NEC Networks & System Integration(NEC NW&SI)- Into High Gear for Growth -February 29, 2012
Masahiko Yamamoto, President
NEC Networks & System Integration Corporation

Good afternoon.
My name is Masahiko Yamamoto, president of NEC Networks &System Integration Corporation.
I would like to thank you for joining us at our briefing today.

1Today’s Points

I. 96%:
II.-8% vs +10%:
III.47%:IV.0.7 times:
Page 2ⓒ NEC Networks & System Integration Corporation 20112012

Today, I would like to make several points about the numbers you
see displayed here. I will explain each of them in turn.

2

AgendaI. 96%:

What we are

II.-8% vs +10%:
Our growth fields
III.47%: For further growth
IV.0.7 times: Ultimately
Page 3ⓒ NEC Networks & System Integration Corporation 20112012

Now for today’s agenda.
I will give a brief overview of the Company—What we are—then explain our major fields of growth and what steps theCompany is taking to pursue further growth, in that order.

3

AgendaI. 96%:

What we are

II.-8% vs +10%:
Our growth fields
III.47%: For further growth
IV.0.7 times: Ultimately
Page 4ⓒ NEC Networks & System Integration Corporation 20112012

First, let me give you a brief overview of our Company—
What we are.

4

NEC Networks & System Integration Is▐ The ICT services integrator providing
consultation SI, operation/maintenance andoutsourcing services▐ Able to provide total office facilities (including
office furniture, electricity, office design, etc.) with ICT asa core▐ Providing to 96% of its sales to Japanesemarket. It has well-balanced customers ofenterprises, telecom carriers and governments
and ranked as No.1 class in network field.
Page 5ⓒ NEC Networks & System Integration Corporation 20112012

We are a “service integrator,” providing all types of ICT services
to our customers, from consulting to system integration to
outsourcing.
Moreover, we are not just involved in ICT services. One of the
major ways in which we differentiate ourselves is by offering a
total facility management, including office furniture, design,utilities on top of our core ICT services.
Of our customer base, 96% is in Japan. Although Japan is said
to be a mature market, the areas our company is targeting aremarkets with a strong growth outlook, which I will explain later.

5

Our Position in Japan▌Top-class in network area
among Japanese listed SI-ers (Billions of yen)
1 NTT Data
2 Canon Marketing Japan
3 Otsuka Corporation
4 NRI
5 IT Holdings
6 CTC
7 Nihon Unisys
8 NEC Networks & SI
9 NEC Fielding
10 NS Solutions
・・・ ・・・
16 Netone

Sales
1,162
674
464
326
323
283
253
218
189
160
・・・
131

YoY
1.7%
-1.8%
7.8%
-3.6%
3.0%
-2.5%
-6.7%
0.1%
-0.9%
5.0%
・・・
5.2%

OP
78.3
7.7
19.0
38.4
12.8
21.3
6.5
10.8
8.0
11.1
・・・
5.7

to Sales
6.7%
1.1%
4.1%
11.8%
4.0%
7.5%
2.6%
5.0%
4.2%
6.9%
・・・
4.4%

Source: The company based on “Japanese IT service companies Ranking 2010” from Nikkei computer magazine (2011.7.21)

Page 6ⓒ NEC Networks & System Integration Corporation 2012

The table shows the Company’s position in the Japanese system
integration market.
The companies highlighted in yellow show system integrators who
are active in the ICT business area, including networks.
Our company is in a strong position among top class companies in
the ICT area, with a core of networks.

How Earning and Income Are Going▌Constantly improving profitability
Challenging growth
7.7%

7.0%

8.2%

including ¥2.6 bn.
extraordinary loss
for HQ relocation
etc.＊

6.3%＊

6.0%
4.9%

Sales
194.0

254.6

2.4%
1.0%

ROE

249.1
258.2

213.7

4.2%

217.7

217.9

5.0 %

4.4% 4.5 %

202.4

2.8%

Operating 2.3%
Margin2.4%

0.5 1.2
04.3

Page 7

3.1%

05.3

2.6
06.3

3.5
07.3

4.4

08.3

5.2

5.8

(Billion yen)

4.7＊ Net

Profit
09.3

10.3

11.3

ⓒ NEC Networks & System Integration Corporation 2012

Next, I would like to talk about the Company’s results.
First, I would like you to understand that operating margins have
improved every year for the past seven years. In particular, since I
became president in 2006, we have continuously implemented
management innovation by applying the view of so-called “production
innovation” to the entire company, from sales people to systemengineers and even administrative staff. As a result, the operating
margin is now five percent, nearly double what it was when I took
office.
On the other hand, sluggish sales are an issue for the Company. As I
will explain later, sales growth is a focus for the Company.

7

Our Business Fields
Sales：¥217.9 billion
OthersEnterprises
NW

Social Infra.

78.3
84.1

Carrier NW

43.3
FY 2011/3

Growth Business Areas
Enterprises Network
Total office innovation solutions based on ICT.
Operation and monitoring services related tosystems above and cloud/outsourcing services
using our own data centers, etc.

Carrier Network
System integration such as network planningand configuration for telecom carriers, andmaintenance and operation services, etc.

Stable Business Area
Social Infrastructure
Systems integration of ICT infrastructure,mainly for governments and related services
such as operation and maintenance

Page 8ⓒ NEC Networks & System Integration Corporation 2012

This slide illustrates our company’s business fields. As I
mentioned earlier, we serve not only enterprise customers but
also telecommunications carriers and the government.
I position the Social Infrastructure business as stable businessarea. Orders come primarily from the government and local
government, and annual government budgets do not change
markedly.
On the other hand, the fields where the Company is focusing its
efforts as growth drivers are Enterprises Network and Carrier
Network.

8

AgendaI. 96%:

What we are

II.-8% vs +10%:
Our growth fields
III.47%: For further growth
IV.0.7 times: Ultimately
Page 9ⓒ NEC Networks & System Integration Corporation 20112012

Next, I would like to explain to you what steps we aretaking in our growth fields.

91) Enterprises NW: Customers Demand Trend▌Matured & globalized
Japanese Market
 Top management demand
corporate strength to survive
global competition⇒ Proposal of system-> Proposal of Working style
Page 10ⓒ NEC Networks & System Integration Corporation 2012

Let me begin with our approach to the Enterprises Network
business.
Japan is now a mature market with little expectation for overall
growth but competition is getting more intense as globalization
advances.
In this environment, top managers are increasingly concerned
about creating operations that can stand up to global competition
and improving corporate strength.
In other words, instead of simply proposing systems, we are being
asked to make proposals for working styles that will improve a
company’s value.

10

Labor Productivity of Japan▐ Demand for management innovation andoffice productivity improvement increases
1.00

U.S.A.
France
Italy
U.K.
Germany
CanadaJapan

0.67<Productivity comparison among G-7 industrialized counties>(Index of U.S.A. as 1)
Source: Company based on “2010 International Comparison of Labor Productivity” of Japan Productivity Center
Page 11ⓒ NEC Networks & System Integration Corporation 2012

This slide shows the current state of Japanese labor productivity.
It is the lowest of the G7 nations.
Top managers are increasingly aware of this issue. There is a
growing feeling that it is essential to increase office productivity inorder to improve competitiveness.

Office Innovation Solution “EmpoweredOffice”▐ Our unique management innovation solution:
Facility management with ICT as a core
- To improve productivity, cost-efficiency,
environmental responsiveness“Empower”“Economy”“Ecology”▐ Based on our own adoption & practice:-Speeded-up
Work design innovation
management process-Promoted information
ICT
sharing▐ Appeal to top management
Facility(office environment-Penetrating into customers
including office furniture, electricity, etc.)
as our unique solution
Page 12ⓒ NEC Networks & System Integration Corporation 2012

By paying attention to the needs of top management, we are offering
office innovation solution “EmpoweredOffice,” as a priority area in ourenterprise business.
In order to improve office productivity, we cannot stop at ICT
services, office furniture and designs that enable the efficient use of
ICT are also important. This is a field where the Company can exert
its unique strength of having both technological strength in ICT andstrength in facilities. In this way, we can create a “Three E” solutionthat will Empower each individual’s creativity, and create an
Economical and Ecological work style, to contribute to improvementof the corporate value of our customers.
We have adopted and put into practice these methods ourselves,
which has accelerated the management process and promoted
information sharing. In addition to the “Three Es” I mentioned earlier,
we have differentiated ourselves by adding a fourth “E”—Enjoy—as
our employees enjoy an improved work style on a daily basis. We
have made our offices into a showroom as a demonstration to ourcustomers in management who can see and feel for themselves
what the achievement of 3E or 4E is all about. By appealing to top
managers in this way, the EmpoweredOffice brand is becoming
increasingly popular.
12

Expanding Customers Acceptance of EmpoweredOffice
EmpoweredOffice (EO) related orders received(Billions of yen)
30

20

15

NikkeiNew-officeAward(2nd time)

Head-office relocation
Adoption of companywide EO
20

25

NikkeiNew-officeAward

Started EO solution
Began in-housepractice partially

17

10

5

7

8.5

10

0

08.3
Page 13

09.3

10.3

11.3

12.3

9 monthsⓒ NEC Networks & System Integration Corporation 2012

Here we are showing the Company’s EmpoweredOffice relatedorders.
As you can see, orders have increased every year since we started
the EmpoweredOffice business five years ago, which shows that ourcustomers have been very accepting of this solution.
In addition, we have twice won the Nikkei New Office Award, which
recognizes leading edge offices in Japan. This is the mostprestigious office award in Japan, backed by the Ministry of
Economy, Trade and Industry, and shows increased recognition fromoutside sources.

EmpoweredOffice： Enforcing Service Business▐Services corresponding to customer needs
Combination of SI + services
Network-type services
Tailor-made cloud services▐Data centers expansion
considering geographical balanceTokyo + near Tokyo (new DC) + West (Expansion)⇒ For TOC cut & BCP needs
Page 14ⓒ NEC Networks & System Integration Corporation 2012

Further, there have been increased customer’s needs for combining
services such as cloud, BPO, rather than having all systems on theirown for EmpoweredOffice. We offer a combination of them according to
the customer’s needs. In particular, unlike other systems integrators
based on IT, we emphasize thin client, mail systems and other network
services and we further differentiate ourselves by providing tailor-madesolutions to meet even detailed client needs.
Finally, following the Great East Japan Earthquake, there have been
increased service needs taking business continuity plans (BCP) into
consideration. In addition to our data center in Tokyo, we have added
the second data center in a nearby prefecture and we are expanding
the Kansai data center, which covers western Japan, to further
strengthen our business.

141) Carrier NW: Customers Demand Trend▌Fierce competition to acquire subscribers
among telecom carriersNetwork traffic increase by smartphone boom
Penetration of overseas vendors⇒ -Demand of high-speed, high-quality network-Demand to adopt overseas vendors’ systems
with existing vendors’(Needs for same level of quality services as Japanese vendors)

Page 15ⓒ NEC Networks & System Integration Corporation 2012

Next, the Carrier Network business.
Competition among telecommunications carriers to acquire
mobile phone subscribers has become intense. For this reason,
carriers are strengthening their smartphone services but this has
meant a sharp increase in the volume of communications network
traffic. It is estimated that network traffic in Japan will increase 28
times in the five year period from 2009 to 2014, and every carrier
is rushing to increase the quality and speed of their network.
Further, in order to improve the efficiency of this capital
investment, carriers are increasingly using products from global
vendors and they are demanding a high level of support for theseproducts.

15

Multi-vendor Management for Telecom Carriers▌Total services for multi-vendor (NEC+overseas)From inspection to configuration,customization and support after installation⇒Efficient operation for telecom carriers+ Business expansion for us▌Using NEC group strength & knowhow
World-wide technologies(+50% target in this FY)⇒Further expansion of qualified SEs
Nation-wide service basis(Support in 2H or less is available for almost all cities in Jaqpan)
Page 16ⓒ NEC Networks & System Integration Corporation 2012

In addition to proactively responding to this need to improve carrier
networks, the Company is focusing on total services for multivendors. We offer a full range of services from product inspection
to configuration, customization and post-installation support toimprove the efficiency of the carriers’ TCO.
As a part of the NEC group, the Company has world classtechnology, which is a strength that other system integrators don’t
have. We also have a service system that can respond to highquality requests that comes from many years in business serving
the telecommunications industry.
By further developing and strengthening our systems engineers,
we can, as a partner with the carriers, improve our position andexpand our business even greater than the increase in the
carriers’ capital spending.

16Development of Business Using Smart Terminals▐Cooperation with telecom carriers
Expansion of BtoB use
of smart terminals▐Working-style innovationfrom users point-of-viewFor meeting activation, sales efficiency, etc.
-Enforced proposal via in-house practice⇒Company-wide task force
from both viewpoints of carriers & enterprises
Page 17ⓒ NEC Networks & System Integration Corporation 2012

We are currently focusing on developing new business basedon the use of tablets, smartphones and other smart terminals.
One key is promotion of the use of smart terminals byenterprises in order to expand the telecommunications
carriers’ business. We are discussing the use of ourcustomer base as a partner with the carriers from thisperspective. We expect that this will increase the carriers’
investment in improving their networks.
On the other hand, from the user’s perspective, the use ofsmart terminals can be an important tool in changing work
styles as part of our enterprise solutions. Using tablets as asolution to make meetings more efficient and productive andother such uses of smart terminals to improve work styles
can be quickly linked to proposals by putting them into
practice from user perspectives.
We can make use of our unique position, seeing things fromboth the carrier’s and the enterprise’s perspective, to expand
our business.
17

Results of Current FY (9 Months) for Growth▐ -8%: Sales decreased due to one-time decrease
in Social Infra. affected by earth quake etc.
▐ +10%: Orders of growth business expanded
Sales
152.6
9.1

-8%

Orders140.1(billion yen)

8.6

Others

154.1

0%

154.1
8.1

9.5

57.2

-28%

41.4

Social Infra.

58.3

-13%

51.0

30.3

+11%

33.6

Carrier NW

32.8

+9%

35.7

56.5

Enterprises
NW

53.5

+11%

59.4

56.1
11/3 9M
Page 18+4%+1%

12/3 9M

11/3 9M+10%

12/3 9Mⓒ NEC Networks & System Integration Corporation 2012

This graph shows the progress we have made using thisstrategy through the three quarters.
Through the three quarters of the current fiscal year, total sales
have fallen by 8%.This is because Social Infrastructure, which isinherently a stable business, has suffered a temporary impact
from emergency budget review of the government, following theearthquake.
However, as a result of the strategies I have already mentioned,orders for Enterprises Network and Carrier Network haveincreased by double digits to 10% growth. We expect Social
Infrastructure to recover in the next fiscal year and I will aim toachieve more vigorous growth.

AgendaI. 96%:

What we are

II.-8% vs +10%:
Our growth fields
III.47%: For further growth
IV.0.7 times: Ultimately
Page 19ⓒ NEC Networks & System Integration Corporation 20112012

Next, I would like to explain how we plan for further growth.

19Strong Financial Position▐ “A” class credit rating: “A-” by R&I (Rating and Investment Information, Inc.)▐ Cash & cash equivalents over debt
: Net Cash Yen 32 bill., Cash/Equity 47%(as of end of December 2011)

Ability to use financial leverage(billion yen)

36.6
29.5

Cash and cash equivalents
9.9

FCF

16.6

14.3

8.6

6.4

5.8

25.6

14.5

14.2

4.8
-3.5

06.3
Page 20

07.3

08.3

09.3

10.3

11.3

11.12

ⓒ NEC Networks & System Integration Corporation 2012

One of the Company’s strengths is our financial position.
We have been rated in the A category by the widely recognizedJapanese rating agency, R&I. This is the highest rating allowed forany company our size.
Although there are fluctuations due to the timing of collections fromlong-term projects, because of our stable cash flow, net cash on handis about ¥37 billion while our cash/equity ratio is the 47% figureshown at the beginning.
If we include the use of financial leverage in addition to cash on hand,
we have some ¥50 billion available for growth investments, about
equal to the Company’s market capitalization.

20

Active Investment in Growth▐Using cash and financial leveragefor growth

Recent investment examples

For existing business fields-West-Japan data center-Kanto 2nd data center• Service infrastructure (e.g. data centers)• Customer-oriented solutions

Smart-office investment
in new head officeAcquiring resources & know-how
in new business fields through M&A• BPO business

Acquisition of DAIICHI AD SYSTEM• Consulting• Sales/marketing capability, etc.
Page 21ⓒ NEC Networks & System Integration Corporation 20112012

We are aggressively capitalizing on this financial strength for
growth. One way to do this is by strengthening our existing
businesses and, as we have shown, we have implemented growthinvestments since last year.
Another way is to acquire resources in new fields. December
2010, we bought Daiichi Ad System, which has a blue chip clientbase and operational know-how gained from operating contact
centers. We are studying the aggressive pursuit of M&A if we canfind targets with synergies in consulting and sales force
improvement, even outside the business process outsourcing(BPO) field.

21

Direction for Business Growth▐ Accelerating expansion in consultation and operation
services through M&A and other strategic investment
Expanding business Bolstering the service
business
areas
From ICT to total office ICT operations & BPO

Cultivation of new
businesses& new customers

Consultation
Product sales

System design
Planning

SystemIntegration

Operation Support
Cloud, BPO

Increasing market share
Page 22ⓒ NEC Networks & System Integration Corporation 20112012This chart shows the various directions in which we can
expand our business.
System design and planning has been our company’s
specialty and we are expanding this business by widening
the field and by increasing market share.
In addition, we can expand our business by developing
new customers and new businesses in upstream
businesses such as consulting while, in downstream
service fields, such as BPO, we can supplement areas
where the Company does not have sufficient resources
through M&A.

AgendaI. 96%:

What we are

II.-8% vs +10%:
Our growth fields
III.47%: For further growth
IV.0.7 times: Ultimately
Page 23ⓒ NEC Networks & System Integration Corporation 20112012

Finally, I’d like to talk about our policy on shareholder
returns and the current valuation of the Company’s shares.

23

Dividends*Forecasts are as of January 26, 2011

▌Increase direct return to shareholders, while focusing on
boosting corporate value through growth investment.
Cash dividends
per share ofcommon stock
(yen)

20
12
6

Page 24

14

14

7

7

6

7

7

05/3

06/3

07/3

10

22
11

25
14

10

11

11

08/3

09/3

10/3

26
13

28
14 Year-end

13

14 Interim

11/3

12/3 plannedⓒ NEC Networks & System Integration Corporation 2012

With regard to dividends, while we stress stability, we have
gradually increased dividends in line with improved profitability.
While we think it is necessary to increase shareholder returns
going forward, we are currently concentrating on expanding
corporate value by making growth investments. We plan to strike abalance between these investments and producing a return thatwill keep our shareholders happy.

At the End▐ We pursue further growth & profitability(Bill. Yen)
Sales
YoY
Operating Income
to SalesNet Income
to SalesROE
PER (times)
PBR (times)

Information & Comminication
Construction
CTC
Netone Otsuka Corp.NEC NW&SI KyowaExeo Comsys
283.1
130.9
478.2
217.9
282.2
315.5
-2.5%
5.2%
3.2%
-3.5%
0.1%
-1.9%
21.3
5.7
23.1
10.8
12.4
11.8
7.5%
4.4%
4.8%
5.0%
4.4%
3.7%
＊
11.5
2.9
12.7
4.7
7.8
9.5
4.0%
2.2%
2.7%
2.2%
2.8%
3.0%
7.4%
5.2%
11.3%
6.3%
7.6%
6.1%
19.6
30.5
14.3
11.7
9.5
11.8
1.4
1.5
1.6
0.7
0.7
0.7
＊Including ¥2.6 bn. extraordinary loss for HQ relocation etc.

※FY11.3 results (excluding Otsuka: FY11.12). PER, PBR based on 2/15,2012 price (Yahoo)
Page 25ⓒ NEC Networks & System Integration Corporation 2012

I would like to compare our results and share valuation to othercompanies.
At the beginning of this presentation, I introduced the figure, 0.7
times. This is the Company’s price/book value ratio which is exactly
the same level as other telecom construction companies.
However, last October (October, 2011), the Company’s shares weremoved from the Construction industry group to the Information andCommunication industry group on the Tokyo Stock Exchange.
Our profitability has been improving continuously.
But, in the Information and Communication industry group,
we expect that we will get even further improvement in profitability
along with the sales growth discussed earlier.
Thank you for your attention.

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 thoseprojected. The major factors affecting actual results include theeconomic climate and social trends surrounding the business of thisCompany’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.

Page 26ⓒ NEC Networks & System Integration Corporation 2011
2012

26

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

Page 27ⓒ NEC Networks & System Integration Corporation 201227