4Questions & Answers at the Financial Results Briefing for the FY Ended March 31, 2024
April 26, 2024
NEC Networks & System Integration CorporationQuestioner A
Q: What is your perception of the business environment in each segment?
A: In DX Solutions (DXS) we do not perceive a great deal of risk, and believe that centeringon the workstyle DX, network security areas, the solid performance of the previous
fiscal year will continue. For Network Solutions (NWS), we expect to see an expansion
in the area of social infrastructure, but prospects for telecom carriers will mirror trendsfrom the previous fiscal year and we assume the tough conditions will persist. We areresponding in various ways including a shift of resources, but we believe what is more
important is whether we can create new and unique value in the area of nextgeneration networks. Our stance is to tackle this by creating the market for ourselvesrather than being swept along with a market expansion. While this hasn't been
incorporated into our numbers, we are looking to launch these efforts as early aspossible. In Environmental & Social Solutions (ESS), we do not expect any areas toexperience major declines, and since we will also see progress such as upgrade
demand for fire prevention systems increasing from this fiscal year, we will focus on
those areas in which we can play to our strengths.
Q: Your progress with operating income is a year behind your medium-term target. Will you
be able to aim of operating income of ¥34 billion in the next fiscal year (fiscal year
ending March 31, 2026), which will be the first year of your next medium-term
management plan? In addition, despite the forecast of ¥29 billion for the current fiscal
year you mentioned that you had not given up on the operating income of ¥34 billion
stated in the current medium-term management plan. Given that, in what areas do you
see potential?
A: I would like to achieve that, but what I think is important is to close the gap between theforecast figure and our medium-term target while balancing resources and humanresource development against our workload. In terms of the difference from our
medium-term management plan and actual performance, the gap is mainly due to thedownturn in business from telecom carriers and the rise in personnel expenses.
However, given that we will launch a new and unique business in NWS and see roomfor expansion in DXS, we will continue with efforts to make various improvements. In
particular, if we can create added value with DX we will able to expand profit at agreater rate than sales, and we are looking to make good on those initiatives.

Q: You have not been issuing forecasts for the first half of the year since the previous fiscalyear. How should we consider the balance between the first and second halves for thiscurrent fiscal year?
A: NESIC's business is heavily weighted towards the second half of the year, the fourth
quarter in particular, and we don't see that trend changing this fiscal year, but we will doour best to achieve results at an earlier stage.
Questioner B
Q: You mentioned that in the NWS segment you expected an expansion in the social
infrastructure field and a decline in the telecom carrier field in the new fiscal year. At thisstage, without prospects for capital investment what is your strategy towards telecomcarriers?
A: One business operator who has made major investments in the past halting ongoinginvestments has had the biggest impact, and our telecom carrier business has becomechallenging in the immediate term. While we don't expect a future recovery here, wedon't think the approaches of other telecom operators will change. For our part, weneed to pursue new initiatives. For example, we believe that the white box approach*would allow NESIC to play to its strengths since it is not dependent on specificproducts, and this is an area we will work on. We will also focus on areas that are notdependent on investment from telecom carriers, and we also believe there arepossibilities for collaboration with telecom carriers in the utilization of local 5G.
(* White box: a new approach to network products which separates hardware andsoftware and allows users to freely customize their systems)
Q: Under "Others and elimination" you project an increase (worsening) of ¥2.5 billion for thecurrent fiscal year. Is there a likelihood of this shrinking in the future?
A: Since we are developing a new mission-critical system based on SAP this fiscal year,
this fiscal year coincides with those costs ballooning, and you can expect to see that
number go down in the next fiscal year. On the other hand, we think it will be necessary
to continue looking at wage increases going forward.
Questioner C
Q: Regarding your approach to sales forecasts for the current fiscal year, with the orderbacklog large and growing year on year, sales growth seems low. Does this mean thatcompared with the previous fiscal year you will narrow down the projects you areawarded to highly profitable ones, or does it mean there is some upside when the orderbacklog is considered?
A: Basically, we want to increase sales from highly profitable projects. This is not somethingnew; in the past we have sometimes secured projects by using equipment as a
strategic entry point in order to build relationships with customers, and we think thosekinds of opportunities will newly emerge this fiscal year. However, those prospects havenot been included in our forecasts. Our basic approach will be to increase sales in highadded-value fields and expand profit as a result.
Q: Regarding shareholder returns, this time you have raised the DOE level, but tell us more
about your approach to shareholder returns, such as the dividend payout ratio and yourfeeling for the right level of DOE.
A: We consider DOE based on our basic policy of wanting to strengthen dividends toshareholders in a stable and long-term fashion. While DOE is our focus, we consider
shareholder returns in a comprehensive manner, also taking the dividend payout ratio
into account.
Questioner D
Q: You explained that the increase in personnel costs weighed heavily on the previousfiscal year. How do you see this impacting the new fiscal year? And what is the status ofpassing on these increased costs through prices?
A: In the current fiscal year base personnel costs have increased over the previous year.
Wages have been increased by around 5% on a union member basis, and together withwage increases for management, personnel costs are rising considerably. We hopethese increases will boost employee motivation and also lead to improved businessresults. In terms of passing on higher costs through prices, we believe we have passedon these increases through sales prices in terms of reflecting sharp rises in the costs ofmaterials due to the rising prices of goods, as well as the forex impacts. However, werecognized that the higher wages adopted in the new fiscal year have not yet been fullyreflected in sales prices. As this not only affects SG&A expenses but also base costs,
we want to handle these matters going forward, including through negotiations withcustomers.

Questioner E
Q: Regarding your per-segment forecast of operating income for the new fiscal year, yousaid that you planned to significantly improve operating margins particularly in DXS andESS. Does this mean you will focus on projects with high profitability? Or does it mean
you will be pursuing some other initiatives to make these improvements?

A: Our basic approach is to change the sales mix, such as by increasing sales from highly
profitable projects. In the DXS segment that means increasing operations based on
spiral-type business model. As I explained with the case study, in the initial stages it
won't appear as the profitability has improved that much, but as the spiral continues,
proposals that represent added value for customers will overlap, and we experience
increased profitability. We hope to further accelerate these initiatives. For the ESS
segment, while it will be important to secure highly profitable projects, we will also work
to add DX elements within the business to improve added value and further enhance
profitability.

Questioner F
Q: You announced a change in presidents in June. What was the background behindchoosing Michitaka Ono, the president of your subsidiary K&N System Integrations
Corporation ("KNSI"), as the new president, and what are the expectations for the newpresident?
A: The incoming president Ono has had experience in nearly every business of the NESIC
and his management skills are highly rated. Additionally in recent years Mr. Ono has
also thoroughly demonstrated his abilities as a business manager in KNSI, and webelieve that appointing him president as a way to improve the future management ofNESIC will further enhance our business operations.

Questioner G
Q: You mentioned that performance in the area of security has recently been strong. Can
you elaborate?
A: Are involvement in the field of security is wide ranging, from networks to surveillance andphysical security, but the kinds of projects we were referring to here relate to network
security. As the places where people work are not longer limited to company premises,
there are growing demands to revise the role of networks themselves and to revisit
security measures. There is also an emerging demand for OT-type networks atfactories, and in some cases a project calls for integrating more than ten individualnetworks at a given factory. This is an area in which we can leverage our strengths,
such as by providing operation and monitoring at an SOC specifically designed for OT
together with such projects.
Q: In the previous fiscal year there was not a lot of deviation from your forecast results, but
before then there was continued instability for around two years. Should we prepare tosee some degree of deviation going forward?
A: Over the past few years, we faced challenges in areas NESIC has not previously
experienced, such as the inability to post sales due to material shortages, and the rapid
fluctuations in the exchange rate. We understand that this caused inconvenience tostakeholders, especially since there were some significant deviations from ourforecasts. We have now strengthened our structure so that such risks will notmaterialize, and we hope to continue to provide more accurate guidance going forward.
Questioner H
Q: You mentioned that you implemented structural reforms in the NWS segment. What
exactly did you do, and what were the effects?
A: Our focus was on the reallocation of resources. We have been shifting resources awayfrom the telecom carrier business which is undergoing a severe curbing of investment
and directing them toward social infrastructure, where markets such as aerospace andnational security are enjoying a resurgence. At this stage, the effects are limited tohalting the growing deterioration of profits, but in the future we expect the effects tobecome more apparent, including an expansion of business in the areas where wehave stepped up our efforts. In terms of NESIC overall, we have adopted a structurethat better facilitates the mobility of personnel, and we are trying to develop a moreagile company-wide structure enabling us to shift resources to other favorable areas
even when challenging business conditions develop.
Questioner I
Q: I believe that a subsidiary in the NWS segment is seeing demand for ticket vending
machines compatible with the new Japanese banknotes. Will there be a reactionary
decline from that demand in the current fiscal year?
A: There will still be demand in the current fiscal and we expect any reactionary decline tobe minimal. We expect a reactionary decline to develop beyond that, and we are in theprocess of considering and preparing how to anticipate that.
Questioner J
Q: Do you expect there is room for expanding the national security business? What impact
would that have on profitability?
A: There are some unique areas we are pursuing, and in some cases the projects areequipment focused leading to a minimal contribution to profits. Currently the focus of
the defense business is system integration projects being undertaken in coordination
with NEC. Therefore, some aspects depend on the situation at NEC, but this is an areaof growing demand, and we want to properly take advantage of that demand. In terms

of profitability, the system integration field has not offered poor profitability in the past,
and we are hopeful.
Questioner K
Q: It appears that investment in large-scale semiconductor plants and data centers is
heating up. Will this benefit NESIC's business?
A: At this stage we have not seen a situation where any specific, special demand hasemerged. However, with regard to data centers, we have been fielding businessinquiries regarding immersion cooling technologies, which NESIC has been pursuing incollaboration with partners. This is not yet a major business, but we believe these areasof high added value have excellent future potential.

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