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

29/Jan/2020
These financial statements have been prepared in accordance with accounting principals generally accepted in Japan.

NEC Networks & System Integration Corporation

Stock exchange listing: Tokyo
Code number:
1973

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

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

9 months/FY Mar
2020
9 months / FY Mar
2019

Net sales(¥ million)

Year-on-yearchange (%)

OperatingincomeYear-on-yearchange (%)

Ordinary
incomeYear-on-yearchange (%)

214,032

12.1

8,208

30.6

8,196

25.7

190,986

3.3

6,283

41.4

6,521

45.9

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

Net income
per share(diluted) (¥)

9 months/FY Mar
4,296
(0.0)
86.55
—
2020
9 months / FY Mar
4,296
43.2
86.56
—
2019
c.f. Comprehensive income: 9 Months/FY Mar 2020: ¥4,942 million (2.5%); 9 Months/FY Mar 2019: ¥4,821 million (32.0%)(2) Financial Position
Owner's
Net assets
equity ratio
per share (¥)(%)
31/Dec/2019
210,431
108,57450.2
2,128.93
31/Mar/2019
216,171
107,60848.5
2,113.19
c.f. Owner's equity: 31/Dec/2019: ¥105,680 million; 31/Mar/2019: ¥104,888 million
Total assets(¥ million)

Net assets(¥ million)

2. Dividends

FY ending Mar.
2020
FY ended Mar. 2019

1stquarter

Dividends per share (¥)
3rd
InterimYear-endquarter

Full year

—

40.00

—

40.00 ※

80.00 ※

—

38.00

—

40.00

78.00

※ Forecasts

Note: Revisions to projected dividends for the quarter under review: no
3. Financial Forecasts for Fiscal Year ending March 31, 2020 (April 1, 2019 to March 31, 2020)(¥ million)(%)(Percentages represent change compared to the previous corresponding period.)
Net income attributable to Net income
Operating income
Ordinary income
owners of the parent
per share(¥ million)(%)(¥ million)(%)(¥ million)(%)(¥)

300,000

7.9

15,000Net sales
FY ending Mar. 2020

17.4

5,000

15.2

9,000

1.3

181.31

Note: Revisions to projected results for the quarter under review: yes
Cautionary Statement
Forecasts of results mentioned in this document are future estimates and are thus inclusive of risks and uncertain factors since they are not based on
definite facts. Please be aware that a variety of factors could cause actual results to differ significantly from those projected. The major factors affecting
actual results include the economic climate and social trends surrounding the business of this Company’s group, consumer trends vis-a-vis systems
and services provided by this Company’s group, as well as pressure to lower prices and ability to cope with the market in response to intensifiedcompetition.
Factors affecting results are not limited to the ones mentioned above.

4. Business Results(1) Business Results for the First Nine Months for the Fiscal Year Ending March 31, 2020

During the first nine months of the fiscal year ending March 31, 2020 (the period from April 1,
2019, to December 31, 2019), the Japanese economy continued its moderate recovery amid
improvement in the employment and income conditions. However, there were worrying trends inareas such as trade and associated fluctuations in the financial and capital markets, andweakness in some aspects of exports and production have also been evident recently.
Under these economic conditions, each segment of the information communication
technology (ICT) market, the business domain where NEC Networks & System Integration
Corporation (hereinafter “the Company”) operates, generally remained strong.
In the enterprises market, companies maintained a high level of investment in management
improvements, such as work-style innovation and strengthening their competitiveness, andstepped up capital expenditure in response to rising inbound tourism. In addition, interest in
cutting-edge technologies has remained at a high level, including Digital Transformation(DX) suchas the cloud, artificial intelligence (AI), the Internet of Things (IOT) and Robotic Process
Automation (RPA). Capital investment for enhancing telecommunication quality in the telecom
carrier business and investment in sophisticated urban infrastructures by the central and local
government and public interest-related companies such as the firefighting and disaster prevention
areas and the broadcasting, video and CATV fields all continued.
In this market environment, the Company and its consolidated subsidiaries (hereinafter “theGroup”) actively stepped up investments in the work-style innovation area, the enhancement ofcommunications infrastructures associated with the new construction or reconstruction of hotels in
response to increasing numbers of inbound tourists, and projects such as firefighting and disasterprevention systems, and broadcasting, video and CATV.
Moreover, in May 2019 the Company announced “Beyond Borders 2021,” its Medium-Term
Management Plan, with a view to changes in the environment over the next 10 years. We aim to
be a “communication service orchestrator” that produces new social value in collaboration with ourpartners, utilizing the strengths of the Group. We also plan to accelerate a shift to a new businessmodel and new business creation based on digital and 5G, regarding the resolution of social
issues and a wave of technological innovation as an opportunity for business expansion.
Under this concept, our business units were reorganized in line with business areas of focus
in April 2019 with the aim of demonstrating technical expertise or competitiveness. At the sametime, our organizational capability for future growth was reinforced by consolidating advanced
technologies and business creation functions under newly established Business Design
Operations Unit. In addition, we developed a new services combining the work-style innovation
solution “EmpoweredOffice(*)” and DX technology and self-implemented proactively. We also
accelerated open innovation initiatives to discover cutting-edge solution services such asinvestment in a US venture fund and the facilitation of partnerships with global venture
capitals/accelerators. In October 2019, we launched a distributed work initiative, distributing head
office staff to satellite offices within 30 minutes from their homes to put into practice new working
styles that exploit DX technology ourselves and to translate this into the development of newservices. Moreover, the Group has entered into the onshore fish-farming business using
ICT/digital technologies to expand the area of the Company’s value chain from the existing ICT
area to value-added areas through co-creation with our partners.
As a result, the Group posted the following consolidated results for the first nine months for the
fiscal year under review:

Net sales¥214,032 million

12.1% increase year on year

Operating income¥8,208 million

30.6% increase year on year

Ordinary income¥8,196 million

25.7% increase year on year

Net income attributable¥4,296 million

0.0% decrease year on year

¥215,214 million

3.7% increase year on year

to owners of the parent＜Reference＞
Orders received

Net sales increased 12.1% year on year, to ¥214,032 million. This result reflected increased
sales in all segments, with expansion of Digital Solutions Business mainly in ICT services related
to work-style innovation and network construction for hotels, and expansion of the Engineering &Support Services Business both in terms of maintenance/operation and construction, such as
firefighting systems, municipal disaster-prevention radio systems, mega-solar and otherinfrastructure in Japan. Orders received increased 3.7% year on year, to ¥215,214 million. This
result reflected steady expansion in the Digital Solutions Business and Network Infrastructures
Business mainly by the workstyle innovation-related field and the social public infrastructure field
where orders included firefighting systems, municipal disaster-prevention radio systems, andvideo and CATV systems, despite a reactionary drop in orders in the Engineering & Support
Services Business due to the impact of large overseas projects in the same period last year.
Looking at profits, the Digital Solutions Business and Network Infrastructures Business posted
large profit gains due to increased sales that led to greater fixed cost efficiency as well as the
positive effect on profitability of initiatives such as the sharing of human resources to improve
resource efficiency and tighter project management. These gains offset an increase ininvestments for growth, such as office realignment and new service development, anddeterioration in the profits of the Engineering & Support Services Business caused by a lossmaking project. Accordingly, operating income improved 30.6% year on year, to ¥8,208 million,
and ordinary income improved 25.7%, to ¥8,196 million. Net income attributable to owners of theparent was ¥4,296 million unchanged year on year. This reflected the recording of extraordinary

losses such as impairment losses associated with the closure of a training facility andcompensation of damage due to delays in a domestic construction project.

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

Net sales by business segment
Engineering &Digital

Network

Solutions

Infrastructures

Support Services

Other

Total

business

9M Fiscal 2020.3

78,58756,68170,0698,694

214,032

9M Fiscal 2019.3

69,572

54,63962,272

4,502

190,986

Increase or (decrease)

9,014

2,042

7,797

4,192

23,046

Ratio of

13.0

3.7

12.5

93.1

12.1

increase/(decrease) (%)（Million yen）

Reference: Orders received by business segment
Engineering &Digital

Network

Solutions

Infrastructures

Support Services

Other

Total

business

9M Fiscal 2020.3

81,006

63,59563,6306,982

215,214

9M Fiscal 2019.3

77,36359,21064,9285,950

207,452

Increase or (decrease)

3,642

4,384

(1,298)

1,031

7,761

4.7

7.4

(2.0)

17.3

3.7

Ratio ofincrease/(decrease) (%)

1. Digital Solutions businessNet sales increased 13.0% year on year, to ¥78,587 million, mainly reflecting expansion of
ICT services related to work-style innovation and network construction for hotels.
2. Network Infrastructures businessNet sales rose 3.7% year on year, to ¥56,681 million, reflecting expansion in social public
infrastructures such as firefighting systems and municipal disaster-prevention radio systems.
3. Engineering & Support Services businessNet sales climbed 12.5% year on year, to ¥70,069 million, reflecting expansion in domestic
construction business and maintenance and operation business.
*EmpoweredOffice:EmpoweredOffice is our office innovation solution. It combines our strengths in ICT
and facility installation to enable more intellectual and creative styles of work throughprocess reforms. It also proposes new methods and places of work that enablecustomers to fulfill their social responsibilities, such as the strengthening of security
and environmental responsiveness.

<Outline of Business Segments>
Business Segment

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

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

Network

integration/services related to network infrastructures of a public

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

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

OthersSales of purchased equipment

The Company implemented a reorganization on April 1, 2019. In association with theorganizational change, there were changes in the reportable segments in the first quarter underreview from the Enterprise Networks business, the Carrier Networks business and the Social
Infrastructures business to the Digital Solutions business, the Network Infrastructures business, andthe Engineering & Support Services business.
Information on reportable segments related to the previous fiscal year was reclassified for disclosure
to reflect the changes in this event.
(2) Outlook for the Fiscal Year Ending March 31, 2020
The Japanese economy is expected to remain on a modest recovery path in the period underreview, largely due to the effect of government economic stimulus and improvements in theemployment and income conditions, although deterioration in the global situation, among otherfactors, had raised concerns about a downside impact on the Japanese economy.
In this business environment, the full-year forecasts for consolidated operating income andordinary income for the fiscal year ending March 2020 have been revised upward as stated below inview of steady progress in the first nine months under review::

Net sales¥300 billion

7.9% increase year on year

Operating income¥15.0 billion

17.4% increase year on year

Ordinary income¥15.0 billion

15.2% increase year on year

Net income attributable¥9.0 billion

1.3% increase year on year

to owners of the parent

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

53,496
97,088663
4,814
10,208
7,774(84)
173,960

10,217

8,738

1,146
5,088
6,234

961
4,941
5,902

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

15,102
6,785(57)
21,83036,470210,431

40,274
807
2,284
231
3,175
117
113
1,980
－
－
23,34472,32835,428
1,107
3,923
298
302
28
108
1,719
1,253
372
21,542
66,0873,896
30,6091,729
36,234
108,562

3,839
30,492
1,437
35,769101,856

13,122
16,65979,520(279)
109,022

13,122
16,664
79,846(270)
109,36331－(471)(3,694)(4,134)
2,719
107,608
216,171

52
20
(474)
(3,281)(3,682)
2,894
108,574
210,431(2) Consolidated Statements of Income and Comprehensive Income(Consolidated Statements of Income)(Millions of yen)
1Q-3Q, FY March 2019
(9 months ended Dec 2018)

1Q-3Q, FY March 2020
(9 months ended Dec 2019)

Net sales

190,986

214,032

Cost of sales

159,256

178,030

Gross profit

31,72936,002

Selling, general and administrative expenses

25,446

27,793Operating income (loss)

6,283

8,208

Non-operating income
Interest income

30

29

Dividends income of insurance

193

117

Other

223

244

Total non-operating income

447

391

Interest expenses

77

79

Impairment loss on investment securities

4

94

Compensation for damage

3

83

Other

124

144

Total non-operating expenses

208

403

6,521

8,196

Impairment loss

－

1,788

Compensation for damage

－

1,253

Office transfer cost－372

Total extraordinary losses

－

3,415

Income (loss) before income taxes

6,521

4,781

Income taxes

2,052

326

Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to owners of theparent

4,469

4,454

172

157

4,296

4,296

1Q-3Q, FY March 2019
(9 months ended Dec 2018)

1Q-3Q, FY March 2020
(9 months ended Dec 2019)

4,469

4,454

(34)

21

－

20

Non-operating expenses

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

Net income (loss)(Millions of yen)

Other comprehensive income
Net unrealized holding loss on other securities

Deferred gains or losses on hedges
Foreign currency translation adjustments

(72)

34

Adjustments for retirement benefit
Share of other comprehensive income ofassociates

460

412

(1)

(0)

Total other comprehensive income
Comprehensive income (loss)

352

488

4,821

4,942

4,666

4,748

154

194

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

(3) Consolidated Statements of Cash Flows
1Q-3Q, FY March 2019
Cash flows from operating activities
Net income (loss) before income taxes
Depreciation and amortization
Amortization of goodwill
Impairment loss
Increase (decrease) in allowance for doubtful
Increase (decrease) in asset for retirement benefit
Increase (decrease) in liability for retirement benefits
Increase (decrease) in accrued bonuses to directors
andIncrease (decrease) in accurued warranty on products
Increase (decrease) in accurued losses on sales
contracts
Increase (decrease) in accurued compensation forInterest and dividend income
Interest expense(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividend income received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from sale of property and equipment
Purchase of intangibles
Proceeds from sale of intangibles
Purchase of investment securities
Payments for sale of shares of subsidiaries resulting
in change in scope of consolidation
Collection of loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activities
Net increase (decrease) in short-term bank loans
Repayments of long-term debt
Proceeds from long-term debt
Net (increase) decrease in treasury shares
Dividends paid to shareholders
Dividends paid to minority shareholders of subsidiaries
Proceeds from share issuance to non-controlling
Other, net
Net cash provided by used in financing activities
Effect of exchange rate changes on cash and cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period(Millions of yen)
1Q-3Q, FY March 2020

(9 months ended Dec 2018)(9 months ended Dec 2019)

6,521
1,977
185
－
(16)
190
549

4,781
2,721
185
1,788
(3)
126
401

(74)
(9)

(88)
(4)

812
－
(46)
77
18,718(10,316)(6,135)(968)
431
11,89546(74)(5,465)
6,402

(259)
1,253
(49)
79
9,434
(1,843)(4,534)(300)(2,034)
11,65350(77)(4,976)
6,650(1,514)4(2,300)17(148)(2,051)
9
(638)
0
(772)

－
1
(438)
(4,379)(68)
0(1,242)(4,761)(1,296)
(128)
300
(2)
(3,712)
(27)
245
(351)
(4,973)(79)(3,030)57,281
54,251

1,630
(190)
200
(2)
(3,960)
(23)
3
(382)
(2,725)(21)(857)
54,35453,496

(4) Segment Information
Business Segment Information
First nine months of fiscal March 2019 (9 months ended December 2018)

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

(Millions of yen)

Digital Solutions

Network
Infrastructures

Engineering &Support Services

69,572
69,572
5,086

54,63954,6393,125

62,27262,272
4,323

Others

4,502
4,502
256

Adjustments(6,508)

Total

190,986
190,986
6,283*NESIC has changed the reportable segments from the FY March 2020 according to the reorganization at April 2019.
The segment figures for the FY March 2019 reclassified for disclosure to reflect the changes in this event.

First nine months of fiscal March 2020 (9 months ended December 2019)
DigitalSolutions
Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

78,58778,587
7,279(Millions of yen)

Network
Infrastructures

Engineering &Support Services

56,681
56,681
4,825

70,06970,0693,189

Others

8,694
8,694
405

Adjustments(7,492)

Total

214,032
214,0328,208