NEC Networks & System Integration Corporation

ProfileNEC Networks & System Integration Corporation
grows with evolving communications.
Since its establishment in 1953, NEC Networks andSystem Integration Corporation (NESIC) has expanded
its businesses from the installation of telecommunications
infrastructure to the SI and maintenance of office
networks and the service businesses, including theoperation of network systems and outsourcing. NESIC
offers unique services, including EmpoweredOffice, anoffice innovation solution, taking advantage of its ability toprovide a broad range of ICT related services, from system
integration to installation and other services for diverse
customers in an integrated manner.
Leveraging the strengths it has developed over 60
years, NESIC aims to grow by revitalizing its customers’

1973

1988

Sales
¥ 10 bn¥

Sales
100 bnConstruction ofmobile base stations

Construction ofbroadcast automation
systems for NHK

Founded in 1953

Crossbar switchingequipment

Construction of satellite
communication systems
in Switzerland

The Kashima Branchof the Radio ResearchLaboratory of the former
Ministry of Posts andCommunicationsFirst construction of
TV broadcasting systems

1983
Listed on the Tokyo Stock
Exchange Second Section

1953

1980

Nippon Electric Installation
Company founded

The company name changed to
NEC System Integration & Construction, Ltd.

1950

1960

Age ofsupporting the baseof telecommunications

Age ofsupporting global
communications

Age ofresponding to the diversificationof communications

Nippon Electric Installation
Company founded (1953)

Full-scale development of international communications
and satellite communications

Liberalization of telecommunications,the rise of New Common Carriers• Starting with the installationof switching, broadcasting,and radio systems• Building communications infrastructure worldwide• Expanding business for NCCs andthe building of mobile communications
networks• Contributing to the creation ofcommunications infrastructure in
the postwar years of recovery

1communications and adding new value. It has been morethan 30 years since the Company listed its shares. We
aim to enhance our corporate value to become a leading
brand in the industry and increase the satisfaction of all
stakeholders as an entity that contributes to society invarious ways.

Annual Report 20151970

• Expanding the installation of broadcasting systems,
submarine cables, and radio communication systems(satellite communications, microwave communications)1980• Expanding system integration
business for companies

NEC Networks & System Integration Corporation

Contents
Financial Highlights				 3Interview with the President			

4

Business Performance by Segment 		

7

Topics 1						 9Topics 2						10Corporate Social Responsibility (CSR)		

11

Corporate Governance				12Directors and Corporate Auditors			

15

Six-Year Summary of Selected Financial Data

16

Consolidated Financial Statements 		

18

Global Network					51Investor Information				52Cautionary Statement with Respect to
Forward-Looking Statements
This annual report contains forward-looking statements
concerning NEC Networks & System Integration
Corporation and its consolidated subsidiaries’ current plans,
projections, strategies and performance. These forwardlooking statements are not historical facts. Rather, they
represent the assumptions and beliefs of the company
management based on information currently available. The
company therefore wishes to caution readers that actual
results may differ materially from expectations, and thatforward-looking statements are subject to a number of risks
or uncertainties.

1996

2015

Sales
200 bn¥¥Sales
292.2 bn

2013

2011

Integrating
intra-office voice
network systems

A corporate message announced as the Company celebrated
its 60th anniversary: “Re-designing your Communication”
Acquired Q&A Corporation
Acquired NEC Magnus Communications., Ltd.

Industry classification on the Tokyo Stock Exchange changed
from Construction to Information & Communication

2010
The head office relocated to Iidabashi
Operation and control of asteroid probe Hayabusa and satellites

1992

Submarine cables /Submarine seismometer systems

Acquired NEC Telenetworks Co., Ltd.

2005

Listed on the Tokyo Stock
Exchange First Section

1990

2006
The company name changed to
NEC Networks & System Integration Corporation

2000

Now

Age ofcreating value
in communications

Age ofdesigning new communications
creating new value

Developing IP and broadband networks• Accelerating the expansion of“EmpoweredOffice”• The solution business expanding• Responding to the digitizationof terrestrial broadcasting andcommunity informatization
Starting “EmpoweredOffice” (2007)• Concept for changing ways ofworking and communication,using ICT and office facility• Promoting measures to enhancing
service businesses• Promoting the digitization offire-fighting and disasterprevention networks, speeding up
mobile networks

Annual Report 20152NEC Networks & System Integration Corporation

Financial Highlights
Key points of the results of the fiscal year under review
1

Orders and net sales were both at record highs.

2

Shareholder return expanded, as NESIC strengthened its earnings power.

Net sales¥292.2 billion

Operating income¥16.2 billion

8.1% increase year on year

235.7
¥ billion

270.3¥ billion

12.1% increase year on year

2014/3¥ billion

12.5

2015/3

Orders¥299.1 billion

280.1¥ billion

2013/3¥ billion

2014/3

2015/3299.1

7.5¥ billion

2013/3

2014/3

7.8¥ billion

2015/3¥4 increase year on year

51.2
60
%

%

2015/3

8.3¥ billion

Annual dividends¥64 per share¥ billion

46.3

2014/3¥ billion

0.5 points decrease from the endof the previous fiscal year

¥ billion

2013/3

16.2

14.4

Owner’s equity ratio
45.8%

6.8% increase year on year

241.3

5.6% decrease year on year

292.2

¥ billion

2013/3

Net income¥7.8 billion

2013/3

2014/3

45
45.8

64
¥

¥

¥

%

2015/3

2013/3

2014/3

2015/3For the latest company news and IR information, please visit our website: http://www.nesic.co.jp/english/ir/index.html

3

Annual Report 2015

NEC Networks & System Integration Corporation

Interview with the President

Thank you as always for yourcontinued support.
As part of this Annual Report for
the fiscal year ended March 31,
2015, I would like to take thisopportunity to provide an overview
of our operations and our results.
I hope we can continue to rely on
the support and understanding of allof our shareholders in the future.
Masao Wada
President

Q

How were the company’s results
for the fiscal year ended March 31,
2015?

A

We achieved record results in terms oforders, net sales and operating income
for the second year in a row.

With orders up 6.8% year on year to ¥299.1 billion, net
sales up 8.1% to ¥292.2 billion and operating income up¥1.7 billion to ¥16.2 billion, we achieved record results forthe second consecutive year.
The increase in orders and net sales was largely down
to a sustained strong performance from our enterprisenetworks and social infrastructure businesses thanks
to a steady capture of the recovery in corporate ICT
investment and an increase in projects relating to fire-fighting and disaster prevention information systems, aswell as effective M&A carried out in the fiscal year ended
March 31, 2014.
In addition to increased sales, operating income
was also boosted by factors such as reduced costs andstreamlined SG&A, enabling us to increase our operating
margin to 5.5%, an improvement of 0.2 points.
This means that we have achieved our medium-termtargets for the fiscal year ending March 31, 2016, in termsof net sales, operating income and operating margin, a fullyear ahead of schedule.
Net income on the other hand was down ¥500 million
to ¥7.8 billion, due to the impact of one-off factors suchas the reversal of deferred tax assets under revisions to
tax legislation and extraordinary losses as a result of
reorganizing subsidiaries. ROE (return on equity) was
similarly down by 0.9 points to 8.7%.

Annual Report 20154NEC Networks & System Integration Corporation

Q

What are your forecasts for the
fiscal year ending March 31, 2016?

A

We are aiming to exceed our mediumterm targets and achieve record results.

Although we anticipate ups and downs with regard tobusiness conditions in different sectors during the fiscal
year ending March 31, 2016, we expect results to remain
positive on the whole, due in part to a recovery from theafter effects of increases in consumption tax.
In the enterprises networks business, we expect ICT
investment to continue to recover in line with the ongoing
economic recovery, and intend to continue increasing
sales of our “EmpoweredOffice (EO)” office innovation
solution in particular. In the carrier networks businessmeanwhile, we expect to see a slight decline in income
due to reduced investment from telecommunications
carriers. We nonetheless intend to continue to expand
our technical outsourcing operations, including services
for global vendors*. Despite a projected decline inprojects relating to fire-fighting and disaster prevention
information systems as part of our social infrastructurebusiness, we are hoping to expand areas such asbroadcasting networks, public infrastructure development
and overseas infrastructure installation.
As a result of these initiatives, we are aiming to
improve results even further, achieving ¥300 billion inorders, ¥295 billion in net sales and ¥16.5 billion in
operating income, with an operating margin of 5.6%.
We are also aiming to post record net income, at ¥9.5
billion, and an ROE of 10%, as we continue towards our
medium-term targets.
*Comprehensive technical services including initial inspection,
configuration, operation and maintenance of ICT devices
manufactured overseas.

Q

What are your plans regarding
dividends?

A

We are planning to increase dividends
for the ninth consecutive year.

We operate a basic policy of providing stable dividends,
and aim to give back more and more to our shareholders
as our income increases, whilst also actively investingin growth. Based on this underlying policy, we paid out
a year-end dividend of ¥32 per share for the fiscal year
ended March 31, 2015 as planned, in spite of a temporary
decline in net income. Combined with an interim
dividend of ¥32 per share, that made for an annual
dividend of ¥64, an increase of ¥4 year on year.
5

Annual Report 2015

For the fiscal year ending March 31, 2016, we plan to
pay an interim dividend of ¥35 per share and an annual
dividend of ¥70 per share, marking an increase for the
ninth consecutive year. We are committed to further
strengthening our earning capability, so that we can givesomething back to our shareholders and live up to their
expectations in the future.

Planning increase for the 9th year in a row

Full year￥70 per share2016 / 3(Forecast)
Full year￥14
per share

2007 / 3

Q

Given that the company has alreadyachieved its medium-term targets
for net sales and operating income,can you tell us about progress withinitiatives in key businesses?

A

We are aiming to build on our mediumterm targets through growth in key
businesses.

With the exception of 10% ROE, we have alreadyachieved our medium-term targets. Rather than relaxing
in this final fiscal year however, we intend to build on ourtargets even further.
Details of initiatives in each of our key businesses are as
follows
As part of our EmpoweredOffice (EO) business, wehave introduced EO solutions at all regional divisions andoffices nationwide, so that we can expand business targeting
regional customers. We have also developed and launchedNEC Networks & System Integration Corporation

new solutions such as SmoothSpace using projection
mapping technology, which is attracting a lot of attention
in entertainment and other areas. In addition to enhancing
customer value through initiatives such as these, we areworking to bring over 20,000 visitors to our EO live officeenvironment, so that we can initiate business talks.
In the technical outsourcing business, we established
our Service Delivery Operation Center (sDOC) in June
2014, with the aim of integrating management and delivery
service capabilities for replacement parts and productswith technical support capabilities in areas such as repairs
and system evaluations. We have made steady progress,
including securing orders from major customers using
services via sDOC, and intend to keep on expanding
operations in the future.
As part of our infrastructure business, we have increased
sales of fire-fighting systems and mobile communications
base stations significantly earlier than projected. While
we are likely to feel the after effects of that increase in thefiscal year ending March 31, 2016, we will nonetheless befocusing on areas that are expected to see comparatively
active investment, including wireless disaster prevention
information systems and indoor base stations, designed
to improve communications inside buildings andunderground.
We are continuing to slightly outperform projections
with regard to our overseas business, thanks in part toorders for large projects in countries such as Thailand andSaudi Arabia. This is a result of focusing on expanding our

Revised Medium-Term Target
FY 2016/3
16.2
12.5

14.4

204.7

(5.6%)

270.3

285.0

(5.5%)

292.2

290.0

EmpoweredOfficeBusiness
Technical Outsourcing
Business

16.0(5.3%)

235.7

16.5

(5.5%)

15.0*SDN: Software-defined networking

Accelerating the growth in Strategic
Business Areas(5.3%)(5.3%)

Operating 9.7(4.8%)
Income(Margin)telecommunications infrastructure business, spearheadedby existing overseas subsidiaries. In April 2015, ourThai subsidiary opened a Yangon Branch in Myanmar,a growth market where investment in infrastructure is
expected to increase in the future. We will continue toexplore new possibilities with existing customers during
the year ending March 31, 2016, whilst at the same time
expanding operations even further by stepping up business
in Myanmar via our Yangon Branch.
And finally…
We are in the process of formulating our next setof medium-term targets for growth in the future. As
with the policy underpinning our current medium-termtargets however, our basic policy for continued growthis to strengthen our service business and expand our
infrastructure business. We can expect to see a wide rangeof market opportunities in the future too, including newmarkets such as 4K and 8K high definition broadcasting
systems and improved infrastructure ahead of the 2020
Tokyo Olympics, and new technologies such as SDN* next
generation communication systems. With that in mind,
we intend to continue with strategic investment in growth
sectors, as well as strengthening the foundations of ourinstallation, maintenance and service business, and taking
on challenges presented by these new technologies andmarkets.
I hope we can continue to relay on full support andadvice from all of our shareholders, now and in the future.

295.0

Infrastructure
Business
Overseas
Business

Billions of Yen
292.2
270.3

295

76

82

31

35

67
28.5

52

45

13

14

16

FY 2014/3

FY 2015/3

41

Other
Businesses

Sales
Forecast

FY 2012/3

FY 2013/3

FY 2014/3

FY 2015/3

FY 2016/3

Forecast as of April 28, 2015

FY 2016/3

Annual Report 20156NEC Networks & System Integration Corporation

Business Performance by Segment
Our three core businesses
NESIC provides a range of services from planning to system design, maintenance, and operationin an integrated manner in a variety of fields ranging from ICT within companies to public andsocial infrastructure. NESIC has three core businesses: the Enterprises Networks business,
Carrier Networks business, and Social Infrastructure business.
We will help a range of customers enhance their value, harnessing our ability to makeproposals from customers’ perspectives and our expertise and technological capabilities for all
sorts of networks.

Other

by Business Seg
s
e
l
me
Sa
t
nt
e
N

7%
SocialInfrastructureEnterprises
Networks

34%

33%

Carrier
Networks

26%

7

Annual Report 2015

NEC Networks & System Integration Corporation

Enterprises Networks
business
We provide total support for office ICT in line with thewide-ranging needs of customers with diverse businesses,
from network integration to maintenance, operation andoutsourcing. We also promote “EmpoweredOffice (EO)”
office innovation solutions.

Sales Trends

2015

Net Sales¥99.3 billion

2014

9.3% increase year on year

2013

99.3

billion90.8

billion78.0

billionYears ended March 31

Having targeted recovering ICT investment amongst
our customers and actively catered to demand for
management reform, we achieved a 9.3% increase inrevenue year on year, through initiatives such increasing
sales of EO office innovation solutions in particular.

Carrier Networks
business
We provide network design, and systems
integration, maintenance and operation services fortelecommunications carriers. We offer support for smoothcommunication throughout society, harnessing our highquality, highly reliable technology and expertise to copewith rapid increase in traffic.

Sales Trends

2015billion

76.6

Net Sales¥76.6 billion

2014billion78.3

2.2% decrease year on year

2013

64.9

billionYears ended March 31

Revenue was down 2.2% year on year, as a resultof* factors such as reduced investment amongst
telecommunications carriers. This was due in part tothe after effects of work on large base stations for new
frequencies in the previous year.

Social Infrastructurebusiness
We provide a wide range of services for ICT infrastructure,such as that of central and local government, broadcasters
and power companies, from systems integration to operationand monitoring. We have also branched out into overseas
infrastructure development, offering support for safety andsecurity throughout society and people’s everyday lives.

Sales Trends

2015

Net Sales¥96.8 billion

2014

17.1% increase year on year

2013

billionbillionbillion

96.8

82.6

74.1

Years ended March 31

Revenue was up 17.1% year on year, as a result of active
public investment in ICT based around the themes ofsafety and security, including large-scale investment indigital fire-fighting and disaster prevention information
systems.
*Construction work for telecommunications carriers, including the construction of mobile base stations, which was previously included under the “social
infrastructure” segment, was incorporated into the “carrier networks” segment from the fiscal year ended March 31, 2015 onwards. As a result of this and otherchanges to reporting segments, figures for the fiscal years ended March 31, 2013 and ended March 31, 2014 have been reclassified accordingly.
Annual Report 20158NEC Networks & System Integration Corporation

Topics 1
Introducing EmpoweredOffice at regional divisions andoffices nationwide
Harnessing cutting-edge ICT to establish mobile working at our Kansai Regional Division
As part of efforts to expand our EmpoweredOffice (EO)
business, we are working to introduce EO solutions
to all regional divisions and offices nationwide. At our
Kansai Regional Division in Osaka, we have introduced
cutting-edge ICT and established mobile working using
devices such as smartphones and tablets, based aroundthe concept “EN” (meaning both circles and humanconnections in Japanese). As we also use our Kansai officefor business talks with customers, this will enable us tooffer cutting-edge working solutions to a wide range ofcustomers.

EN-Office: Turning connections into circles and creating linked (harmonious) office spaces
EN-Office creates spaces that bring
together everyone working in theoffice, using layouts with an emphasison “EN” (circles) and harmonious
operations, by breaking down walls
within the office.
It enables mobile working, freefrom constraints due to time or place.

Office entrance based on “EN”
(circles)Providing spaces to welcome
customers, to strengthen “EN”
(human connections)

In the office
Sharing with other distant offices managed
by the Kansai Regional Division, via apermanent connection

Sharing knowledge and ideas withina collaborative space designed tostrengthen links between employees

E-mailTabletUsing wireless LAN to enable flexible
working practices

ServerAway from the office

Smartphone

AnytimeAnywhere
AnybodyFreeing mobile networks fromrestrictions of time or place

Employees can continue to work via
a smartphone when out of the office,enabling them to work more efficiently

Employees can participate in company
meetings face-to-face, even if they areaway from the office9

Annual Report 2015

Thin
client PC

VoIP
Network

Promoting top-down visualization andspeeding up businessConnecting to
distant offices

Television
conferenceWeb
conference

SmoothSpace is a means of connecting people at the heart of the office. It uses
projection mapping, a technology that is currently attracting a lot of attention, toenable Kansai Regional Division to communicate with Head Office in Tokyo as if they
were located on the same floor.

NEC Networks & System Integration Corporation

Topics 2
Expanding into new growth markets
Full-scale entry into the Myanmar market
Now that economic sanctions have been relaxed byadvanced countries, Myanmar (the Republic of theUnion of Myanmar) is expected to experience strong
economic growth in the future. There is an urgent
need to establish infrastructure to underpin growth inparticular. Development in the network infrastructure
sector, which is one of our specialist areas, is therefore
expected to gather pace in the future, including
communication systems as part of transport
infrastructure and public telecommunication systems.
With five overseas subsidiaries in Thailand,
Saudi Arabia, Brazil, the Philippines and China,
we have been using our outstanding technical andinstallation capabilities to develop infrastructure
for many years. Our Thai subsidiary in particular
has built up expertise and a proven track record indeveloping overseas infrastructure, through services
such as establishing a 3G (third generation mobile
telecommunications) network for leading local
mobile carrier AIS (Advanced Info Service Plc).
Harnessing these strengths, we established a Yangon
Branch of our Thai subsidiary in April 2015, and set

up a Myanmar Project Office at our Head Office, with theaim of tapping into the Myanmar market to a greater extent.
We intend to maintain a firm focus on the burgeoning
Myanmar market, as we harness our long-standing technicaland installation capabilities to further expand our overseas
operations and contribute to the development of the country
as a whole.

Nepal

India

China

BhutanBangladesh
Myanmar

Laos

YangonThilandVietnam

Cambodia

Photos of our Thai subsidiary’s Yangon Branch (building, opening ceremony, etc.)
Base station and antenna

Opening ceremony at the Yangon Branch on
May 11, 2015

The exterior of the building
where the Yangon Branch islocatedThe streets and suburbs of Yangon

Annual Report 201510NEC Networks & System Integration Corporation

Corporate Social Responsibility (CSR)
CSR Policy
NEC Networks & System Integration Corporation
is a network system integrator that creates newcommunication. Harnessing its strengths—technologies
and experience associated with networks—and its
expertise in IT, NESIC engages in a range of services,from planning and design to system integration,
installation and outsourcing, for systems that enable
diverse forms of communication.
The Company’s corporate message, “Re-designing
your communication,” expresses its aspirations toenhance communication through those services and tocreate and develop connections, ties, and links between
people, between people and society, and between people
and the earth. In addition to contributions throughour services, we will engage in a range of activities that
help to protect the global environment and strengthen
our connection with the earth. We will also take steps
to enhance customer satisfaction so that we build trustand strengthen our connection with our customers.
Meanwhile, we will participate in local contribution
activities to maintain and enhance our connection with
communities.
The basis of those connections are our humanresources, organization, and activities to ensurecompliance, safety and security. We are hiring diverse
human resources and offering systematic careerdevelopment. In addition, we are creating better working
environments. We ensure compliance and security whiledeveloping and providing secure systems and services
with reliable quality.
Through a range of challenges in society through all
our corporate activities, we are contributing to sustainable
development in society and the world.

Major Themes in CSR
1Connection with the earth

We will offer systems and services that help reduce CO2
emissions and energy consumption. Meanwhile, we willcontribute to reducing society’s environmental footprint
11

3

Connection with customers

As a partner of our customers, we will strive to build trust
by providing systems and services that contribute to ourcustomers’ businesses.

4

Connection with communities

As a good corporate citizen, we will engage in assistance todisaster areas and international cooperation, among otheractivities, in response to demands from society. We willcontribute to communities through communication with
them.

5

Enhancing compliance and achieving
safety and security

We will consistently enhance compliance and pursue
and ensure information security and safe work. We will
deliver systems and services that have reliable quality.

6

Cultivating diversity and creating betterworking environments

We will respect fundamental human rights in all corporate
activities and will hire and cultivate human resources
with diverse individuality. We will take steps to create
better working environments where people can fulfill theirpotential.

Assistance in disaster areas
Volunteer reconstruction assistance in areas affected by theGreat East Japan Earthquake

People’s communication

As a network system integrator, we will fuse ourstrengths—technologies and experience associated with
networks—and our IT expertise to provide systems thatenable diverse forms of communication. Through thesesystems, we will enhance human communication and help
to create and develop connections between people, between
people and society, and between people and the earth.

2(load) and protecting the global environment throughactivities in our business that minimize the environmental
burden, use resources effectively, and maintain biologicaldiversity.

Annual Report 2015

Contribution to education
for the young
Antarctic Club natural science classes are held in
elementary schools. In the classes, NESIC employeesthat we have dispatched to the Antarctic each year to join
winter groups there come together for talks.

NEC Networks & System Integration Corporation

Corporate Governance(As of June 26, 2015)

The Company believes that the cornerstone of corporate governance is ensuring managementsoundness and transparency by establishing a management system that enables quick
decision-making to respond promptly to changes in the operating environment, and by practicing
timely, appropriate disclosure. To that end, the Company has adopted a Board of Corporate
Auditors system and has established a corporate governance system in which the Board of
Directors and Board of Corporate Auditors play key roles.
The Company has also adopted an executive officer system to clearly demarcate the supervisory
function and the business execution function. To enhance management transparency, theCompany has outside directors and outside corporate auditors and seeks to achieve soundmanagement by encouraging cooperation among corporate auditors, the Corporate Auditing
Division, and independent accounting auditors.

I. Description of Corporate Organs
1

Board of Directors

4

Corporate Auditing Division

The Board of Directors is composed of ten directors,
including two outside directors. In addition tomaintaining the number of directors at an optimum levelfor quick decision making, the Company has reduced
the terms of directors to one year in order to clarify the
management responsibility of directors and strengthen its
management structure.

The Corporate Auditing Division has been established
as an internal audit unit independent from the businessexecution divisions. It examines through internal audits
whether business execution is being conducted legallyand properly according to relevant laws, regulations andCompany rules.

2

The Company has an audit contract with KPMG AZSA
LLC as its accounting auditors. KPMG AZSA LLC
expresses its views on the financial statements as anauditor from an independent viewpoint.

Executive Officers, Executive Committee,
and Business Execution Committee

Based on an executive officer system, the Company also
formed the Executive Committee, to discuss policies
pertaining to key management and operating issues,and the Business Execution Committee, to monitor the
progress of and report on significant matters concerningbusiness execution, consisting of mainly executive officers
at senior vice president level and higher and corporate
auditors.

3

Board of Corporate Auditors

The Board of Corporate Auditors consists of fivecorporate auditors, including three outside auditors. It
decides audit policies and related matters, and reports on
the status of audits performed by each auditor. Corporate
auditors also attend Board of Directors meetingsand other important meetings, examine significant
documents related to final decisions, and listen to
directors and employees on performance of their duties,
thus contributing to a system for sufficiently scrutinizing
directors’ performance of their duties.

5

Accounting Auditors

II. Development of Internal Control
Systems
The Company has established a basic policy for thedevelopment of internal control systems, as shown
below, under Article 362, Paragraph 4, Item 6 of theCompany Law and Article 100, Paragraphs 1 and 3 ofthe Enforcement Regulations of the Company Law.
The Company maintains the appropriate execution ofoperations under the basic policy, laws and regulations,and internal regulations.

Annual Report 201512NEC Networks & System Integration Corporation

The Company’s mechanisms of business execution, management oversight, and internal control
General Meeting of Shareholders
Elect/Dismiss

Elect/Dismiss

Elect/Dismiss

Management/Supervision
Audit

Board of Directors(Directors)

Cooperate

Board of Corporate Auditors(Corporate Auditors)

Supervise

Audit

Business Execution
Executive
Committee

Accounting
Auditors

Cooperate
Business Execution
Committee
Management Quality
Improvement Committee

Cooperate

Corporate Auditing
Division(Executive Officers)
Cooperate

Audit

Affiliated Company
Management Office

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

Manage / Monitor
Subsidiaries
Internal Reporting and Consultation Office(Corporate Ethics Hotline)

III. Situation of Outside Directors andOutside Corporate Auditors
Of the Company’s ten directors, two are outside directors.
The Company believes this number is appropriate forgiving advice and participating in decision making
from fair and objective standpoints, strengthening theCompany’s corporate governance.
Outside Director Takayuki Matsui is a professor at theGraduate School of Professional Accountancy of Aoyama
Gakuin University. The Company has Mr. Matsui use his
expert knowledge in business administration, includinginternal control, to ensure transparency in the managementof the Company and to strengthen corporate governance.
Mr. Matsui attended all 13 meetings of the Board of
Directors held in the fiscal year ended March 31, 2015. He
has been designated as an independent director definedin Rule 436-2, Paragraph 1 of the Securities Listing
Regulations of the Tokyo Stock Exchange.
Outside Director Yumiko Ichige is a lawyer at Nozomi
Sogo Attorneys at Law. Using her professional knowledge
and viewpoint about the corporate legal affairs, Ms. Ichige
oversees the business execution of the Company from a fair

13

Annual Report 2015

and objective standpoint of an outsider. Ms. Ichige attended
all 13 meetings of the Board of Directors held in the fiscal
year ended March 31, 2015. She has been designated as anindependent director defined in Rule 436-2, Paragraph 1of the Securities Listing Regulations of the Tokyo Stock
Exchange.
Of the Company’s five corporate auditors, three areoutside corporate auditors. We believe this number isappropriate for auditing the directors’ execution of theirduties from fair and objective standpoints, to strengthen the
Company’s corporate governance.
Outside Corporate Auditor Junichi Okuyama has been
engaged in monitoring of sales activities and accounting formany years. Taking advantage of his extensive experienceand knowledge relating to internal control, Mr. Okuyama
primarily audits the legality of business execution from afair and objective standpoint. Mr. Okuyama attended all
13 meetings of the Board of Directors and all 13 meetingsof the Board of Corporate Auditors held in the fiscal year
ended March 31, 2015.
Outside Corporate Auditor Yuji Kikuchi is qualified
as a lawyer and has considerable knowledge in financeand accounting. Using his professional knowledge andNEC Networks & System Integration Corporation

viewpoint about the law, Mr. Kikuchi is expected to audit
the directors’ performance of their duties from a fair andobjective standpoint of an outsider. Mr. Kikuchi attended
all 11 meetings of the Board of Directors and all 10
meetings of the Board of Corporate Auditors held in thefiscal year ended March 31, 2015 after his appointment
on June 24, 2014. Mr. Kikuchi has been designated as anindependent auditor defined in Rule 436-2, Paragraph 1of the Securities Listing Regulations of the Tokyo Stock
Exchange.
Outside Corporate Auditor Masayuki Horie is a
professor at the College of Commerce, Nihon University.
The Company has Mr. Horie use his expert knowledge inbusiness administration, including internal control, to audit
the directors’ performance of their duties from a fair andobjective standpoint of an outsider. Mr. Horie became an
outside corporate auditor at the ordinary general meetingof shareholders held on June 23, 2015. Mr. Horie has been
designated as an independent auditor defined in Rule 4362, Paragraph 1 of the Securities Listing Regulations of theTokyo Stock Exchange.
There are no special interests between the Company
and its outside directors or outside corporate auditors.
The outside directors and outside corporate auditors
regularly exchange information and consult with the
Corporate Auditing Division and staff departments,
receiving reports on business execution at meetings of theBoard of Directors and on other occasions.
The outside corporate auditors cooperate with theindependent auditors, exchanging information andconsulting with them regularly at meetings of the Board of
Corporate Auditors and on other occasions.

IV. Internal Audits and Audits by Auditors
The Corporate Auditing Division cooperates with thecorporate auditors. The division reports the results ofaudits carried out under an audit plan for each fiscal
year to the corporate auditors once a year and exchanges
opinions with them as necessary.
The corporate auditors, the Corporate Auditing Division,and the accounting auditors cooperate with each other,exchanging opinions as necessary for statutory audits.

Annual Report 201514

NEC Networks & System Integration Corporation

Directors and Corporate Auditors

4

5

6

1

2

3

Front row, from left: 1. Mr. Yoichi Sato
2. Mr. Masao Wada
3. Mr. Shogo Minami(As of June 23, 2015)

Back row, from left: 4. Mr. Tetsujiro Arano
5. Mr. Yoshifumi Kodama
6. Mr. Yushi Ushijima

Directors and Corporate Auditors(As of June 23, 2015)
Board of Directors
President

Masao Wada

Senior Vice Presidents
and Members of the Board

Yoichi Sato
Shogo Minami
Yoshifumi Kodama
Tetsujiro Arano

Associate Senior Vice President
and Member of the Board

Yushi Ushijima

Members of the Board

Takayuki Matsui *Yumiko Ichige *Masayuki Kisaki
Yukinori Nakayama

Corporate Auditors
Corporate Auditors

Junichi Okuyama (full-time)
Shoichi Fukaya (full-time)
Takahiko Hara
Yuji Kikuchi *Masayuki Horie** Independent directors who have been notified to the Tokyo Stock Exchange.
* Independent auditors who have been notified to the Tokyo Stock Exchange.

15

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NEC Networks & System Integration Corporation

Six-Year Summary of Selected Financial Data
NEC Networks & System Integration Corporation and Consolidated Subsidiaries

Thousands of
U.S. dollars 1

Millions of yen

Years ended March 31

2015

2014

2013

2012

2011

2010

299,097 ¥280,071 ¥

241,271 ¥

215,373 ¥

212,277 ¥

222,046 $ 2,468,408

Net sales

292,164

270,326

235,716

204,658

217,948

217,727

2,411,191

Selling, general and administrative
expenses

31,951

30,271

24,69922,332

22,297

23,070263,687

Operating income

16,15814,41812,483

9,747

10,835

9,867

133,350

Net income

7,791

8,257

7,246

4,474

4,660

5,644

64,298

Free Cash Flows-1,46917,809-5,152

15,946-3,49914,185-12,123

Depreciation and amortization

2,805

2,565

2,164

1,941

2,151

2,244

23,149

428

632

98

92

52

119

3,532

201,964 ¥

189,059 ¥Shareholders’ equity

94,43891,18285,717

80,11576,98673,670779,384

Total net assets

94,17389,16685,97480,07477,00573,849777,197

156.72 ¥166.06 ¥145.73 ¥89.98 ¥

93.72 ¥

113.50 $

1,293

2015

For the year:
Orders¥Research and development costs
At year-end:
Total assets¥

167,472 ¥ 149,130 ¥ 149,464 ¥ 146,543 $ 1,666,782

Per share of common stock(yen and U.S. dollars) :Net income¥

Net assets (BPS)

1,864.61

1,760.06

1,714.74

1,598.77

1,537.19

1,472.14

15,388

64.00

60.00

45.00

28.00

26.00

25.00

528

Operating income to net sales (%)

5.5

5.3

5.3

4.8

5.0

4.5

Net income to net sales (%)

2.7

3.1

3.1

2.2

2.1

2.6

8.3

8.2

7.7

6.3

7.3

6.7

8.7

9.6

8.8

5.7

6.2

8.0

45.8

46.3

50.9

53.3

51.1

50.0

0.07

0.07

0.05

0.05

0.08

0.07

7,260

7,164

6,024

5,936

5,939

5,998
36,580 $ 334,332

Cash dividends applicable to the year
Ratios and return indicators:

Return on assets (ROA) (%)
Return on equity (ROE) (%)

2

3

Owners' equity (Net worth) ratio (%)
Debt to equity ratio (times)

4

Number of employees
Net sales per employee(thousands of yen) 5¥

40,511 ¥40,996 ¥39,417 ¥34,469 ¥36,516 ¥Net income per employee(thousands of yen) 6

¥

1,080

1,252

1,212

754

781

948

8,913

Notes
1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate

4. Debt to equity ratio: Interest-bearing debt / Net assetsof ¥121.17 = U.S.$1.00, the approximate Tokyo foreign exchange market rate as of

5. Net sales per employee: Net sales / Average number of employees during the term

March 31, 2015.

6. Net income per employee: Net income / Average number of employees during the

2. Return on assets: Ordinary income / Average total assets during the term

term

3. Return on equity: Net income / Average net assets during the term

Annual Report 201516

NEC Networks & System Integration Corporation

Operating Income

Net Sales(Millions of yen)

(Millions of yen)

292,164

300,000

270,326

250,000
217,94820000
16,158

235,716
14,41815000

204,658

12,483200,000
10,835150,000

9,747

10000

100,000
5000
50,000

2011

2012

2013

2014

2015

2011

2012

Years ended March 31

Years ended March 31

Total Assets and Total Net Assets

Net Income(Millions of yen)

(Millions of yen)

10000

Total assets

Total net assets

250000
8,257

8000

7,246

6000

7,791

150000149,464

149,130

4,474

4000

100000

2000

50000

2011

201,964

189,059

200000167,472

4,474
4,660

2012

2013

2014

2015

77,005

2011

80,074

2012

85,974

2013

89,166

2014

6
5.0
5

5.3

Net income to net sales

5.3

5.5

(%)

ROE (Return on equity)

10

8.8
7.3
6.3

6
3

3.1

3.1
2.7

2.2

2011

2012

2013

2014

2015

Years ended March 31

Annual Report 2015

6.2

7.7

8.2

8.3

2014

2015

5.7

4
2

1

17

8.7

4.8
8

2.1

ROA (Return on assets)

9.6

4

2

2015

ROE and ROA

Operating Income to Net Sales
and Net Income to Net Sales
Operating income to net sales

94,173As of March 31

Years ended March 31

(%)

2015

2014

2013

2011

2012

2013

Years ended March 31

NEC Networks & System Integration Corporation

Consolidated
Financial
Statements
Contents
Consolidated Balance Sheets			

19

Consolidated Statements of Income		

21

Consolidated Statement of Comprehensive Income

22

Consolidated Statements of Changes in Net Assets

23

Consolidated Statements of Cash Flows		

25

Notes to Consolidated Financial Statements

27

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NEC Networks & System Integration Corporation

Global Network(As of July 1, 2015)

Head Office2-6-1 Koraku, Bunkyo-ku, Tokyo 112-8560, Japan
Tel: +81-3-6699-7000

Major Domestic Regional Offices

Certifications
ISO9001: 2008
Certificate No.: JQA-0471

ISO14001: 2004

Higashinihon, Kanto Koshin-etsu, Nakanihon, Kansai, Nishinihon, Hokkaido, Tohoku, Kanto,
Kanagawa, Niigata, Chubu, Shizuoka, Hokuriku, Keiji, Kobe, Chugoku, Shikoku, Kyushu

Certificate No.: JQA-EM0640

ISO/IEC27001: 2013
Certificate No.: JQA-IM1279

Subsidiaries and Affiliates

Organization:

Office Solutions Division(Enterprise Solutions Operations Unit)

NEC Magnus Communications., Ltd.
Head office:Tokyo, Japan
Established:
November 1985
Capitalization: ¥190 million
Voting rights: 100.0%
Subsidiaries:
TOYO ALPHANET CO.,LTD.
		
TNSi Europe GmbH
Nichiwa Co.
Head office:Established:
Capitalization:
Voting rights:

Hyogo, Japan
January 1953
¥50 million
100.0%NEC Net Innovation, Ltd.
Head office:Miyagi, Japan
Established:
August 1977
Capitalization: ¥45 million
Voting rights: 100.0%
Q&A Corporation
Head office:Tokyo, Japan
Established:
July 1997
Capitalization: ¥897 million
Voting rights: 55.9%
Subsidiaries:
D-Cubic Corporation
		
Q&A WORKS CO.,LTD.
		
Q&A ARCHITECT CO., LTD		
LanguageOne Corporation(NEC Shared IT Services Department

NESIC BRASIL S/A
Head office:Sao Paulo, Brazil
Established:
November 1976
Voting rights: 87.4%

Security Control Center)
Certificate No.: JQA-IM1013
Organization:

Kansai Solutions Division (Enterprise
Solutions Operations Unit)(1st Solutions Department)(3rd Solutions Department)

NESIC (Thailand) Ltd.
Head office:Bangkok, Thailand
Established:
March 1991
Voting rights: 49.0%

Nishinihon Systems Division(Public Infrastructures Solutions
Operations Unit)(Kansai Service Center)
Certificate No.: JQA-IM0190

NESIC PHILIPPINES, INC.
Head office:
Manila, The Philippines
Established:
April 1991
Voting rights: 100.0%
NESIC (GUANGZHOU) CO., LTD.
Head office:Guangzhou, China
Established:
August 1998
Voting rights: 100.0%

Organization:

New Solutions Promotion Division(Enterprise Solutions Operations Unit)(Cloud Integration Department / Cloud
Services Department)

Certificate No.: BSKS0027
Organization:

Public Systems Division(Public Infrastructures Solutions
Operations Unit)

Certificate No.: JQA-IM1086
Organization:

Fire & Disaster Prevention Systems
Division

Networks & System Integration Saudi
Arabia Co. Ltd.
Head office:
Al-Khobar, Saudi Arabia
Established:
April 2006
Voting rights: 95.0%

Certificate No.: JQA-IM0351
Organization:

Services Delivery Division(ICT Help Desk Services Department)(Remote Operation Services Department)

ISO/IEC 20000-1: 2011
Certificate No.: JQA-IT0037
Organization:

Enterprise Solutions Division /Customer Engineering Division /New Solutions Promotion Division /NEC Networks & System Integration
Services, Ltd.
Head office:Tokyo, Japan
Established:
July 1988
Capitalization: ¥60 million
Voting rights: 100.0%

Service Infrastructure Division /Kansai Solutions Division*As of March 31, 2015

Privacy Mark
Certificate No.: 21000053

ISO 22301: 2012
(Business Continuity Management System)
Certificate No.: BCMS 539922
Certified Organization: NEC Group
Scope of the Certification of NESIC Group:
Network Operation & MaintenanceBussiness of Telecom Carrier Business
Unit Carrier Operation and MaintenanceBusiness

51

Annual Report 2015

NEC Networks & System Integration Corporation

Investor Information(As of March 31, 2015)

Major Shareholders

Corporate Data
Corparate Name

NEC Networks & System Integration Corporation

Established

December 1, 1953
(registered as a stock company on November 26, 1953)

Number of Employees

5,009 (Non-consolidated)
7,260 (Consolidated)

URL
Listing

Number of
Shares Held(Thousands)

Percentage ofTotal Shares
Outstanding 2

19,10638.49%

6,400

12.89%

http://www.nesic.co.jp/english/

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

Tokyo Stock Exchange, First Section

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

1,403

2.83%

Ticker Code1973

CMBL S.A. RE MUTUAL FUNDS

1,303

2.63%

Fiscal Year

April 1 - March 31
Annual meeting held in June

Japan Trustee Services Bank, Ltd. (Trust account)

1,241

2.50%

Sumitomo Realty & Development Co., Ltd.

1,200

2.42%

Common Stock Authorized

100,000,000 shares

Japan Trustee Services Bank, Ltd. (Trust account9)

1,094

2.20%

Issued49,773,807 shares

1.50%

8,064

MELLON BANK, N.A. AS AGENT FOR ITS CLIENTMELLON OMNIBUS US PENSION

745

Number of Shareholders
Transfer Agent

Sumitomo Mitsui Trust Bank, Limited
1-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan

Employees’ Stock Ownership Plan

663

1.34%

JP MORGAN CHASE BANK 385166

651

1.31%

Independent Auditors

KPMG AZSA & Co.

Name of Shareholder
NEC Corporation
*1

Notes
1

Composition of Shareholders

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

0.58%

8.26%

23.59%

26.56%

percentage of material voting rights held by NEC Corporation as of March 31,

41.01%

2015 was 51.49%.
2

The percentage of total shares outstanding is calculated based on the number ofshares excluding treasury stock (133,513 shares).

Securities
companies

Individuals
and others

Foreigninvestors, etc

Financial
institutions

Other domestic
companies

Monthly Stock Price Range
Yen

Blue: Opening Price > Closing PriceWhite: Closing Price > Opening Price
High
Opening
Closing
Low

2,500
2,000
1,500

High
Closing
Opening
Low

1,000
500

2009

2010

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Monthly Trading Volume
Thousand of shares
5,000
4,000
3,000
2,000
1,000

2009

2010

Annual Report 201552