Consolidated Financial Statements for the First Quarter of Fiscal Year ending March 31, 2019

31/Jul/2018
These financial statements have been prepared in accordance with accounting principals generally accepted in Japan.

NEC Networks & System Integration Corporation

Stock exchange listing: Tokyo
Code number:
1973

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

1. Consolidated Results for the First Quarter (April 1, 2018 to June 30, 2018)of Fiscal Year ending March 31, 2019

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

3 months ended
June 2018
3 months ended
June 2017

Net sales(¥ million)

Year-on-yearchange (%)

OperatingincomeYear-on-yearchange (%)

Ordinary
incomeYear-on-yearchange (%)

55,455

4.3-328

—

-340

—

53,147

0.9-688

—

-729

—

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

Net income
per share(diluted) (¥)

3 months ended
-205
—
-4.15
—
June 2018
3 months ended-626—-12.63—June 2017c.f. Comprehensive income: 1Q/FY Mar 2019: ¥-100 million ( - %); 1Q/FY Mar 2018: ¥-446 million (-%)
(2) Financial Position
Owner'sNet assets
equity ratio
per share (¥)(%)
30/Jun/2018
191,034
99,77851.0
1,964.47
31/Mar/2018
207,643
101,73247.9
2,004.04
c.f. Owner's equity: 30/Jun/2018: ¥97,509 million; 31/Mar/2018: ¥99,473 million
Total assets(¥ million)

Net assets(¥ million)

2. Dividends
1stquarter
FY ended Mar. 2018

—Dividends per share (¥)
3rd
InterimYear-endquarter
37.00

—

37.00

※
※
FY ending Mar.
※—38.00—38.00
2019
Note: Revisions to projected dividends for the quarter under review: noFull year
74.00
76.00

※※ Forecasts

3. Financial Forecasts for Fiscal Year ending March 31, 2019 (April 1, 2017 to March 31, 2019)
Net sales
6 months ending
Sep. 2018
FY ending Mar. 2019

(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)(%)(¥)(¥ million)(%)

124,000

3.4

2,000

-20.5

2,000

-24.2

1,300

-19.5

26.19

280,000

4.5

11,5004.0

11,500

5.0

7,500

1.9

151.10Note: Revisions to projected results for the quarter under review: noCautionary 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 1Q for the Fiscal Year Ending March 31, 2019
During the first quarter of the fiscal year ending March 31, 2019 (the period from April 1, 2018
to June 30, 2018), the Japanese economy continued its moderate recovery, supported bypolicy effects accompanied by improvements observed in employment and income conditions,despite worrying trends in areas such as trade and associated fluctuations in financial andcapital markets.

Under those economic conditions, disparities were observed in different segments of theinformation and communication technology (ICT) market, the business domain where NEC
Networks & System Integration Corporation (hereinafter “the Company”) operates.
In the corporate market, executives kept viewing the effects of investment critically.
However, corporate spending for enhancing business administration and competitiveness,
including investment in work style reforms, stayed strong. In addition, interest in the fields ofcutting-edge technologies, including DX (Digital transformation) such as artificial intelligence(AI), the Internet of things (IoT) and data analysis, rose. In the telecom carrier business,investment in network infrastructure centered on mobile base stations showed a recovery. In
the central government, local governments and public interest, investment in improving urban
infrastructure such as broadcasting remained steady. In the meantime, competitive conditions,which remained severe in certain segments, and the transitional period for investment infirefighting commander systems showed effects. Moreover, demand for building mega solar
power plants remained brisk in the wake of the revision of the Feed-In Tariff (FIT) Act . Signsof recovery, including the resumption of capital spending postponed in certain areas due tocrude oil market conditions, appeared overseas.

In this market environment, the Company and its consolidated subsidiaries (hereinafter the“Group”) continued to step up their initiatives in businesses related to work style innovation,
including “EmpoweredOffice *,” in response to a growing trend to change work styles. At thesame time, the Group developed new solutions in the field of DX technologies and verified
them through demonstration experiments. The Group proactively invested in venture
enterprises through the CVC (*5) Fund established in January 2018 to ensure growth, too.
Meanwhile, the Group bolstered its systems to expand businesses for telecom carriers whose
capital spending is expected to recover, taking steps including the rebuilding of a base station
construction system. In addition, the Group steadily advanced the construction of mega solar
power plants through large projects under a Company-wide project management system.

As a result, the Group posted the following consolidated results for the fiscal year underreview:Net sales¥55,455 million ¥2,307million increase year on year

Operating income (loss)(¥328 million)¥360million

improve year on year

Ordinary income (loss)(¥340 million)¥389million

improve year on year

Net income (loss) attributable to(¥205 million)¥ 420million

improve year on year

¥66,213 million ¥1,921million

increase year on year

owners of the parent＜Reference＞
Orders received

Net sales increased 4.3% year on year, to ¥55,455 million. The result reflected growthin sales achieved in the Enterprise Networks business and Carrier Networks business,
centered on key areas under the Group’s medium-term business strategy (covering the period
from the fiscal year ended March 31, 2017 to the fiscal year ending March 31, 2019) such as
work style innovation and mega solar power plants. Orders received grew 3.0% year on year,to ¥66,213 million, due to the recovery of capital spending on network infrastructure amongtelecom carriers and strong results posted for companies focused on hotel and other service
industry. They offset the effects of the cancellation of maintenance contracts associated withlarge projects for mega solar power plants ordered to the Company in the fiscal year ended
March 31, 2017.
Looking at profits, operating loss improved ¥360 million year on year, to ¥328 million, theordinary loss improved ¥389 million year on year, to ¥340 million, and the net loss attributableto owners of parent improved ¥420 million year on year, to ¥205 million. These results reflectedfactors such as the worsening of the cost of sales ratio in the Social Infrastructures businessand the execution of proactive growth investment, which offset an improvement in the cost ofsales ratio in the Enterprise Networks business that resulted primarily from positive changes inthe sales mix, such as the increased weighting of projects with high added values, andefficiency enhancement.

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

Net sales by business segment
Enterprise

CarrierSocialNetworks

Networks

Infrastructures

OtherTotal

1Q Fiscal 2019.3

25,475

14,51813,6571,803

55,455

1Q Fiscal 2018.3

23,897

13,602

14,5601,086

53,147

Increase or (decrease)1,578

915(903)

717

2,307

6.6

6.7(6.2)

66.04.3

Ratio ofincrease/(decrease) (%)（Million yen）

Reference: Orders received by business segment
Enterprise

CarrierSocialNetworks

Networks

Infrastructures

OtherTotal

1Q Fiscal 2019.3

26,482

19,177

17,9952,558

66,213

1Q Fiscal 2018.3

26,383

15,39821,326

1,182

64,291

98

3,778(3,331)

1,375

1,921

0.4

24.5

(15.6)

116.4

3.0

Increase or (decrease)
Ratio ofincrease/(decrease) (%)

1. Enterprise Networks business
ICT investment in work style reforms remained strong. EmpoweredOffice, a work styleinnovation solution, achieved growth, too. As a result, net sales for the business increased
6.6% year on year, to ¥25,475 million.
2. Carrier Networks businessBusinesses for telecom carriers expanded. In addition, panel construction in large
projects for building mega solar power plants made sales contributions. As a result, netsales for the business rose 6.7% year on year, to ¥14,518 million.
3. Social Infrastructures businessNet sales for the business decreased 6.2% year on year, to ¥13,657 million, due to areactionary fall in civil engineering and development in large projects for constructing mega
solar power plants and a sales decrease posted for overseas businesses.
*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 environmental
responsiveness.

<Outline of Business Segments>
Business Segment

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

Enterprise Networks

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

Carrier Networks

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

Social Infrastructure

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

OthersSales of purchased equipment(2) Outlook for the Fiscal Year Ending March 31, 2019
The Japanese economy is expected to show a moderate recovery, reflecting factors such as theeffects of central government measures and improvements in employment and income conditions.
However, the domestic economy continues to face downward pressure owing to factors such asconcerns over a downturn in overseas economies under the effects of trade issues and otherconditions.
In this economic environment, the Group is keeping its consolidated business forecasts forthe fiscal year ending March 31, 2019 unchanged from its initial projections in view of consolidated
business performance, which has fallen within the scope of its plans up to this point.

Net sales¥280 billion

4.5% increase year on year

Operating income¥11.5 billion

4.0% increase year on year

Ordinary income¥11.5 billion

5.0% increase year on year

Net income attributable¥7.5 billion

1.9% increase year on year

to owners of the parent

5. Consolidated Financial Statements(1) Consolidated Balance Sheets
As ofMarch 31, 2018
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
GoodwillOther
Total intangible assetsInvestments 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
Other current liabilities
Total current liabilities
Long-term liabilities
Long-term debt
Liabilities for retirement benefits
Other liabilities
Total long-term liabilities
Total liabilities
Net assets
Shareholders' equity
Capital stock
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders' equity
Accumulated other comprehensive income
Net unrealized holding gain on other securities
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets(Millions of yen)
As ofJune 30, 201857,281103,911494
2,379
5,8585,414(121)
175,218

73,716
67,164
709
2,835
7,660
5,883
(112)
157,858

10,093

10,298

1,394
3,990
5,384

1,332
4,226
5,558

12,714
4,270(37)
16,94732,425
207,643

12,8194,537(37)
17,31933,176
191,034

39,574
728
4,086
3,171
3,768
102
116
557
20,76872,874

26,780
1,040
3,474
3,171
385
22
114
1,049
22,33358,371

842
30,428
1,765
33,037
105,911800
30,397
1,687
32,884
91,255

13,122
16,65574,357(276)
103,858

13,122
16,65572,314(276)
101,81542(374)(4,053)(4,385)
2,258
101,732
207,643

31(438)(3,899)(4,306)
2,269
99,778191,034

(2) Consolidated Statements of Income and Comprehensive Income(Consolidated Statements of Income)(Millions of yen)
1Q, FY March 2019
1Q, FY March 2018
(3 months ended June 2017) (3 months ended June 2018)

Net sales

53,14755,455

Cost of sales

45,51747,417Gross profit

7,629

8,037

Selling, general and administrative expenses

8,318

8,365

Operating income (loss)

(688)

(328)

Interest income

410

Exchange gain

26－

Other5876

Total non-operating income

8886Interest expenses

27

27

Foreign exchange losses－30

Business reconstruction expenses for subsiriaries

31－

Other

70

41

Total non-operating expenses

129

99

Ordinary income (loss)

(729)

(340)

Income (loss) before income taxes

(729)

(340)

Income taxes

(200)

(178)

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

(529)

(162)

97

43(626)(205)

Non-operating income

Non-operating expenses(Millions of yen)

(Millions of yen)

1Q, FY March 2018
1Q, FY March 2019
(3 months ended June 2017) (3 months ended June 2018)
Net income (loss)

(529)

(162)

Net unrealized holding loss on other securities

10(11)

Foreign currency translation adjustments

(26)

(78)

Adjustments for retirement benefit
Share of other comprehensive income ofassociates

99

153

Other comprehensive income

－(2)

83

61

(446)

(100)

Owners of the parent

(550)

(127)

Non-controlling interests

103

26

Total other comprehensive income
Comprehensive income (loss)
Comprehensive income (loss) attributable to:(3) Consolidated Statements of Cash Flows(Millions of yen)
1Q, FY March 2019

1Q, FY March 2018
Cash flows from operating activities
Net income (loss) before income taxes
Depreciation and amortization
Amortization of goodwill
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
Purchase of investment securities
Loans receivable madeCollection of loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activitiesNet increase (decrease) in short-term bank loans
Repayments of long-term debt
Net (increase) decrease in treasury shares
Dividends paid to shareholders
Dividends paid to minority shareholders of subsidiaries
Other, net
Net cash provided by used in financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period(3 months ended June 2017) (3 months ended June 2018)
(729)
686
63(7)
100341(340)
607
61(7)
71
146

(47)
(9)

(80)
(2)

114
(10)
27
31,235(979)(10,233)(556)
726
20,72210(25)(2,451)
18,256493(22)
27
36,362(2,262)(12,446)(1,082)
2,035
23,56022(24)(3,224)
20,334

(327)
4
(586)
(1)
(0)
1(0)
(911)

(732)
0
(242)
(111)
－
0
(243)
(1,329)

(549)
(42)
(1)
(1,773)(13)(107)(2,487)

(506)
(42)
(0)
(1,824)(15)(108)(2,498)(10)
14,84559,64874,494(71)
16,43457,28173,716

(4) Segment Information
Business Segment Information
First quarter of fiscal March 2019 (3 months ended June 2018)
Enterprise
Networks
Sales
Exchange gain(2) Intersegment sales
Total
Operating income and loss

(Millions of yen)

Carrier
Networks

25,47525,4752,075

14,51814,518615

SocialInfrastructures
13,657
13,657(954)

Others

1,803
1,803
39

Adjustments(2,105)First quarter of fiscal March 2018 (3 months ended June 2017)
Enterprise
Networks
Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

23,89723,897
1,551

Total

55,45555,455(328)(Millions of yen)

Carrier Networks

SocialInfrastructures

13,602
13,602648

14,56014,560(907)

Others

1,086
1,086
33

Adjustments(2,014)

Total

53,14753,147(688)