Consolidated Financial Statements for the First Quarter of Fiscal Year ending March 31, 2020

31/Jul/2019
These financial statements have been prepared in accordance with accounting principals generally accepted in Japan.

NEC Networks & System Integration Corporation

Stock exchange listing: Tokyo
Code number:
1973

https://www.nesic.co.jp/english/index.html
1. Consolidated Results for the First Quarter (April 1, 2019 to June 30, 2019)of Fiscal Year ending March 31, 2020

(Rounded down to the nearest million yen.)(1) Net Sales and Income

3 months ended
June 2019
3 months ended
June 2018

Net sales(¥ million)

Year-on-yearchange (%)

OperatingincomeYear-on-yearchange (%)

Ordinary
incomeYear-on-yearchange (%)

60,537

9.2

-178

—

-251

—

55,455

4.3

-328

—

-340

—

Net income
attributable
Net income
Year-on-year
to owners ofper sharechange (%)
the parent(¥)(¥ million)

Net income
per share(diluted) (¥)

3 months ended
21
—
0.43
—
June 2019
3 months ended
-205
—
-4.15
—
June 2018c.f. Comprehensive income: 1Q/FY Mar 2020: ¥188 million ( - %); 1Q/FY Mar 2019: ¥-100 million (-%)
(2) Financial Position
Owner's
Net assets
equity ratio
per share (¥)(%)
30/Jun/2019
201,408
105,78751.2
2,076.83
31/Mar/2019
216,171
107,60848.5
2,113.19
c.f. Owner's equity: 30/Jun/2019: ¥103,083 million; 31/Mar/2019: ¥104,888 million
Total assets(¥ million)

Net assets(¥ million)

2. Dividends
1stquarter
FY ended Mar. 2019—

Dividends per share (¥)
3rd
InterimYear-endquarter
38.00

—

40.00

※
※
FY ending Mar.
※
—
40.00
—
40.00
2020
Note: Revisions to projected dividends for the quarter under review: no

Full year
78.00
80.00

※

※ Forecasts

3. Financial Forecasts for Fiscal Year ending March 31, 2020 (April 1, 2019 to March 31, 2020)
Net sales
6 months ending
Sep. 2019
FY ending Mar. 2020

(Percentages represent change compared to the previous corresponding period.)
Net income attributable to Net income
Operating income
Ordinary income
owners of the parent
per share(¥ million)(%)(¥ million)(%)(¥ million)(%)(¥)(¥ million)(%)

130,000

6.1

2,700

2.6

2,900

0.0

1,600

-16.3

32.24

295,000

6.1

13,0001.8

13,100

0.6

8,900

0.2

179.31

Note: Revisions to projected results for the quarter under review: no
Cautionary Statement
Forecasts of results mentioned in this document are future estimates and are thus inclusive of risks and uncertain factors since they are not based on
definite facts. Please be aware that a variety of factors could cause actual results to differ significantly from those projected. The major factors affecting
actual results include the economic climate and social trends surrounding the business of this Company’s group, consumer trends vis-a-vis systems
and services provided by this Company’s group, as well as pressure to lower prices and ability to cope with the market in response to intensifiedcompetition.
Factors affecting results are not limited to the ones mentioned above.

4. Business Results(1) Business Results for the 1Q for the Fiscal Year Ending March 31, 2020
During the first quarter under review (the period from April 1, 2019 to June 30, 2019), the Japanese
economy continued its moderate recovery amid improvement in the employment and income
conditions. However, there were worrying trends in areas such as trade and associated fluctuationsin the financial and capital markets, and weakness in some aspects of exports and production havealso been evident recently.

Under these economic conditions, each segment of the information communication technology(ICT) market, the business domain where NEC Networks & System Integration Corporation(hereinafter “the Company”) operates, generally remained strong.
In the enterprises market, companies maintained a high level of investment in management
improvements, such as work-style innovation and strengthening their competitiveness, and steppedup capital expenditure in response to rising inbound tourism. In addition, interest in cutting-edge
technologies has remained at a high level, including DX such as the cloud, artificial intelligence (AI),the Internet of Things (IOT) and Robotic Process Automation (RPA). Capital investment for enhancing
telecommunication quality in the telecom carrier business and investment in sophisticated urban
infrastructures by the central and local government and public interest-related companies such as thefirefighting and disaster prevention areas and the broadcasting and CATV fields all continued.

In this market environment, the Company and its consolidated subsidiaries (hereinafter “theGroup”) actively stepped up investments in the work-style innovation area, the enhancement ofcommunications infrastructures associated with the new construction or reconstruction of hotels in
response to increasing numbers of inbound tourists, and projects such as firefighting and disasterprevention systems and broadcasting and CATV.
Moreover, in May 2019 the Company announced “Beyond Borders 2021,” its Medium-Term
Management Plan, with a view to changes in the environment over the next 10 years. We aim to bea “communication service orchestrator” that produces new social value in collaboration with ourpartners, utilizing the strengths of the Group. We also plan to accelerate a shift to a new businessmodel and new business creation based on digital and 5G, regarding the resolution of social issues
and a wave of technological innovation as an opportunity for business expansion.
Under this concept, our business units were reorganized in line with business areas of focus in April
2019 with the aim of demonstrating technical expertise or competitiveness. At the same time, ourorganizational capability for future growth was reinforced by consolidating advanced technologies andbusiness creation functions under newly established Business Design Operations Unit. In addition,
we developed a new services combining the work-style innovation solution “EmpoweredOffice(※)”
and DX technology and self-practiced proactively. We also accelerated co-creation with our partners

to discover cutting-edge solution services such as investment in a US venture fund and the facilitationof partnerships with global venture capitals/accelerators.

As a result, the Group posted the following consolidated results for the fiscal year under review:

Net sales¥60,537 million¥5,082million increase year on year

Operating income (loss)(¥178 million)¥150million improve year on year

Ordinary income (loss)(¥251 million)¥ 89million improve year on year

¥21 million¥ 227million improve year on year

Net income (loss) attributable toowners of the parent＜Reference＞
Orders received¥74,115 million¥7,902million increase year on year

Net sales increased 9.2% year on year, to ¥60,537 million. This result reflected significant
growth in the Digital Solutions business centered on business related to work-style innovationand the development of networks for hotels and other service providers. In line with net sales,orders received also increased 11.9% year on year, to ¥74,115 million. This result reflected the
expansion of all segments, including the expansion of firefighting and disaster prevention
systems and the broadcasting and CATV fields in addition to the expansion of work-styleinnovation-related business and network establishment for service providers.
Looking at profits, operating income improved ¥150 million year on year, to negative ¥178
million, and ordinary income improved ¥89 million, to negative ¥251 million. These results
reflected the fact that the Digital Solutions business and the Network Infrastructures businessposted higher income due to higher net sales and ongoing reduced costs, despite lower incomein the Engineering & Support Services business due to an unprofitable mega solar project. Net
income attributable to owners of the parent improved ¥227 million year on year, to ¥21 million.
This result reflected the posting of an impairment loss resulting from the decision to close down
a training facility and a review of the recoverability of deferred tax assets.

Operating results by business segment were as follows:（Million yen）

Net sales by business segment
Engineering &Digital

Network

Solutions

Infrastructures

Support

Other

Total

Services

1Q Fiscal 2020.3

23,47015,355

18,4683,243

60,537

1Q Fiscal 2019.3

20,791

14,831

18,0281,803

55,455

Increase or (decrease)

2,679

524

439

1,439

5,082

Ratio of

12.9

3.5

2.4

79.8

9.2

increase/(decrease) (%)（Million yen）

Reference: Orders received by business segment
Engineering &Digital

Network

Solutions

Infrastructures

Support

Other

Total

Services

1Q Fiscal 2020.3

25,94622,993

22,986

2,188

74,115

1Q Fiscal 2019.3

24,765

21,202

17,686

2,558

66,213

Increase or (decrease)

1,180

1,791

5,299

(369)

7,902

4.8

8.4

30.0

(14.4)

11.9

Ratio ofincrease/(decrease) (%)

1. Digital Solutions business
Sales for the work-style innovation related field and the development of networks forhotels expanded. As a result, net sales increased 12.9% year on year, to ¥23,470 million.
2. Network Infrastructures business
Sales for telecom carriers increased due to the contribution of product sales at a consolidated
subsidiary, and sales for social infrastructures also grew. As a result, net sales for the businessincreased 3.5% year on year, to ¥15,355 million.

3. Engineering & Support Services businessNet sales for the business increased 2.4% year on year, to ¥18,468 million, as the officefacility engineering or services business expanded despite a fall in large projects forconstructing mega solar power plants.
*EmpoweredOffice:Work-style innovation solution to propose business process innovation to a more intelligent
and creative work-style by combining our strengths, ICT with facility construction capabilities

<Outline of Business Segments>
Business Segment

Descriptions of Main Businesses
Mainly system integration related to ICT platform and outsourcing/cloudservices for business of enterprises and other customers and provision

Digital Solutionsof solutions/services that are helpful for customers’ business
transformation by using cutting-edge/digital technologies , and contact
center services
Mainly centered on telecom carriers, central and local governments
and social infrastructures service providers, provide system

Network

integration/services related to network infrastructures of a public

Infrastructuresnature with the required high reliability, and thedevelopment/manufacture and sales of network equipment, andprovide system integration.
Construction business in Japan and abroad, provision of support

Engineering & Support
Services businessservices such as maintenance and operations/monitoring related to ICT
systems/services provided by the Company and operations ofcompany-wide service infrastructures, in addition to technical support
using these.

OthersSales of purchased equipment

The Company implemented a reorganization on April 1, 2019. In association with the organizationalchange, there were changes in the reportable segments in the first quarter under review from theEnterprise Networks business, the Carrier Networks business and the Social Infrastructures businessto the Digital Solutions business, the Network Infrastructures business, and the Engineering & Support
Services business.
Information on reportable segments related to the first quarter of the previous fiscal year wasreclassified for disclosure to reflect the changes in this event.

(2) Outlook for the Fiscal Year Ending March 31, 2020
The Japanese economy is expected to continue a modest recovery, due mainly to the effect ofgovernment stimulus measures and improvements in the employment and income conditions.
However, there are concerns such as trade issues and the downward trend of overseas
economies, and a risk that could result in a downturn of the Japanese economy remains.
In this business environment, there are no changes to the full-year forecasts of consolidated
financial results for the fiscal year ending March 2020 from the initial forecast because otherbusinesses have remained stronger than expected, except for the unprofitable mega solar project.

Net sales¥295 billion

6.1% increase year on year

Operating income¥13.0 billion

1.8% increase year on year

Ordinary income¥13.1 billion

0.6% increase year on year

Net income attributable¥8.9 billion

0.2% increase year on year

to owners of the parent

5. Consolidated Financial Statements(1) Consolidated Balance Sheets
As ofMarch 31, 2019
AssetsCurrent assets
Cash and cash equivalents
Notes and accounts receivable
Electronically recorded monetary claims
Purchased goods,materials and supplies
Work in process
Exc Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property and equipment
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Notes and accounts payable
Electronically recorded obligations
Short-term bank loans
Current installments of long-term debt
Accruedncome taxes
Accrued bunuses to directors and corporate auditors
Accrued warranty on products
Accrued losses on sales contracts
Accrued office transfer cost
Other current liabilities
Total current liabilities
Long-term liabilities
Long-term debt
Liabilities for retirement benefits
Other liabilities
Total long-term liabilities
Total liabilities
Net assets
Shareholders' equity
Capital stock
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders' equity
Accumulated other comprehensive income
Net unrealized holding gain on other securities
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets(Millions of yen)
As ofJune 30, 201954,354
106,553
606
6,354
6,827
6,423
(82)
181,036

67,94873,282
786
6,583
9,026
7,490
(82)
165,034

10,217

8,316

1,146
5,088
6,234

1,084
4,963
6,047

13,6005,144(62)
18,68235,134
216,171

16,1185,951(61)
22,00836,373
201,408

40,274
807
2,284
231
3,175
117
113
1,980
－
23,34472,32830,301
907
2,680
231
362
29
119
2,690
405
21,98959,7183,896
30,6091,729
36,234
108,562

3,838
30,548
1,515
35,901
95,62013,122
16,65979,520(279)
109,022

13,122
16,65977,556(280)
107,05831(471)(3,694)(4,134)
2,719
107,608
216,17130(449)(3,556)(3,975)
2,704
105,787
201,408

(2) Consolidated Statements of Income and Comprehensive Income(Consolidated Statements of Income)(Millions of yen)
1Q, FY March 2019
1Q, FY March 2020
(3 months ended June 2018) (3 months ended June 2019)

Net sales

55,45560,537

Cost of sales

47,41751,801Gross profit

8,037

8,736

Selling, general and administrative expenses

8,365

8,915

Operating income (loss)

(328)

(178)

Non-operating income
Interest income

1011

Dividends income of insurance

4

20

Other

71

64

Total non-operating income

8697Interest expenses

27

23

Compensation for damage

0

67

Other

71

79

Total non-operating expenses

99

169

(340)

(251)

Impairment loss

－

1,788

Office transfer cost－405

Total extraordinary losses

－

2,194

Income (loss) before income taxes(340)(2,445)

Income taxes(178)(2,448)Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to owners of theparent

(162)

2

43

(18)

(205)

21

Non-operating expenses

Ordinary income (loss)
Extraordinary losses(Millions of yen)

(Millions of yen)

1Q, FY March 2019
1Q, FY March 2020
(3 months ended June 2018) (3 months ended June 2019)
Net income (loss)

(162)

2

Other comprehensive income
Net unrealized holding loss on other securities

(11)

(0)

Foreign currency translation adjustments

(78)

48

Adjustments for retirement benefit
Share of other comprehensive income ofassociates

153

137

(2)

(0)

61

185

(100)

188

(127)

180

26

8

Total other comprehensive income
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests

(3) Consolidated Statements of Cash Flows(Millions of yen)
1Q, FY March 2020

1Q, FY March 2019
Cash flows from operating activities
Net income (loss) before income taxes
Depreciation and amortization
Amortization of goodwill
Impairment loss
Increase (decrease) in allowance for doubtful
Increase (decrease) in asset for retirement benefit
Increase (decrease) in liability for retirement benefits
Increase (decrease) in accrued bonuses to directors
andIncrease (decrease) in accurued warranty on products
Increase (decrease) in accurued losses on sales
contracts
Interest and dividend income
Interest expense(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividend income received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from sale of property and equipment
Purchase of intangibles
Proceeds from sale of intangibles
Purchase of investment securities
Collection of loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activities
Net increase (decrease) in short-term bank loans
Repayments of long-term debt
Net (increase) decrease in treasury shares
Dividends paid to shareholders
Dividends paid to minority shareholders of subsidiaries
Other, net
Net cash provided by used in financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period(3 months ended June 2018) (3 months ended June 2019)
(340)
607
61
－
(7)
71
146

(2,445)
899
61
1,788
(2)
39
109

(80)
(2)

(88)
6

493
(22)
27
36,362(2,262)(12,446)(1,082)
2,035
23,56022(24)(3,224)
20,334710(29)
23
33,164(2,427)(9,881)(773)(1,565)
19,59129(20)(2,718)16,881

(732)
0
(242)
－
(111)
0
(243)
(1,329)

(395)
4
(203)
0
(397)
0
(486)
(1,477)

(506)
(42)
(0)
(1,824)(15)(108)(2,498)

369
(57)
(0)
(1,973)(19)(128)(1,810)(71)
16,43457,28173,716

0
13,59454,35467,948

(4) Segment Information
Business Segment Information
First quarter of fiscal March 2020 (3 months ended June 2019)

Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

(Millions of yen)

Digital Solutions

Network
Infrastructures

Engineering &Support Services

23,47023,4701,653

15,355
15,355379

18,46818,468(165)

Others

3,243
3,243
120

Adjustments(2,166)First quarter of fiscal March 2019 (3 months ended June 2018)
DigitalSolutions
Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

20,791
20,791
1,142

Total

60,53760,537(178)(Millions of yen)

Network
Infrastructures

Engineering &Support Services

14,831
14,83164

18,02818,028
517

Others

1,803
1,803
52

Adjustments(2,105)

Total

55,45555,455(328)