Consolidated Financial Statements for the Fiscal Year ended March 31, 201727-Apr-2017
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

http://www.nesic.co.jp/english/index.html
1. Consolidated Results for the Fiscal Year ended March 31, 2017
(Rounded down to the nearest million yen.)(1) Net Sales and Income(Percentages represent change compared with the same period of the previous fiscal year.)Net sales(¥ million)

Year-on-yearchange (%)

Operatingincome(¥ million)

Year-on-yearchange (%)

Ordinary income Year-on-year change(¥ million)(%)

FY ended March/17
257,912
-7.9
9,974
-29.3
9,975
FY ended March/16
279,961-4.2
14,111-12.7
14,133（Note) Comprehensive income : 31/3/2017 : ¥5,753 million (61.9%) ; 31/3/2016 : ¥3,553 million (-63.2%)

Profitper share (¥)

Profit per
share(diluted) (¥)

Return on
equity (%)

-29.4
-12.7

Profitattributable toYear-on-year
owners ofchange (%)
parent(¥ million)
6,549
9.2
5,996
-23.0

Ordinary
Operatingincome/ Total income/ Net
assets (%)
sales (%)

FY ended March/17
131.94
—
7.0%
5.1%
3.9%
FY ended March/16
120.80
—
6.5%
7.1%
5.0%
（Reference) Equity in earnings (losses) of affiliates (million) : 31/3/2017 : － ; 31/3/2016 : ¥14million(2) Financial Position
Total assets(¥ million)

Net assets(¥ million)

Owner's equity
ratio (%)

Net assets per
share (¥)

31-Mar-17
197,469
96,67447.9
1,906.03
31-Mar-16
196,569
94,39747.2
1,868.25
c.f. Owner's equity: 31/3/2017 ¥94,611million ; 31/3/2016 ¥92,738million(3) Cash FlowsFY ended March/17
FY ended March/16

Net cash provided by (used Net cash provided by (usedin) operating activities
in) investing activities(¥ million)(¥ million)
22,634-2,697
9,435-2,822

Net cash provided by (used in)financing activities(¥ million)-4,144-1,402

Cash and cash equivalents
at end of year(¥ million)
59,64843,889Total dividends
paid(full year)
3,474
3,573

Payout ratio
Dividends/(consolidated Net assets) (%)(consolidated
57.9
3.8
54.6
3.8

2. Dividends

FY ended 3/2016
FY ended 3/2017
FY ending 3/2018（Projected)

1stquarter———

Dividends per share (¥)
3rdYear-endquarter
35.00
—
35.00
36.00
—
36.00

Interim

37.00

—

37.00

Full year
70.00
72.00
74.00

54.8

3. Financial Forecasts for Fiscal Year ending March 31, 2018

Net sales(¥ million)
6 Months ending
Sep/17
FY ending 3/2018(%)(Percentages represent change compared to the previous corresponding period.)
Profitattributable
Profit attributable to owners
Operating income
Ordinary income
to owners ofof parent
parent per
share(¥ million)(%)(¥ million)(%)(¥ million)(%)(¥)

120,000

1.0

2,000

15.9

2,000

7.9

1,100

8.7

22.16

270,000

4.7

10,5005.3

10,500

5.3

6,700

2.3

134.98

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
ondefinite facts. Please be aware that a variety of factors could cause actual results to differ significantly from those projected. The major factorsaffecting
actual results include the economic climate and social trends surrounding the business of this Company’s group, consumer trends vis-a-vissystems andservices provided by this Company’s group, as well as pressure to lower prices and ability to cope with the market in response tointensifiedcompetition.Factors affecting results are not limited to the ones mentioned above.

4. Business Results(1) Business Results for the Fiscal Year Ended March 31, 2017
During the fiscal year ended March 31, 2017 (the period from April 1, 2016 to March 31,2016), despite some signs of weakness, the Japanese economy continued to experience a
moderate recovery, supported by the effects of a range of economic measures by thegovernment amid the continued improvement of employment and income conditions and theincrease in corporate earnings.
In the fields of information and communication technology (ICT), in which NEC Networks &System Integration Corporation (“the Company”) operates, differences were observed in eachfield under these economic conditions.
First, in the corporate market, while corporate managers continued to hold critical views on
the effects of investment, there was active investment for enhancing business management
and competitiveness, including investment in work style innovation.
The environment surrounding the telecom carrier business remained severe, because of theongoing restraint on capital spending on network infrastructure.
In the central and local governments as well as the public interest market, while investmentin the digitalization of fire-fighting and emergency radio systems came to an end with the arrivalof the deadline for migration from analog systems in May 2016, investments for the safety andsecurity and for the improvement of urban infrastructure, including infrastructure in the
broadcasting business, remained firm. In addition, following the revision of the Feed-In Tariff(FIT) Act, demand for the construction of solar power generation plants has become brisk.
Meanwhile, there was weakness in some areas, such as the public sector (road communication
system, etc.), where there were delays in bidding and the competitive environment worsened.
Meanwhile, overseas, particularly in Asia, there is a demand for the construction of suchinfrastructure as mobile communications networks.
In this market environment, the Company and its consolidated subsidiaries (hereinafter the“Group”) worked to reinforce their sales capabilities and actively develop promotion activities
for solutions, while moving forward internally with initiatives to strengthen the Group’s businesscapabilities, including the development of next-generation ERP systems and the continuous
improvement of cost effectiveness, as well as conducting cost reduction activities by driving
internal production forward.
For enterprises, it launched NetsVoice, a cloud-based voice service, moved ahead with theinternal demonstration of telework for which demand has become tangible as work style reform
has spread with an eye toward sales expansion, and opened an IoT laboratory to conduct
validations and evaluations of customers’ IoT solutions while they are under development anda new base for providing technical services for IoT devices and other equipment. By doing so,
the Group proceeded with measures for expanding its strategic business fields such as
EmpoweredOffice and IoT/MVNO. In addition, it strengthened the project management system
to reliably carry out a large-scale project for the construction of solar power generation plants－1－for which it received orders in the fiscal period under review, including the establishment of thesystem for working cross-departmentally on the project on a companywide basis.
Overseas, the Group also strengthened its efforts in the Myanmar market, into which it madea full-scale entry in the previous fiscal year, by establishing ICT Star Group Myanmar Co., Ltd.,an overseas subsidiary, in April 2016 through joint venture with local companies. The purposeof this joint venture is to strengthen its business base and further expand its business by
securing and cultivating engineers in Myanmar where infrastructure investment is expected to
grow in the future.
As a result, the Group posted the following consolidated results for the year under review:¥257,912 million

7.9%

decrease year on year

Operating income¥9,974 million

29.3%

decrease year on year

Ordinary income¥9,975 million

29.4%

decrease year on year

Net income attributable¥65.49 million

9.2%

increase year on year

¥279,241 million

1.6%

increase year on year

Net sales

to owners of the parent＜Reference＞
Orders received

Net sales decreased 7.9% year on year, to ¥257,912 million. This was caused by a substantial
decline in sales in the Carrier Networks business linked to the restraint on capital spending bytelecom carriers, despite an increase in sales in the business related to work style reform andother businesses in focus under the medium-term business strategy (announced in May 2016).
Another factor was the completion of projects in response to the digitalization of fire-fighting andemergency radio systems in May 2016. Orders received increased 1.6% year on year, to¥279,241 million, due to solid sales to enterprises and orders for large-scale projects for theconstruction of solar power generation plants, despite effects such as the restraint on capitalspending by telecom carriers and the completion of projects in response to the digitalization offire-fighting and emergency radio systems.
On the profit front, operating income and ordinary income declined ¥4,137 million and ¥4,158
million year on year, respectively, to ¥9,974 million and ¥9,975 million, chiefly reflecting adecrease in gross profit due to the significant decrease in net sales and increases in pro forma
standards tax and the next-generation ERP systems development costs, despite an
improvement in the cost of sales ratio, mainly in the Enterprise Networks and Carrier Networks
businesses, due to the improvement of cost effectiveness. Net income attributable to ownersof the parent increased ¥553 million year on year, to ¥6,549 million, partly due to a decreasein extraordinary losses.

－

2

－

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

Net sales by business segment
Enterprise

CarrierSocialNetworks

Networks

Infrastructures

Other

Total

Fiscal 2017.3

107,366

61,57982,362

6,602

257,912

Fiscal 2016.3

109,584
ሺ2,218)
ሺ2.0)

69,306(7,727)(11.1)

96,260(13,897)(14.4)

4,810
1,792
37.3

279,961(22,049)(7.9)

Increase (decrease)
Ratio of increase(decrease)(%)（Million yen）

Reference: Orders received by business segment
Enterprise

CarrierSocialNetworks

Networks

Infrastructures

Other

Total

Fiscal 2017.3

116,958

68,67586,546

7,060

279,241

Fiscal 2016.3

109,944

66,89991,195

6,907

274,946

7,013

1,776

ሺ4,648)

153

4,294

6.4

2.7

ሺ5.1)

2.2

1.6

Increase (decrease)
Ratio of increase(decrease)(%)

1. Enterprise Networks businessNet sales decreased 2.0% year on year, to ¥107,366 million, reflecting decreased sales
in the PBX business, which showed good results in the previous fiscal period, among otherfactors, despite solid sales of EmpoweredOffice, a solution for office innovation, as ICT
investment in work style reform remained firm.
2. Carrier Networks businessNet sales decreased 11.1% year on year, to ¥61,579 million, due to the effect of cuts incapital spending by telecom carriers, particularly in mobile communications base stations.
3. Social Infrastructures businessDespite an increase in broadcast/CATV business, net sales decreased 14.4% year on
year, to ¥82,362 million, reflecting a fall in sales related to the digitalization of fire-fighting
and emergency radio systems because of the arrival of the deadline for migration fromanalog systems in May 2016.

－

1

－

*EmpoweredOffice:EmpoweredOffice is our office innovation solution. It combines our strengths in ICT and
facility installation to enable more intellectual and creative styles of work through process
reforms. It also proposes new methods and places of work that enable customers to fulfill
their social responsibilities, such as the strengthening of security and environmental
responsiveness.

<Outline of Business Segments>
Business Segment

Descriptions of Main Businesses
Service integration of ICT solutions, mainly for the enterprises market
Total office solutions based on ICT with securities or environmental

Enterprise Networks

solutionsand related operation/monitoring services, as well as outsourcing
services using our own contact centers and data centers
Service integration mainly for telecom carriers’ ICT platforms (frommobile communications base stations to core networks), including
systems integration, installation, and related services such as

Carrier Networks

operations and monitoring.
Systems integration of large-scale, wide-area, carrier-grade ICT
platforms and data centers and related operations, monitoring services
Development, manufacturing, sales and systems integration of network
equipment and other equipment.
Service integration of ICT infrastructure for governments and public
utilities (broadcasters, electric power companies, etc.), such as systems

Social Infrastructures

integration, installation, operation, and monitoring, and operations inmarkets other than the Tokyo, Nagoya, and Osaka areas. Overseas
subsidiaries

Others(2)

Sales of purchased equipment

Outlook for the Fiscal Year Ending March 31, 2018
In the fiscal year ending March 31, 2018, the Japanese economy is expected to continue toshow a moderate recovery, reflecting the effect of a range of economic measures by thegovernment and the continued improvement in employment and income. However, it continues
to face uncertain factors such as the uncertainty of the overseas economies and the influenceof fluctuations in the financial and capital market.
The ICT industry looks set to continue to face a situation where it is difficult to take an optimistic
view, with telecom carriers expected to continue to curb capital spending on the network
infrastructure, which hit the bottom, and with the continued competitive environment despite
steady public investment by the governments. Still, some factors are expected to be favorable,
including an increase in companies’ investment appetite centered around work style reform.
－

2－

In the fiscal year ending March 31, 2018, the Company forecasts that sales will increase 4.7%,
to ¥270 billion, due to the strengthening of the initiatives for the businesses under focus in themedium-term business strategy and the steady conduct of the large-scale project of theconstruction of solar power generation plants, as the decrease in the reaction to the end of
projects in response to the digitization of fire-fighting and emergency radio systems has run its
course and the business for telecom carriers has bottomed out.
In the Enterprise Networks business, the Company will seek to actively expand the business,taking advantage of customers’ increasing willingness to make ICT investments relating to work
style reform. We will also continue to strive to expand sales to local companies and municipalities.
The Carrier Networks will be more proactive, pursuing initiatives in the business and public
sectors and for overseas telecom carriers as well as in the IoT field, which is expected to grow,making the most of our assets for domestic telecom carriers and creating and proposing newvalue-added services while capital spending by domestic telecom carriers remains weak,although its curve has hit the bottom.
In the Social Infrastructures business, we will be active in the businesses that are expected toexperience firm investment, such as the broadcasting/CATV business and the disasterprevention network business, while the decrease in reaction to the end of projects in responseto the digitization of fire-fighting and emergency radio systems has run its course, despite theongoing competitive environment in the public sector.
On the profit front, operating income and ordinary income are both forecast to increase to ¥10.5
billion due to increased sales. Net income attributable to owners of the parent is expected toincrease to ¥6.7 billion year on year.
Net sales¥270 billion

4.7% increase year on year

Operating income¥10.5 billion

5.3% increase year on year

Ordinary income¥10.5 billion

5.3% increase year on year

Net income attributable¥6.7 billion

2.3% increase year on year

to owners of the parent(3)Profit Distribution Policy and Dividends for the Fiscal Year Ended March 2017 and the Fiscal

Year Ending March 2018
We view the distribution of a reasonable share of profits to shareholders as one of our top
management priorities, and make every effort to reinforce the Company’s managementfoundation, strengthen its financial standing, and increase its earning capacity. While wealso place a great deal of importance on increasing our corporate value through growth byaccelerating strategic investment in M&A, strengthening the business foundation andcreating new businesses that will allow us to expand our future businesses that will beareas of focus, we strive to continually meet the expectations of our shareholders in our
profit distribution.
On that basis, in line with forecasts made previously, we have decided to increase ouryear-end dividend to ¥36 per share and our annual dividend to ¥72 per share for the fiscal－

3－

year ended March 2017, rising ¥2 from the previous fiscal year.
The dividend per share for the fiscal year ending March 2018 is expected to be ¥37 forboth the interim and year-end periods, increasing our annual dividend to ¥74.

－

4

－

5. Consolidated Financial Statements(1) Consolidated Balance Sheets
As ofMarch 31, 2016
AssetsCurrent assets
Cash and cash equivalents
Notes and accounts receivable
Purchased goods,materials and supplies
Work in process
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures (net)
Machnery and vehicles
Accumulated depreciation
Machnery and vehicles (net)
Furniture and fixtures
Accumulated depreciation
Furniture and fixtures (net)Land
Construction in progress
Other
Accumulated depreciation
Other (net)Total property and equipment
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities
Asset for retirement benefits
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
Short-term bank loans
Current installments of long-term debt
Accruedncome taxes
Accrued consumption taxes
Advanced received
Accrued bunuses to directors and corporate auditors
Accrued warranty on products
Accrued losses on sales contracts
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 ofMarch 31, 2017

43,889104,841
2,878
6,311
4,246
5,514
(44)
167,638

59,64891,152
2,679
5,815
4,102
5,694
(92)
168,999

9,817(5,422)
4,394
202
(176)
25
13,642(10,093)
3,549
2,507
277
1,053
(839)
214
10,967

9,875(5,726)
4,148
187
(155)
32
14,435(10,854)
3,581
2,507
382
443
(375)
67
10,719

1,944
3,080
5,025

1,689
2,871
4,561

412
514
8,250
3,801
(41)
12,93728,931
196,569

421
324
8,881
3,612
(51)
13,18828,469197,469

39,190
4,154
163
3,883
2,423
3,721
99
189
399
12,887
67,11336,474
4,069
171
2,964
1,965
4,678
67
123
645
12,33763,4984,185
28,9601,911
35,057102,171

4,014
31,206
2,075
37,296
100,795

13,122
16,65067,597(270)
97,10013,122
16,652
70,622(272)
100,12432(376)(4,018)(4,362)
1,659
94,397
196,56935(394)(5,154)(5,513)
2,062
96,674
197,469

(2) Consolidated Statements of Income and Comprehensive Income(Consolidated Statements of Income)(Millions of yen)
FY Mar/2016

FY Mar/2017

Net sales

279,961

257,912

Cost of sales

234,798

215,326

Gross profit

45,162

42,585

Selling, general and administrative expenses

31,051

32,611

Operating income

14,111

9,974

Non-operating income
Interest income

59

38

Insurance income

172

190

Insurance repayment

59

Other

283

303

-

Total non-operating income

574

532

Interest expenses

80

85
100

Non-operating expenses
Loss on disposal of property and equipment

110

Business reconstruction expenses for subsiriaries

94

112

Other

267

232

Total non-operating expenses

553

532

14,133

9,975

Ordinary income
Extraordinary income
Gain on sale of investment in affiliates

40-

Total extraordinary income

40-

Extraordinary losses
Closing of affiliates cost-

93

Amortization of goodwill

464-

Retirement benefit expenses

464-

Relocation expenses for subsidiaries

140-

Total extraordinary losses

1,070

93

Income before income taxes

13,103

9,881

Income taxes - current

4,753

2,973

Income taxes - deferred

2,195

(16)

Income taxes

6,949

2,957

Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent

6,153
157

6,923
374

5,996

6,549
(Millions of yen)

FY Mar/2016
Net income

FY Mar/2017
6,153

6,923

(13)

4

Other comprehensive income
Net unrealized holding loss on other securities
Foreign currency translation adjustments

(496)

(38)

Adjustments for retirement benefit(2,090)(1,136)

Total other comprehensive income(2,600)(1,170)

3,553

5,753

3,512

5,398

40

355

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

(3) Consolidated Statements of Cash Flows

Cash flows from operating activities
Net income before income taxes
Depreciation and amortization
Amortization of goodwill
Increase (decrease) in allowance for doubtful receivables
Increase (decrease) in asset for retirement benefit
Increase (decrease) in liability for retirement benefits
Increase (decrease) in accrued bonuses to directors and corporate auditors
Increase (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
Purchase of investment securities
Loans receivable madeCollection of loans receivable
Proceeds from sales of investments in affiliates
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
Proceeds from long-term debt
Proceeds from sale and purchase of treasury stock, net
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(Millions of yen)
FY Mar/2016

FY Mar/2017

13,103
2,753
784
(12)
(370)
593
(25)
(90)
236
(74)
80
8,316
901
(9,287)(1,165)(974)
14,76974(80)(5,328)
9,435

9,881
2,834
255
54
8
810
(31)
(66)
242
(50)
85
13,463678(2,640)(447)
1,654
26,73350(85)(4,063)
22,634(2,417)
6
(631)
(11)
(4)
6
151
78
(2,822)(1,886)
2
(688)
(9)
(1)
5
－
(119)
(2,697)

2,623(3,168)3,000(3)(3,326)(18)(509)(1,402)(272)
4,938
38,95143,889

23
(163)
－
(2)
(3,521)(14)(466)(4,144)(33)
15,75843,88959,648

(4) Segment Information
Business Segment

Year ended March 31, 2017
(Millions of yen)Enterprises Networks

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

Carrier Networks

Social Infrastructures

OthersAdjustments

Total

116,958

68,67586,546

7,060---

279,241

107,366--107,366
8,823

61,579--61,579
3,569

82,362--82,362
6,029

6,602
--6,602
246-------8,693

257,912--257,912
9,974

Year ended March 31, 2016
(Millions of yen)Enterprises Networks

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

Carrier Networks

Social Infrastructures

OthersAdjustments

Total

109,944

66,89991,195

6,907---

274,946

109,584--109,584
8,900

69,306--69,306
3,503

96,260--96,260
9,490

4,810
--4,810376-------8,159

279,961--279,961
14,111