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

29/Oct/2019
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 Half (April 1, 2019 to September 30, 2019)of Fiscal Year ending March 31, 2020

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

6 months endedSep 2019
6 months ended Sep2018

Net sales(¥ million)

Year-on-yearchange (%)

OperatingincomeYear-on-yearchange (%)

Ordinary
incomeYear-on-yearchange (%)

136,270

11.2

4,369

66.0

4,335

49.5

122,506

2.1

2,632

4.7

2,900

9.9

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

Net income
per share(diluted) (¥)

6 months ended
2,902
51.8
58.47
—
Sep 2019
6 months ended Sep
1,911
18.4
38.51
—
2018
c.f. Comprehensive income: 1H/FY Mar 2020: ¥3,296 million (56.0 %); 1H/FY Mar 2019: ¥2,113 million (5.4%)(2) Financial Position
Owner'sNet assets
equity ratio
per share (¥)(%)
30/Sep/2019
209,493108,91550.7
2,137.76
31/Mar/2019
216,171
107,60848.5
2,113.19
c.f. Owner's equity: 30/Sep/2019: ¥106,119 million; 31/Mar/2019: ¥104,888 million
Total assets(¥ million)

Net assets(¥ million)

2. Dividends
1stquarter
FY ended Mar. 2019

—Dividends per share (¥)
3rd
InterimYear-endquarter
38.00

—

40.00

※
FY ending Mar.
※—40.00—40.00
2020
Note: Revisions to projected dividends for the quarter under review: No

Full year
78.00
80.00

※※ Forecasts

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

14,000Net sales
FY ending Mar. 2020

9.6

14,000

7.5

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 1H for the Fiscal Year Ending March 31, 2020
During the first half of the fiscal year ending March 31, 2020 (the period from April 1, 2019,
to September 30, 2019), the Japanese economy continued its moderate recovery amid
improvement in the employment and income conditions. However, there were worrying trends
in areas 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.

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 centered on hotels. In
addition, interest in cutting-edge technologies has remained at a high level, including DX(※2)
such as the cloud, artificial intelligence (AI), the Internet of Things (IOT) and Robotic Process
Automation (RPA). Furthermore, system investment in sophisticated urban infrastructures by
the central and local governments and public interest-related companies such as the firefighting
and disaster prevention areas and the broadcasting and CATV fields and capital investment
for enhancing telecommunication quality in the telecom carrier business all continued.

In this market environment, the Company and its consolidated subsidiaries (hereinafter“the Group”) actively stepped up investments in the work-style innovation area, theenhancement of communications infrastructures associated with the new construction orreconstruction of hotels, and new projects in the fields of firefighting and disaster prevention
systems and broadcasting 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 services orchestrator” that produces new social value in co-creation
with our partners, utilizing the strengths of the Group. We also plan to accelerate a shift to a
new business model and new business creation based on digital and 5G, regarding theresolution of social issues and a wave of technological innovation as an opportunity forbusiness expansion.
Under this concept, our business units were reorganized in line with business areas offocus in April 2019 with the aim of demonstrating technical expertise or competitiveness. At thesame time, 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 emphasized the development of new services
combining the work-style innovation solution “EmpoweredOffice(※3)” and DX technologies
and the proactive self-practice . We also accelerated open innovation initiatives to discovercutting-edge solution services such as investment in a US venture fund and the facilitation ofpartnerships with global venture capitals/accelerators(※4). Moreover, the Group has enteredinto the onshore fish farming business using ICT/digital technologies to expand the area of theCompany’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 half for the fiscal
year under review:Net sales¥136,270 million

11.2% increase year on year

Operating income¥4,369 million

66.0%

increase year on year

Ordinary income¥4,335 million

49.5%

increase year on year

Net income attributable¥2,902 million

51.8%

increase year on year

¥151,724 million

3.4%

increase year on year

to owners of the parent＜Reference＞
Orders received

Net sales increased 11.2% year on year, to ¥136,270 million. This result reflected growthin SI and services for general corporations centered on business related to work-styleinnovation and hotels, and social public infrastructures such as firefighting systems. In linewith net sales, orders received also increased 3.4% year on year, to ¥151,724 million. This
result reflected the expansion of the work-style innovation-related business despite areactionary drop in orders due to the impact of large overseas projects in the same period lastyear, and steady expansion despite frontloaded orders in social public infrastructures such as
firefighting and disaster prevention systems and traffic networks.
Looking at profits, operating income improved 66.0% year on year, to ¥4,369 million,and ordinary income improved 49.5%, to ¥4,335 million. Net income attributable to owners ofthe parent improved 51.8% year on year, to ¥2,902 million. These results reflected the factthat net sales increased both in SI and services, resource efficiency improved, profit
improvement effects due to the reinforcement of project management progressed and growth
expenditure partially carried over into the third quarter and thereafter.

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

Net sales by business segment
EngineeringDigitalNetworkSolutions

Infrastructures& Support

OtherTotalServices

1H Fiscal 2020.3

51,671

35,63843,007

5,953

136,270

1H Fiscal 2019.346,640

34,41638,332

3,116

122,506

Increase or (decrease)

5,030

1,222

4,675

2,836

13,764

Ratio of

10.8

3.6

12.2

91.0

11.2

increase/(decrease) (%)（Million yen）

Reference: Orders received by business segment
Engineering

DigitalNetwork

Solutions

Infrastructures& Support

OtherTotal

Services

1H Fiscal 2020.3

53,913

46,14947,213

4,448

151,724

1H Fiscal 2019.3

52,32342,202

48,384

3,816

146,727

Increase or (decrease)

1,589

3,947

(1,171)

631

4,996

3.0

9.4

(2.4)

16.5

3.4

Ratio ofincrease/(decrease) (%)

1. Digital Solutions business
Sales for SI and services centered on the work-style innovation related field and thedevelopment of networks for hotels expanded. As a result, net sales increased 10.8% year
on year, to ¥51,671 million.
2. Network Infrastructures business
Sales for telecom carriers were carried over to the second half, but sales increased due tothe expansion of social public infrastructures, including the firefighting system. As a result,net sales for the business increased 3.6% year on year, to ¥35,638 million..

3. Engineering & Support Services businessNet sales for the business increased 12.2% year on year, to ¥43,007 million, as thedomestic construction business and maintenance/operation business both expanded.
*EmpoweredOffice:EmpoweredOffice is our office innovation solution. It combines our strengths in ICT andfacility installation to enable more intellectual and creative styles of work through process
reforms. It also proposes new methods and places of work that enable customers to fulfill
their social responsibilities, such as the strengthening of security and environmentalresponsiveness.

<Outline of Business Segments>
Business Segment

Descriptions of Main Businesses
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
Provision of system integration/services related to network

Network Infrastructures
business

infrastructures of a public nature with the required high reliability, andthe development/manufacture and sales of network equipment, andprovide system integration for telecom carriers, central and local
governments and social infrastructures service providers.
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(2) Outlook for the Fiscal Year Ending March 31, 2020
The Japanese economy is expected to continue a modest recovery, due mainly to the effect ofgovernment stimulus measures and improvements in the employment and income conditions.
However, there are concerns such as trade issues and the downward trend of overseas
economies, and a risk that could result in a downturn of the Japanese economy remains.
In this business environment, despite worries about the uncertain macroeconomic environment
from the third quarter onward, the impact of partially front-loaded net sales into the first six months
under review, and the carrying-over of growth expenditure into the third quarter onward, the fullyear forecasts of consolidated financial results for the fiscal year ending March 2020 have beenrevised upward as stated below in view of steady progress in the first six months under review:

Net sales¥300 billion

7.9% increase year on year

Operating income¥14.0 billion

9.6% increase year on year

Ordinary income¥14.0 billion

7.5% 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 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 of
September 30, 201954,354
106,553
606
6,354
6,827
6,423
(82)
181,036

63,98787,060
487
6,193
8,495
6,991
(84)
173,131

10,217

8,527

1,146
5,088
6,234

1,022
4,990
6,013

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

15,171
6,709(60)
21,82036,362
209,493

40,274
807
2,284
231
3,175
117
113
1,980
－
23,34472,32835,423
865
3,326
298
1,336
52
112
1,636
405
21,16564,622

3,896
30,6091,729
36,234
108,562

3,913
30,465
1,576
35,956
100,578

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

13,122
16,66480,437(269)
109,95531－(471)(3,694)(4,134)
2,719
107,608
216,17139
5(462)(3,418)(3,836)
2,796
108,915
209,493

(2) Consolidated Statements of Income and Comprehensive Income(Consolidated Statements of Income)(Millions of yen)
1H, FY March 2019
(6 months ended Sep 2018)(6 months ended Sep 2019)

Net sales

122,506

136,270

Cost of sales

102,979

113,758

Gross profit

19,526

22,512

Selling, general and administrative expenses

16,894

18,143Operating income (loss)

2,632

4,369

Interest income

2019

Dividends income of insurance

193

117

Other

175

168

Total non-operating income

389

305

Interest expenses

5348

Impairment loss on investment securities

294

Compensation for damage

068

Other

63

127

1H, FY March 2020

Non-operating income

Non-operating expenses

Total non-operating expenses

120

339

2,900

4,335

Impairment loss

－

1,788

Office transfer cost－405－

2,194

2,900

2,141

Ordinary income (loss)
Extraordinary losses

Total extraordinary losses
Income (loss) before income taxes
Income taxes
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to owners of theparent889

(827)

2,011

2,968

99

66

1,911

2,902

(Millions of yen)

Net income (loss)(Millions of yen)

1H, FY March 2019

1H, FY March 2020

(6 months ended Sep 2018)(6 months ended Sep 2019)

2,011

2,968

Other comprehensive income(14)8Deferred gains or losses on hedges

Net unrealized holding loss on other securities－5Foreign currency translation adjustments

(187)

39

Adjustments for retirement benefit
Share of other comprehensive income ofassociates

307

275

(2)

(0)

Total other comprehensive income
Comprehensive income (loss)

102

327

2,113

3,296

2,084

3,200

28

96

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

(3) Consolidated Statements of Cash Flows(Millions of yen)
1H, FY March 2020

1H, 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
Interest and dividend income
Interest expense(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividend income received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from sale of property and equipment
Purchase of intangibles
Proceeds from sale of intangibles
Purchase of investment securities
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
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period(6 months ended Sep 2018)(6 months ended Sep 2019)

2,900
1,242
123
－(5)
134
269

2,141
1,815
123
1,788
(1)
75
204

(57)
(4)

(65)
(0)472(34)
53
21,219(4,404)(7,720)(868)
4,179
17,49934(54)(3,254)
14,225

(343)
(39)
48
19,645(1,507)(4,791)(1,217)(1,000)16,87439(48)(2,763)
14,101(1,080)0(1,153)－(115)
0(386)(2,734)(1,105)7(455)
0(620)
0(1152)(3,325)

(290)
(85)
－-1
(1,834)
(27)
245
(229)
(2,223)

1,044
(115)
200
(1)
(1,982)(23)
3(256)(1,132)

(132)
9,134
57,281
66,416(10)
9,633
54,354
63,987

(4) Segment Information
Business Segment Information
First half of fiscal March 2019 (6 months ended September 2018)

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

(Millions of yen)

Digital Solutions

NetworkInfrastructures

Engineering &Support Services

46,64046,6403,316

34,416
34,416
1,502

38,33238,332
1,971

Others

3,116
3,116
157

First half of fiscal March 2020 (6 months ended September 2019)
DigitalSolutions
Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

51,671
51,671
4,364

Adjustments(4,315)

Total

122,506
122,506
2,632(Millions of yen)

Network
Infrastructures

Engineering &Support Services

35,63835,6382,334

43,00743,007
2,097

Others

5,953
5,953
250

Adjustments(4,676)

Total

136,270
136,2704,369