities”, as market prices are not available andfuture cash flows cannot be estimated reliably. Thus, the fair value cannot be reasonably obtained.
(Note 3) Projected future redemption of monetary claims and securities with maturities on March 31, 2021
Millions of yen

Cash and cash equivalents
Notes and accounts receivable
Electronically recorded monetary claims

Due within
one year

Due after
one year throughfive years

Due after five
years throughten years

Due after
ten years¥ 68,426

¥—

¥—

¥—

123,313

—

—

—

1,256

—

—

—

¥192,996

¥—

¥—

¥—

Thousands of U.S. dollars
Due after
one year throughfive years

Due after five
years throughten years

Due within
one year

Cash and cash equivalents$   618,065

$—

$—

$—

Notes and accounts receivable

1,113,837———

11,344———$1,743,257

$—

$—

$—

Electronically recorded monetary claims

Due after
ten years

ANNUAL REPORT 2021

99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Note 4) The annual maturities of long-term debt and other interest-bearing debt on March 31, 2021
Millions of yen



Due within
one year

Due after one
year throughtwo years

Due after two
years throughthree years

Due after three
years throughfour years

Due after four
years throughfive years

Due after
five years

Short-term bank loans¥6,360

¥   —

¥   —

¥—

¥—

¥—

Long-term debt

¥3,298

¥264

¥201

¥—

¥—

¥—

Due after one
year throughtwo years

Due after two
years throughthree years

Due after three
years throughfour years

Due after four
years throughfive years

Thousands of U.S. dollars



Due within
one year

Due after
five years

Short-term bank loans$57,447$     —

$     —

$—

$—

$—

Long-term debt

$29,789$2,384$1,815$—$—$—

22. DERIVATIVESThe Company enters forward exchange contracts with major Japanese banks to manage certain risks arising from adverse fluctuations in foreign currency exchange rates.
On March 31, 2020 and 2021, the disclosure of fair value information for derivatives are as follows:(1) Derivatives that are not accounted for as hedges
For the year ended March 31, 2020
Millions of yen
Contract amountTransaction type

Total

Over 1 year

Fair value

Valuation
gain/loss

Forward exchange contract
Transactions out of market

Order to buy:
Euro

¥71

¥—

¥(0)

¥(0)

British pound

¥10

¥—

¥(0)

¥(0)

¥82

¥—

¥(0)

¥(0)

TotalFor the year ended March 31, 2021
Millions of yen
Contract amountTransaction type

Total

Over 1 year

Fair value

Valuation
gain/loss

Forward exchange contract
Transactions out of market

Order to buy:
Euro

¥3

¥—

¥(0)

¥(0)

British pound

¥1

¥—

¥(0)

¥(0)

¥5

¥—

¥(0)

¥(0)

TotalThousands of U.S. dollars
Contract amountTransaction type

Total

Over 1 year

Fair value

Valuation
gain/loss

Forward exchange contract
Transactions out of market

Order to buy:
Euro

$27

$—

$(0)

$(0)

British pound

$ 9

$—

$(0)

$(0)

$45

$—

$(0)

$(0)

Total(Note) The fair value of forward exchange contracts is computed based on quotes from counterparties.

100

ANNUAL REPORT 2021

(2) Derivatives that are accounted for as hedges
For the year ended March 31, 2020
Millions of yen
Contract amount
Method of hedge accounting

Transaction typeForward exchange contract

Deferral hedge accounting for forecasted transactions Order to buy:
as hedged item
U.S. dollar

Main hedged item

Total

Foreign currency denominatedforecasted transactions

TotalOver 1 year

Fair value¥1,021¥1,021¥38¥1,021¥1,021¥38(Note) T he fair value of forward exchange contracts is computed based on quotes from counterparties.
There is no derivative that are accounted for as hedges to report for the year ended March 31, 2021.

23. RELATED PARTY TRANSACTIONS(1) The Company’s balances with related parties and related transactions
NEC Corporation owned 51.48% and 51.42% of the Company’s outstanding common stock as of both March 31, 2020
and 2021, respectively.
Balances with NEC Corporation on March 31, 2020 and 2021, and related transactions for the years then ended aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen
Transactions

2020

2021

2021

¥63,488¥64,420$581,880

Accounts receivable¥25,615¥26,291$237,476

Advances received¥      482¥      852$  7,695¥47,961¥44,404$401,083

Accounts payable¥11,936¥11,649$105,220

Advance payments¥      476¥      454$  4,100

Construction and maintenance of network system:
Transactions:
Sales
Balances:

Purchases of communication device:Transactions:Purchases
Balances:

ANNUAL REPORT 2021

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. SEGMENT INFORMATIONThe reported segments of the Company are the business
units for which the Company can obtain respective financial information separately for the Board of Directors to
conduct periodic investigation to determine the distribution of management resources and evaluate their business results.
The “Digital Solutions Business,” “Network
Infrastructures Business” and “Engineering & Support
Services Business” are the Company’s reportable segments. The Company combines business segments
which have similar economic characteristics into thesereportable segments. The business segments are basedon the operation headquarters by service lines, which are
the units used for internal reporting for performance
management.
The Digital Solutions Business mainly renders system
integration related to ICT platform and outsourcing/cloudservices for business of enterprises and other customers
and provision of solutions/services that are helpful forcustomers’ business transformation by using cutting-edge/
digital technologies, and contact center services

The Network Infrastructures Business mainly centeredon telecom carriers, central and local governments andsocial infrastructures service providers, provide system
integration/services related to network infrastructures ofa public nature with the required high reliability, and thedevelopment/manufacture and sales of network equipment, and provide system integration.
The Engineering & Support Services Business mainly
renders construction business in Japan and abroad,­provision of support services such as maintenanceand operations/monitoring related to ICT systems/­
services provided by the Company and operations ofcompany-wide service infrastructures, in addition to­technical ­support using these.
Segment sales, income, assets and others are calculated by accounting methods like those employed toprepare the accompanying consolidated financial
statements.

The reported segment information for the Company and its consolidated subsidiaries for the years ended March 31,
2020 and 2021 is summarized as follows:
Millions of yen
Network
Infrastructures

Engineering &Support Services¥ 112,758¥ 83,109¥ 97,434¥ 10,314

—

—

—

—

Total

¥ 112,758¥ 83,109¥ 97,434¥ 10,314¥

Segment income¥ 11,653¥ 8,129¥ 6,715¥

Segment assets¥ 44,667¥ 48,662¥ 54,176

Depreciation and amortization

¥

1,466

¥

473

¥

344

¥

Purchases of property and equipment, andintangible assets

¥

2,057

¥

461

¥

428

Investment to entities accounted
for using equity method

¥

99

¥

—

¥

37

March 31, 2020

DigitalSolutions

OthersAdjustments

Total

Sales:(1) Sales to third parties(2) Intersegment sales¥—¥ 303,616———¥ 303,616

511¥ (10,763)¥ 16,245¥ 2,266¥ 80,470¥ 230,244

51

¥

1,237

¥

3,572

¥

155

¥

1,358

¥

4,461

¥

—

¥

—

¥

137

Others:Millions of yen
Network
Infrastructures

Engineering &Support Services¥125,960¥ 89,232¥114,089¥9,827

—

—

—

—

Total

¥125,960¥ 89,232¥114,089¥9,827¥

Segment income¥ 13,763¥ 9,291¥ 11,813

Segment assets¥ 43,936¥ 55,007¥ 58,012

Depreciation and amortization

¥

1,424

¥

444

¥

Purchases of property and equipment, andintangible assets

¥

2,220

¥ 1,101

Investment to entities accounted
for using equity method

¥

247

¥

March 31, 2021

DigitalSolutions

OthersAdjustments

Total

Sales:(1) Sales to third parties(2) Intersegment sales¥—¥339,109———¥339,109¥ 794¥ (10,098)¥ 25,563¥2,492¥ 90,888¥250,338

334

¥

42

¥

1,009

¥

3,256

¥

444

¥ 124

¥

1,369

¥

5,260

¥

—

¥

¥

—

¥

247

Others:102

ANNUAL REPORT 2021——

Thousands of U.S. dollars
March 31, 2021

DigitalSolutions

Network
Infrastructures

Engineering &Support Services$805,997$1,030,521

OthersAdjustments

Total

Sales:(1) Sales to third parties$1,137,747$88,763$—$3,063,038

—

—

—

—

—

—

Total

$1,137,747$805,997$1,030,521$88,763$—$3,063,038

Segment income$ 124,315$ 83,921$ 106,702$ 7,171$ (91,211)$ 230,900

Segment assets$ 396,856$496,856$ 523,999$22,509$820,955$2,261,204

Depreciation and amortization$

12,862

$

4,010

$

3,016

$

$

9,113

$

29,410Purchases of property and equipment, andintangible assets$

20,052

$

9,944

$

4,010

$ 1,120$ 12,365$

47,511

Investment to entities accounted
for using equity method

$

2,231

$

—

$

—

$

$

$

2,231

(2) Intersegment sales

Others:379——(Note) 1. “Others” includes purchases of information and telecommunications equipment, etc., which are not included in the reported segments.
2.	“Adjustments” of ¥–10,763 million and ¥–10,098 ($–91,211 thousand) million in segment income for the years ended March 31, 2020 and 2021,
respectively, are mainly administrative operation expenses.
3.	“Adjustments” of ¥80,470 million and ¥90,888 ($820,955 thousand) million in segment assets on March 31, 2020 and 2021, respectively, mainly
consist of surplus funds (cash and deposits), land, long-term deposits and assets relating to the administrative operations of the parent company.
4.	Segment income is adjusted with operating income in the consolidated statements of income.
5.	“Purchases of property and equipment, and intangible assets” for the years ended March 31, 2020 and 2021 include long-term prepaid expenses andtheir amortization.

Information for the changes in reportable segments
The Company restructured certain business segment-types to optimize business efficiency and revision of allocation ofbusiness sources on controlling business performance in April 2020. Accordingly, the above sales, segment income arereclassified to conform on the practice in business management for the year ended March 31, 2021. Information onreportable segments related to the year ended March 31, 2020 was accordingly restated conforming to present disclosure to reflect the changes in this event.
Related information
Related segment information for the years ended March 31, 2020 and 2021 are as follows:(1) Information by products and services
Please refer to the reported segment information.
(2) Geographical information
1) Sales		Disclosures are omitted because sales to Japanese customers are over 90% of sales in the consolidated­statements of income.
2) Property and equipment
		Disclosures are omitted because property and equipment located in Japan are over 90% of property and­equipment in the consolidated balance sheets.
(3) Information by major customers
Thousands of
U.S. dollars

Millions of yen
2020

2021

2021

¥68,110¥69,630$628,940

Customer name:
NEC Corporation
Sales

The above sales are related to the “Digital Solutions Business”, “Network Infrastructures Business” and “Engineering& Support Services Business”.

ANNUAL REPORT 2021

103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information of impairment loss on fixed assets by reported segments for the years ended March 31, 2020 and 2021
Due to the determination to close training facilities, the Company reduced the carrying amount of the corresponding
assets to the recoverable amount and recognized impairment loss of ¥1,788 million for the year ended March 31, 2020.
These facilities are included in “Adjustments” as corporate assets and not allocated to certain reportable segments.
There are no amounts to report for the year ended March 31, 2021.
Information of amortization of goodwill and balances of goodwill by reported segments as of and for the years ended
March 31, 2020 and 2021
Millions of yen
March 31, 2020

DigitalSolutions

Network
Infrastructures

Engineering &Support Services

OthersAdjustments

Total

Amortization of goodwill

¥ 22

¥224

¥—

¥—

¥—

¥247

Balances of goodwill

¥104

¥794

¥—

¥—

¥—

¥899

Network
Infrastructures

Engineering &Support Services

Millions of yen
March 31, 2021

DigitalSolutions

OthersAdjustments

Total

Amortization of goodwill

¥13

¥224

¥—

¥—

¥—

¥238

Balances of goodwill

¥54

¥569

¥—

¥—

¥—

¥623

Network
Infrastructures

Engineering &Support Services

Thousands of U.S. dollars
March 31, 2021

DigitalSolutions

OthersAdjustments$117$2,023$—$—$—$2,149Balances of goodwill$487$5,139$—$—$—$5,627

Negative goodwill incurred by reported segments for the years ended March 31, 2020 and 2021
There are no amounts to report.

25. SUBSEQUENT EVENTS
There are no subsequent events to be disclosed.

104

Total

Amortization of goodwill

ANNUAL REPORT 2021

INDEPENDENT AUDITOR’S REPORT

Independent auditor’s report
To the Board of Directors of NEC Networks & System Integration Corporation:
OpinionWe have audited the accompanying consolidated financial statements of NEC Networks & System
Integration Corporation (“the Company”) and its consolidated subsidiaries (collectively referred to as“the Group”), which comprise the consolidated balance sheets as at March 31, 2021 and 2020, theconsolidated statements of income, statements of comprehensive income, statements of changes in net
assets and statements of cash flows for the years then ended, and notes, comprising a summary ofsignificant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2021 and 2020, and its
consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Reasonableness of the Group’s estimate of total costs in applying the percentage-of-completion
methodThe key audit matter

How the matter was addressed in our audit

In the consolidated financial statements, theGroup recognized net sales of ¥339,109
million, which included the net sales of¥105,736 million recognized using thepercentage-of-completion method.

The primary procedures we performed to assess
whether the Group’s estimate of total costs inapplying the percentage-of-completion method was
reasonable included the following:

ANNUAL REPORT 2021

105

INDEPENDENT AUDITOR’S REPORTAs described in Note 2, “SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES,(q) Revenue recognition” to the consolidated
financial statements, the Group apply thepercentage-of-completion method if theoutcome of the construction activity can be
estimated reliably. The percentage ofcompletion as of the end of the reporting
period is estimated based on the percentage ofthe cost incurred to the estimated total cost.
As described in Note 2, “SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES,(u) Significant accounting estimates, 1. The
percentage-of- completion method for revenue
recognition” to the consolidated financial
statements, the Group recognizes revenue
based on the percentage of completion as of theend of the reporting period that is estimatedbased on the percentage of the cost incurred tothe estimated total cost. Therefore, the Groupneeds to reasonably estimate total costs when
receiving an order and to change the estimatedtotal costs in a timely and appropriate manneraccording to the changes in assumptions
subsequent to the start of construction.
The estimate of total costs includes
assumptions about work details and work
hours. In a project, the work details and work
hours may be changed due to facts foundsubsequent to the start of construction andchanges in site conditions, and therefore theestimate of total costs involves uncertainty.
Especially an estimate of work details andwork hours for a project with a large contract
amount may involve a high degree of
uncertainty due to its characteristics about thesize and construction period.
We, therefore, determined that our assessmentof the reasonableness of the Group’s estimateof total costs in applying the percentage-ofcompletion method was one of the mostsignificant in our audit of the consolidated
financial statements for the current fiscal year,
and accordingly, a key audit matter.

106

ANNUAL REPORT 2021

(1) Internal control testing
We tested the design and operating effectiveness ofcertain of the Group’s internal controls relevant to
the process of estimating total costs of a project. In
this assessment, we focused our testing on thefollowing:・ controls to ensure compliance with the internal
rules about how to accumulate work hours ofeach activity, what information to be used, how
to reflect the risk of any uncertainties, and how
to estimate total costs; and・ controls to reflect any changes in circumstancesthat occur subsequent to the start of construction
within the estimated total construction costs in atimely and appropriate manner.
(2) Assessment of the reasonableness of theestimated total costs
In order to assess the reasonableness of the Group’s
estimate of total costs, for projects that were material
in contract amount, we:・ inquired of an appropriate responsible person
regarding the degree of consideration about
uncertainty in estimating total costs of a projectin order to select assumptions with uncertainty
to be reflected in the total costs, and inspected
the related meeting materials;
・ inquired of an appropriate responsible person
regarding the basis of the selected assumptions
with a high degree of uncertainty after
considering the results of the above procedures,
and assessed the reasonableness of theassumptions based on the results of inspection of
the related documents that served as the basis of
the assumptions; and・ inquired of an appropriate responsible person
regarding the progress of a project in order toassess the appropriateness of the Group’s
judgment as to whether the total costs should be
revised, including whether there were any facts
found subsequent to the start of construction andchanges in site conditions in light of remaining
total costs, and inspected the minutes of the
project status meetings that served as the basis
for the Group’s responses to our inquiries.

Reasonableness of the Group’s estimate of total costs in recognizing accrued losses on sales
contracts
The key audit matter

How the matter was addressed in our audit

In the consolidated balance sheet, the Group
recognized accrued losses on sales contracts of¥512 million.

The primary procedures we performed to assess
whether the Group’s estimate of total costs inrecognizing accrued losses on sales contracts was
reasonable included the following:

As described in Note 2, “SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES,(u) Significant accounting estimates, 2.
Accrued losses on sales contracts” to theconsolidated financial statements, among sales
orders on hand at the balance sheet date, forprojects in which the estimated total cost is
expected to exceed and the contract amount,such excess costs on sales contracts are accrued
for future losses that would occur in thefollowing fiscal years.
The amount of loss is estimated to be the total
costs exceeding the contract amount, which is
expected to incur in and after the next fiscal
year. Therefore, the Group needs to reasonably
estimate total costs when receiving an orderand to change the estimated total costs
including additional costs that may occur in the
future in a timely and appropriate manner
subsequent to the start of construction.
The estimate of total costs includes
assumptions about work details and work
hours. In a construction project, the work
details and work hours may be changed due tofacts found subsequent to the start ofconstruction and changes in site conditions,and therefore the estimate of total costs
involves uncertainty. Especially an estimate ofwork details and work hours for a project witha large contract amount may involve a highdegree of uncertainty due to its characteristics
about the size and construction period.
We, therefore, determined that our assessmentof the reasonableness of the Group’s estimateof total costs in recognizing accrued losses onsales contracts was one of the most significant
in our audit of the consolidated financial
statements for the current fiscal year, andaccordingly, a key audit matter.

(1) Internal control testing
We tested the design and operating effectiveness ofcertain of the Group’s internal controls relevant to
the process of estimating total costs of a project. In
this assessment, we focused our testing on thefollowing:・ controls to ensure compliance with the internal
rules about how to accumulate work hours ofeach activity, what information to be used, how
to reflect the risk of any uncertainties, and how
to estimate total costs; and・ controls to reflect any changes in circumstancesthat occur subsequent to the start of construction
within the estimated total costs in a timely andappropriate manner.
(2) Assessment of the reasonableness of theestimated total costs
In order to assess the reasonableness of the Group’s
estimate of total costs, for projects where the contract
amount was material and the profitability was low ornegative, we:・ inquired of an appropriate responsible person
regarding the degree of consideration about
uncertainty in estimating total costs of a projectin order to select assumptions with uncertainty
to be reflected in the total costs, and inspected
the related meeting materials;
・ inquired of an appropriate responsible person
regarding the basis of the selected assumptions
with a high degree of uncertainty after
considering the results of the above procedures,
and assessed the reasonableness of theassumptions based on the results of inspection of
the related documents that served as the basis of
the assumptions; and・ inquired of an appropriate responsible person
regarding the progress of a project in order toassess the appropriateness of the Group’s
judgment as to whether the total costs should be

ANNUAL REPORT 2021

107

INDEPENDENT AUDITOR’S REPORT

revised, including whether there were any facts
found subsequent to the start of construction andchanges in site conditions in light of remaining
total costs, and inspected the minutes of the
project status meetings that served as the basis
for the Group’s responses to our inquiries.

Responsibilities of Management and Corporate Auditors and the Board of Corporate Auditors
for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Corporate auditors and the board of corporate auditors are responsible for overseeing the directors’
performance of their duties with regard to the design, implementation and maintenance of the Group’s
financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:108

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If

ANNUAL REPORT 2021

we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.


Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

We communicate with corporate auditors and the board of corporate auditors regarding, among othermatters, the planned scope and timing of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we havecomplied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.
From the matters communicated with corporate auditors and the board of corporate auditors, we
determine those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our reportbecause the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2021 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 3 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

ANNUAL REPORT 2021

109

INDEPENDENT AUDITOR’S REPORT/S/ 西野 聡人 (SEAL)
Akira Nishino
Designated Engagement Partner
Certified Public Accountant/S/長谷川 義晃 (SEAL)
Yoshiaki Hasegawa
Designated Engagement Partner
Certified Public Accountant/S/村上 智昭 (SEAL)
Tomoaki Murakami
Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
Tokyo Office, Japan
June 24, 2021
Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

110

ANNUAL REPORT 2021

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

211200400-EI-00