Designing the Future with Communications

ANNUAL REPORT 2020

CONTENTS
Introduction
01 Our Vision
02 Our Potential
04 Index
05 Materiality

Medium- to Long-Term
Growth Strategy, Earnings Trends
06 Message from the President
14 Our History
16 Our Competence
22 Our Connection to Daily Life
24 Risk and Opportunity / Materiality Issues
26 Value Creation Model
28 M
 edium-Term Management Plan
Beyond Borders 2021
32 Financial and Capital Strategy

Business Strategy by Segment
36 Digital Solutions Business
38 Network Infrastructures Business
40 Engineering & Support Services BusinessSpecial Feature
42 Co-Creation Online Discussion
44 Staff Reforms Online Discussion

Initiatives for Growth at NESIC
46 S
 ound and Highly Transparent
Management
48 S trengthen Innovation Capabilities toCreate New Value
50 C
 reate a Culture Where Employees
Can Take Initiative

Corporate Governance
52 Corporate Governance
58 Dialogue on NESIC by Outside Directors
62 Directors & Corporate Auditors
64 Stock Information
65 Corporate Overview
66 Financial SectionC

ANNUAL REPORT 2020

OUR VISION
NEC Networks & System Integration Corporation Group Statement
The NEC Networks & System Integration Corporation Group enables communities throughout the world toenjoy 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 with discussions involving all employees.

Editorial Policy
NEC Networks & System Integration Corporation (NESIC) has published its
Annual Report as an integrated report since 2016.
For the Annual Report, NESIC reports on a wide range of corporate
activities, including its business strategy for the creation and provision ofsocial value and for our growth over the medium to long term, as well as
the initiatives it pursues under that strategy. In Annual Report 2020, basedon the theme of solving social issues, we introduce our initiatives forcontinuing to create new value that helps solve social issues throughcommunications-centric technologies and co-creation and self-implementation with our partners.
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, please provide us with yourfeedback after reading this report.
Full details, including on our financial results and medium-term businessstrategy, are available on the “Investor Relations” section of our website. In
addition, the “CSR” section of our website provides more detail on our
initiatives relating to corporate social responsibility.

Period Covered
April 1, 2019 to March 31, 2020
(Certain information related to the period following that
noted above is also included.)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 forwardlooking 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 begreatly affected by various factors.
Company names, product names, and logos contained this report are thetrademarks or registered trademarks of the respective companies.

Scope of Report
NEC Networks & System Integration Corporationand consolidated subsidiaries
About the Cover
Guidelines
International Integrated Reporting Council (IIRC)
Integrated Reporting FrameworkGlobal Reporting Initiative (GRI Standard)
SASB Materiality Map
ISO 26000(Guidance on social responsibility)
Guidance for Collaborative

By bringing together the technologies andstrengths, NESIC is keen to spur innovation
while accelerating co-creation with its customers and partners. The cover was designed
to express these intentions of NESIC.
(The top photo in cover is related to the
Co-Creation Online Discussion on pages
42-43, and the customer and our employees
are giving a high five remotely. It symbolizes
the attitude of promoting co-creation bystrengthening communication.)

Value Creation

ANNUAL REPORT 202001

Our Potential​
Expanding Potential of NESICAs a company that has built up strength in the communication domain, NESIC offers solutions
for work-style innovation stemming from the COVID-19 pandemic, while leveraging Digital x 5G
services to help solve various social issues over the medium to long term, constituting a broad
growth of potential that will lead to corporate growth in turn.

Short Term

Work-Style Innovation

Advancing communications,Social Issues

Our Potential

New ways of working that reflect social issues,

While utilizing cutting-edge digital technologies,

such as declining birthrates, the aging population

NESIC contributes to solving social issues by

and associated decline in the working population,

strengthening and advancing, through co-creation

as well as spur innovation, have become evenand self-implementation with its partners, its

more important in the context of business conti-

work-style innovations polished over time throughnuity during the COVID-19 pandemic.

self-implementation, including the challenge ofdistributed work.

02

ANNUAL REPORT 2020

Medium to Long Term

Digital5G

designing the future with communications.
Social Issues

Our Potential

Once the pandemic winds down, completely new

NESIC has accumulated know-how through thelifestyles will emerge as the new normal. In addi-

construction of advanced ICT infrastructure, suchtion to work styles, NESIC will be expected toas networks for telecom carriers. Leveraging thisaddress a wide range of social issues, including

know-how and its ability to create businesses

the creation of a new society and communities

through the co-creation and self-implementationthat support different lifestyles.

with its partners, NESIC brings together digital and
5G technologies to offer a foundation for lifestyles
and related services, while always striving to solve
social issues from the customer’s point of view.

ANNUAL REPORT 2020

03

INDEX
General Standard Disclosures

This Report

Web

Strategy

P06 Message from the President
P24	Risk and Opportunity /Materiality Issues
P28 Medium-Term Management Plan

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

Ethics and Integrity

P46	Sound and Highly Transparent
Management

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

GovernanceP46	Sound and Highly Transparent
Management
P52 Corporate Governance

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

Stakeholder Engagement

P46	Sound and Highly Transparent
Management

CSR > The NESIC Group's CSR > Stakeholder Engagement
https://www.nesic.co.jp/english/csr/engagement.html
Investor Relations
https://www.nesic.co.jp/english/ir/
About Us > 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

Investor Relations > IR Libraryhttps://www.nesic.co.jp/english/ir/library.html

Management ApproachP05	Materiality
P24	Risk and Opportunity / Materiality
IssuesCSR
https://www.nesic.co.jp/english/csr/

NESIC’s operations center on the construction of network systems and theprovision of services related to operations, monitoring, maintenance andoutsourcing. Since environmental risks
are relatively low, related information isomitted from this integrated report.
Please refer to the Company’s website
on the right.

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

P24 Materiality Issues

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

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

Environment
GHG Emissions
Energy Management
Water & Wastewater Management
Waste & Hazardous Materials Management

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

Social Capital
Customer Privacy

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

P24 Materiality Issues

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

P50	Create a Culture Where
Employees Can Take Initiative

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

Human Capital
Labor Practices

CSR > Work–Life Balance
https://www.nesic.co.jp/english/csr/worklifebalance.html
Employee Health & Safety

P50	Create a Culture Where
Employees Can Take Initiative

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

Employee Engagement, Diversity & Inclusion

P50	Create a Culture Where
Employees Can Take Initiative

CSR > Human Rights
https://www.nesic.co.jp/english/csr/empowermenthumanrights.html
CSR > Human Resources Development
https://www.nesic.co.jp/english/csr/empowerment.html#Col3

Business Model & Innovation
Supply Chain Management

P46	Sound and Transparent
Management

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

Materials Sourcing & Efficiency—

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

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

Leadership & GovernanceCompetitive Behavior

04

ANNUAL REPORT 2020

Materiality

Vision for Society

An inclusive and sustainable society
created through communications
Initiatives to Provide Value to Society through 2030
Create work environments in which everyone can take initiative
Develop pleasant and plentiful communities with cutting-edge technologies
Provide robust services that underpin safety and security in evolving society

Initiatives for Growth at NESICSound and highly transparent
management

Strengthen innovation capabilities to create new value

Create a culture where
employees can take initiativeStrengthen
governance throughdialogue with stakeholders


Promotea culture that encourages change and embrace of
new challenges


Improvethe well-being of
employees

 Promote compliance with aneye on diversity

Accelerate
co-creation and theuse of various services in ourown business practices tobetter understand the customers’ point of view

 ncourage frank and openE­discussions, and enhance thecorporate culture as a facilitatorof self-growth* Well-being: Physical, mental and social well being

ANNUAL REPORT 202005

Message from the President

Yushi Ushijima
President

06

ANNUAL REPORT 2020

While continuing its unwavering
focus on communications,
NESIC is accelerating reforms withan eye on 2030 while helping tosolve emerging social issues.
Aiming to solve emerging social issues

business domains to cover overseas communications infrastructure construction, mobile

The COVID-19 pandemic continues unabatedcommunications infrastructure construction,around the world. I would like to pause for asystems integration for corporate ICT, andmoment and express our heartfelt condolences

related services. Today, NESIC is taking on thefor the people who have passed away due tochallenge of moving away from a traditional

COVID-19 and the many others who have beensystems provider model centered on equip-

adversely affected by the pandemic. I am alsoment, to become a systems integrator withextremely grateful to the medical practitioners

cloud-based service offerings. We have started

who are working on the front lines to protect

to make inroads into new business domains,

our livelihoods, and I have nothing but respectsuch as onshore fish farming, in a bid to add

for the people who continue to support life-

value from ICT-empowered business.

lines in society.

* Please refer to page 08.

COVID-19 has had a profound impact on the
global economy. While fighting this unprec-

Throughout all these changes, NESIC hasedented threat, I believe it has become clearer

remained consistent in one aspect of its opera-

what NESIC’s role is in society as a communica-

tions, and that is to contribute to society

tions company, as well as the value that it canthrough communications. In 2017, we held dis-

provide to society.

cussions with all employees about our sharedvalues, DNA, and vision of where we want to

DNA of NESIC

be in the future, and codified these thoughts in
the NEC Networks & System Integration

Since its founding as a telecommunications

Corporation Group Statement, which also

construction company within the NEC Group in

embodies the spirit of all our shared ideals.

1953, NESIC has changed and expanded its

From the floor of the ocean to the far reaches

ANNUAL REPORT 202007

Message from the Presidentof outer space, at the NESIC Group, we all aim

figuring out the best solutions by trying every-

to be of use to society by facilitating communi-thing out ourselves without blindly relying on

cations among people, communications

catalog specs. We do not have our own spe-

between people and satellites & space probes,

cific products and services so that we canand communications that send information andnimbly evolve in response to changes in society

notifications about earthquakes detected fromand markets.

sensitive seismometers located deep
underseas.
Another unchanging aspect of NESIC is its

I believe NESIC has honed three core competencies born from its unique history and corporate culture.

spirit of sparing no effort on behalf of its cus-

One is our technological capabilities andtomers. This approach is rooted in our uniquecredibility, which is derived from the high level

corporate culture of thoroughly implementingof quality constantly accumulated as a NEC

our services ourselves before providing them toGroup company in multi-vendor services, as

our customers. NESIC is not a company thatwell as our construction and installation capa-

develops products and applications. Our value

bilities and ICT technological capacity. Anotherproposition is based on combining the prod-

core competency is our nationwide businessucts and services of our diverse partners into acapabilities, which include an extensive nation-

solution that our customers can easily use. One

wide sales network and a maintenance & ser-of our greatest strengths is our laser focus onvice network worthy of a company thatthe customer, thinking from their perspective

supports essential public infrastructure thatwhen co-creating with partners to find the best

must not have any outages, such as infrastruc-products and services for their needs, andture for telecom carriers and government

New
Business

Onshore Salmon Farming Business

NESIC entered into the onshore salmon farming business while leveraging its ICT / digital technologies. For this business,
the Company created a new business model that expands into value added areas, as an extension of its businessdomains through partnerships while enhancing the value added of the business with digital technology, in addition to
the provision of conventional ICT services.
NESIC forged a partnership with Hayashi Trout Farm, a pioneer in salmon farming in Japan and the largest onshore fish
farming operation in the nation. By pairing NESIC’s ICT and digital technologies with Hayashi Trout Farm’s know-how andcutting-edge technologies in fish farming, we are digitally transforming the fish farming industry, such as by improving
productivity and moving away from primary industry business practices unique to the marine products sector. AI is
deployed to automate measurements of the length and weight of fish, and controls for regulating water temperatures,
oxygen levels and feed. Through these innovations, costs are reduced through an industrial production process, while
ensuring consistent supply throughout the year. The use of ICT and digital technologies ensures quality through traceability, and also reduces the burden on managers with remote observation and controls. In these ways, digital technologies can solve issues faced by the fish farming industry. Through theseendeavors, we aim to help solve social issues around the world, namely
protecting the marine environment and solving food shortages. By offering
this business as a franchise model, NESIC supports greater involvement in
the fish farming industry.
In addition to the onshore fish farming business, we will collaborate
with partners in various fields to advance the use of our digital technologies while taking on the challenge of adopting new business models withthe ultimate aim of solving issues faced by society.

08

ANNUAL REPORT 2020

entities. Our third core competency is our busi-

reliability. In the future, we will move into a digi-

ness creation capabilities, which create newtal x 5G era, where various services are createdservices and business through co-creation withfrom a confluence of digital technologies on

our partners and self-implementation while

top of 5G communications infrastructure. Thisleveraging our other strengths.

will lead to rapid developments and changes

Solving social issues through communications

on multiple fronts in society and business. By
applying NESIC’s technological capabilities andprofessionalism to both digital solutions and

NESIC’s vision is to realize an inclusive and sus-

5G infrastructure from a birds-eye view and atainable society created through communica-

broad perspective, the Company should betions, which is based on the idea ofable to not only make work-style innovations,contributing to society through communica-

but also help find solutions to a wide range oftions, a concept that has been shared by all ofsocial issues such as forming new communities,

its employees since its founding. I believe com-and contribute to the achievement of a variety

munication is a human activity that forms theof SDGs.

basis for all advances. If information can reachOn experiencing society’s response to the

all corners of the world through communica-

COVID-19 outbreak, I am even more convinced

tions technology, everyone can receive an edu-

in NESIC’s ability to accomplish its mission. In

cation without being left behind. If

autumn 2019, NESIC introduced a work systemcommunication can dispel misunderstandings,

in which over half of the staff employed at its

the world can become a more peaceful place.

headquarters were moved to satellite offices

Problems can be addressed and solved as they

located within 30 minutes of their homes. Byarise, if communications can bring us the

reducing the burden of commuting to work,

wisdom to do so. Aiming for such a society,and polishing their own skills and leading a

NESIC has identified six materiality issues,

more fulfilling work-life balance, employees areembodied in three initiatives to provide value

able to work in ways that result in innovations.

to society through 2030 and three initiatives forThis new work style comes with its own chal-

growth at NESIC. Japan currently faces somelenges, such as a loss of communication bymajor social issues, such as a falling birthrate

having people work in distributed offices, but

and aging population, declining labor force,the latest digital technologies can be deployed

and over-concentration in cities. Since 2007,

to achieve best practices in work processes,

NESIC has come up with work-style innovations

and we aim to propose these solutions to ourahead of society while putting them into prac-customers. This initiative has also proven to betice itself in a bid to help solve these social

quite useful in business continuity plans duringissues. In the next 10 years, we believe that

the COVID-19 pandemic. Nowadays, ournew technologies will dramatically change theemployees are encouraged to work at homestructure of society, business models, and peo-during the pandemic, and the transition to

ple’s lives. In addition, digital technologies suchworking remotely from home did not encounteras AI and the Internet of Things (IoT) will be

any problems because it was an extension ofutilized to an even greater extent. At the same

our already initiated move toward distributed

time, we will see the full-scale roll out of 5G,

working environments. We have been using on

which offers high speeds and greater band-video conferencing tools for internal meetings

width, enables connections between multiple

and communications with our customers.

devices, and provides low latency and high

NESIC saw a sharp increase in inquiries from

ANNUAL REPORT 202009

Message from the President

customers who had been forced into remotewill be no going back to what work looked likeworking environments by the pandemic, gener-

before the pandemic. To solve social issues, we

ating a significant increase in opportunities toare even more keenly aware of our important

support new customers. A majority of our cus-role in providing communications-based tech-

tomers have found useful our health manage-

nologies and sharing our know-how throughment and attendance & location management

co-creation with our customers and partners.

service, a tool using business chat feature, weoffered for free to manage remote work. NESIC

Aiming to be “No. 1 communications company”

is also seeing opportunities to help solve issues

10at education providers, such as assistance with

We believe communication also plays a key

remote classrooms. For our customers thatrole in our initiatives for growth at NESIC.

have started teleworking, we are keen to pro-

Dialogue with stakeholders is fundamental tovide a wider range of solutions based on ourenhancing corporate governance. For example,

diverse know-how, with the aim of moving

I make a point out of creating opportunities

beyond telework for emergency situations toto engage with investors, who often convey

providing solutions that lead to productivity

constructive opinion that we incorporate into

improvements. Furthermore, the development

future measures. With regards to increasing ourof digital x 5G technologies has the potential

ability to innovate, we are not a startup firm

to effectively protect the security and comfort

where one genius creates all the innovation. In

in our livelihoods, by utilizing in real timeorder to come up with new ideas, it is impor-sensor data on a large and broad scale in soci-tant to co-create both inside and outside theety to prevent infectious diseases. Our lives will

Company. Close-knit communication is essen-

return to normal after the COVID-19 pandemic

tial for creating new services while collaborat-fades. Until then, our lifestyles have changed

ing more closely with various partners andunder this “new normal” we are living today.

moving ahead as one. We must fuse together a

Now that perceptions of corporate manage-

variety of concepts by communicating effec-

ment, especially work styles have greatly

tively as employees while plying their ownchanged, including teleworking, I believe there

skills. As diversity in the workforce increases,

ANNUAL REPORT 2020

achieving strict compliance with laws and regu-

companywide events in a bid to spur communi-

lations requires even more communications incations, and I feel that major progress has alsoorder to get everyone on the same level ofbeen made on the diversity front, with a leader

understanding. Invigorating discussions with

employee in his third year after joining the

coworkers are also an important aspect ofCompany giving presentations to the Executive

attaining self-growth for each employee. As a

Committee.

communications company, I am inspiring our

As I mentioned earlier, we are changing our

employees to follow our aim of being No. 1 inoperations from the systems integration ofcommunications as a company, where every-“things” to the systems integration of “experi-

one from managers to new employees canences/services.” Our corporate culture of “dili-have open barrier-free conversations. Since

gently doing our assigned work” leads to the

becoming president, I have held “Ushijima

creation of new value for our customers, as we

Lunch” meetings as a way of interacting withmust turn ideas into actions. With the aim ofyounger employees. This gives me an opportu-

increasing speed and honing our strengths, wenity to share information and directly hear

will also focus on reinforcing our business struc-about the problems and dreams of our younger

ture in order to be No. 1 in communications.

employees. Recently, I have expanded theseoutreaches to business leader classes andInitial fiscal year of medium-term management

regional bases over Zoom meetings. Starting inplan saw strong progress on reinforcing busi-

2019, I have streamed online a radio talk show

ness capabilities

called “Ushijima Radio,” with employees asguests to discuss our various challenges. On

The first step toward achieving our vision for

Slack, the business chat application, I have writ-2030 is our Beyond Borders 2021 medium-term

ten down my thoughts for all employees tomanagement plan (FY2020/3 to FY2022/3). We

read. I believe a soft approach to communica-

are heading into the digital x 5G era, wheretion is important to tearing down psychological

NESIC can truly leverage its core competencies

barriers. In the summer of 2019, I climbed Mt.

through its expertise in infrastructure construc-Fuji (3,776 meters) and live-streamed thetion and ICT services. In order to build a busi-

ascent to symbolize NESIC achieving its goal

ness structure that facilitates a virtuous cycle offor orders and sales in excess of ¥300 billion.

growth centered on digital services and 5G

This year, NESIC welcomed its new employees

infrastructure, NESIC is advancing preparations

via video conference because it was unable toto create new competencies while refining thehold an entrance ceremony due to COVID-19.

expertise it will require.

Instead, we were able to have fulfilling discussions, in terms of both quality and quantity,
with small groups of new employees.
I sense that these initiatives have translated
into a better organizational climate, as shownby the even livelier communications happening
within the Company. I have been receiving
more opinions and questions from our employees lately, and some of our new hires haveeven volunteered to be on my radio talk show.
Employees have spontaneously planned

Recording "Ushijima Radio" with young employees
in regional bases

ANNUAL REPORT 202011

Message from the President

In the medium-term management plan, NESIC

individually, NESIC has brought to market

has set targets for net sales of ¥310 billion,

Symphonict, a multi-cloud platform for effi-

operating income of ¥20 billion, an operating

ciently and effectively combining these ser-income margin of 6.5% and ROE of 10% or

vices. This platform looks promising because, inhigher by the fiscal year ending March 31,

addition to easily combining cloud-based ser-2022, as the first round of efforts to achieve

vices that are constantly evolving, existing

profit levels with sector peers and reach new

audio and visual services can be linked

highs in performance.

together. This approach allows us to deepen

In the fiscal year ended March 31, 2020, thesteadily shift toward a service-oriented busi-

business segments, especially digital solutions,ness model.

which saw greater-than-expected demand in

In the 5G field, NESIC is steadily preparing forthe digital transformation (DX) field. NESIC

its rollout, eyeing the time when investment inposted record-high consolidated net sales and

5G infrastructure will expand in earnest, prob-

profits with strong growth on all fronts.

ably during the next medium-term management

In the digital services, one of our key businessplan. Through a joint venture NESIC establishedfields, our successful relationship with Zoom

with KDDI Corporation in 2018, we haveVideo Communications, Inc. has accelerated

steadily expanded our share of carrier infra-

the development of partnerships with otherstructure-related business. We have also

startups, resulting in additions to our lineup oflaunched demonstrations of local 5G services

new cloud-based services from the likes offor cable TV providers and disaster prevention

Slack, Box, Kloudspot, Wrike and DocuSign. In

and mitigation entities. Using the 5G laboratory

addition to using these cloud-based services

we plan to set up this autumn, we will enhance

President’s live communication with employees from Mt. Fuji

12

our recurring relationships with customers, andfirst fiscal year of the plan, sales increased in all

ANNUAL REPORT 2020

our technological capabilities and seek to dif-

communications field, NESIC will see more

ferentiate ourselves by leveraging our full-stack

opportunities to help solve issues that havesystem integration capabilities, from core net-

emerged in society as a result of the COVID-19

works to base stations and services that run on

pandemic. As a company that supports social

top of these infrastructures.

infrastructure, we are pursuing our mission withIn April 2019, when the current medium-terma passion, and our highly motivated employees

management plan got underway, we stream-

involved in providing this support have given

lined the organization to more efficiently utilize

the rest of us ample reason to be proud andcompanywide resources that had been siloed

confident in our future. For this, I am reminded

in individual businesses. The benefits from thisthat the well-being of all our employees is thereorganization have materialized faster than wewellspring of our corporate vitality. In order to

had anticipated. The Company is still dealingenhance their well-being, NESIC must create anwith a major problem, an unprofitable mega-environment where each and every employee

solar power plant construction project, but ourcan shine and work with vigor as its work-stylebusiness capabilities have steadily improved. I

innovations continue to advance one or two

believe we have gotten off to a good start

steps ahead of society. At the same time, thetoward achieving our medium-term targets.

Company must remain relevant and needed by

Ready to jump

the world.
From a firm footing, NESIC will continue its
unwavering focus on communications, and con-

In the fiscal year ended March 31, 2020, NESIC

tinue to be an essential provider of services by

took a powerful step toward attaining its

contributing to the realization of an inclusive

medium-term targets, but some problems

and sustainable society created through com-

emerged, such as unprofitable operations andmunications. We are grateful for your continued

tighter constraints on resources. At the begin-support of NESIC as it continues to take onning of 2020, I conveyed a message to our

new challenges.

employees about being “Ready to Jump.”

President

Because the Company is making smooth progress on its targets and strategies in themedium-term management plan, now is thetime to identify any issues on the quality andtechnology fronts and work on fixing theseissues. In other words, my message is intended
to encourage our employees to flex theirknees, find a firm footing and jump ahead. Our
intentions go beyond achieving our mediumterm targets, and understand the importance ofreadying for sustainable growth in the future. In
the fiscal year ending March 31, 2021, theimpact from COVID-19 is still a concern, butwith our eyes unwaveringly locked on the
future, we will spare no effort in accelerating
growth through our current initiatives.
Having conquered various challenges in the

ANNUAL REPORT 2020

13

Our History
NESIC has continued to change and grow, adding new strengths in tune with the times for its core business of innovating and developing communications. Starting from a foundation in construction technology, NESIC has obtained
ICT technologies 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

1953

1960S–

1990S–

Founding: Telecommunication
Construction

Overseas Infrastructure Construction

System Integrator

History of Honing Core Competence

Refinement of Construction Technologies asa Telecom Infrastructure Constructor

Growth through Construction Capabilities
and Refinement of ICTNESIC was established in a spin-off of the telecommunications

Alongside advances in technology, NESIC broadened its reach inengineering division from NEC Corporation in 1953. The

the telecommunications infrastructure field to such areas asCompany has steadily built up its construction capabilities,

mobile base stations. The Company also expanded business tocentered on NEC products, while tapping into growing demand

provide ICT to corporations by creating voice networks, enabling

for telecommunications infrastructure in Japan and overseas. We

it to provide construction, system integration, and maintenancehave also obtained and advanced high-quality technologies,

services. Accordingly, we have set up sales bases across thewhich are symbolic of the NEC Group.

country and broadened our nationwide responsiveness.

01

Technological
Capabilities

01

Technological
Capabilities(Construction
capabilities + ICT)& Credibility(Construction
capabilities) &Credibility

02

Nationwide
Business
Capabilities

Main Initiatives• Nippon Electric Installation Company established in aspin-off from NEC Corporation• Changed the company name to NEC System
Integration & Construction, Ltd.

• Conducted first overseas project (construction andinstallation of switching equipment in the Philippines)• Listed on the Tokyo Stock Exchange• Strengthened sales structure for private sector
by creating a specialized division• Constructed the first television
broadcasting facility A• Constructed satellite telecom infrastructure for the1968 Olympic Games, in Mexico City B

A• Constructed microwave telecom infrastructure for five
Central American countries (simultaneous construction in multiple countries)• Reinforced nationwide network by setting up
a business unit for regional sales

C• Business for New Common Carriers (NCCs) took on
significant scale and received major orders from new private communications companies• Constructed communications equipment on Mt. Everest (enabling broadcast from the peak of Mt.
Everest for the first time)• Acquired special construction business and general
construction business licenses for seven categories of
construction business• 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

B

Net Sales

Over ¥10 billion
1974

Over ¥100 billion
1989

Changes in the Business Environment

14

1950s

1960s –1970s

1980s –1990s

Reconstruction after World War II
Era of construction in broadcasting andtelecommunications infrastructure

Increase in international communications
and satellite communications

Telecom liberalization

ANNUAL REPORT 2020

Expansion in demand for telecommunications
infrastructure construction worldwide

Birth of New Common Carriers (NCCs)

Over ¥200 billion
1997capabilities and know-how gained through self-implementation and co-creation with partners. Leveraging these advantages, NESIC aims to realize an inclusive and sustainable society as a communication services orchestrator that solves
social issues.

2010S–

2020S–

Solution Provider

Toward Becoming a Communication
Services Orchestrator

Creation of New Businesses through Technological
Capabilities and Nationwide Responsiveness
NESIC has reinforced its strengths by building a full-service network of morethan 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 throughturning the innovative technologies of startups into services while advancing co-creation with partners, as well as creating EmpoweredOffice workstyle innovation solutions and other new businesses that leverage its
unique technological capabilities.

01
Technological
Capabilities &Credibility

Realizing an inclusive
and sustainable society

02

03

Nationwide
Business
Capabilities

Business
Creation
Capabilities

as a communication
services orchestrator•C hanged the company name to NEC Networks & System
Integration Corporation• Implemented initiatives in high-speed mobile networks
and next-generation broadcasting• Established CVC Fund to create new businesses throughopen innovation with startup firms• L aunched EmpoweredOffice work-style innovation
solutions business and implemented it internally incertain sections D• NESIC’s industry sector classification in the stock market
changed from “construction” to “information &communication”• Established K&N System Integrations Corporation as a
joint venture in mobile infrastructure construction G•E stablished nTOC (Network Total Operation Center) E• Established sDOC
(Service Delivery Operations Center) F•P racticed EmpoweredOffice in all sections upon transferof head office to Bunkyo Ward Tokyo (Iidabashi Head
Office)D• Launched MVNO service for IoT• Introducted telework system companywide (spawned
from a “Women’s Project Experiment” idea created byfemale employees)

EF• Launched joint business in low-power, wide-area (LPWA)
communications protocol for IoT• Entered onshore fish farming business utilizing ICT• Realigned head office to challenge itself to new work
styles including disributed work locations

G

Break above ¥300 billion(¥303.6 billion)
2020 (record-high earnings)

2000s

2010s

Advance of IP and broadband networks

Expansion of the use of cloudIntegration of communications andbroadcasting

IoT and Fourth Industrial Revolution

ANNUAL REPORT 2020

15

01
TECHNOLOGICAL

Our Competence

COMPETENCECAPABILITIES & CREDIBILITYNESIC has built a unique position as a system
integrator with construction capabilities byfusing together its ICT, which is kept in tune
with the changing times, with its telecommunications construction technologies, which havebeen accumulated since its founding. NESIC
has a wide range of technological capabilities
centered on communications, from ICT services
for corporations, to mission critical communications infrastructure for public use such as
networks of telecom carriers and fire andambulance emergency network systems. The
technological capabilities we have accumulated to satisfy the stringent requirements andexpectations of customers of the NEC Groupare also utilized in services and various vendor
products inside and outside Japan in tune with
the needs of other customers. These capabilities are also being used for cloud-based services, which many companies have begun toadopt lately, and cutting-edge/venture technologies, and have led to the provision of optimal solutions for customers.
As society becomes more pleasant and convenient with “Digital x 5G,” NESICʼs technologicalcapabilities in telecommunications infrastructure,
which require high reliability, will remain a sourceof its competitiveness, along with its know-how indigital services.
Technological Capabilities for Integrating Diverse
Products and Services
Cloud
services

Companies
Domestic
vendorproducts

NESIC

NEC
products

ICT &Construction
Capabilities

Cutting- edge
/ venturetechnologies

16

Globalproducts

ANNUAL REPORT 2020

Provisionof optimal
solutions

Telecom
carriers
Governments andsocial infrastructure
providersTechnological
Capabilities &Credibility

Nationwide

Business

Business

Creation

Capabilities

Capabilities

Employee Qualifications
Employees with managing engineer or
technical supervisor qualifications

1,500

Approx.

Employees with advanced ICT
qualifications
Approx.

800

Example / Initiative Leveraging Core Competencies

Development of Network Infrastructure for
Telecom Carriers
NESIC cross-develops assets, including its maintenance service
network in Japan, and deploys network engineers with theadvanced technical skills only found in the NEC Group, tosupport foreign vendors who do not have these functions
inside Japan, contributing to the creation of advanced networks for telecom carriers.
With infrastructure upgrades likely to accelerate alongside
the rollout of 5G, NESIC has gained a foothold toward establishing 5G technology by participating in 5G!Pagoda, a project
to create international standards for 5G. Furthermore, inautumn 2020, NESIC is opening Shin-Kawasaki Technical-Base
as a new base for training personnel and exploring technologies related to 5G. The center is equipped with various facilities for advancing our technologies related to 5G base stations
and core networks using real equipment. We plan to quintuple
the number of 5G-related engineers by 2023. At this facility,
we also provide 5G evaluation and BPO services totelecom carriers and equipment vendors, in addition to
5G support ranging fromconsulting to permit application, construction and operation services.
Shin-Kawasaki Technical-Base, our new
base for training engineers and verifying and evaluating new technologies(Kawasaki City, Kanagawa Prefecture)

ANNUAL REPORT 2020

17

02
NATIONWIDEOur Competence

COMPETENCE

BUSINESS CAPABILITIESIn order to support infrastructure that underpins safety and security in society and the networks of telecom carriers, including thesalespeople and systems engineers who
respond to customers across the country, we
have put into place a service network withmore than 400 locations in Japan, in addition
to help desk services for network servers andsecurity; operation centers that collectively
address needs for network operation, monitoring, and maintenance services; and comprehensive technical centers able to provide
one-stop services from technology assessments to repairs with logistics functions. Our
24/7 full-service structure is 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.

24/7 full-service
structure able torespond withina couple ofhours anywherein JapanDomestic Service Bases
Over

18

400

ANNUAL REPORT 2020

Technological
Capabilities &Credibility
Business
Creation
Capabilities

Nationwide
Business
Capabilities

Example / Initiative Leveraging Core Competencies

Helping Isetan Mitsukoshi Move Nationwide
PBX System, One of Largest in Japan, to Cloud
In November 2019, NESIC delivered to Isetan Mitsukoshi
Holdings, Ltd. (head office: Shinjuku, Tokyo; Representative
Director, President and CEO: Toshihiko Sugie) its NetsVoicecloud-based voice service for internal and external phone calls
via the cloud, replacing its PBX systems, and installed it at 55
group firms and all retail stores.
Isetan Mitsukoshi aims to create a new style of department
store enabled by IT and other technologies. This cloud-based
voice services project is one of the largest in Japan, replacing
a PBX systems of approximately 20,000 fixed-line telephones
spread across Japan with a cloud-based voice system. By
moving to the cloud, Isetan Mitsukoshi is able to reduce costs
associated with operating its telephone equipment, andimprove the services the Isetan Mitsukoshi Group provides
to its customers.
Backed by its extensive nationwide service network, NESIC
will rapidly and reliably provide services to its customers
across Japan.

Isetan Mitsukoshi’s domestic department
stores and credit card companies

NESIC has provided assistance to Isetan Mitsukoshi
for setting up thermography
cameras at the entrances of
its stores to measure thebody temperature ofcustomers, and rolling out
online customer services
using Zoom, to prevent the
spread of COVID-19.

ANNUAL REPORT 2020

19

03
BUSINESS CREATIONOur Competence

COMPETENCECAPABILITIESAt the root of our corporate culture is ourambition to play a direct role in solving issues
at our customers and in society as a whole.
We have never stopped changing, constantly
taking on new business challenges with theaim of solving such issues.
We develop solutions while co-creating withpartners, such as startup firms that have cutting-edge technologies, and various vendors of
hardware and software. Before providing thesesolutions to customers, we put them into practice first ourselves and at partner firms in orderto evaluate and verify their ease of use andeffectiveness. The know-how gained from thisallows us to offer optimal solutions to our customers. These initiatives translate into a capacity to create 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 in order to provide new services
that leverage its technological capabilities andexpertise in both fields.
Creation of business through co-operation andself-implementation with our partners

Networks
Cutting-edge /VentureHardware /SoftwareTechnologies

Technological
Capabilities &Credibility

Cloud
Services

NESIC
Nationwide
Business
Capabilities

ICT /Construction
Partners

Business Creation

Self-Implementation

Customers

Startup
Firms

20

Co-Creation
with Partners

ANNUAL REPORT 2020

Technological
Capabilities &Credibility
Nationwide
Business
Capabilities

Business
Creation
Capabilities

Example / Initiative Leveraging Core Competencies

Symphonict is a Multi-Cloud Service Platformin The Dx Business for Creating New Valueby Bringing and Fusing Together Cutting-Edge
Technologies and Services
Lately, there are a variety of excellent digital tools and cloudservices on the market, such as Zoom, Slack, Salesforce andOffice 365, making it possible to inexpensively and rapidly rollout various functionality. In order to utilize each of these many
services, each process must be adapted to the services, creating inefficiencies. Symphonict is a platform for drawing out thetrue usability of cloud services by automating the data linking
and processing across multiple cloud services. By connecting
existing networks for audio and video, for example, Symphonict
makes it easy to swap out services and add new services.
Furthermore, we leverage our knowledge gained by using cloudservices on the Symphonict platform in order to provide services as a packaged bundle for facilitating changes in work
styles and business processes in accordance with the needs ofour customers. NESIC comprehensively offers solutions, fromnetworking to DX technologies, along with services that combine “connections” in networking, its core business for morethan 60 years, and the “bundling” of new value propositions
generated from co-creation know-how and experience gained
in-house and with partner companies. Through Symphonict,
NESIC will help solve a variety of issues while acceleratingco-creation with its customers.

ANNUAL REPORT 2020

21

Our Connection to Daily LifeNESIC Contributes to a Safe, Secure, and Plentiful
Tomorrow in Various Contexts of Daily Life.
1

Broadcasting

Construction, operation,and maintenance of digital
TV broadcasting facilities
and relay stations, andstudio facilities, as well as
installation of fiber-optic
cable for next-generation
4K and 8K broadcasting.

Work-Style Innovation2

3

By bringing together various cloud-based tools and applying
cutting-edge technologies, we make new work styles that
foster innovation a reality, with venues where employees
across organizations and companies can create together asa single team in a work environment free from specificlocations. Accordingly, it allows people to work from homeor satellite offices, with a focus on resolving issues that arise
in communication, management, and administrative work.

Airports

4

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

HotelsComprehensive 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

MobileCommunications
Network

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

22

ANNUAL REPORT 2020

6

Fire-fighting &Ambulance

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

7

Railways andRoads

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

8DisasterPrevention

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.

9

Shops and Public
Facilities

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

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 Space

13 Local Governments and 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, and ideas for invigorating regions, suchas tourist information services. Provision of venues forlearning by helping schools with IT deployments andassisting 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 andrepair.

16 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 202023

Risk and Opportunity / Materiality Issues

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.
In the first fiscal year for addressing these materiality issues, the COVID-19 pandemic has been a paradigm shift, prompting us to reassess our roles and responsibilities in this “new normal” for society. We
are reexamining our actionable goals for materiality issues on a companywide basis.
Opportunities and risks rediscovered during COVID-19 pandemic

Megatrends alling birthrate andF
aging population
Shrinking labor force

Opportunities for NESIC

Risks for NESIC

 xpand business related to productivity
E
improvement and work-style innovation
Accelerate business related to teleworking
and distributed work for enterprises
Expand business related to work-styleinnovation for local governments

Social Issues

Expand business related to remote learningfor schools

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

 ecline in productivity
DProblems securing personnel andpassing along technologyExpandbusiness related to community
building
Expand business that remotely supports
lifeline ICT infrastructure (maintenance,

Medium-term
management plan

BeyondBorders
2021
Strengthen competitiveness

operations, and security)and growth potential inDigital divide

Digital x 5G era

Expand business related to security

Strengthen foundation,
Climate change xpand business related to disasterE
prevention and mitigation

 isruption to supply chains due toDnatural disasters
Impact on BCP

framework and systems forcreating cutting-edge
technology and new

Technological Trends

businesses

Digitalization

 iversification and stabilization ofD
income opportunities
Expand business related to data usage

All-out effort toaccelerate innovation
at NESIC

E xpand business related to
Digital x 5G

Advanced networks

 xpand business related to high-speedEcommunications (5G, etc.)

Initiatives for growth at NESIC
To continue growing as a company through suchvalue creation efforts, NESIC must further
strengthen its own business foundation. To thisend, the Company has selected the following
three priority initiatives. We believe communication, such as through co-creation and dialogue,
is important for our own growth as a company.

24

 hange in legacy or conventionalCsystems integration modelData security breaches
Privacy protection failures

ANNUAL REPORT 2020

 hanges or contraction in existing network
C
construction business model for telecom
carriers

Sound and highly transparent management
Strengthen governance through dialogue withstakeholders
Promote compliance with an eye on diversity
While aiming for further growth, NESIC engages in governanceand compliance activities that form the foundation for continuing
to be a sound company acknowledged by all stakeholders. Amid
advances in diversity and accelerating cocreation and innovation,
all of us need to take action based on high ethical standards inorder to maintain and strengthen our relationship of trust withsociety. To that end, we will reinforce governance and promotecompliance through engaging in dialogue with various
stakeholders.

Initiatives to Provide Value toSociety through 2030
NESIC has selected three initiatives toprioritize in its provision of value to society via communications through 2030.

Vision for Society

An inclusive and sustainable society
created through communications

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.

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

 trengthen governanceS
through dialogue withstakeholders romote compliance with anPeye on diversity

Strengthen innovation
capabilities to create
new value

Create a culture where
employees can takeinitiative

 romote a culture thatP
encourages change andembrace of new challenges

Improve the well-being of
employees

 ccelerate co-creation andA
the use of various services inour own business practices tobetter understand the customers’ point of view

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.

Initiatives for Growth at NESICSound and highly transparent management

Create work environments inwhich everyone can takeinitiative

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

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.

* Well-being: Physical, mental and social well being

Strengthen innovation capabilities
to create new value
Promote a culture that encourages change and embrance

Create a culture where employees cantake initiativeImprove the well-being of employeesof new challenges

Encourage frank and open discussions, enhance the cor-

Accelerate co-creation and the use of various services

porate culture as a facilitator of self-growthin our own business practices to better understand thecustomers’ point of view
Innovation is the source of our ability to continue providing value
to society. Management is focusing its efforts on encouraging
employees to take on new challenges and spur new change
through not only iterative improvements, but also various initiatives
starting from scratch. We intend to offer new value through easierto-use systems and services by accelerating efforts to co-create
with stakeholders, using various services in our own businesspractices to better understand the customers’ point of view.

People are the source of innovation. As a front-runner in work
styles, NESIC strives to create systems that allow employees towork without having to worry about their physical or mental
health and have a balanced social life. Our aim is to nurture a
corporate culture where employees are highly motivated andengage in frank and open discussions within an invigorating
environment that facilitates self-growth. We aim to realize aculture that allow each and every employee to thrive and work
to the best of their abilities.

ANNUAL REPORT 202025

Value Creation Model

NESIC’s vision for society is “an inclusive and sustainable society created through communications.” To
realize this vision for society, we have established a value creation model based on co-creation and putting ideas into practice with partners, with 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 (materiality) through 2030, namely “create work environments in which
everyone can take initiative,” “develop pleasant and plentiful communities with cutting-edge technolo-

INPUT​

Hardware /Software

MEANS OF VALUE CREATIONNEC 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)See pages 46–51

26

ANNUAL REPORT 2020

gies,” and “provide robust services that underpin safety and security in evolving society.”
To continue providing this value to society, “strengthening our innovation capabilities to create newvalue,” as well as “creating a culture where employees can take initiative,” are of particular importanceto our own growth, starting with “sound and highly transparent management.”
To sustain this value creation model, we intend to contribute to the development of society andachievement of SDGs, while aiming to enhance our corporate value over the long term.

Value Provision for 2030

Growth Domains

DigitalMateriality Issues

Create work environments inwhich everyone can take initiative

Develop pleasant andplentiful communities with
cuttingedge 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

created through communications

OUTCOMEAn inclusive and sustainable society

OUTPUT​

Create a culture where
employees can take initiative

ANNUAL REPORT 202027

Medium-Term Management Plan Beyond Borders 2021

01

Overview of Medium-Term Management Plan

Beyond Borders 2021
Aim to Strengthen Growth and Earnings Potential by Reinforcing Business
Structure and Systems for Changes in the “Digital x 5G” Era

When devising the new medium-term management plan
Beyond Borders 2021, we defined the most important
initiatives to undertake over the next three years within
the context of our vision for 2030 and our aim of sus-

Strengthening of competitiveness andgrowth potential for the Digital & 5G era

taining growth. The social vision we aim to achieve by
2030 is “an inclusive and sustainable society createdStrengthening of the base, schemes andthrough communications.” To realize this vision, we havestructure to create advanced
technologies and new businesses

set our sights on the “Digital x 5G” era of digital technologies on 5G infrastructure that will be everywhere in

Acceleration of innovation
through All-NESIC

the future, while latching onto technological change asbusiness opportunities and tackling social issues. With afirm footing in each field, we will advance innovation
across organizational borders, changing our businessChanging gears for sustainable profit growth

structure and reinforcing our foundation and systems.

Management Targets and Summary of Progress

Net sales / operating income / operating margin

Under Beyond Borders 2021, NESIC targets growthin orders and net sales to levels above ¥300 billion,
and aims to achieve operating income of ¥20 billion, far higher than before, as a passing point

303.6

5.8

toward industry levels of profitability. Regarding
capital efficiency, the Company targets return on

In the fiscal year ended March 31, 2020, net sales

6.5

5.4
4.6

equity (ROE) of at least 10%, taking into consideration of the cost of capital and industry levels.

310

312

277.9

16.2

18

20

12.8

blew past ¥300 billion, driven by the digital area,achieving our target in the initial fiscal year of theplan. NESIC improved its earnings power throughCompanywide efforts to reinforce its business capabilities, and as a result, record-high levels wereattained in both net sales and operating income.

28

ANNUAL REPORT 20202019/32020/32021/3(Forecasts)

2022/3(Targets)(FY)

Net sales (¥ billion)
Operating income (¥ billion)
Operating margin (%)* Estimates for the YoY ending March 31, 2021 are as of July 30, 2020.

02

Progress on Growth Strategy: Digital Area

Leveraging digital transformation technologies, NESIC began to take on the challenge of new work styles ahead of thetimes, such as distributed work, with the intention of showing novel ways of working to make innovation with cuttingedge technology to help solve social issues in Japan. Our business model is evolving into a service-oriented model
amid strong growth in earnings as we continue to provide added value. As a result, service-related sales increased 12%
from the previous fiscal year. On the technological side, the Company began to provide platform services with the aimof expanding business in the digital transformation area by creating a cloud-based ecosystem. Orders related to digitaltransformation were stronger than anticipated, mainly for Zoom services.
Work-style innovation
Evolution of business

Shift to service-oriented model

Strengthen digital transformation
field that supports business

Propose new work styles for innovation
with cutting-edge technologies

Earnings expansion on continued growthin value provided

Business expansion through creation ofcloud-based ecosystem

Service-related
sales*Development of digital transformation platformthat links cloud services

Started distributed work
(October 2019)

Opened Nihonbashi Innovation Base

+12%

(February 2020)

Digital transformation-related orders

Number of visitors to offices¥6 billion * Target ¥5 billion

More than 60,000 in total
2019/32020/3(FY)

Growth driven by Zoom

* Digital Solutions Business (consolidated)

03

Progress on Growth Strategy: Digital Area (Distributed Work)NESIC initially took on distributed work with the objective of solving social issues in Japan, such as the overconcentration of people in Tokyo, and it has also been effective from a BCP standpoint. By having employees work in offices
within a 30-minute commute from their homes, commuting is less tiring, improving the well-being of employees. In
addition, we reassessed work processes from management and communication angles, and leveraged digital transformation technologies to create powerful ways of working that mitigate the disadvantages of working remotely, with theaim of creating more time for innovation and honing one’s own skills. Furthermore, these initiatives have proven effective during the COVID-19 pandemic. We believe needs for distributed work will increase in the future, and will redouble our efforts to incorporate the latest technologies, such as 5G.

Create a work style standard for Japan that leverages digital and cloud technologies
Framework that supports distributed work
Digitalization

Bundle the cloudOpen and flat communications

Business speed / productivity gains
No need for face-to-face interaction withpaperless process

Automate work processes by linking data

Beyond organizations / direct connection
with the President

Digital transformation platform that links
together cloud services

Zoom

Go paperless

Digital signatures

Visualization ofmanagement

Visualization of
employee location

Slack
ANNUAL REPORT 202029

Medium-Term Management Plan Beyond Borders 2021

04

Progress on Growth Strategy: Digital Area (Tap into Teleworking Demand)

Demand for teleworking has expanded quickly during the COVID-19 pandemic. NESIC offers its know-how to customers that have not yet rolled out teleworking on their own and address this social issue. In particular, we have seen an
increase in opportunities to assist new customers with which we had not done business with before. Currently, we aremainly providing licenses to Zoom and other services. Moreover, we deepen relationships with customers by introducing products and services, as well as various solutions for security and enhancing networks, related to teleworking.
We expect demand to strengthen in terms of remote (contactless) services in all public and private sectors, and will
improve our ability to tap into this demand.

Recent demand trends

NESIC’s initiatives

New opportunities from sharp increasein telework inquiries

Order amount* 

5 times
6 times

New customers

Sharp growth

Online inquiries Provide our know-how to support teleworking
Acquire more new customers through Zoom
Propose and sell related products and services, security,
network enhancement, etc. to customers who haveintroduced Zoom
Expand sales to government agencies, educational entities
Prepare for decline in ICT investment by companies* Zoom-related order amount(as of March 2020, compared with February 2020)05

Progress on Growth Strategy: 5G Area

5G is another component of our growth strategy. Under our current medium-term management plan, the company has
positioned this time as one for preparing for the rollout of 5G. NESIC aims to expand its share in the base station business in preparation for 5G investment picking up at telecom carriers. Although the Company was late at the starting
line, NESIC has steadily expanded its market share and sales amid the current recovery. Local 5G also has market
potential. NESIC is concentrating on fields where it can leverage its comprehensive capabilities (full layer of systems
integration capabilities), from infrastructure, including its base stations and core networks to corporate services. The
Company has already conducted field trials and made proposals to customers, making steady progress toward winningnew orders. NESIC is preparing to establish a new base for training personnel and testing technologies related to 5G.

Preparations for Full-Scale 5G Investment
Carrier infrastructure

Local 5G

Expansion of carrier infrastructure business

Focus on field where full layer of systems integration
capabilities can be leveraged

KNSI* sales
Steady expansion in market
share

Double

2019/32020/3(FY)* K&N System Integrations Corporation(Joint venture with KDDI Corporation)

30

ANNUAL REPORT 2020

Strengthen field experiments and proposals

Regional BWA
BWA: Broadband Wireless Access
Cable TV provider
ICT-related disaster prevention andmitigation, etc.

06

Progress on Growth Strategy: Strengthen Business Capabilities

NESIC has seen a better-than-anticipate outcome from efforts to strengthen its business capabilities in support ofits growth strategy. In April 2019, the Company reorganized and consolidated operations, which not only boosted
resource efficiency, but also made it easier to cross-deploy organizational know-how of advanced technological­capabilities. This resulted in improvements in project quality and the cost of sales ratio. In work-style innovations thatutilize the Company’s digital transformation technologies, productivity has improved as a result of raising the efficiency
of systems engineers who propose solutions via video communications while working remotely, and increasing theefficiency of routine operations through robotic process automation (RPA). These gains in resource efficiency and­productivity have led to strong year-on-year growth in net sales per employee and margins.

Better-than-expected progress on strengthening business capabilities through All-NESIC

Increase resource efficiency

Work-style innovation

Maximize benefits of reorganization

Improve productivity with digital transformation

Boost resource efficiency, project quality, fixed cost efficiency
Gross profit margin

Sales per employee (year on year)

17.9 %

+8%UP

17.2%
16.5%

16.5%

2017/3

2018/3+9 %Net sales

2019/32020/3

Consolidated employees

+1%

(FY)

07

Business Environment and Future Aims

In the fiscal year ending March 31, 2021, we see risks in the external environment, such as uncertainties about businessconditions due to COVID-19. On the other hand, we also see business opportunities in a broad range of fields, such as
teleworking and work-style innovations, the educational field in terms of the GIGA school concept and remote learning,
and the telecommunications field, such as helping telecom carriers migrate to 5G. NESIC has positioned the current
fiscal year as a year for solidifying its footing for future growth, and intends to accelerate investments for strengthening its
technological foundation and developing new services. Starting with its strengths in work-style innovation, the Company
will reinforce its ability to provide solutions that solve social issues while properly controlling costs. NESIC is in position toachieve new record highs in profits and make progress toward achieving its medium-term targets.
FY2021/3 Business environment / business execution policies
GeneralCorporations /public entities
Telecom
carriers
Government
agencies

Concerns the economy will worsen due to COVID-19
Reduction in ICT investment by client companies due to deterioration in businessconditions
Stronger needs for teleworking / work-style innovation
Trends in remote learning in educational field
Gradual migration toward 5G
Increase in telecommunications traffic from teleworking
Concerns of delays in bidding, etc.

Secure earnings byreinforcing cost controls
and provision of solutions
to social issues

Brisk investment in disaster prevention and mitigation
ANNUAL REPORT 202031

Financial and Capital Strategy

NESIC is accelerating organic efforts toimprove both financial and non-financial value
with the aim of sustainably increasing corporate value.

Hiroyuki Sekizawa
Senior Vice President and Member of the Board

NESICʼs Approach to Increasing Shareholder Value and Corporate ValueNESIC rises to meet the expectations of diverse

combining financial and non-financial activities, thestakeholders, including shareholders, investors, cus-

Company is keen to rotate through this cycle of cor-

tomers, employees and partners by continuing toporate value improvement while accurately convey-

create and provide value to society from the long-

ing this value to stakeholders.

term perspective. We believe this leads to sustained

NESIC has positioned ROE as a key management

improvement in corporate value. In order to improveindicator, and engages in activities centered on ROE.

ROE, an indicator of capital efficiency, and continue

In order to assuredly imbue ROE in various businessto realize and maximize returns in excess of invested

activities, management deploys PDCA cycles in each

capital, NESIC intends to enhance non-financial

business division through measures to increase thevalue, focusing on materiality—important issues for

margin and asset efficiency, as key elements of ROE.

the Company relevant to it helping resolve greater

To sustain growth in ROE and profits, one of manage-social issues. Aware of the importance of organicallyment’s core aims is to continuously optimize theSustain Improvement in Corporate Value

Financial value

MarginROE

Leverage

ANNUAL REPORT 2020

• 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

Turnover

FY2022/3
ROE target:
10% or higher

32

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

Non-financial value

Through expansionof non-financial
capitalReinforce
portfolio
management

Sharpen core competencies
such as personnel training,
improve ESG

Throughengagement

Improve information
disclosure through IR and
PR activities

business portfolio with an emphasis on capital effi-know-how are its most important business resources.

ciency. On the following pages, I introduce specific

The Company will spend aggressively in these areas

activities in this regard.

while investing in businesses.

To strengthen non-financial value, the basis for

As it is important to visualize both financial andimproving financial value, the Company has identified

non-financial value through interactive communica-

materiality issues in the context of its vision for soci-tion with various stakeholders, such as shareholders,

ety and its own vision for the future. I have turned myinvestors, customers and partners, in addition toattention to ESG and management resources, such

improve them as stated above. Management is keen

as human resources and service platforms, whichto strengthen stakeholder engagement through inves-

form the basis of our core competencies, the well-

tor relations, public relations and CSR activities withspring of corporate value creation. In particular, at

the intention of accurately conveying information to

the core of value creation at NESIC is the integration

facilitate stakeholder understanding. I proactivelyof various technologies and services with its partners

engage in dialogues with stakeholders, including

through co-creation and putting into practice theseinvestors in Japan and abroad, and will mirror theirtechnologies and services itself. For NESIC, human

feedback in management.

resources, organizational culture, technologies andProgress on Maximizing Financial Value Focused on Improving ROE
In the medium-term management plan, the Company

with DX technology, as well as business processtargets ROE in the double digits by the fiscal year

reforms, have led to productivity improvements acrossending March 31, 2022, the final year of the plan.

the entire Company, from the front lines to administra-In the fiscal year ended March 31, 2020, NESIC

tive staff.

achieved record-high orders, net sales and profits

As a result of these initiatives, the gross margin im-

down the line, despite unprofitable projects and theproved 0.7 percentage points year on year, and the ratio

booking of extraordinary losses. ROE was 8.8%,of sales, general & administrative (SG&A) expenses was

marking four consecutive years of improvement. We

unchanged from the previous year, in spite of major

have made better-than-anticipated progress enhanc-outlays that included an office realignment. As a con-ing our business capabilities, but still see room forsequence, the operating margin rose a solid 0.8 per-further growth while solidifying our progress thus far.

centage point from the previous fiscal year to 5.4%.

As an outward-facing initiative for improving theWith the aim of improving asset efficiency, NESIC is

margins, the Company is investing in the digital fieldreinforcing management of the cash conversion cycle

to develop Symphonict, a platform for digital transfor-(CCC) in a bid to increase the efficiency of working

mation to expand the high-margin service provision

capital. In the fiscal year ended March 31, 2020, thebusiness. These investments have already started toCompany worked to strengthen systems and struc-pay off in the form of higher than expected orders

tures, updating rules for account receivables manage-

related to digital transformation projects. As anment, setting up a unit focused solely on operational

inward-facing initiative, our efforts to cut costs span

reforms in the sales divisions, and using the degree ofcompanywide activities over the course of decades,

improved CCC as an important performance indicatorand have become embedded in our DNA. Lately,for evaluation. In order to consistently show results, it

under the name Ci-Next, we have advanced activities

is imperative that each and every employee on theto incorporate QCD by having the Procurement

front lines engage in activities without holding back.

Division proactively participate from the order-taking

We have launched education initiatives that use astage. Moreover, management has been increasing

comic book format, for example, to instill this attitude

fixed cost efficiency by flexibly realigning resourcesin employees. As a member of the management team,through organizational reforms. This has made it

I use Slack and other digital communication tools toeasier to cross-develop know-how across the organi-proactively send ­messages to employees.

zation, translating into improvements in project quality

NESIC has made aggressive business investments

and additional cost reductions. At the same time,

for the Digital x 5G era, setting evaluation bench-work-style innovations being undertaken by NESIC

marks that reflect the nature of the investment to
ANNUAL REPORT 202033

Financial and Capital Strategy

reinforce investment decisions. More specifically, therequires a sound financial foundation. To prepare forCompany has clarified and implemented businesssudden requirements for funds, NESIC has cash on

investment guidelines that take into account a quan-

hand that is equivalent to about two months of net

titative assessment of future cash flow, for example, asales. The Company maintained this level of cash inqualitative assessment of strategic importance, andthe fiscal year ended March 31, 2020, while increas-

the timeframe for recuperating the investment froming investments in growth amid expanding profits. If

the standpoint of stability in the fast-changing ICT

the need for funds arises, such as for a major invest-

industry. After the investment is made, projects of ament, the Company prioritizes the use of loans tocertain scale are reassessed and evaluated by top

the extent that financial soundness is not eroded,

management every six months.

while considering shareholder value, in addition to

As we formulate the next medium-term businessplan, our discussions are focusing on optimizing thebusiness portfolio. Management has been analyzing

the use of cash equivalents in amounts that exceed
two months of net sales.
Although the COVID-19 pandemic has had a major

and evaluating each business from the standpoint of

impact on the economy and corporate activities,

return on invested capital (ROIC) and growth poten-

management sees a limited likelihood it will have atial. For problematic businesses, we are examining

major impact on the Company’s financial stability.

measures to replace the business or take steps to

Nevertheless, management is paying close attention

improve the business. NESIC started out in the con-to cash flow as the market environment changes.

struction and installation of large-scale telecommunications infrastructure, so-called “legacy systems.”
Since then, the Company has changed and expanded

ROE
(%)
10.0

business domains in tune with the times, up to thedigital transformation field, a central focus today.
NESIC aims to optimize its business portfolio by­constantly analyzing and fixing issues, with the aimof rapidly making decisions in response to changes

8.7

8.8

2019/32020/3

7.6
7.5

6.5

7.0

5.0

in the business environment.
NESIC has the responsibility to always provide highly

2.5

reliable services, starting with the construction of
public infrastructure for national and local governments, as well as for telecom carriers, and this0

2016/32017/3

2018/3（FY）

Progress on Increasing Non-Financial Value Centered on Materiality Issues, Improving Engagement

34

NESIC’s long-term vision for society is “an inclusive

satellite offices within 30 minutes of their home. Not

and sustainable society created through communica-

only has this improved the work-life balance of ourtions,” and has identified materiality issues for 2030

employees, it has increased the value added of oper-(page 25). As I said earlier, our initiatives to improveations though work styles that utilize digital transfor-

non-financial value, with a focus on materiality issues,mation to stay one step ahead of society. It is also

are the basis for improving corporate value. We

a great example of how increasing non-financial

believe that enhancing ESG and engagement willvalue can serve to increase financial value. In thelead to lower risks in the future and by better under-

fiscal year ending March 31, 2021, in addition to

standing risks, help reduce the cost of capital.

business investments, NESIC will invest aggressively

These activities are described in more detail fromin a technology center for training engineers, as well

page 46. To support business growth and innovation,

as evaluating and validating new technologies such

we are strengthening technological capabilities,

as 5G, while putting into practice work-style innova-­training personnel and improving the well-being oftions for this “new normal.” On the governance side,

employees. A prime example of this is our effort to

the Company is reviewing the director remuneration

distributed work by having employees commute tosystem, increasing the ratio of remuneration linked to

ANNUAL REPORT 2020

performance, and increasing the ratio of outside

myself have made it a point to have conversations

directors to one third of the total, among otherwith more investors (page 47).

efforts to strengthen governance.

Management will spare no effort to enhance cor-

With regards to engagement, NESIC proactively

porate value while improving information disclosure

engages in investor relations activities, almost dou-

through more constructive dialogues with sharehold-bling the number of one-on-one meetings with inves-ers, investors and other stakeholders.

tors and analysts since the previous fiscal year. I

Shareholder Returns
From a healthy financial position, and having secured

31, 2021. When deciding on share buybacks, one

funds for growth investments, NESIC’s policy is to

way of returning value to shareholders, management

continue distributing a stable dividend while consid-

makes a comprehensive evaluation in the context ofering the expectations of shareholders, based on aincreasing shareholder value and the cost of capital,

comprehensive evaluation of the dividend on equity

while considering growth investments and the pre-(DOE) ratio, consolidated performance and free cash

vailing share price. In June 2020, NESIC implemented

flow. Management emphasizes DOE, not dividenda three-for-one stock split with the objective ofyield, which can be swayed by short-term earnings,

increasing convenience for investors and improving

as an indicator for dividends for the reliable distribu-

the liquidity of its shares.
From the perspective of shareholder returns, wetion of dividends to our shareholders who have held

understand the importance of increasing total share-

onto shares for a long period.
Based on this policy, NESIC increased the dividend

holder return (TSR) as the sum of dividends andfor the fiscal year ended March 31, 2020, to ¥27.3

share price gains. TSR has risen sharply alongside

per share (¥82 per share before the stock split), andgreater recognition of NESIC as a systems integrator,

plans to raise the dividend a 14th consecutive fiscal

as a result of efforts to strengthen engagement andyear to ¥28 per share in the fiscal year ending March

increase both financial and non-financial value.

Stock Price*1 / TSR*2

Cash dividends per share*3

(¥)

(¥)

1,600

Plans to increase dividends for
14th consecutive year

1,200

28.0
27.3

800

400

0

2016/32017/3

2018/3

2019/32020/3（FY）

4.7（5 years ago） （4 years ago） （3 years ago） （2 years ago） （1 year ago）

98%

169%

115%

64%

68%

*1 Share price reflects the three-to-one stock split on June 1, 2020.
*2 TSR as of March 31, 2020 for investments that were made prior to the year.

2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2020/3 2021/3（Forecast）

（FY）

*3 F
 igures prior to the fiscal year ended March 31, 2020, have beenadjusted to reflect the three-to-one stock split on June 1, 2020.

Aiming to Sustain Improvements in Corporate Value
Corporate value cannot be described in terms offoster a sense of unity in the organization. I believe

financial value alone. Amid the COVID-19 pandemic,

this will in turn sharpen our competitive advantages

non-financial value, such as helping society solve

and lead to sustained growth. I will do my best to

problems, has become even more important. Fromsustain improvements in corporate value while dili-

the standpoint of solving social issues, we will not

gently working to increase non-financial value with

only create excellent solutions, but also work harder

the awareness that this is key to expanding financial

to increase the motivation of our employees andvalue.

ANNUAL REPORT 2020

35

DIGITAL SOLUTIONS

Digital Solutions BusinessBusiness Overview 
The Digital Solutions Business offers systems and services for information and communications
technology (ICT), such as corporate networks and IT, that are essential for business. Using cuttingedge digital technologies, such as artificial intelligence (AI), the Internet of Things (IoT), androbotic process automation (RPA), NESIC proposes work styles that lead to higher productivity andthe evolution of businesses, as well as work styles that allow employees to work anywhere andanytime. We support diverse and sophisticated work styles in response to social issues, such asbalancing childcare or nursing care while working to the best of their ability, in addition to addressing the social issue of preventing the spread of COVID-19 and other infectious diseases.

Vision for Society

Initiatives to provide value to society through 2030

An inclusive and sustainable society
created through communications

Key materiality issues in this businessInitiatives to Provide Value to Society through 2030
 reate work environments in which everyone can takeC
initiative
 evelop pleasant and plentiful communities withD
cutting-edge technologies
 rovide robust services that underpin safety andPsecurity in evolving society

Initiatives for Growth at NESICSound and highly
transparent
managemen

Strengthen
innovation
capabilities tocreate new value

Create aculture where
employees cantake initiative

Breakdown of net sales

Create work environments in which everyone can takeinitiative
Develop pleasant and plentiful communities with
cutting-edge technologies
Provide robust services that underpin safety andsecurity in evolving society

Net sales / operating income / operating margin over three years(¥ billion)

(%)

115

112.8

120

16

102.1

Net sales

37

90

8.9

10.3

12

10.4

60

8

%

¥112.8 billion

30

4

9.0

12.0

11.7

0

0
2019/3

Net sales(FY2020/3)

36

ANNUAL REPORT 2020

Operating income

2020/32021/3(Forecasts)(FY)

Operating margin* Forecasts for the fiscal year ending March 31, 2021 are as of July 30, 2020.
* Figures for the years ended March 31, 2019 and 2020 have been reclassified to reflect business transfers among segments in the fiscal year ending
March 31, 2021 (reclassified figures for the fiscal year ended March 31,
2019 have not been audited by the accounting auditor).

Review of Fiscal Year Ended March 31, 2020

to support new ways of working, NESIC reinforced its
product lineup of cutting-edge cloud services, starting

In the fiscal year ended March 31, 2020, the Digitalwith Zoom and other kinds of online meeting services,

Solutions Business had a great year in terms of net sales

as well as Slack, a business chat service, and Wrike,and profitability.

which helps to visualize business processes and man-

Net sales rose 10% year on year, to ¥112.8 billion, dueagement. Combining these services together, weto several factors. These include the continued growth oflaunched Symphonict as a multi-cloud service platformthe work-style innovation business, one of our core fields,

for effectively utilizing these services to their fullest.

and the increased establishment of networks for hotels

With respect to the business model, we aimed toto meet demand from inbound tourism. These also

expand the highly profitable service provision business,

include an increase in sales from our subsidiaries in

but its weighting was basically unchanged year on year

charge of sales in the Kansai area and the contact center

due to flow-type business expanding more than antici-

business.

pated. Nonetheless, we were able to expand the service

In this business segment, we are actively utilizing digital transformation (DX) technology to advance the work-business in line with our expectations.
Operating income increased by ¥2.7 billion to ¥11.7

style innovation business, and in this context NESIC

billion, and the margin improved by 1.4 percentage

launched distributed work in October 2019 in a bid topoints, thanks to improvement in system engineer effi-show the world new ways of working. At the same time,

ciency, which kept fixed costs in check as sales grew.

Initiatives for Fiscal Year Ending March 31, 2021

accelerate our transformation into a highly efficient business that does not depend on our number of systems

For the fiscal year ending March 31, 2021, the Digitalengineers, such as service- and package-oriented busi-

Solutions Business targets net sales of ¥115 billion. Due

nesses. Accordingly, we plan to maintain profit margins

to the COVID-19 pandemic, signs of deceleration haveand target operating income growth to ¥12 billion, while

appeared in some sectors, such as the manufacturing

we increase investments in growth, such as develop-

industry, with companies curtailing or postponing invest-

ment expenditures for constantly rolling out newments. On the other hand, demand has rapidly strength-

solutions.

ened for online meeting services as more people
telework during the pandemic. NESIC has stepped in toaddress these recent social needs by offering its uniquebundle of services, including security, discussion tools
and automated responses that work alongside orenhance these online meeting services. The Company
has received many inquiries from new customers withwhich it had not done business with before. We willpropose our solutions, such as ICT infrastructure platforms with the latest technologies, to these new customers with the aim of acquiring recurring businesswhile strengthening and expanding our relationships
with customers. In the first quarter, through our subsidiaries, orders have come in for ICT projects for schools,
which we call GIGA school projects. NESIC aims to contribute to advances in education through library systems
that provide new use value, as well as remote classrooms and university campus networking.
Turning to profits, our systems engineers are alreadyoperating at high capacity, making it important toSenior Vice President
Executive General Manager, Digital Solutions Business Unit

Seiji Shiga
ANNUAL REPORT 2020

37

NETWORK INFRASTRUCTURES

Network Infrastructures BusinessBusiness Overview 
The Network Infrastructures Business builds systems and provides services for the network infrastructure for public use, which requires the latest technology and high reliability, including networks for telecom carriers and ICT infrastructure that support society, such as national and local
governments, as well as broadcasters. We contribute to providing safe and comfortable daily lives.

Vision for Society

Initiatives to provide value to society through 2030

An inclusive and sustainable society
created through communications

Key materiality issues in this businessInitiatives to Provide Value to Society through 2030
 reate work environments in which everyone can takeC
initiative
 evelop pleasant and plentiful communities withD
cutting-edge technologies
 rovide robust services that underpin safety andPsecurity in evolving society

Initiatives for Growth at NESICSound and highly
transparent
managemen

Strengthen
innovation
capabilities tocreate new value

Create aculture where
employees cantake initiative

Breakdown of net sales

Create work environments in which everyone can takeinitiative
Develop pleasant and plentiful communities with
cutting-edge technologies
Provide robust services that underpin safety andsecurity in evolving society

Net sales / operating income / operating margin over three years(¥ billion)

(%)

120

Net sales

27

90

60

16

86

83.1

79.5

9.8

12

9.3

6.4

8

%

¥83.1 billion

30

4

5.1

8.0

8.1

0

0
2019/3

Net sales(FY2020/3)

38

ANNUAL REPORT 2020

Operating income

2020/32021/3(Forecasts)(FY)

Operating margin* Forecasts for the fiscal year ending March 31, 2021 are as of July 30, 2020.
* Figures for the years ended March 31, 2019 and 2020 have been reclassified to reflect business transfers among segments in the fiscal year ending
March 31, 2021 (reclassified figures for the fiscal year ended March 31,
2019 have not been audited by the accounting auditor).

Review of Fiscal Year Ended March 31, 2020

Operating income increased ¥3 billion year on yearto ¥8.1 billion, and the operating margin improved by a

The Network Infrastructures Business saw profitability

strong 3.4 percentage points. This achievement reflects

improve strongly in the fiscal year ended March 31,

sales growth and the disappearance of unprofitable

2020, thanks to the steady execution of growth strate-

public projects booked in the previous fiscal year.

gies and the strengthening of business capabilities.

Furthermore, divisions for telecoms carriers businessNet sales rose by 5% to ¥83.1 billion on broad growthand social / public infrastructure projects, which werein social and public infrastructure. In sales to telecoms

restructured in April 2019 into a new organization, real-

carriers, in the second half, we made up for lost groundized greater efficiencies through the combined use ofin the first half, ending the year more or less flat com-

resources. Know-how from doing business with telecoms

pared with the previous fiscal year.

carriers, which requires advanced networking technol-

In this business segment, we made various prepara-ogy and project management, was crossed over totions for the ramping up of investment in 5G in thesocial / public infrastructure field, which led to a strong

future. NESIC aims to expand business in infrastructure

reinforcement of business capabilities.

for telecoms carriers through K&N Systems Integrations
Corporation, its joint venture with KDDI Corporation,in order to grow the base station business.

Initiatives for Fiscal Year Ending March 31, 2021

We estimate operating income will hold steady at¥8 billion, but expect the operating margin to decline

For the fiscal year ending March 31, 2021, the Network

slightly year on year to 9.3%. We anticipate a lift from

Infrastructures Business plans to invest aggressively

higher sales, but plan to invest aggressively in technol-

because the year is a milestone for the ramping up

ogy verification and training personnel in 5G at a 5G

of 5G investment.

laboratory being built this fiscal year. With that said,

We target net sales of ¥86 billion in the business.
In telecoms carriers, migration demand related to 5G is

we will make every effort to beat these estimates by
increasing cost efficiency, for example.

on the move, and capital investment should remain brisk
in this area. We are still keen to expand the business,
including K&N System Integrations Corporation.
NESIC is focusing on local 5G as a field where it canfully leverage its comprehensive strengths, given thegrowth potential of this market and the scope of its
offerings from infrastructure construction for telecoms
carriers to services for enterprises. With its field experiments showing promise, the Company expects earnings
to get a boost from stronger activities to propose solutions for regional broadband wireless access (BWA),
cable TV providers and disaster prevention and mitigation applications.
In social / public infrastructure field, meanwhile, NESIC
intends to contribute more to solving social issues by
providing solutions that lead to advances and greater
work efficiency through digital transformation of overall
operations at customers, in addition to constructing
standalone systems as in the past.
Senior Vice President and Member of the Board
Executive General Manager, Network Infrastructures Business Unit

Kazuhiko Takeuchi
ANNUAL REPORT 2020

39

ENGINEERING & SUPPORT SERVICES

Engineering & 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 and 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 full-service structure able to respond within a couple of hours
anywhere in Japan, including operation centers that take an integrated approach to network management and security monitoring, and comprehensive technical centers in charge of logistics andtechnical services. This business segment plays a central role in “providing robust services that
underpin safety and security in evolving society,” our commitment to providing value to society
as expressed in materiality issues.

Vision for Society

Initiatives to provide value to society through 2030

An inclusive and sustainable society
created through communications

Key materiality issues in this businessInitiatives to Provide Value to Society through 2030
 reate work environments in which everyone can takeC
initiative
 evelop pleasant and plentiful communities withD
cutting-edge technologies
 rovide robust services that underpin safety andPsecurity in evolving society

Initiatives for Growth at NESICSound and highly
transparent
managemen

Strengthen
innovation
capabilities tocreate new value

Create aculture where
employees cantake initiative

Breakdown of net sales

Create work environments in which everyone can takeinitiative
Develop pleasant and plentiful communities with cuttingedge technologies
Provide robust services that underpin safety and security inevolving society

Net sales / operating income / operating margin over three years(¥ billion)

(%)

120

Net sales

32

90

16

101

97.4

89.0

12

8.3
60

9.4

6.9

8

%

¥97.4 billion

30

4

7.4

6.7

9.5

0

0
2019/3

Net sales(FY2020/3)

40

ANNUAL REPORT 2020

Operating income

2020/32021/3(Forecasts)(FY)

Operating margin* Forecasts for the fiscal year ending March 31, 2021 are as of July 30, 2020.
* Figures for the years ended March 31, 2019 and 2020 have been reclassified to reflect business transfers among segments in the fiscal year ending
March 31, 2021 (reclassified figures for the fiscal year ended March 31,
2019 have not been audited by the accounting auditor).

Review of Fiscal Year Ended March 31, 2020

Operating income decreased ¥0.7 billion to ¥6.7 billion, reflecting a year-on-year increase of about ¥3 billion

In the fiscal year ended March 31, 2020, net sales grewin reserves for an unprofitable project to ¥4 billion. The

strongly in the Engineering & Support Services Business,

unprofitable project in the fiscal year ended March 31,

but profitability remained a major problem.

2020 was related to the construction of a mega-solar

Net sales increased 9% year on year, to ¥97.4 billion,

power plant, owing to additional costs for changing

owning to the expansion of the domestic construction

construction methods due to hard soil and dealing withbusiness, the overseas construction business, and the

muddy water after heavy rainfall. When the businessmaintenance and operation business. Fire-fighting andenvironment deteriorated in the past, the Company

disaster-prevention systems in regions that were in arelaxed its stance on contract conditions in the civiltransition period in the previous fiscal year contributed

engineering field, an area of inexperience, in order toto the expansion of the domestic construction business,maintain operating rates by increasing orders. Onceas did construction projects for mega-solar power

management became aware this was causing profitabil-plants. In overseas construction, growth was boosted by

ity to worsen, we immediately took a tougher stance ona major plant communications project in Saudi Arabia

contract terms and conditions. Excluding this factor,

that was received in the previous year. In maintenance &however, profitability has been improving. In April 2019,

operations, equipment kitting services grew at the

we began to see efficiency increase as a result of con-Company’s service center.

centrating construction resources in this businesssegment.

Initiatives for Fiscal Year Ending March 31, 2021

At construction sites and service centers, this businessprovides services that contribute to safety and security

For the fiscal year ending March 31, 2021, thein society. While taking thorough precautions to prevent

Engineering & Support Services Business targets net

the spread of COVID-19, we are in position to provide

sales of ¥101 billion and operating income of ¥9.5 bil-value to society without disruption.

lion. We aim to achieve these targets in two ways.
First of all, we will see through to completion themega-solar power plant construction projects on theorder books. The Company added to its reserves in thefirst quarter, and strengthened project management toprevent losses from expanding. As a side effect, measures we have taken to date have eliminated unprofitable projects other than the mega-solar power plants,
and lead to better profits elsewhere.
Secondly, we will increase resource efficiency. Our
medium-term strategy is to increase profitability by efficiently deploying construction resources that have been
concentrated in this segment, and by improving project
quality and working to imbue multiple skills in our
employees. We intend to train our engineers using thebasic technology center we plan to finish this fiscal year.
In the segment, the overseas business has been
adversely affected by COVID-19, delaying customs clearances of equipment and materials, and prompting customers to halt work on projects. We estimate COVID-19
will negatively impact annual net sales by ¥2 billion andoperating income by ¥0.5 billion.

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

Hiroshi Nagao
ANNUAL REPORT 202041

Special Feature1: Co-Creation Online Discussion

Solving Social Issues with Customers
through Co-Creation
NESIC and FUJI OIL CO., LTD. have built a relationship based on trust over many years. The following conversation is about both companies’ approach to co-creation with an eye on solving social
issues while responding to the COVID-19 crisis.

Shigeru Tanaka

Yoshimi Nishitani

Akira Yamamoto

Takehito Fujihara

FUJI OIL CO., LTD.
General Manager Information
System Department

FUJI OIL CO., LTD.
Assistant manager
Sales Strategy Department
Sales Division

NEC Networks &System Integration Corporation
Manager
Kansai Branch DivisionMarketing & Sales Operations Unit

NEC Networks &System Integration Corporation
Assistant Manager
Kansai Branch DivisionMarketing & Sales Operations Unit

A partnership spanning 15 years
that is built on trust

Yamamoto Always focused on the customer, NESIC
takes special care to ensure that the provision andoperation of infrastructure will lead to business

Tanaka NESIC proactively proposes new technolo-

expansion at its customers. To this end, it isgies in addition to providing support from the groundextremely important to have a deep understanding

up in areas not usually visible, such as IT infrastruc-of Fuji Oil’s businesses. Since Fuji Oil supplies foodture. NESIC is always responsive even in support for

ingredients that are essential to people’s lifestyles,

solving PC problems and has received high marks inthere can be no downtime in its operations for any

our IT user surveys.

reason. It is our responsibility to always be consciousof contributing to business continuity by providing IT

Fujihara

Thank you very much. Our relationshipinfrastructure.

began about 20 years ago, with NESIC helping out ininfrastructure fields including internal networks anddata centers. I am very grateful for the opportunity tohave a broader partnership including office renovations and building out teleworking environments witha shift to cloud computing.

Rapid response to business continuity
during COVID-19 outbreak thanks torelationship of trust
Tanaka NESIC was an immense help to us in continuing operations during the COVID-19 pandemic. In
April, Japan declared a state of emergency. The

42

ANNUAL REPORT 2020

following week, all employees switched to a workfrom-home model, requiring the immediate setting

Continuing to take on challenge ofsolving social issues through co-creation

up of new work environments. NESIC got us up andrunning at full capacity by setting up and distributing

Tanaka Based on the spirit of “Work for people”, we

hundreds of PCs, allowing Fuji Oil to put into place aaim to be a company that is essential to the world,

remote work system in short order with the speed

one that helps solve the social issue of food short-demanded by management.

ages. Diversity is a key element for achieving thisgoal. Advanced work styles that allow diverse

NishitaniIn the sales division, we set up telework-

ing and rapidly dusted off a web conferencing

employees to work with enthusiasm are a part ofthis solution.

system that we had barely used in the past. In addition to distributing PCs, NESIC helped us get these

Yamamoto NESIC is implementing work-style inno-

tools up and running, for a seamless rollout ofvations through the quality of communications inteleworking.

order to realize an inclusive and sustainable society
created through communications. By providing these

Tanaka As a result of being forced to deploy digital

innovations to our customers, we help them reform

technology due to the COVID-19 pandemic, I believe

their own work styles with the aim of contributing to

our IT literacy has improved across the company. Our

solutions for social issues on behalf of the customer.

approach changed to one focused on increasing

I am happy beyond words to hear Mr. Tanaka’s

productivity while keeping employees away from thecomments.

office as much as possible, and I feel that overall
productivity has improved.

Nishitani

NESIC has proposed ideas for more relax-

ing spaces for our employees, including the cafeteria,
which aligns with our emphasis on health management, and this has led to better work environments.

Fujihara

In this case, speed was of paramountimportance. With the aim of using IT tools on hand
as much as possible, seven of our members stationed at Fuji Oil directly responded to their needs

Tanaka It will be necessary to constantly update ourwhile providing real-time support. I believe we were

work styles in order to stably secure personnel, so I

able to rapidly respond because we have coordi-

think it will be even more important to co-create with

nated closely during normal times and we have pur-

NESIC. While receiving assistance as our partner, we

sued effective methods of deploying IT by using it

intend to tackle issues affecting society.

ourselves first.
Fujihara

Thank you very much for those kind words.

Yamamoto Although it is not that flashy to solve

In this new normal, we are even more committed toproblems by working closely with our customers

being useful to society by helping your company.

on-site, it is a unique facet of our services at NESIC.

Starting with President Ushijima, all of us will do ourbest to help Fuji Oil. Thank you for your time today.

Nishitani

When we updated the office environment

at our Tokyo location with NESIC, we reduced paperwork to the point that all personal documents could
fit into a single locker. I believe that this helped facilitate a smooth transition to IT tools.
ANNUAL REPORT 202043

Special Feature2: Staff Reforms Online Discussion

Aiming for the Best Staff in Japan
Starting in October 2019, NESIC took on the challenge of adapting to a new way of working called
distributed work. Our aim is to reinforce the corporate foundation by reforming business processes
from scratch with the deployment of cutting-edge technologies in distributed work environments,
while reducing commute times, improving work-life balance and spurring innovation. Reforms ourstaff are key to turning this initiative into a reality.

Staff reforms picked up in earnest withlaunch of distributed work

The Procurement Division has many opportunities
to come into contact with various business partners,
and as we co-create with these partners, theWe launched distributed work in OctoberProcurement Division is keen to add value and con-2019 with the idea that it would lead to more inno-

tribute to operations. After implementing DocuSign

vative work and reduce commute times by setting up

as an electronic approval and signature platform, we

satellite offices within 30 minutes of the homes of

explained directly to customers with our businessemployees. It was fortunate that we had started thisdivisions the process we implement. A majority of

initiative before the COVID-19 pandemic.

companies have approval processes that rely on

Yoshidapaper and signatures (official seals in Japan). We

Fujii

44

I agree. The fact that we were ahead of thecurve on implementing distributed work and otherengage with our customers from a user standpoint,

work-style innovations allowed us to smoothly transi-

which is more convincing in the end.

tion to a work-at-home environment during the

Fujii

COVID-19 pandemic. However, some issues arose

putting new ideas into practice ourselves. Under theafter we began this initiative.

EmpoweredOffice brand that launched in 2007,

Baba

NESIC has reformed its own offices and invited cus-

Most companies have turned to teleworking

Indeed, this is a good example of our strength,

because of the pandemic, and this has made it

tomers to see the actual results of these reforms,

imperative to go paperless, a thorny issue for someacquiring new business in the process. The staff

firms.

reforms that began with distributed work will not

ANNUAL REPORT 2020

only reduce costs, but also allow us to put into prac-“creating work environments in which everyone cantice new work-style innovations ahead of the rest of

take initiative.”

the world while leveraging digital technologies toBabatheir fullest in conjunction with our growth strategy.

one example of an issue we encountered is that chat

We must use this know-how to solve social issues.

declines when communicating remotely, compared

YoshidaThinking about vibrant work environments,

In rolling out distributed work, there werewith gathering together in a room to work. In distrib-honestly some concerns about losing productivity as

uted satellite offices, we use large displays to make ita result of dispersion. However, the president showed

feel more like a seamless experience when commu-

a strong conviction that productivity would improve

nicating with other offices. But, when people work at

more than before based on a distributed approach,home, casual talk tends to be nonexistent. Such con-and the staff took this to heart when implementing

versations can lead to innovative insights, so I believe

changes.

we should find a way to enhance the quality of com-However, it is impossible to continue doing work

munications, such as by setting up venues for free-the same way while operating at higher levels ofwheeling conversations.

productivity. For example, in the Personnel Relations

YoshidaDivision, we must think of how to communicate withincrease the happiness of employees. Through staff

people in distant locations, and figure out how toreforms, I hope to create work environments where

evaluate and train personnel remotely. Deploying

everyone can take pride in giving back to society andcutting-edge technologies is an essential element tofeel strongly about opportunities for self-growth.

creating new value this way. To this end, we are keenOnce each employee can take action on their own

to find ways that make routine work easier with ICT,

accord, we will have achieved the materiality issue ofin order to emphasize more productive work.

“strengthening innovation capabilities to create new

In addition, I think it is important tovalue.”

Solving social issues by addressing
materiality issues

Baba

While growing ourselves, we should reinforce

the relationships we have with customers in the staffing divisions, so that we can share these experiences

Fujii

With a sustainable society and this “newwith our customers. By having our initiatives catch on

normal” during COVID-19 on our minds, we under-

more broadly, we will be able to contribute to soci-stand the necessity of changing ourselves and taking

ety and help solve social issues.

work-style innovation to the next level. In this “newYoshida With the situation around the world chang-normal,” we aim to “create a culture where employ-ing so much, we have to move more quickly than everees can take initiative,” one of our materiality issues.

before. We will accelerate reforms to staffing until we

In this way, NESIC aims to provide value to society by

can confidently say “we have the best staff in Japan.”

Masahiro Yoshida

Hiroki Fujii

Ken Baba

General Manager ofGeneral Manager ofGeneral Manager of

Personnel Relations Division

Administration Division

Procurement Division

ANNUAL REPORT 202045

Sound and Highly Transparent Management

Vision for Society
An inclusive and sustainable society
created through communications

Sound and highly
transparent management

Initiatives to Provide Value toSociety through 2030

Initiatives for Growth at NESICSound and highly
transparent
management

Strengthen
innovation
capabilities tocreate new value

Create aculture where
employees cantake initiative• Strengthen governance through dialogue withstakeholders• Promote compliance with an eye on diversity

Corporate GovernanceExamples of awards received from customers(See pages 52–57)

Award for rapidly repairing a customer’s communications

Compliancefacilities after typhoons No. 15 (Faxai) and No. 19

The NESIC Group believes that compliance means not
only adhering to laws and regulations, but also following
social norms and common sense from a broader perspective. We believe it is important to strive for improvements in corporate value for NESIC and the entire Groupby having each and every employee fulfill their social
responsibilities with a high sense of ethics, so that society perceives and trusts NESIC as a sound corporation.
Based on this way of thinking, we promote compliancewith our eyes set on moving compliance from the “fostering” stage to the “corporate culture” level.

Ensuring Sound Management throughCommunications
NESIC engages in corporate activities that center oncommunications to achieve sound and highly transparent management.

Communication with Customers
Main Initiatives Hold NESIC Customer’s Fair (exhibition/seminar forcustomers)
Conduct customer satisfaction surveys and implement
improvement measures by sharing the results within the(Hagibis) struck in 2019

Award for advanced technologies and enthusiasm in construction projects under proper process management for
an electrical facility upgrade project at a water purification
plant

Award from the National Institute of Polar Research forcontributions to observations of the south pole region
by operating and maintaining satellite communications
equipment and dispatching many personnel as observation teams to the south pole since the 29th expeditionin 1987

Communications with Suppliers
For the project orders it receives, NESIC utilizes labor
suppliers who subcontract for on-site work, such as
installation and construction, as well as suppliers of
hardware and software for system integration projects.
These suppliers are important stakeholders who are
essential to our business execution. While communicating with suppliers through business trend briefings, visitsand surveys, we are strengthening the cooperation
structure throughout the supply chain with the objectiveof contributing to SDGs. In this way, our procurement
activities are sustainable and fair.

Company (annual survey and inquiries upon completion ofprojects)
Present awards for outstanding customer satisfaction
activities (once a year)
Invite outside instructors to give presentations on customer satisfaction (once a year)

Topics in FY2020/3 Percentage of answers in customer survey that were “verysatisfied” or “strategic business partner,” the highest evaluations, increased from the previous survey in FY2019/3(best score)
Lecture by outside expert about customer satisfaction(held in September 2019)46

ANNUAL REPORT 2020

Main Initiatives for Suppliers Hold business trend briefings (once a year)
Share business information at New Year meeting (once ayear)Hold safety conferences (bimonthly)Hold Companywide safety conference (once a year)Implement Inspections and surveys (a total of 296 companies as of FY2020/3)
An emergency survey was conducted of important partners and major suppliers about the impact from COVID19. NESIC provided free assistance for setting up
teleworking environments (online meetings, networks,etc.) the most requested item, and distributed 30,000
masks free of charge.

dialogue with top management including the President,such as briefings for investors and one-on-one meetings(of the 171 IR meetings in FY2020/3, 30 meetings were
held with the President and/or Senior Vice President). In
the fiscal year ended March 31, 2020, in order todeepen understanding of the medium-term businessplan that was unveiled in May 2019, the President held
small group meetings with sell-side analysts. After the
COVID-19 pandemic began to spread, we quickly
switched to online meeting formats for discussing theDigital Solutions Business, which drew strong interest
among investors, with the head of the business (SeniorVice President) in attendance.
We increased the number of meetings held with investors in charge of ESG, which began in the fiscal year
ended March 31, 2018. In the fiscal year ended March
31, 2020, a total of 12 meetings were arranged with staff
in the sustainability section and Japan and foreign institutional investors. The opinions and requests received
from these meetings are reported to all executives,
including independent directors/auditors, from the­investor relations section, and reflected in efforts tostrengthen management and improve corporate value.

Business trend briefing for suppliers held online

Communications with Shareholders and Investors
NESIC has a disclosure policy of explaining its businessconditions and management policies to shareholders
and other stakeholders in an accurate and timely
manner. Management periodically engages in dialogue
with shareholders and investors on capital markets inJapan and overseas, including through briefings andinterviews.
In addition to meetings with the investor relations
section, NESIC periodically provides opportunities for

Briefing for Digital Solutions Business held online(March 16, 2020)

Examples of Opinions Received at Meetings with Investors and NESICʼs Responses
Opinion 

Opinion 

While many companies find materiality issues that alignInvestors tend to focus on the environment. I understandwith CSR, I like that NESIC has newly identified materialitythat the environment is a matter of low importance in theissues that express its social values.

information and communications sector, and although itI want to see information disclosed about progress, prob-

does not warrant and entire page of the integrated report, I

lems and solutions to materiality issues.

would like to see more written about this topic.
Investors turn first to the integrated report, and are lessinclined to search on a company’s website. It would be
helpful to have URLs pointing to information not contained

Responses to these opinions:in the integrated report.

In our first fiscal year addressing materiality issues, we
reaffirmed our roles and responsibilities in this “newResponse to these opinions:normal” for society, and the entire company examined

Due to the nature of the content in the past, we did notaction targets for each materiality. Companywide, we

include information about the environment in the inte-

have had detailed discussions about how to help solve

grated report. For such information, we added an index

social issues, and plan to report on specific targets andpage to direct readers to this information on NESIC’s

progress in the next integrated report.

website. (See page 4)

ANNUAL REPORT 2020

47

Strengthen Innovation Capabilities to Create New Value

Vision for Society
An inclusive and sustainable society
created through communications

Strengthen innovation
capabilities to create new value

Initiatives to Provide Value toSociety through 2030

Initiatives for Growth at NESICSound and highly
transparent
management

Strengthen
innovation
capabilities tocreate new value

Create aculture where
employees cantake initiative• Promote a culture that encourages change andembrace of new challenges• Accelerate co-creation and the use of various services in our own business practices to better
understand the customers’ point of view

Inclusion & Diversity Supports Our Ability to
Innovate
NESIC has been focusing more on inclusion & diversity with the understanding that innovation comesfrom the synergies generated by the unique qualities
found in each and every employee. To promote
diversity in employees, in addition to empowering

Main Initiatives for Promoting Diversity
Among Employees Conference held for younger employees in families where
both the husband and wife work to share their thoughtson the Company’s direction, one’s own career, and worklife balance (December 2019)
Follow-up with female candidates for management positions based on their career and grooming plans

women, our hiring practices take into consideration
factors such as age (the youth and seniors) and disabilities, while aiming to forge organizations where
diverse and self-directed individuals can function welltogether.

Ratio of male and female employees
March 31, 2019: 84.3% male, 15.7% female

March 31, 2020: 83.8% male, 16.2% female

Ratio of women in management positions
March 31, 2019: 3.7%

March 31, 2020: 4.2%

Main Initiatives for Raising Internal Awareness of Inclusion& Diversity Director training on inclusion & diversity (February 2020)

Number of employees with disabilities
March 31, 2019: 95

March 31, 2020: 94

Outside directors talked about why inclusion & diversity isimportant now, and how it can be achieved, in discussions

Ratio of employees continuing employment after manda-

with top management at Group companies. A declaration

tory retirement age

was also drawn up as a call to action.

FY2019/3: 65.5%

FY2020/3: 77.4%

Establishment of Inclusion & Diversity Promotion
Committees (June 2020)
We have created a Companywide committee for promoting

Number of experienced hires
FY2019/3: 41

FY2020/3: 80

inclusion & diversity and taking discussions to the next level.
This committee is reassessing the personnel system andother systems, and supporting efforts in each department.
Engagement Index* (Target)

80% (2022 target, 25% in 2019)* Score on diversity categories in an internal survey

Director training in inclusion & diversity

48

ANNUAL REPORT 2020

Technological Capabilities that Support
Innovation

Environments that Spur Innovation
Opening of Nihonbashi Innovation-Base

To further refine the broad range of technical skills

In February 2020, NESIC opened the Nihonbashi

that support our operations, we aim to enhance theInnovation-Base as a new base for spurring innova-

technical knowledge of our employees by coveringtion. We will pursue open innovation while using

their educational costs for acquiring qualifications

Zoom, Slack and other communications tools toand by holding seminars guided by in-house lectur-

facilitate open dialogues and co-creation amongers. In autumn 2020, NESIC constructs the Shin-diverse parties, including customers, partners andKawasaki Technical-Base as a new technical base inventure firms.

Kanagawa Prefecture. At this base, we will hone ourtechnological capabilities through various types oftechnical training, ranging from basic technologies to
5G and other advanced technologies.
Reinforcing Technological Capabilities at Shin-Kawasaki
Technical-BasePlan to quintuple number of 5G engineers by 2023

Open innovation area of Nihonbashi
Innovation-Base

Securing engineers and passing down technicalexpertise are major issues for NESIC, a company

Track Record in Open Innovation 

involved in a wide variety of business fields. NESIC

Leveraging our ability to assess the needs ofaims to expand the scope of activity for elderly­customers, we are accelerating co-creation withpeople through its Senior Partner System for employ-

our partners.

ees who have reached the mandatory retirement age
but wish to continue working. Since the fiscal year
ended March 31, 2016, the Company has maintained
over 50% of continued employment after mandatory
retirement. As more of our engineers with various
qualifications and diverse experiences approach theirretirement age, we will expand their range of opportunities to continue working after reaching the mandatory retirement age, passing down their technicalknowledge to younger employees in a bid to maintain and strengthen our technological capabilities.
Employees with managing engineer or technical supervisor
qualifications

Example of co-creation with cloud vendors
Face-to-face communications Zoom
Business chat SlackManagement visualization WrikeElectronic signatures DocuSign, etc.

NESIC invests in venture firms through its own
Corporate Venture Capital (CVC) program, and has
strengthened co-creation with venture firms throughtie-ups with Sozo Ventures II-S, L.P. and Plug and Play
Tech Center, which are venture funds in Silicon Valley
in the United States. The Company is keen to quickly
provide competitive services.

Approx. 1,500 people
Employees with advanced ICT qualifications
Approx. 800 people

NESIC Employee Internship Training at Plug and Play Tech Center
In July 2019, NESIC signed a partnership agreement with Plug and Play Tech Center (founder & CEO:
Saeed Amidi) in California, U.S.A. with the objective of advancing innovation and co-creation of new
businesses beyond its own boundaries, while further strengthening business co-creation with startup
firms. NESIC has dispatched two of its employees to Plug and Play Tech Center with the mission of
discovering cutting-edge solutions and services while working there.
In January 2020, the Company’s employees began taking internship training at the head office of Plugand Play Tech Center. In the first round, three young employees in their second to fourth years at NESIC
were sent to Plug and Play Tech Center for a period of about three months to research startup firms,
gather information at local exhibitions and seminars, and support collaboration with existing partners.
* The second round of interns that had planned to start in May 2020 has been indefinitely postponed due to COVID-19.

NESIC’s assigned employees and first roundof interns at Plug and Play Tech Center

ANNUAL REPORT 2020

49

Create a Culture Where Employees Can Take Initiative

Vision for Society
An inclusive and sustainable society
created through communications

Create a culture where
employees can take initiative

Initiatives to Provide Value toSociety through 2030

Initiatives for Growth at NESICSound and highly
transparent
management

Strengthen
innovation
capabilities tocreate new value

Create aculture where
employees cantake initiative• Improve the well-being of employees• Encourage frank and open discussions,and enhance the corporate culture as a facilitatorof self-growth

Efforts to Improve Well-Being of Employees

Personnel System Promotes Career Advancement

Improving the well-being of employees is essential to

NESIC takes an integrated approach to humancreate work environments where employees canresource development that combines personnel sys-

work proactively. We aim to create work environ-tems and compensation, planned personnel rota-

ments where all employees can work physically andtions, and training opportunities at the appropriate

mentally without worry in a socially satisfying way.

time. Employees periodically discuss with their supe-

Creation of Environments Conducive to Work
Taking on Challenge of Distributed Work 

Following experimentation that began in 2015, NESIC
rolled out teleworking across the entire company in
July 2017, and starting in October 2019, corporate
staff were reassigned to satellite offices (activity
bases in seven locations in the Tokyo metropolitanarea) within a 30-minute commute of their homes,

riors about their career plans and progress on
improving their skills with the intention of enhancing
their own careers. We have frameworks in place toallow employees to take on new roles through aninternal job posting system.
SystemInternal Job
Posting System

This system allows employees to apply for internaljobs on their own, responding to internal needs for
personnel resulting from moves into new businessfields and greater focus on priority businesses.

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 for desired
positions within the Company.

Career Reviews

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

marking the commencement of a distributed work
system along with working from home.
Time Working at Home Per Employee
FY2019/3: 2.5 days / month

FY2020/3: 3.3 days / month* Due to COVID-19, all employees have worked from home in principle
since the state of emergency was declared in April 2020.

Satellite office (Funabashi activity base)50

ANNUAL REPORT 2020

Details

Video content platform ”Ushitube,” which promptly distributes thelatest information from the Company

Aiming to be No. 1 in Communications

Beyond Borders Connect, a Companywide discussion

NESIC aims to be the No. 1 communications company

plan commemorating the 66th anniversary, also tookin Japan and is working cleverly toward this goal.

place on Slack, following an idea to do so by following an idea brought up by several volunteers. The

Launch of Corporate Culture Design Officediscussion theme was about “NESIC likes and dis-

(April 2020)

likes,” where opinions about the Company were

Based on employee ideas and their self-driven par-exchanged across organizational lines.

ticipation, we launched a team tasked with creatinga corporate culture well suited to this new era. Led

Ushijima Radio and Ushitube

by this new office, all employees will participate

In addition to Ushijima Radio, a talk show where thein efforts to improve communications at NESIC in

President invites various guests, which is streamedorder to become the No. 1 communications

online to employees, Ushitube was launched as a­company in Japan.

series of videos for rapidly distributing latest information about internal matters. In the first broadcast, theUsing Business Chat Slack to Facilitate Internal
Discussions
Various topic-based channels have been set up inter-

President came on to talk about Nihonbashi
Innovation-Base, the Company’s new office that
opened in February 2020.

nally on Slack to facilitate open discussions acrossorganizational boundaries.
Examples of topics:“Thoughts about post-COVID-19” and “staff reforms”

Internal Communications during COVID-19
In response to the COVID-19 pandemic, NESIC has minimized the number of people coming into work andasked everyone to work remotely. Employees feeling stress about venturing outside their homes or worry about
getting infected are able to actively participate in communications by using digital tools, such as video conferencing and business chat software.

Communications between the President and Employees • The President has reached out via video meetings to newly hired
employees who have had to work from their homes despite joining theCompany in April 2020. The President took the time to meet with small
groups of employees in order to have meaningful conversations.
• The President came up with the idea to have an online drinking event
where anyone could join and vent about their work stress during the
pandemic. The President and 160 employees talked freely in turns, for afrank and open conversation.
• In addition to Ushijima Lunch meetings between the President andyoung employees, a Nationwide Ushijima Lunch was held online with
employees at 16 locations across Japan.

President Ushijima communicating remotelywith new employees

Communications Among Employees • Casual conversations are encouraged on Slack’s “small talk” channels, such as about lunch while teleworking
and ways to spend time in comfort.
• Awards were given for employee ideas about new and healthy ways of working, and the Live! NESIC Workout
was held as online lessons for stretching and strength training, led by instructors.
• A “compliment someone” session was held to strengthen the corporate culture into one with more positive
communications, robust discussions and opportunities for self-growth.

ANNUAL REPORT 202051

Corporate Governance (As of June 30, 2020)

Basic Approach to Corporate Governance 
NESIC believes that enhancing corporate governance isdirector are nominated with due consideration paid tocritical for realizing an advanced society with vibrantdiversity, such as their experience, knowledge, special-communication and for sustaining increases in corporate

ization and gender. Recently, NESIC welcomed Mr.

value. NESIC is able to benefit dually from being a

Mamoru Yoshida as an independent outside director

member of the NEC Group and being a listed company

who has experience in business and technology man-on the stock exchange (see P56). We are therefore wellagement, as well as new business creation.

aware of the importance of protecting the rights of gen-

We believe our independent outside directors will

eral shareholders, and endeavor to reinforce our systems

contribute to management by actively participating into this end. In 2006, NESIC began to nominate indepen-deliberations of the Board of Directors and facilitate

dent auditors who do not have any conflicts of interest

decision-making that reflects outside opinions. NESIC

with general shareholders, and has continued to pushwill spare no effort to improve corporate value andfor the nomination of independent outside directors

ensure transparency in management by aiming to main-

since 2008. In June 2020, the ratio of independent out-tain and improve an appropriate corporate governanceside directors was increased to one-third of the total

structure, starting with business execution that priori-

number of directors. Candidates for the position oftizes compliance first and foremost.

History of Reinforcing Corporate GovernanceClarified andstrengthened
Board of Directors’
functions

2000

2005

2000
Introduction of
executive officer
system2005
Reduced maximum number of directors
from 20 to 10
Shortened terms of directors to one year

Improved
managementtransparency

Improved diversity
on Board of
Directors*

Strengthened
remuneration
system linked tocorporate value* Only for independent outside directors

52

ANNUAL REPORT 2020

2010

2006
First independent auditor

2015

2020
2016
Started to evaluate effectiveness
Systemized training of directors and auditors

2015
Two independent auditors

2008
2012
First independent Two independent
director
directors

2016
Set up advisory
panel

2017
Three independent directors

2008College (internal controls)

2016
Corporate management

2020
Corporate
management
2018
College(business administration)

2012
Attorney
2017
Corporate
management

2019
CSR / Corporate
management

2017
Introduced stock-linked
remuneration system

2019
Introduced transferrestricted stock
remuneration system

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

Elect / Dismiss

Elect / Dismiss

Management andSupervision
Cooperate

Audit

Board of Directors(Directors)

Board of Corporate Auditors(Corporate Auditors)

2 Outside

3 Outside
Supervise

Audit
Cooperate

Business Execution
Executive Committee

Accounting
Auditors

Auditors

Directors

Business Execution Committee(Executive Officers)

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

Management Quality
Improvement Committee

Cooperate

Corporate
Auditing Division

Management Section of
Affiliated Companies

Cooperate

Audit

Manage / Monitor

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

1 Directors and Board of Directors

2 Corporate Auditors andBoard of Corporate Auditors

3 Executive Officers, Executive

Committee, and Business
Execution Committee

As the principal decision-making

The Board of Corporate Auditors

The Company has adopted anauthority within the Company, thedecides auditing policies andexecutive officer system to clearly

Board of Directors makes decisions

reports on the audits performed bydemarcate the supervisory function

on important matters based on theindividual auditors. Corporate audi-

and the business execution func-

procedural rules of the Board oftors participate in meetings of thetion. NESIC has also formed the

Directors, and it is also positioned

Board of Directors and other

Executive Committee to discuss

as a venue for deepening discus-

important meetings, review impor-policies pertaining to key manage-

sions about the broader direction

tant documents related to final

ment and operating issues, consist-of corporate strategy, including thedecisions, and listen to reports on

ing of mainly executive officers at

medium-term business plan. NESIC

business execution by directors

senior vice president level andendeavors to strengthen the man-and employees. This system is ablehigher and corporate auditors. The

agement structure by setting theto adequately monitor the direc-

Business Execution Committee wasterms of directors to one year sotors as they perform their duties.

set up to monitor the progress ofthat clarifying the management

and report on significant matters

responsibilities of each director.

concerning business execution.
NESIC continues to strengthen
management functions.

ANNUAL REPORT 202053

Corporate GovernanceIndependent Directors / Auditors To further strengthen its corporate governance, since

NESIC aims to strengthen its corporate governance2006, NESIC has sequentially nominated qualified inde-

structure by nominating personnel needed in manage-

pendent directors and auditors who do not have any

ment to address the changing times, while taking into

conflicts of interest with general shareholders. NESIC has

account the diversity of the Board of Directors. With thea total of five independent directors and auditors, com-

aim of improving its technological capabilities and ability

prising three directors (out of nine directors) and two

to provide solutions that solve social issues, as well as

auditors (out of four auditors), who satisfy the require-

its ability to innovate, NESIC appointed in June 2019 a

ments for independent directors and auditors, as

director who has deep knowledge of corporate ethics

defined by the Tokyo Stock Exchange. Accordingly, one

and CSR, and in June 2020, a director who has expertisethird of its directors are independent outside directors.

in business and technology management, as well as

Regarding the composition of independent directors,

experience in new business creation.
Attendance during
FY2020/3

Name

Reason for Nomination

Main Concurrent Positions

MichikoAshizawa

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

• Associate Professor, School of Economics andBusiness 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

12/12

—

KunikoMuramatsu

Kuniko Muramatsu has the ability to provide appropriate advice andsupervise the Company’s management from an objective standpoint, backed by her advanced knowledge of CSR and complianceand her global insight. She is expected to continue to supervise
management toward improvements in the Company’s corporate
value.

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

10/10

—

MamoruYoshidaMamoru Yoshida has the ability to provide appropriate advice andsupervise the Company’s management from an objective standpoint, backed by his extensive experience in business management,
technology management, manufacturing, marketing and new
business creation.

—

—

—

Yuji Kikuchi

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

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

12/12

14/14

Masayuki
Horie

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

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

12/12

14/14

Board ofBoard ofCorporate
Directors
Auditors

Notes: 1. Kuniko Muramatsu’s attendance at the Board of Directors meetings is for after her appointment as director at the 87th General Meeting of
Shareholders held on June 21, 2019.
2. Mamoru Yoshida was newly appointed as director at the 88th General Meeting of Shareholders held on June 24, 2020.
3. Main concurrent positions as of September 30, 2020.

Invigorating Discussions by Board of Directors / Training of Directors and Auditors All members of the Board of Directors, including outside
directors, endeavor to reach decisions that reflect out-members, NESIC creates opportunities for gainingside opinions from the standpoint of protecting minority

knowledge and sharing essential information with direc-

shareholders in a venue conducive to raising questions

tors and auditors so they can execute business andand having constructive dialogues.

monitor business execution.

To enhance the quality of deliberations by the Board

Outside directors and auditors are given the opportu-

of Directors, NESIC creates opportunities for pre-meeting

nity to learn about the Company’s history, businesses,

discussions about proposals being submitted to thefinancial data, business strategies, business environment,

Board of Directors. Moreover, sufficient time is allocatedcompetitive landscape, and internal organizations, while

for deliberations, and multiple discussions were held

also taking advantage of opportunities to visit business

about especially important matters by the Board ofsites and facilities.

Directors.
54

Additionally, to further enhance the skills of board

ANNUAL REPORT 2020

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.

Policies and Procedures for Nominating Directors Nomination Policies and Procedures

Auditors deliberates and consents to the nomination of

When nominating candidates for director or auditor,

corporate auditors, which are submitted for approval by

NESIC’s Board of Directors makes decisions after a com-the General Meeting of Shareholders.

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

Dismissal Policies and Proceduresshown below, while seeking people who can contribute

On dismissing a director, NESIC Board of Directors

to the Company’s business development with a combina-

explains the reasons for their dismissal to the advisorytion of essential skills and experiences needed to lead.

panel, which mainly consists of independent outside

Headed by an independent outside director, the advi-

directors, in the event that a director is not adequately

sory panel’s members, which consist mainly of indepen-carrying out their duties. After receiving suitable advice,dent outside directors, discuss nominations and voice

the Board of Directors makes a decision and moves totheir opinions. The Board of Directors deliberates on thedismiss the director, which requires approval by theagenda for nominating directors, and the Board ofGeneral Meeting of Shareholders.

Qualities Desired in Directors and Auditors
 person who has a high level of knowledge about management, objective judgment ability,A
foresight and insightA person who has a high level of dignity and high ethical standards
A person who has ability, knowledge, experience and track records in his/her special fields
A person who is unbiased and decisiveA person who understands the overall business activities of the Company

Director Remuneration 
To maintain competitiveness in the industry and provide

performance-linked remuneration (short-term incentives)

incentives to improve performance, remuneration for theand restricted-transfer stock remuneration (long-term

Company’s directors is based on a compensation struc-incentives).

ture set at appropriate levels while taking into accounttheir duties and achievements in order to link their performance to corporate results. Director remuneration

Breakdown of Director Remuneration
Restricted-transfer
stock remuneration(long-term incentives)

consists of a monthly salary set at a level commensuratewith rank, a bonus that reflects rank and an evaluation of
personal performance in the previous fiscal year, andmance. For incentives to improve medium- and long-term

Fixed
compensation

performance, the Company has introduced restricted-

Approx. 45%

incentives to improve medium- and long-term perfor-

transfer stock remuneration with the objective of aligning
the values of directors with those of shareholders.
Performance-based remuneration makes up approximately 55% of total director remuneration (10% higher

Approx. 10%

Performance-linked
remuneration(short-term incentives)

Approx. 45%

than the previous fiscal year), which consists of
ANNUAL REPORT 202055

Corporate Governance

Remuneration for directors in non-executive positions

Fiscal Year Ended March 31, 2020is a fixed amount not linked to the Company’s performance in light of their role of supervising businessexecution.
Director remuneration is determined by a representative director authorized by the Board of Directors, within
an upper limit for total remuneration set by resolution of
the General Meeting of Shareholders based on compensation standards, while referring to the opinion of anadvisory panel, which consists mainly of independent
outside directors.

Category

No. of Recipients

Directors
Outside directors
Auditors
Outside auditors

Total Amount(Millions of yen)

12

206

4

26

6

44

2

10

Notes:
1. Directors who also serve as employees do not receive a salary (including
bonus) as an employee.
2. Includes two directors and two auditors who retired as of the 87th
General Meeting of Shareholders held on June 21, 2019.
3. The figures above include up to ¥17 million in expenses related toperformance-linked stock compensation (restricted-transfer stock remuneration) for five directors (excluding directors in non-executive positions)
during the fiscal year under review.

Evaluation of the Board of Directors’ Effectiveness 
In accordance with the Corporate Governance Code, NESIC evaluates the effectiveness of its Board of Directors every
year, and makes diligent efforts toward its strengthening and improvement.

Evaluation method

Evaluation criteria

Evaluation results

Every year, all members of
the Board of Directors fill out
questionnaires on the overall
effectiveness of the Board of
Directors.

 omposition of the BoardCof Directors
Operational methods of
the Board of Directors
Role of the Board of
Directors
Support systems for Board
members

In FY 2020/3, the evaluation
concluded that the Board of
Directors is functioning
effectively and operating
appropriately overall.

Initiatives to further
increase effectiveness rovide more opportunitiesP
to discuss issues in themedium-term business plan
and long-term issues that
help improve corporate valueAugment information
provided to facilitate rapid
and bold decision-making
Increase opportunities for
directors to debate, including director training andinformation exchange events

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

businesses generate over 70% of net sales. In particular,from being in charge of system integration and mainte-

one of NESIC’s unique strengths is its application of thenance services among the services provided by NEC

NEC Group’s relentless focus on quality to the develop-

Group companies, and from being able to tap into recog-

ment of multivendor services. Business transactions withnition of the NEC brand and having access to businessthe parent company are decided based on proper nego-

resources, such as technological capabilities and humantiations while referencing prevailing market prices. Terms

resources. In addition to the field of 5G, which has drawn

and conditions are on equal ground with other businessattention of late, NEC has exceptional technological capa-

partners and to avoid conflicts of interest, the Board ofbilities in the digital realm, including facial recognition

Directors verifies all business transactions with the NEC

technology, which NESIC can actively deploy more thanGroup. As a listed company, NESIC engages in dialogue

ever to increase corporate value.

with shareholders and investors to keep their opinions

With that said, however, NESIC is an independent

believe this effort makes the Company stronger andbusiness decisions on its own accord. This translates into

leads to higher corporate value.

credibility as a listed company from our customers and56

and expectations in mind when managing business. We

listed company that engages in business while making

In order to benefit from these advantages as a member

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

employees and making it easier to hire talented humanhave systems in place for protecting the rights of general

resources. With a wide range of products and services

shareholders. With this in mind, the Company is strength-that go beyond NEC products, NESIC is able to create

ening its corporate governance structure by, for example,

value added by providing solutions in tune with theenhancing the composition of its independent directors

needs of its customers and society. Independentand auditors, as noted above.

ANNUAL REPORT 2020

ME
SS

Message from Newly Appointed Independent Outside DirectorAG

I believe NESIC has a clear aim of contributing torelated to digital videos. While actively participat-

the continuous development of society by real-ing in the Board of Directors, I will also leverageizing a plentiful society with more welcoming andmy experience as an auditor to help create busi-

convenient communications. The Company’s

ness portfolio strategies for growth, strengthen

medium-term business plan Beyond Borders 2021

governance, and ensure an emphasis on highsets its sights on 2030 with a focus on augmenting

transparency and compliance in management.

and reinforcing its strengths, carrying out its “onlyI will do my utmost to improve corporate valueone” strategy, and raising business performance.

and shareholder value, while meeting the expecta-

A once-in-a-century pandemic has accelerated
trends in AI, IoT and digital transformation. NESIC’s

E

Drawing from my broad experience at a global firm,
I will help improve corporate value and shareholder value at NESIC.

tions of all stakeholders including minority
shareholders.

initiatives in teleworking and distributed work
have received high admiration from customers.
These initiatives are one step ahead of the times,
and I believe that NESIC is keen to expand business further and improve profitability by augmenting and reinforcing its relationships withcustomers.
Against this backdrop, I am ready to help NESIC
grow by leveraging my broad experience in R&D,
bringing products to market, marketing, and distribution, as well as in creating and putting into
practice growth strategies for the white goods
business, including B2B, while rebuilding problematic businesses and creating new businesses

Independent
Outside Director

Mamoru Yoshida

Shares Held for Strategic Reasons 
NESIC may hold shares for strategic reasons, for thedetermined to have inadequate reasons for holding

purpose of building, maintaining, and strengthening

onto become candidates for divestiture and reduction.

business ties and relationships.

Regarding the execution of voting rights for these strate-

Shares held for strategic reasons are examined in

gic shareholdings, management decides whether to votedetail every year by the Board of Directors in terms ofin approval or disapproval of proposed matters based

whether the purpose of owning these shares is appro-

on a comprehensive evaluation of whether it contributes

priate, and whether the gains and risks from owning

to medium- to long-term improvements in the company

these shares align with their cost of capital. Based on

in which it holds shares and the corporate value of thethe outcome of this examination, stocks that are

NESIC Group.

ANNUAL REPORT 202057

Dialogue on NESIC by Outside Directors
Sustainability of NESIC and Society

OnlineTalk

Two outside directors exchanged their thoughts and opinions about discussion at the Company’s Board of Directors
and its response to COVID-19, new possibilities and issues that should be addressed.

Outside Director

Outside Director

Michiko Ashizawa

Kuniko Muramatsu

Outside Director

Outside Director

Michiko Ashizawa

Kuniko Muramatsu

1996	Joined Century Audit Corporation

2003

Officer, Ethics Office, Texas Instruments Japan Limited(currently KPMG AZSA LLC), International Department

2009

Chief Researcher, Business Ethics Research Center* Retired in May 20012010	Representative Director, Wellness Systems Institute2003	Joined Industrial Revitalization Corporation of Japan
2006	Joined Advantage Partners LLP(currently Advantage Partners, Inc.)
2013	Associate Professor in Faculty of Liberal Arts (currently

Chair of the Board, NPO GEWEL

2018	Senior Researcher, Business Ethics Research Center(present position)

the School of Economics and Business Administration)

2019	Outside Director of the Company (present position)

at Yokohama City University (present position)2020	Outside Director of Kyushu Railway Company

Associate Professor in Graduate School of International
Management at Yokohama City University(present position)2016	Part-time instructor in Graduate School of Business
Administration at Keio University (present position)2018	Outside Director of the Company (present position)

58

Co., Ltd. (present position)
2016

ANNUAL REPORT 2020(present position)

O n l i n e Ta l k
Looking Back at the Board of Directors

shareholders and interested parties about how theover the Past Year

Company’s business strategies relate to solving social
issues.

Ashizawa

Ashizawa

This past year has been one where COVID-19 has

One critical point I would like to make is that there

shed light on the outcome of the Company’s efforts towere not many opportunities to discuss strategies fromdate. Internally, momentum has coalesced around its

the ground up, while there was plenty of talk about

aim of becoming a communication services orchestra-

growth trajectories in existing businesses. I would like

tor, and steady progress is being made toward achiev-

to see more opportunities for outside directors to

ing ambitious medium-term targets. However,participate in ground-level discussions outside themanagement still needs to reflect upon the issues that

scope of the process for drawing up the medium-term

led to an unprofitable project and related extraordinary

management plan. In my opinion, the composition ofloss being recorded. I believe management must get

the Board of Directors should be diversified more ina better handle on risks from a Companywide

terms of not only gender, but also age, nationality andperspective.

people with disabilities.

Muramatsu

Muramatsu

In my first fiscal year as an outside director, I thought

I agree. To advance innovation, the Board of Directorsthat the Board of Directors had struck a good balanceshould function as a diverse and nimble team of direc-

on decision-making and supervision/oversight func-

tors and executive officers with a mix of special skills

tions. There were many in-depth discussions about notand experiences. Its composition needs to be

only the medium-term management plan, but also

reevaluated.

materiality, risk management and new businesses.

Regarding corporate governance, I believe it is vital

From a big picture standpoint, the outside directorsthat the Company continue to update its systems andshared their thoughts about the Company’s future withreinforce corporate governance in ways unique tothe executive side, asking some tough questions along

NESIC and that align with its vision and strategies, withthe way. I thought that the Board of Directors’ meet-the objective of ensuring an effective governance struc-ings had a lively but tense atmosphere.

ture for a listed subsidiary.

Ashizawa

The executive officers took seriously the opinions ofEnhancing Effectiveness of Materiality

the outside directors, and took action within a reasonable time frame, a unique trait at NESIC, in my opinion.

Muramatsu

For example, the executive side quickly fulfilled our

NESIC has embodied its approach to diversity in therequest for monthly reports on the status of risk man-core area of “creating work environments in which

agement for unprofitable projects, an initiative thateveryone can take initiative.” To connect this material-

should be undertaken from a long-term standpoint andity to improvements in corporate value, each and every

on behalf of minority shareholders. Instead of taking aemployee must embrace this concept and put it into

narrow perspective on issues that crop up from time topractice in their daily work. For this to happen, man-time, the entire Board of Directors engaged in discus-

agement needs to convey internally and externally thesions from the standpoint of shareholders, i.e., a longer-

links between business strategies and jobs to the cre-term perspective that enables monitoring of a broader

ation of social value.

spectrum of activities. I believe this change has

NESIC has contributed to a sustainable society

enhanced the effectiveness of the Board of Directors.

through its various businesses, such as onshore fish

Muramatsu

farming to sustain this primary industry, or by creating

Discussions about thorough compliance went beyond

safe and secure communities resilient to natural disas-

reporting in form only, and were framed around theirters. However, people on the front lines do not seem

effectiveness, including deep dives into on-site condi-

to be all that aware of how their jobs relate to thetions and issues related to individual ethics and organi-materiality of providing value to society through 2030.

zational cultures.

As an outside director coming from an external view-

I take special care to frame my comments aroundpoint, I intend to proactively point out the significance

ESG and SDGs, as the Board of Directors acts as aof the Company’s businesses in ways that we can see

point of contact between the Company and society. I

as outsiders.

felt the need to disseminate more information to

ANNUAL REPORT 202059

Dialogue on NESIC with Outside Directors

Sustainability of NESIC and Society

Muramatsu

Ashizawa

I agree that the key to effectively addressing materiality

From an effectiveness standpoint, it is indeed impor-

is instilling awareness internally. For example, thetant to examine the state of organizational operations

Company’s business in the education field has seen awith the nature of the business taken into account.

strong increase in inquiries due to COVID-19, and it

Advancing inclusion & diversity requires the formulation

has high social significance and matches well withof strategies and setting of targets based on conditions

materiality issues. On the front lines, employees tendin each business.

to focus solely on business opportunities. If employees

Most companies, and not just NESIC, have diverse

can become more aware of the social significance ofbusinesses with different characteristics. I think that

their work, they can be prouder of the work they do

NESIC’s own experiences and expertise in communica-

and make the Company even stronger, in my opinion.

tions and diverse work styles, including telework, will

Muramatsu

be of use to a broad range of companies.

To actually put this into practice, it will be necessary to

NESIC and COVID-19

monitor progress as a KPI.

No. 1 Communications Company

Ashizawa

NESIC’s work-style innovations that have drawn attention not only address short-term issues, but also widely

Ashizawa

The President has set an example through his leader-spread the seeds for solutions over the long term forship steering NESIC toward becoming a No. 1 commu-

resolving social issues. I give high marks to manage-

nications company. I think it is wonderful that thement for rapidly making decisions and executing themPresident conveys his thoughts about management on

during the COVID-19 pandemic. For example, I talked

various occasions within the Company. The President

with the President about the situation faced by educa-

worked in ways visible to employees while thetional institutions dealing with remote learning issues,Company’s offices were being moved last fiscal year,

and he immediately formed a team dedicated to solv-

closing the physical distance with employees.

ing issues related to remote education. The next week,

Employees were able to directly voice their ideas toan online seminar on this topic was held by thethe President, instilling an open style of management.

Company's support, where around 1,000 eduactors

As the volume of information increases, organizations

attended. NESIC has been able to leverage its inherent

in society and the conveyance of information change

capabilities in response to the pandemic.

to flatter structures instead of a pyramid structure. I

Muramatsu

can feel the intention of management to put thisIt was impressive for me that the COVID-19 outbreakframework into practice. Instead of taking a uniform

hadn’t brought any delays in the management of theapproach to thinking about this, I see the need for

Company. In addition to creating business, from a BCP

further discussion about the state of communications

and risk management standpoint as well, manage-and organizational cultures in light of the different

ment’s initiatives to distributed work and enable

nature of businesses in network infrastructures andremote working have paid off handsomely.
I think the importance of ICT infrastructure as andigital solutions, for instances.

underpinning of society has been strongly felt bypeople during the pandemic. I am grateful for all of the

I value the relationships of trust we have withmanagers in charge of business execution,
while continuing to represent the interests ofminority shareholders.


Ashizawa
Education seminar

60

ANNUAL REPORT 2020

O n l i n e Ta l k

employees working on the front lines, and remembered once again that these employees working inthese businesses are the true backbone of NESIC.
If more people become aware of NESIC’s considerable significance to society, I believe employee
engagement will improve and lead to more co-creation
on innovation.
Ashizawa

I feel the same way. Even though the Company is doing
all these wonderful things, I am disappointed in thelack of information on its website and press releases.
Since NESIC focuses on B2B, information is distributedon a limited fashion to specific customers, but as NESIC

I think that disseminating information about
NESIC’s considerable significance to society
will improve employee engagement and leadto co-creation on innovation at NESIC.


Muramatsu

engages more with society, I think it should make aneffort to disseminate information more broadly.

Responsibilities as an Outside Director
Hurdles to Achieving Medium-termManagement Plan

Ashizawa

Shareholders and companies are in a relationshipAshizawa

where shareholders trust management and manage-

Steady progress is being made on the medium-term

ment is entrusted by shareholders. In this context,

management plan, but there are still some lingering

relationships built on trust are essential. While I am

issues. As the Company advances its strategies forstrongly prepared to represent the interests of share-

digital transformation and 5G, I believe management

holders, as a representative of shareholders, I am also

must define more clearly how it plans to monetize its

keen to build stronger relationships of trust with theservices and establish a firm footing in specific fields,

executives in charge of carrying out business. Starting

as it seems that all layers, including infrastructure, plat-with such good relationships, I believe corporate value

forms and software, are being virtualized and moving

will increase further.

to the cloud. NESIC is already providing solutions that

Muramatsu

combine various SaaS on its Symphonict platform. I

At training sessions and workshops for board mem-

expect management to discuss how best to clarify its

bers, there are frank discussions about how to address

strategy for success. Another important issue is how toissues related to sustainability, and these discussions

leverage synergies with the parent company, and takeare not left hanging in the end. I think that by having

advantage of the benefits of being a listed subsidiary.

management tackle issues from an ESG and SDG per-

Directors from NEC can provide helpful advice on how

spective, NESIC will see more business opportunities

to leverage NEC’s resources. When discussing thesewhile minimizing risks.

matters, I make a critical comment if an idea is voiced

As an independent outside director entrusted byfrom NEC’s perspective, as I said in the dialogue lastshareholders and other stakeholders, I will supervise

year, with the intention of protecting profits for minor-

and offer advice from an objective medium- to long-ity interests. Furthermore, I believe it is my role toterm perspective, and strive to contribute to highly

always check that discussions encompass a broader

effective corporate governance at NESIC.

space and timeline, widening the scope to greater
society.
Muramatsu

We must proactively disclose externally the significance of the parent-subsidiary listing, such as how
NESIC generates synergies with NEC. If their collaboration can be taken to global markets, I believe the NEC
Group as a whole will be able to provide greater value
to broader society.
Diversity training for directors

ANNUAL REPORT 202061

Directors & Corporate Auditors (As of June 26, 2020)

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

MichikoAshizawa

KunikoMuramatsu

MamoruYoshidaJunji Ashida

Member of the Board(Outside Director)

Member of the Board(Outside Director)

Member of the Board(Outside Director)

Toru Kawakubo
Member of the Board

62

ANNUAL REPORT 2020

Member of the Board

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 anemphasis on the oversight functions of outside members.

ANNUAL REPORT 2020

63

Stock Information (As of March 31, 2020)

Number of Shareholders

10,130Common Stock Authorized

100,000,000 shares*

Issued49,773,807 shares*

Trading Unit

100 shares*O n June 1, 2020, NESIC conducted a three-for-one common stock split. On this date, the number of issuable shares
was 300,000,000 shares, and the number of shares outstanding was 149,321,421 shares.

Major Shareholders (Top 10)
Number ofPercentage ofShares Held
Total Shares(Thousands) Outstanding *2

Name of Shareholder

NEC Corporation

19,10638.49%

Japan Trustee Services Bank, Ltd.*1(Sumitomo Mitsui Trust Bank, Limited beneficiary trust account,
NEC Corporation retirement benefit trust account)

6,400

12.89%

Japan Trustee Services Bank, Ltd. (Trust account)

3,177

6.40%

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

3,014

6.07%

Sumitomo Realty & Development Co., Ltd.

1,200

2.42%

Japan Trustee Services Bank, Ltd. (Trust account 9)

853

1.72%

GOVERNMENT OF NORWAY

718

1.45%

Employees’ Stock Ownership Plan

668

1.35%

STATE STREET BANK AND TRUST COMPANY 505001

598

1.21%

JPMC GOLDMAN SACHS TRUST JASDEC LENDING
ACCOUNT

556

1.12%

*1 Shares held by Japan Trustee Services Bank, 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, 2020 was 51.48%.
*2 The percentage of total shares outstanding is calculated based on the number of shares excluding treasury stock(134,067 shares)and shares that are in the company’s name in the shareholder registry but are not substantiallyowned (100 shares).
*3 As of June 1, 2020, the Company conducted a 3-for-1 stock split of its common stock. The above figures represent
the number of shares before the stock split.

Breakdown of Shareholders by Type
(%)

100

0.3
8.6

0.3
8.2

0.3
7.1

80

21.2

18.7

21.9

41.2

41.2

60
41.1

0.3
7.4

0.3
6.8

17.2

20.0

41.1

41.2

40
1.0
20

0.9

0.7

27.8

30.7

28.8

2016/32017/3

2018/3

0.4

0.2

33.6

31.5

2019/32020/30Financial institutions
Investment securities firms
Other institutions
Foreign entities (institutions, individuals)
Individuals and others
Treasury stock

64

ANNUAL REPORT 2020

(FY)

Corporate Overview (As of March 31, 2020)

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

Fiscal Year

April 1–March 31

Ordinary General

Annual meeting held in June

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

Shareholders Meeting
Number of Employees

Overseas
4,871 (Non-consolidated),

NESIC BRASIL S/A

7,818 (Consolidated)

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

SNAM Sustainability
Index

Certified Health andProductivity Management
Organization 2020

Top Hundred Telework
Pioneers“Kurumin”
certification markHighest-grade “Eruboshi”
certification

Editorial Postscript
Thank you for reading NESIC’s Annual Report 2020. When work began on this integrated report, the
COVID-19 pandemic had just started to drastically change the world. We have been strongly reminded ofour role and responsibilities in helping society during this “new normal,” and hoped to covey our passion
for solving social issues as a theme in this year’s integrated report.
During the production of this integrated report, all team members worked from home in principle inorder to eliminate the risk of COVID-19, and all interviews and conversations were held online. While publication of the integrated report has been delayed compared with a regular year, we recognize this is also
an area for improvement for the next publication. We are pleased to think that through the publication ofthis integrated report, NESIC’s important message will be heard by more people.

ANNUAL REPORT 202065

Financial Section
68 CONSOLIDATED TEN-YEAR SUMMARYCONSOLIDATED FINANCIAL STATEMENTS
70 CONSOLIDATED BALANCE SHEETS
72 CONSOLIDATED STATEMENTS OF INCOME
73 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
74 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
76 CONSOLIDATED STATEMENTS OF CASH FLOWS
78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102 INDEPENDENT AUDITOR’S REPORT66

ANNUAL REPORT 2020

ANNUAL REPORT 2020

67

CONSOLIDATED TEN-YEAR SUMMARYFY2011/3

FY2012/3

FY2013/3

FY2014/3

Orders received¥212,277¥215,373¥241,271¥280,071

Net sales

217,948

204,658

235,716

270,326

Gross profit

33,132

32,07937,182

44,690Operating income

10,835

9,747

12,483

14,418

5.0

4.8

5.3

5.3

4,660

4,474

7,246

8,257

Total assets*2¥149,464¥149,130¥167,472¥189,059

Net assets

77,00580,07485,974

89,166

Owner’s equity

76,44579,50385,26687,514

Cash flows from operating activities¥ (1,595)¥18,595¥ (1,723)¥23,313

Cash flows from investing activities(1,904)(2,648)(3,429)(5,504)

Free cash flows(3,499)15,946(5,152)

17,809(337)(3,979)(2,066)(3,824)25,58737,45630,31544,434EPS¥   93.72¥   89.98¥   145.73¥   166.06

BPS

1,537.19

1,598.77

1,714.74

1,760.06

26.00

28.00

45.00

60.00

ROE*4

6.2

5.7

8.8

9.6

ROA*5

7.3

6.3

7.7

8.2

Owner’s equity ratio

51.1

53.3

50.9

46.3

DOE ratio

1.7

1.8

2.7

3.5

Payout ratio

27.7

31.1

30.9

36.1

5,939

5,936

6,024

7,164

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)

Cash flows from financing activities
Cash and cash equivalents at end of year
Per-Share Indicators (Yen)*3

Cash dividends
Key Indicators (%)

Other
Number of employees
Number of shares outstanding (FYE)*

3*1 U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥108.83 = US$1.00 as of March 31, 2020.
*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. The figures have not been retroactively adjusted to reflect this stock split.
*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

68

ANNUAL REPORT 2020

FY2015/3

FY2016/3

FY2017/3

FY2018/3

FY2019/3

FY2020/3(Thousands of U.S. dollars) *1¥299,097¥274,946¥279,241¥287,831¥284,739¥304,978$2,802,333

292,164

279,961

257,912

267,939

277,949

303,616

2,789,818

48,11045,162

42,58544,26547,681

54,374

499,623

16,158

14,111

9,974

11,057

12,774

16,245

149,269

5.5

5.0

3.9

4.1

4.6

5.4

—

7,791

5,996

6,549

7,357

8,885

9,422

86,575(Thousands of U.S. dollars) *1¥201,904¥196,505¥197,386¥207,643¥216,171¥230,244$2,115,629

94,173

94,397

96,674

101,732

107,608

113,510

1,043,002

92,55992,73894,611

99,473

104,888

110,366

1,014,114(Thousands of U.S. dollars) *1¥ 2,460¥ 9,435¥22,634¥ 4,779¥ 8,396¥12,935$118,855(3,929)(2,822)(2,697)(2,802)(5,604)(6,726)(61,803)(1,469)6,613

19,936

1,976

2,791

6,208

57,043(4,127)(1,402)(4,144)(4,366)(5,615)(2,300)(21,133)

38,95143,88959,64857,28154,35458,321535,890(U.S. dollars) *1¥   156.72¥   120.80¥   131.94¥   148.23¥  179.02¥  189.83$ 1.74

1,864.61

1,868.25

1,906.03

2,004.04

2,113.19

2,223.36

20.42

64.00

70.00

72.00

74.00

78.00

82.00

0.75

8.7

6.5

7.0

7.6

8.7

8.8

—

8.3

7.1

5.1

5.4

6.1

7.1

—

45.8

47.2

47.9

47.8

48.5

47.9

—

3.5

3.8

3.8

3.8

3.8

3.8

—

40.8

57.9

54.6

49.9

43.6

43.2

—

7,260

7,464

7,572

7,657

7,743

7,818

—

49,773,807

49,773,807

49,773,807

49,773,807

49,773,807

49,773,807—

ANNUAL REPORT 2020

69

CONSOLIDATED BALANCE SHEETSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
As of March 31, 2020 and 2019

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2019

2020

¥ 58,321¥ 54,354$  535,890

Notes and accounts receivable (notes 4 and 24)

112,358

106,553

1,032,417

Electronically recorded monetary claims (note 4)

728

606

6,689

Inventories (note 7)

13,15813,181

120,904

Other current assets

7,359

6,423

67,619

(77)

(82)

(707)

191,847

181,036

1,762,813

ASSETS
Current assets:
Cash and cash equivalents

Allowance for doubtful accounts
Total current assets

Non-current assets:
Property and equipment
Land

1,429

2,410

13,130

Buildings and structures

9,930

10,03391,243

161

173

1,479

15,40015,016

141,505

Construction in progress

482

499

4,428

Other

605

392

5,559

(19,067)(18,309)(175,199)

8,942

10,217

82,164

5,847

6,234

53,725

1,454

635

13,360Machinery, equipment and vehicles
Tools, furniture and fixtures

Accumulated depreciation
Property and equipment, net

Intangibles, net of accumulated amortization (note 8)

Investments and other assets
Investment securities (notes 5 and 6)

168

364

1,543

Deferred tax assets (note 10)

16,52013,600151,796

Other assets (note 24)

5,519

4,144

50,712

Asset for retirement benefits (note 11)

(56)

(62)

(514)

Total investments and other assets

23,606

18,682

216,907

Total non-current assets

38,39735,134352,816¥230,244¥216,171$2,115,629

Allowance for doubtful accounts

Total assets

70

ANNUAL REPORT 2020

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2019

2020

$   42,561

LIABILITIES AND NET ASSETS
Current liabilities:¥  4,632¥  2,284

Current installments of long-term debt (note 9)

298

231

2,738

Notes and accounts payable (notes 4 and 24)

41,66640,274

382,853

Electronically recorded obligations

1,441

807

13,240

Advances received (note 24)

6,181

6,290

56,795

Accrued income taxes (note 10)

3,580

3,175

32,895

Accrued bonuses to directors

139

117

1,277

Short-term bank loans (note 9)

105

113

964

Accrued losses on sales contracts (note 7)

2,159

1,980

19,838Provision for compensation for damage

1,326

—

12,184

218

—

2,003

Other current liabilities

18,376

17,053

168,850

Total current liabilities

80,12872,328736,267

Long-term debt (note 9)

3,764

3,896

34,586

Liability for retirement benefits (note 11)

31,21530,609286,823

Other liabilities (notes 10 and 12)

1,625

1,729

14,931

Total non-current liabilities

36,60536,234

336,350

Total liabilities

116,734

108,562

1,072,627

13,122

13,122

120,573

Capital surplus

16,664

16,659153,119

Retained earnings

84,972

79,520780,777

(271)

(279)

(2,490)114,488

109,022

1,051,989

30

31

275

Accrued warranty on products

Provision for office transfer costNon-current liabilities:

Shareholders’ equity (note 13):
Common stock:
Authorized 100,000,000 shares; issued and outstanding
49,773,807 shares at March 31, 2020 and 2019

Treasury stock, at cost; 134,067 shares at March 31,
2020 and 138,615 shares at March 31, 2019
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized holding gains on available-for-salesecurities (note 5)
Deferred gains or losses on hedges
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits (note 11)
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

25

—

229

(392)

(471)

(3,601)(3,783)(3,694)(34,760)(4,121)(4,134)(37,866)

3,143

2,719

28,879113,510

107,608

1,043,002¥230,244¥216,171$2,115,629

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
* At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a 3-for-1 stock split of common stock with an effective date ofJune 1, 2020. The number of common stock and treasury stock as stated above do not take the stock split into account.

ANNUAL REPORT 2020

71

CONSOLIDATED STATEMENTS OF INCOME
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2019

Thousands of
U.S. dollars(note 3)

Millions of yen

Net sales (note 24)
Cost of sales (notes 7 and 24)
Gross profit
Selling, general and administrative expenses(notes 16 and 17)
Operating income

2020

2019

2020

¥303,616¥277,949$2,789,818

249,242

230,268

2,290,195

54,37447,681

499,623

38,12834,906350,344

16,245

12,774

149,269

Other income (expense):
Interest income

38

40

349

Interest expense

(112)

(95)

(1,029)Dividends income of insurance

117

193

1,075

Insurance benefit

65

70

597

Reward income

52

18

477
(1,690)Loss on disposal of non-current assets

(184)

(53)

Foreign exchange loss

(95)

(43)

(872)

Loss on valuation of investment securities

(116)

(29)

(1,065)Compensation for damage

(108)

(3)

(992)

36

151

330

Other, net

(307)

248

(2,820)15,93813,023

146,448

Impairment loss (note 18)

1,788

—

16,429Provision of allowance for compensation
for damage (note 19)

1,253

—

11,513

Subtotal
Ordinary Income
Extraordinary loss

372

—

3,418

3,415

—

31,37912,522

13,023

115,060

Current

5,657

4,894

51,980

Deferred(2,894)(1,052)(26,591)

2,763

3,842

25,388

9,759

9,180

89,671

336

295

3,087

¥  9,422¥  8,885$   86,575

Office transfer cost
Subtotal
Income before income taxes
Income taxes (note 10):

Subtotal
Net Income
Net Income attributable to:Non-controlling interests
Owners of the parent

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

72

ANNUAL REPORT 2020

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2019

Thousands of
U.S. dollars(note 3)

Millions of yen

Net Income

2020

2019

¥9,759¥9,1802020$89,671

Other comprehensive income arisingduring the year (note 20):
Net unrealized holding loss on available-for-sale securities

(1)

(11)

(9)

Deferred gains or losses on hedges

25

—

229

Foreign currency translation adjustments

185

(143)

1,699

Adjustments for retirement benefit

(89)

359

(817)

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

0

(1)

0

Total other comprehensive income arisingduring the year

120

203

1,102

¥9,879¥9,383$90,774¥9,436¥9,136$86,704

443

247

4,070

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 2020

73

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2019

Numbers ofshares ofcommon stock(Thousands)

Balance at April 1, 2018

49,773

Millions of yen
Shareholders’ equity
Commonstock

CapitalsurplusRetainedearnings

Treasurystock¥13,122¥16,655¥74,357

Total¥(276)¥103,858

Changes arising during the year:
Cash dividends(3,722)

Profit attribute to owners of the parent

8,885(3,722)
8,885

Purchase of treasury stock
Disposition of treasury stock0

Change in ownership interest of parent due to transactions with
non-controlling interests

4

(3)

(3)

0

0
4

Net changes in accounts otherthan shareholders’ equity
Total changes during the year
Balance at March 31, 2019

—
—

—

4

5,163

(3)

5,164

49,773

13,122

16,65979,520(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
5

Disposition of treasury stock

(4)

(4)

11

16

Net changes in accounts otherthan shareholders’ 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

Noncontrollinginterests

Total
net assets¥2,258¥101,732

Millions of yen
Accumulated other comprehensive income

Balance at April 1, 2018

Net unrealized
holding gains
on availablefor-salesecurities

Deferred
gains or losses
on hedges

Foreigncurrencytranslation
adjustments

Accumulated
adjustments
for retirement
benefits¥    42¥—¥(374)¥(4,053)

Total¥(4,385)

Changes arising during the year:
Cash dividends—(3,722)

Profit attribute to owners of the parent

—

8,885

Purchase of treasury stock—(3)

Disposition of treasury stock—0

Change in ownership interest of parent due to transactions with
non-controlling interests—

4

Net changes in accounts otherthan shareholders’ equity
Total changes during the year
Balance at March 31, 2019

(11)

(97)

359

250

460

711

(11)

—

(97)

359

250

460

5,876

31

—

(471)

(3,694)(4,134)

2,719

107,608

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 stock—16

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

74

ANNUAL REPORT 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

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

Balance at April 1, 2019

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$120,573$153,073$730,680

Total$(2,563)$1,001,764

Changes arising during the year:
Cash dividends(36,488)

Net income

86,575(36,488)
86,575Purchase of treasury stock
45

Disposition of treasury stock

(36)

(36)

101

147

Net changes in accounts otherthan shareholders’ equity

—
—

45

50,09664

50,215$120,573$153,119$780,777$(2,490)$1,051,989

Total changes during the year
Balance at March 31, 2020

Thousands of U.S. Dollars (note 3)
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

Total

Noncontrollinginterests

Total
net assets

$284

$  —

$(4,327)$(33,942)$(37,985)$24,983$  988,771

Changes arising during the year:—(36,488)

Net income—

86,575Purchase of treasury stock

—

(36)

Disposition of treasury stock—

147

Cash dividends

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

(9)

229

725

(817)

119

3,886

4,015

(9)

229

725

(817)

119

3,886

54,231$275$229$(3,601)$(34,760)$(37,866)$28,879$1,043,002

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

ANNUAL REPORT 2020

75

CONSOLIDATED STATEMENTS OF CASH FLOWSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2020 and 2019

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2019

2020

Net income before income taxes¥12,522¥13,023$115,060

Depreciation and amortization

3,572

2,764

32,821

247

247

2,269

1,788

—

16,429Cash flows from operating activities:

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

(13)

(11)

(119)

(Increase) decrease in asset for retirement benefits

208

251

1,911

Increase (decrease) in liability for retirement benefits

450

517

4,134

Increase (decrease) in accrued bonuses to directors

21

14

192

Increase (decrease) in accrued warranty on products

(8)

(2)

(73)

178

1,422

1,635

1,326

—

12,184

(62)

(58)

(569)

Increase (decrease) in accrued losses on sales contracts
Increase (decrease) in provision
for compensation for damage
Interest and dividend income
Interest expense(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories

95

1,029

(2,934)(52,549)

29(4,951)

266

Increase (decrease) in notes and accounts payable

2,010

824

18,469Other, net

1,500

2,724

13,782

18,167

13,927

166,930

62

58

569

SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

76

112(5,719)ANNUAL REPORT 2020

(112)

(95)

(1,029)(5,182)(5,495)(47,615)

12,9358,396

118,855

Thousands of
U.S. dollars(note 3)

Millions of yen
2020

2019

2020

Cash flows from investing activities:
Purchase of property and equipment
Proceeds from sale of property and equipment(3,004)(1,922)(27,602)

19

5

174

(995)

(2,578)(9,142)

Proceeds from sales of intangibles

0

15

0

Purchase of intangibles
Purchase of investment securities

(936)

(162)

(8,600)

Payments for sales of shares of subsidiaries resulting
in change in scope of consolidation

(68)

—

(624)

Loans receivable made

(2)

—

(18)

Collection of loans receivable
Other, net
Net cash used in investing activities

1

1

9

(1,741)(962)(15,997)(6,726)(5,604)(61,802)

Cash flows from financing activities:
Net increase (decrease) in short-term bank loans

2,268(1,750)20,839

Repayments of long-term debt

(264)

(3,186)(2,425)

Proceeds from long-term debt

200

3,300

1,837

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
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash andcash equivalents

(4)

(2)

(36)

(3,965)(3,717)(36,432)

(23)

(27)

(211)

3

245

27

(514)

(474)

(4,722)(2,300)(5,615)(21,133)

58

(104)

532

Net increase (decrease) in cash and cash equivalents

3,967(2,927)36,451

Cash and cash equivalents at beginning of year

54,35457,281

499,439¥58,321¥54,354$535,890

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 2020

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
March 31, 2020 and 2019

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 19 subsidiaries (companies overwhich the Company can control their operations) as ofMarch 31, 2020 (17 subsidiaries as of March 31, 2019)(the “Group”).
(Changes in the scope of consolidation)
NESIC advanced aquaculture, Inc. and Nets Forest RAS
Technologies, Inc. have been established in August 2019,
and these companies are included in the consolidated
financial statements 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.

78

ANNUAL REPORT 2020

If the year-end of affiliates differs from that of theCompany, financial statements prepared by their­year-end are utilized in consolidation.
(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 at 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
for the allocation method, the evaluation of hedge
effectiveness is omitted.

ANNUAL REPORT 2020

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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,
2019 to conform to the presentation for the year ended
March 31, 2020.
“Reward income”, which was included in “Other, net”
under “Other income (expense)” in the year ended March
31, 2019, is presented separately in the current fiscal year
due to an increase in materiality. To reflect this change inpresentation, certain reclassifications have been made to
the consolidated financial statements for the year ended
March 31, 2019 to conform to the presentation for theyear ended March 31, 2020. As a result, the amount of¥256 million included in “Other, net” in the year ended
March 31, 2019 was reclassified into ¥18 million of“Reward income” and ¥238 million of “Other”.
In addition, “Loss on valuation of investment securities” and “Compensation for damage” which were included in “Other, net” under “Other income (expense)” in
the year ended March 31, 2019, are presented separately
in the current fiscal year due to an increase in materiality.
To reflect this change in presentation, certain reclassifications have been made to the consolidated financial
statements for the year ended March 31, 2019 to conform to the presentation for the year ended March 31,
2020. As a result, the amount of ¥119 million included in“Other, net” in the year ended March 31, 2019 was reclassified into ¥29 million of “Loss on valuation of investment
securities”, ¥3 million of “Compensation for damage” and¥86 million of “Other”.

80

ANNUAL REPORT 2020(u) A ccounting 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 2020), March 31, 2020)
	“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 Codificationin 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
	The Company and its consolidated domestic subsidiaries are currently in the process of determining theeffects of these new standard and guidance on the
consolidated financial statements.
3. “Accounting Standard for Disclosure of Accounting
Estimates” (ASBJ Statement No. 31, March 31, 2020)(1) Overview
	The disclosure for sources of estimation uncertainty isrequired in Paragraph 125 of “IAS 1 Presentation of
Financial Statements” (hereinafter, “IAS 1”) which had
been issued in 2003 by IASB. The ASBJ had developedand issued a new accounting standard for disclosureof accounting estimates (hereinafter, “the accounting
standard”) to meet public demand for considering
disclosure requirement as footnotes in Japanese accounting standards in conformity with the above requirement to provide highly useful information tousers of financial statements.
		 As the basic policy in developing the accounting
standard, the ASBJ did not expand each footnote but
indicated the principle (disclosure purpose) for each
entity to consider the appropriate contents of disclosure in conformity with disclosure purpose. The ASBJ
had developed the accounting standard in reference
to Paragraph 125 of “IAS 1”.

(2) Effective date	Effective from the end of the fiscal year ending March
31, 2021.
4. “Revised Accounting Standard for Accounting Policy
Disclosures, Accounting Changes and Error
Corrections” (ASBJ Statement No. 24 (revised 2020),
March 31, 2020)(1) Overview
	The ASBJ had issued the revised accounting standard
for accounting policy disclosures, accounting changes
and error corrections to respond the recommendationof considering for improving footnotes on “Principle
and procedure of accounting treatment which wereadopted when the related requirements of accounting
standard are not apparent”. The ASBJ succeeds theregulation of explanatory note (Note 1-2) ofCorporate Accounting Principles to achieve improvement of footnotes on “Principle and procedure ofaccounting treatment which were adopted when therelated requirements of accounting standard are notapparent” in order not to affect the practice of business in cases where the regulation of related accounting standards are apparent.
(2) Effective date	Effective from the end of the fiscal year ending March
31, 2021.
(v) Additional information
For dealing with Novel Coronavirus Disease (hereinafter,
the Disease), the Group has been continuing its business
operations by executing broad measures strictly.
However, the Disease would have pervasive influenceon economy and corporate activities, and there is also a
concern about a second wave of Coronavirus, it is difficult to forecast how the Disease would spread further
or when the situation would get resolved. Therefore, theGroup has made the accounting estimates such as recoverability of deferred tax assets on the assumption thatthe influence would continue for certain period during
the fiscal year ending March 31, 2021.

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 ¥108.83 = U.S.$1.00, the approximate rate of exchange on March 31, 2020. 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 202081

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. NOTES AND ELECTRONICALLY RECORDED MONETARY CLAIMS MATURING
Notes and electronically recorded monetary claims are settled on the clearing date. As financial institutions in Japan
were closed on March 31, 2019 the following notes and electronically recorded monetary claims maturing on thefiscal year-end and collected or paid on the following business day, are included in the consolidated balance sheets.
Thousands of
U.S. dollars

Millions of yen
2020

2019

2020

¥—

¥146

$—

Electronically recorded monetary claims

—

36

—

Notes payable

—

31

—

Notes receivable

5. INVESTMENT SECURITIESThe components of unrealized gain or loss on marketable securities classified as available-for-sale securities at March
31, 2020 and 2019 are summarized as follows:
Millions of yen
March 31, 2020

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

¥116

¥ 80

¥  35

$1,065$  735$  321

116

80

35

1,065

735

321

Securities whose acquisition costexceeds their carrying value:
39

58

(18)

358

532

(165)

39

58

(18)

358

532

(165)

¥156

¥138

¥  17

$1,433$1,268$  156Equity securities
Subtotal
Total

Millions of yen
March 31, 2019

Carrying
value

Acquisition
cost

Unrealized
gain (loss)

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Subtotal

¥144

¥ 96

¥47

144

96

47

31

32

(1)

31

32

(1)

¥175

¥129

¥45

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 2019 are­summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2020

82

2019

2020

Proceeds from sales

¥1

¥18

$9

Gain (Loss) on sales

0

18

0

ANNUAL REPORT 2020

Unlisted equity securities of ¥380 million ($3,491
thousand) and ¥373 million, investment partnership of¥672 million ($6,174 thousand) and ¥0 ($0 thousand),corporate bond type bonds with stock acquisition rightsof ¥108 million ($992 thousand) and ¥0 ($0 thousand) at
March 31, 2020 and 2019, 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 million($0 thousand) and ¥107 million ($983 thousand) on­available-for-sale securities with and without market

value, respectively. During the fiscal year ended March
31, 2019, the Company recognized impairment losses of¥25 million and ¥3 million 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 is
considered to be necessary, 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.

6. INVESTMENT IN AN AFFILIATEThe aggregate carrying amount of investment in an affiliate as of March 31, 2020 and 2019 are ¥137 million ($1,258
thousand) and ¥86 million, respectively,

7. INVENTORIESa) Inventories at March 31, 2020 and 2019 are as follows:
Thousands of
U.S. dollars

Millions of yen

Work in process
Purchased goods and materials
Total

2020

2019

2020

¥ 8,259¥ 6,827$ 75,889

4,898

6,354

45,005¥13,158¥13,181$120,904b) Losses from revaluation of the lower of cost or net selling value included in cost of sales for the years ended March
31, 2020 and 2019 were ¥–37 million ($–339 thousand) and ¥260 million, respectively.
c) Losses on sales contracts included in cost of sales for the years ended March 31, 2020 and 2019 were ¥1,511 million ($13,884 thousand) and ¥1,588 million, 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 at March 31, 2020 and 2019are as follows.
Thousands of
U.S. dollars

Millions of yen
2020

Work in process

2019

¥36

2020

¥642

$330

ANNUAL REPORT 202083

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. GOODWILL
Goodwill at March 31, 2020 and 2019 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

2019

2020

¥1,146$8,260According 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.

9. 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 2019 were approximately 0.5% and 0.4% and those of long-term debt for the years ended March 31, 2020 and2019 were approximately 0.4% and 0.4%, respectively.
The annual maturities of long-term debt at March 31, 2020 are as follows:Year ending March 31,Millions of yen

Thousands of
U.S. dollars

2021¥  298$ 2,738

2022

3,298

30,304

2023

264

2,425

2024

201

1,846

—

—

2025 and thereafter

As of March 31, 2020 and 2019, the Group have entered into contracts for committed credit lines totaling ¥8,000
million ($73,509 thousand) and ¥9,000 million, respectively with two domestic banks and have unused committedlines of credit amounting to ¥8,000 million and ¥9,000 million, respectively.

10. 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
2019, 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 and2019 differed from the statutory tax rate for the following reasons:
2020

2019

30.6%

30.6%

Expenses not deductible for tax purposes

1.5

1.4

Inhabitant tax per capita levy

1.2

1.1

Tax credit

(1.4)

(2.2)

Increase/(Decrease) in valuation allowance

Statutory tax rate
Effect of:84(10.4)(1.6)

Amortization of goodwill

0.2

0.2

Other, net

0.4

0.0

Effective tax rate

22.1%

29.5%

ANNUAL REPORT 2020

Tax effects of significant temporary differences and tax loss carry-forward that resulted in deferred tax assets or
liabilities at March 31, 2020 and 2019 are as follows:
Thousands of
U.S. dollars

Millions of yen
2020

2019

2020

Deferred tax assets:¥ 2,515¥ 2,409$ 23,109

Social security contribution on employees’ bonuses

352

346

3,234

Allowance for doubtful accounts

25

29

229

Accrued employees’ bonuses

Accrued enterprise tax
Loss on revaluation of inventories

297

282

2,729

1,299

1,307

11,936

Unrealized profit on inventories

21

17

192

Accrued losses on sales contracts

656

603

6,027

Depreciation

331

228

3,041

Asset retirement obligations

368

271

3,381

Liability for retirement benefits

9,623

9,390

88,422

Stock dividends

106

106

973

Impairment loss on investment securities

62

31

569

Impairment loss on assets

539

—

4,952

Allowance for compensation for damage

406

—

3,730

Provision for office transfer cost

68

—

624

Tax loss carry-forward (Note 2)

1,159

1,290

10,649

574

495

5,274

Other

18,40916,809169,153

Valuation allowance on tax loss carry-forward(352)(1,101)(3,234)

Valuation allowance on total deductible temporary differences and other(976)(1,540)(8,968)Subtotal (Note 1)(1,328)(2,641)(12,202)

Total

17,081

14,167

156,951

Subtotal

Deferred tax liabilities:
Asset for retirement benefits

(43)

(60)

(395)

Restoration cost for asset retirement obligations

(203)

(164)

(1,865)

Goodwill

(151)

(201)

(1,387)

Liability adjustment account

(134)

(136)

(1,231)

Other

(27)

(17)

(248)

(560)

(580)

(5,145)¥16,520¥13,587$151,796

Total
Net deferred tax assets(Notes)1. Valuation allowance on tax loss carry-forward was decreased by ¥1,313 million ($12,064 thousand). The decrease mainly results from reassessment ofrecoverability 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 202085

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Thousands of U.S. dollars

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)$    45$    91$    18$321$6,974$    3,179$10,649

Valuation allowance

(45)

(91)

(18)

(0)

(0)

(3,059)(3,234)

Deferred tax assets

—

—

—

—

6,964

119

7,415(*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)

¥   1

¥   7

¥   9

¥   0

¥152

¥   1,119¥   1,290

Valuation allowance

(1)

(7)

(9)

(0)

(0)

(1,082)(1,101)

Deferred tax assets

—

—

—

—

151

37

March 31, 2020

Millions of yen

March 31, 2019

189(*2)(*1) Tax loss carry-forward is after multiplying the statutory tax rate.
(*2)	Deferred tax assets of ¥807 million ($7,415 thousand) and ¥189 million are recognized for tax loss carry-forward of ¥1,159 million ($10,649 thousand) and¥1,290 million for the years ended March 31, 2020 and 2019, 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.

11. 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 at March 31, 2020 and2019 for the years then ended is as follows.
(1) Movement in retirement benefit obligations
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligation at beginning of year

2019

2020

¥60,226¥59,929$553,395
23,927

Service cost

2,604

2,596

Interest cost

528

537

4,851

Actuarial gain or loss

(426)

(614)

(3,914)(2,720)(2,421)(24,993)

—

175

—

Benefits paid
Changes arising from the changes in accounting policy fromthe simplified method to the standard method
Other
Retirement benefit obligation at end of year
Note: The above table excludes certain plans that have adopted the simplified method.

86

2020

ANNUAL REPORT 2020

(2)

22

(18)

¥60,209¥60,226$553,238

(2) Movements in plan assets
Thousands of
U.S. dollars

Millions of yen

Plan assets at beginning of year

2020

2019

2020

¥30,358¥30,471$278,948

751

751

6,900

(1,356)(986)(12,459)

Contributions paid by the employer

1,115

1,117

10,245

Benefits paid

(1,278)(992)(11,743)

(2)

(3)

(18)

¥29,587¥30,358$271,864

Expected return on plan assets
Actuarial gain or loss

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

2019

2020

¥376

¥   526

Retirement benefit costs

103

36

946

Benefits paid

(39)

(5)

(358)

Changes arising from the changes in accounting policy fromthe simplified method to the standard method

—

(165)

—

Liability for retirement benefits at beginning of year

(15)

(15)

(137)

¥424

¥   376$3,895

Other
Liability for retirement benefits at end of year$   3,454(4) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for retirement benefits
Thousands of
U.S. dollars

Millions of yen

Funded retirement benefit obligation
Plan assets
Unfunded retirement benefit obligation
Net liability for retirement benefits
Liability for retirement benefits
Asset for retirement benefits
Net liability for retirement benefits

2020

2019

¥   32,026¥   32,316$   294,275

2020(30,018)(30,817)(275,824)

2,007

1,498

18,441

29,03828,745

266,819¥   31,046¥   30,244$   285,270

31,21530,609286,823

(168)

(364)

(1,543)¥   31,046¥   30,244$   285,270

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

2019

2020

Service cost

¥2,604¥2,596$23,927

Interest cost

528

537

4,851

Expected return on plan assets

(751)

(751)

(6,900)Net actuarial loss amortization

1,283

1,377

11,789

Past service costs amortization

(496)

(500)

(4,557)Retirement benefit costs calculated by the simplified method

103

36

946

(2)

(1)

(18)

¥3,269¥3,295$30,037

Other
Retirement benefit costs

ANNUAL REPORT 202087

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(6) Adjustments for retirement benefit
Thousands of
U.S. dollars

Millions of yen
2020

Past service costs2020¥  (500)

352

1,005

3,234

¥(143)¥  505$(1,313)

Actuarial gains and losses
Total

2019

¥(496)$(4,557)(7) Accumulated adjustments for retirement benefit
Thousands of
U.S. dollars

Millions of yen

Unrecognized prior service costs
Unrecognized actuarial gains and losses
Total

2020

2019

2020

¥(1,227)¥(1,724)$(11,274)

6,650

7,001

61,104¥  5,422¥  5,276$  49,820(8) Plan assets(a) The components of plan assets
Thousands of
U.S. dollars

Millions of yen
2020

2019

2020

Debt securities¥13,845¥14,100$127,216

Equity securities

3,972

4,562

36,497

General account

3,591

3,623

32,996

Alternative

72,627

7,904

7,609

Other

273

463

2,508

Total

¥29,587¥30,358$271,864

Note: Total plan assets include ¥220 million ($2,021 thousand) and ¥318 million in a retirement benefit trust established for the corporate pension plan as ofMarch 31, 2020 and 2019, 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 at March 31, 2020 and 2019 (expressed as weighted averages) are as follows:


2020

2019

Discount rate

0.9%

0.9%

Long-term expected rate of return

2.5%

2.5%

Expected increase rate of salary

4.1%

4.1%

The amounts to be paid by the Company and its consolidated subsidiaries to the defined contribution plans were¥478 million ($4,392 thousand) and ¥472 million for the years ended March 31, 2020 and 2019.

88

ANNUAL REPORT 2020

12. 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 2019:
Thousands of
U.S. dollars

Millions of yen
2020

2019

2020

¥  873¥777$ 8,021

Obligations incurred by asset acquisition

423

91

3,886

Obligations settled

(64)

(5)

(588)

Accretion expense

8

10

73

Balance, beginning of year

Remeasurements
Balance, end of year

13. 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

(52)

—

(477)

¥1,188¥873$10,916

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 ($5,016 thousand) as of both March 31,
2020 and 2019. 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 2019 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

2019

At beginning of year

138,615

137,435

Increase - purchase of odd lot shares

1,352

1,277

Decrease - sale of odd lot shares

5,900

97

134,067

138,615

At end of year

(Note) At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a 3-for-1 stock split of common stock with an effective date ofJune 1, 2020. The number of treasury stock as stated above do not take the stock split into account.

a) Dividends paid during the year ended March 31, 2019
The following was approved by the Board of Directors on April 27, 2018.
(a) Total dividends¥1,836 million(b) Cash dividends per common share¥37(c) Record date
March 31, 2018(d) Effective date
May 31, 2018
The following was approved by the Board of Directors on October 30, 2018.
(a) Total dividends¥1,886 million(b) Cash dividends per common share¥38(c) Record date
September 30, 2018(d) Effective date
December 4, 2018

ANNUAL REPORT 202089

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSb)	Dividends to be paid after March 31, 2019 although record date for payment falls
within the year ended March 31, 2019
The following was approved by the Board of Directors on April 26, 2019.
(a) Total dividends¥1,985 million(b) Dividend source
Retained earnings(c) Cash dividends per common share¥40(d) Record date
March 31, 2019(e) Effective date
May 31, 2019c) 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 ($18,239 thousand)(b) Cash dividends per common share¥40 ($0.36)(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 ($18,239 thousand)(b) Cash dividends per common share¥40 ($0.36)(c) Record date
September 30, 2019(d) Effective date
December 3, 2019
(Note) At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a 3-for-1 stock split of common stock with an effective date ofJune 1, 2020. Cash dividends per common share as stated above do not take the stock split into account.

d)	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 ($19,149 thousand)(b) Dividend source
Retained earnings(c) Cash dividends per common share¥42 ($0.38)(d) Record date
March 31, 2020(e) Effective dateJune 3, 2020
(Note) At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a 3-for-1 stock split of common stock with an effective date ofJune 1, 2020. Cash dividends per common share as stated above do not take the stock split into account.

14. CONTINGENT LIABILITIESAt March 31, 2020 and 2019, the Company was contingently liable as guarantor of indebtedness of the Company’s
employees in the aggregate amount of ¥0 million ($0 thousand) and ¥1 million, respectively.

15. 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.

90

ANNUAL REPORT 2020

(2) Operating leases
Future minimum operating lease payments subsequent to March 31, 2020 and 2019 for non-cancelable operatingleases are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2020

2019

¥ 3,046

Due within one year
Due over one year
Total

2020

¥2,966$ 27,988

10,565

5,440

97,078¥13,612¥8,407$125,075

16. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The significant components of selling, general and administrative expenses for the years ended March 31, 2020 and2019 are as follows:
Thousands of
U.S. dollars

Millions of yen

Employees salary
Provision for bonuses to directors
Retirement benefit costs

2020

2019

2020

¥16,553¥16,584$152,099

74

56

679

1,180

1,181

10,842

17. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses amounted to ¥720 million($6,615 thousand) and ¥784 million for the years ended March 31, 2020 and 2019, respectively.

18. 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 ($16,429 thousand) as an extraordinary loss in consolidated statementof income. The details of impairment loss are ¥981 million ($9,014 thousand) for Land, ¥805 million ($7,396 thousand)for Buildings and Structures, and ¥2 million ($18 thousand) 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.

19. 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 202091

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. 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 2019 are as follows:
Thousands of
U.S. dollars

Millions of yen
2020

2019

2020

Net unrealized holding gain on available-for-sale securities:¥  (2)¥ (48)

Reclassification adjustment for gain/loss realized in net income

0

29

0

Before tax amount

(2)

(19)

(18)

Unrealized holding gain (loss) arising during the year$   (18)

Tax effect

0

7

0

Net-of-tax amount

(1)

(11)

(9)

349

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

—

—

—

Before tax amount

38

—

349

Tax effect

(13)

—

(119)

Net-of-tax amount

25

—

229

Foreign currency translation adjustments arising during the year

185

(137)

1,699

Reclassification adjustment for gain/loss realized in net income

—

(8)

—

185

(145)

1,699

Foreign currency translation adjustments:

Before tax amountTax effectNet-of-tax amount

(0)

2

(0)

185

(143)

1,699

(8,545)Adjustments for retirement benefit:
Adjustments for retirement benefit arising during the year

(930)

(371)

Reclassification adjustment for gain/loss realized in net income

786

877

7,222

Before tax amount

(143)

505

(1,313)Tax effect

53

(146)

486

Net-of-tax amount

(89)

359

(817)

0

(1)

0

¥    120¥    203$    1,102

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

21. AMOUNTS PER SHARE
Yen

U.S. dollars

2020

2019

Net income per share¥ 63.28¥ 59.67

2020

$0.58

Net assets per share

741.12704.406.80(Note) At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a 3-for-1 stock split of common stock with an effective date ofJune 1, 2020. Net income per share and Net assets per share were calculated as if the relevant stock split were executed at the beginning of the previous consolidated fiscal year ended March 31, 2019.

92

ANNUAL REPORT 2020

The basis of calculation for net income per share and net income per share is as shown below.
Thousands of
U.S. dollars

Millions of yen
2020

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)

2019¥  9,422

Net income attributable to owners of the parent

2020¥  8,885$   86,575

—

—

—

9,422

8,885

86,575

148,915

148,907

1,368,326(Note) At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a 3-for-1 stock split of common stock with an effective date ofJune 1, 2020. Average number of shares during the term was calculated as if the relevant stock split were executed at the beginning of the previous
consolidated fiscal year ended March 31, 2019.

22. 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 into 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 5 years after thebalance sheet date for the years ended March 31, 2020
and 2019, respectively. Part of the obligations has floatinginterest rates and is exposed to interest rate risk.
In order to hedge the foreign exchange rates fluctuation risk associated with operating receivables and payables denominated 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 into a forward exchange contract for hedging the cash flow fluctuation risk associated with operating receivables 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 into by the Group arein accordance 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 23
DERIVATIVES does not represent the market risk of thederivative transactions.
(5) Concentration of credit risk
At both March 31, 2020 and 2019, 24% and 30% of­operating receivables were receivables from a certain
major customer (NEC Corporation).

ANNUAL REPORT 202093

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 2019 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

Thousands of U.S. dollars
Carrying
amountFair value$ 535,890$ 535,890$——

Differences

Differences

Assets:(1) Cash and cash equivalents(2) Notes and accounts receivable

1,032,417

728

6,689

(17)

(156)

(3) E
 lectronically recordedmonetary claims
Allowance for doubtful accounts(*1)

113,068

113,068—

1,038,941

1,038,941

156

156

—

1,433

1,433

—

¥171,545¥171,545¥—$ 1,576,265$ 1,576,265$—(4) Investment securities
Total

¥—

112,358

Liabilities:¥ 41,666¥ 41,666¥—$ 382,853$ 382,853

$—

(2) E
 lectronically recorded
obligations

1,441

1,441

—

13,24013,240—(3) Short-term bank loans

4,632

4,632

—

42,561

42,561—(4) C urrent installments oflong-term debt

298

298

—

2,738

2,738

—

(1) Notes and accounts payable

3,764

3,763

(1)

34,586

34,576(9)

Total¥ 51,803¥ 51,802¥(1)$ 475,999$ 475,990$(9)

Derivative transactions(*2)

¥

¥

¥—

$

$

$—

March 31, 2019

Carrying
amountFair value¥ 54,354¥ 54,354¥—

107,138

107,138

—

175

175

—

¥ 161,667¥ 161,667¥—(5) Long-term debt

37

37

339

339

Millions of yen
Differences

Assets:(1) Cash and cash equivalents(2) Notes and accounts receivable

106,553(3) E lectronically recordedmonetary claims

606

Allowance for doubtful accounts(*1)(22)(4) Investments securities
Total
Liabilities:¥ 40,274¥ 40,274¥—(2) E lectronically recorded
obligations(1) Notes and accounts payable

807

807

—

(3) Short-term bank loans

2,284

2,284

—

(4) C
 urrent installments oflong-term debt

231

231

—

3,896

3,896

—

Total

(5) Long-term debt

¥ 47,494¥ 47,494¥—

Derivative transactions(*2)

¥

¥

¥—

—

—

(*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.

94

ANNUAL REPORT 2020

(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 5 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 23 DERIVATIVES.

(Note 2) Financial instruments of which the fair value is extremely difficult to measure
Thousands of
U.S. dollars

Millions of yen
2020

2019

2020

Unlisted equity securities

¥517

¥460

$4,750Investment partnership

672

—

6,174

Corporate bonds with equity purchase warrant

108

—

992

The above securities are not included in ”Assets:(4) Investment securities”, as market prices are not available andalso future 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 at March 31, 2020
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¥ 58,321

¥—

¥—

¥—

112,358

—

—

—

728

—

—

—

¥171,407

¥—

¥—

¥—

Thousands of U.S. dollars
Due after
one year throughfive years

Due after five
years throughten years

Due after
ten years

Due within
one year

Cash and cash equivalents$  535,890

$—

$—

$—

Notes and accounts receivable

1,032,417

—

—

—

6,689

—

—

—

$1,574,997

$—

$—

$—

Electronically recorded monetary claims

ANNUAL REPORT 202095

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Note 4) The annual maturities of long-term debt and other interest-bearing debt at March 31, 2020
Millions of yen

Due after one
year throughtwo years

Due after two
years throughthree years

Due after three
years throughfour years

Due after four
years throughfive years¥4,632¥     —

¥   —

¥   —

¥—

¥—

298

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$42,561$     —

$     —

$     —

$—

$—

2,738

30,304

2,425

1,846

—

—

Due within
one year

Short-term bank loans
Long-term debt

Due after
five years

Thousands of U.S. dollars



Due within
one year

Short-term bank loans
Long-term debt

Due after
five years

23. DERIVATIVESThe Company enters into forward exchange contracts with major Japanese banks in order to manage certain risks
arising from adverse fluctuations in foreign currency exchange rates.
At March 31, 2019, there is no derivative transactions to report.
At March 31, 2020, the disclosure of fair value information for derivatives are as follows:
1. Derivatives that are not accounted for as hedges
Millions of yen
Contract amountTransaction type

Total

Over 1 year

Valuation
gain/loss

Fair value

Forward exchange contract
Transactions out of market

Order to buy:Euro
British poundTotal

¥71

¥—

¥(0)

10

—

(0)

¥(0)
(0)

¥82

¥—

¥(0)

¥(0)

Thousands of U.S. dollars
Contract amountTransaction type

Total

Over 1 year

Valuation
gain/loss

Fair value

Forward exchange contract
Transactions out of market

Order to buy:Euro
British poundTotal

$652

$—

$(0)

91

—

(0)

(0)

$753

$—

$(0)

$(0)

(Note) The fair value of forward exchange contracts is computed based on quotes from counterparties.

96

ANNUAL REPORT 2020$(0)

2. Derivatives that are accounted for as hedges
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

Foreign currency denominatedforecasted transactions

Total

Total

Over 1 year

Fair value¥1,021¥1,021¥38¥1,021¥1,021¥38

Thousands of U.S. dollars
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

Foreign currency denominatedforecasted transactions

Total

Total

Over 1 year

Fair value$9,381$9,381$349$9,381$9,381$349(Note) The fair value of forward exchange contracts is computed based on quotes from counterparties.

24. RELATED PARTY TRANSACTIONS(1) The Company’s balances with related parties and related transactions
NEC Corporation owned 51.48% and 51.48% of the Company’s outstanding common stock as of both March 31, 2020
and 2019, respectively.
Balances with NEC Corporation at March 31, 2020 and 2019, and related transactions for the years then ended aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen
Transactions

2020

2019

2020

¥63,488¥63,859$583,368

Accounts receivable¥25,615¥30,791$235,367

Advances received¥      482¥      313$    4,428¥47,961¥46,191$440,696

Accounts payable¥11,936¥13,615$109,675

Advance payments¥      476¥      408$    4,373

Construction and maintenance of network system:
Transactions:
Sales
Balances:

Purchases of communication device:Transactions:Purchases
Balances:

ANNUAL REPORT 202097

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25. SEGMENT INFORMATIONThe reported segments of the Company are the business
units for which the Company is able to obtain respective
financial information separately in order 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 similar to those employed
to prepare the accompanying consolidated financial
statements.

The reported segment information for the Company and its consolidated subsidiaries for the years ended March 31,
2020 and 2019 is summarized as follows:
Millions of yen
Network
infrastructures

Engineering &support services¥109,986¥83,953¥ 99,362¥10,314

—

—

—

—

¥109,986¥ 83,953¥ 99,362¥10,314Segment income¥ 11,005¥ 9,193¥ 6,300¥ 511¥ (10,763)¥ 16,245

Segment assets¥ 44,667¥ 48,662¥ 54,176¥2,266¥ 80,470¥230,244

¥

¥

¥

¥

¥

¥

March 31, 2020

Digitalsolutions

OthersAdjustments

Total

Sales:(1) Sales to third parties(2) Intersegment sales
Total

¥
¥

—

¥303,616———¥303,616

Others:Depreciation and amortization
Purchases of property and equipment, andintangible assets

1,466

473

344

51

1,237

3,572

2,057

461

428

155

1,358

4,461

99

—

37

—

—

137

Network
infrastructures

Engineering &support services$1,010,622$771,414$913,001$94,771

—

—

—

—

$1,010,622$771,414$913,001$94,771

Investment to entities accounted
for using equity method

Thousands of U.S. dollars
March 31, 2020

Digitalsolutions

OthersAdjustments

Total

Sales:(1) Sales to third parties(2) Intersegment sales
Total

$
$

—

$2,789,818

—

—

—

$2,789,818

Segment income$ 101,121$ 84,471$ 57,888$ 4,695$ (98,897)$ 149,269

Segment assets$ 410,429$447,137$497,803$20,821$739,410$2,115,629

$

$

$

$

468

$ 11,366$

Others:Depreciation and amortization
Purchases of property and equipment, andintangible assets
Investment to entities accounted
for using equity method

98

ANNUAL REPORT 2020

13,470

4,346

3,160

32,821

18,901

4,235

3,932

1,424

12,47840,990

909

—

339

—

—

1,258

Millions of yen
March 31, 2019

Digitalsolutions

Network
infrastructures

Engineering &support services¥80,353¥90,444

OthersAdjustments

Total

Sales:(1) Sales to third parties(2) Intersegment sales
Total¥99,767¥ 7,383

—

—

—

—

¥99,767¥80,353¥90,444¥ 7,383¥—¥ 277,949

—

—

¥

—

¥ 277,949

Segment income¥ 8,436¥ 5,917¥ 7,188¥311¥ (9,078)¥ 12,774

Segment assets¥41,826¥50,212¥44,812¥ 3,048¥76,270¥ 216,171¥ 1,445

¥

¥

¥

¥

¥

Others:Depreciation and amortization
Purchases of property and equipment, andintangible assets
Investment to entities accounted
for using equity method

327

292

58

640

2,764

1,914

566

378

45

1,674

4,578

41

—

45

—

—

86

Notes: 1. “Others” includes purchases of information and telecommunications equipment, etc., which are not included in the reported segments.
2.	“Adjustments” of ¥–10,763 million ($–98,897 thousand) and ¥–9,078 million in segment income for the years ended March 31, 2020 and 2019,­respectively, are mainly administrative operation expenses.
3.	“Adjustments” of ¥80,470 million ($739,410 thousand) and ¥76,270 million in segment assets at March 31, 2020 and 2019, respectively, mainly­consist 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 2019 include long-term prepaid expenses
and their amortization.
6.	The Company implemented a reorganization as of April 1, 2019 and changed the reportable segments from the year ended March 31, 2020 from“Enterprise Networks Business”, “Carrier Networks Business” and “Social Infrastructures Business” to “Digital Solutions Business”, “Network
Infrastructures Business” and “Engineering & Support Services Business”. Information on reportable segments related to the year ended March 31,
2019 was reclassified for disclosure to reflect the changes in this event.

Related information
Related segment information for the years ended March 31, 2020 and 2019 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

2019

2020

¥68,110¥68,808$625,838

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 202099

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information of impairment loss on fixed assets by reported segments for the years ended March 31, 2020 and 2019
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 ($16,429 thousand) 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, 2019.
Information of amortization of goodwill and balances of goodwill by reported segments as of and for the years ended
March 31, 2020 and 2019
Millions of yen
March 31, 2020

Amortization of goodwill
Balances of goodwill

Digitalsolutions

Network
infrastructures

Engineering &support services

¥ 22

¥224

¥—

¥—

¥—

¥247

104

794

—

—

—

899

Network
infrastructures

Engineering &support services

OthersAdjustments

Total

Thousands of U.S. dollars
March 31, 2020

Digitalsolutions

OthersAdjustments

Total

Amortization of goodwill$202$2,058$—$—$—$2,269Balances of goodwill

955

7,295

—

—

—

8,260

Network
infrastructures

Engineering &support services

Millions of yen
March 31, 2019

Digitalsolutions

OthersAdjustments¥ 22¥  224¥—¥—¥—¥  247

Balances of goodwill

127

1,018

—

—

—

1,146

Negative goodwill incurred by reported segments for the years ended March 31, 2020 and 2019
There are no amounts to report.

100

Total

Amortization of goodwill

ANNUAL REPORT 2020

26. SUBSEQUENT EVENT
Stock split
At a meeting on April 28, 2020, the Board of Directors passed a resolution to implement a stock split with the effective
date of June 1, 2020.
(1) Purpose of the stock split		The purpose of the stock split is to improve convenience for investors, thereby increasing the liquidity of theCompany’s stock.
(2) Outline of the stock split		 A) Method of the stock split
			The Company will implement a 3-for-1 stock split for each one share of common stock owned by shareholders listed or recorded in the closing register of shareholders with a record date of May 31, 2020 (since this day
falls on a non-business day of the administrator of the shareholder register, the practical record date will be
May 29, 2020).
		 B) Increase in number of shares due to the stock split
			The subject of the stock split is common stock and increase in number of shares are calculated by multiplying
total number of shares in issue as of May 31, 2020 by 3.
			 Total number of shares in issue before the stock split
49,773,807 shares
			 Increase in number of shares due to the stock split
99,547,614 shares
			 Total number of shares in issue after the stock split
149,321,421 shares
			 Total number of issuable shares after the stock split
300,000,000 shares
		 C) Schedule of the stock split
			 Record date announcement
May 15, 2020 (Friday)
		 Record date
May 31, 2020 (Sunday)			(since this day falls on a non-business day of the administrator of the shareholder register, the practical record
date will be May 29, 2020)
			 Effective dateJune 1, 2020 (Monday)(3) Effect on per share data		 Effect on per share data is stated at the above note 21 AMOUNTS PER SHARE.
(4) Other
		 A) Change in the amount of capital stock			 The amount of capital stock has not been changed after the stock split.
		 B) Impact on dividend			Since the stock split will be effective as of June 1, 2020, year-end dividend as of March 31, 2020 is calculatedby the number of shares before the stock split.

ANNUAL REPORT 2020

101

INDEPENDENT AUDITOR’S REPORT102

ANNUAL REPORT 2020

ANNUAL REPORT 2020

103

INDEPENDENT AUDITOR’S REPORT104

ANNUAL REPORT 2020

2-6-1 Koraku, Bunkyo-ku, Tokyo
112-8560, Japan
Telephone: +81-3-6699-7000
Website: http://www.nesic.co.jp/english/

201200400-EI-00