Financial Results for the Fiscal Year
Ended March 2017
May 9, 2017
NEC Networks & System Integration Corporation(TSE: 1973, NESIC)AgendaⅠ. FY 2017/3 Financial Results
Ⅱ. FY 2018/3 Forecasts

Ⅰ. FY 2017/3 Financial Results
Ⅱ. FY 2018/3 Forecasts

FY2017/3 Financial Summary▐ Sales and operating income declined year on year given reduced
investments by telecom carriers and a decline in sales in the FF & DP
networks business.
 Orders received increased year on year due to orders for theconstruction and maintenance of large-scale solar power generation
plants.
 The gross margin improved year on year mainly due to the cost
structural reform effect in the Carrier Networks business.
 Net income increased year on year due to the reduction of
extraordinary losses and others from the previous fiscal year.
FY2016/3

ChangeForecasts
as at Jan 30, 2017

Orders received

274.9

279.2

+2%

280

Sales

280.0

257.9

-8%

260

Gross margin

16.1%

16.5%

+0.4ptーOperating income

14.1

10.0

-4.1

10.0

(to sales)(5.0%)(3.9%)-1.1pt

(3.8%)

6.0

6.5

+0.5

6.0

(to sales)(2.1%)(2.5%)+0.4pt

(2.3%)

ROE

6.5%

7.0%

+0.5ptFree cash flows

6.6

19.9

+13.3

Net income
attributable to owners of the parent

4

FY2017/3© NEC Networks & System Integration Corporation 2017（¥bn.）*FF︓Firefighting
DP: Disaster Prevention

FY2017/3 Orders Received/Sales by Segment▐ Orders received increased year on year due to orders for large-scale projects (+15.5)▐ Sales declined, mainly reflecting a decrease in orders for the FF & DP networks
business & the impact of investment cuts by telecom carriers .
FF: Firefighting, DP: Disaster Prevention( )shows growthrate without solar
PJs orders

Orders（¥bn.)
Others

299.1
4.8

6.9

99.8
Social Infra.

5

7.1

(-4%)

292.2
6.4

91.2

86.5

-5%
(-12%)

96.8

66.9

68.7

+3%
(-2%)

86.2

108.9

109.9

117.0

+6%
(+1%)

15/3

16/3

17/3

Carrier Networks 85.6

Enterprise
Networks

274.9

279.2 +2%

Sales

© NEC Networks & System Integration Corporation 2017

280.0
4.8

257.9 -8%
6.6

96.3

82.4

-14%

69.3

61.6

-11%

102.8

109.6

107.4

-2%

15/3

16/3

17/3

FY2017/3 Enterprise Networks Business▌ Sales declined slightly year on year associated with a decrease in sales
in the PBX business, despite a solid increase in sales in the area ofwork style innovation.
 Sales of EmpoweredOffice: +11%
 Orders received from general enterprises increased steadily.
Orders（¥bn.)

SI/
Construction

SupportService

6

108.9

109.9

58.7

56.3

50.2

53.7

15/3

16/3

Sales

117.0 +6%
102.8
59.7 +6%

109.6

107.4 -2%

53.3

58.0

53.6

-8%

57.3 +7%

49.5

51.6

53.8

+4%

17/3

15/3

16/3

17/3

© NEC Networks & System Integration Corporation 2017

FY2017/3 Carrier Networks Business▐ Sales decreased because of
the impact of investment cutby telecom carriers.
 Following orders received,
sales appear to havebottomed out.

YOY Changes Orders/Sales+5% +4%(excl. solar PJs of Orders )

-10%
-16%

Sales

-27%
-24%

-28%
1Q

2Q

3Q

-23%

Orders

4Q

1Q

7

3Q

4Q

FY17/386.2
66.9

SupportService

2Q

Sales

85.6

SI/
Construction+1%-21% -20%

FY16/3（¥bn.)-5%-21% -21%

Orders
-16%

+4%

68.5

68.7

52.5

52.9

17.1

14.4

15.8

15/3

16/3

17/3

69.3

+3%

+1%

+10%

© NEC Networks & System Integration Corporation 201761.6 -11%

68.4
55.1

48.5

-12%

-8%

17.8

14.3

13.1

15/3

16/3

17/3

FY2017/3 Social Infrastructures Business▌Sales decreased year on year due to the completion of FF radio
YoY change of orders
digitalization projects.
 Orders in 2H remained flat year on year except forsolar PJs. ⇒A reactionary fall in FF radio digitalization
projects ended in 1H.

-3%(excl. solar PJs)

-10%

-7%

 Competition was intensifying in the public sector (roads, etc.).
 Sales increased steadily in the area of broadcasting and CATV
(sales: +29% year on year)（¥bn.）

Orders99.8
SI/Construction

SupportService

8

91.2

-19%
1H

2H
FY16/32H

1H

FY17/3

Sales

96.8

96.3

86.5 -5%

82.4 -14%

77.8

78.5

20.7 +8%

19.0

17.7

17.2

17/3

15/3

16/3

17/3

80.5

72.1

65.9

19.2

19.1

15/3

16/3

© NEC Networks & System Integration Corporation 2017-9%65.2 -17%-3%

FY2017/3 Operating Income by Segment（¥bn.）

Total

16.2

（5.5%）( )＝Operating
MarginSocial Infra.

14.1（5.0%）（3.9%）
9.5(9.9%)

9.5(9.9%)

Carrier
Networks

10.0▌Operating income decreased with
the impact of the decline on sales in
the Social Infrastructures business.

6.9(8.0%)

Social infrastructures
6.0(7.3%)

3.5(5.1%)

3.6(5.8%)

・Operating income declined due to reduced
sales.

Carrier Networks
・Operating income increased due to cost

structural reforms, despite smaller sales.

Enterprise
Networks

Others／Elimination

7.5(7.3%)

-7.8

15/3
9

8.9

(8.1%)

-7.8

16/3

8.8

(8.2%)-8.4
17/3© NEC Networks & System Integration Corporation 2017

Enterprise Networks
・Operating income remained almost

unchanged from a year ago, despite smaller
sales.

Other/Elimination

・Increase in the system development costs
and pro forma standard tax.

Progress of the Strategic Areas for Midterm Plan
▐ The strategic areas firmly expanded, although the basement businesssuch as the telecom carriers business declined more than expected.
Sales（¥bn.）

Year on year
growth rate

257.9

-8%

Strategic areas

Total

280.0

Strategicareas total

103

Service

51

57

+12%

Infra
structure

29

31

+7%

23

23

+0%

147

-17%

GlobalThe basementbusiness

111

177

〜
〜
16/3
16/3期
10

▐ Service Business

+8%

〜
〜
17/3
17/3期

© NEC Networks & System Integration Corporation 2017

※EmpoweredOﬃce, Cyber security, IoT/MVNO

 EmpoweredOffice, Cyber security
expanded▐ Infrastructure Business※Broadcasting/CATV,DP(Disaster prevention),
Road/Railways, Mega solar

 Broadcasting/CATV, DP(Disasterprevention) expanded▐ Global Business※ Inbound, Outbound Remain flat by higher yen, but
outbound expanded in reality(+9％)▐ The basement business Telecom carriers business(-8)
 FF radio networks business(-14)

FY2017/3 Achievements and Challenges
Achievements
 Strategic areas expanded (+8%)
 The gross margin improved(+0.4pt) with the results ofstructural reforms in the Carrier
Networks business.

11

Challenges

 The basement businessdeclined more than
expected (-17%).
 The operating margindecreased (-1.1pt) due tothe smaller sales scale.

▐

The execution of growth strategies and the strengthening ofbusiness capabilities delivered some results.

▐

The following had been factors for smaller sales, but
・The telecom carriers business bottomed out.
・A reactionary fall in the FF & DP networks business also ran
its course.

Aiming for regrowth with FY2017/3 as thebottom, taking advantage of the acceleration in
strategic areas.

© NEC Networks & System Integration Corporation 2017

Ⅰ. FY 2017/3 Financial Results
Ⅱ. FY 2018/3 Forecasts

Business Environments▐ The market environment is firm overall, although
there are light and shade.

 Corporate market

・Corporate ICT spending is expanding, particularly in work
style innovation, the cloud, security, IoT and AI, etc.

 Telecom carrier market

・Capital investments of telecom carriers remained weak,although the decline is bottoming out.

 Social and public infrastructures market

・Intense competition in the public sector (road, etc.) continues.
・As an investment theme, 4K/8K, the Olympic and Paralympic Games, andlocal economy vitalization, etc. are expected.
・The construction of mega solar power plants is active with the enforcement of
the revised FIT Act.

 Global market

・Infrastructure investment is expanding in the ASEAN region.

13© NEC Networks & System Integration Corporation 2017

（Forecasts as at April 27, 2017）

FY2018/3 Forecasts▐

Aiming for higher sales and income by expanding strategicareas such as work style innovation and mega solar.
 Orders are expected to rise 6%, excluding the effect of largescale projects in the previous year.
（¥bn.）

FY17/3

Forecasts

ChangeOrders Receipts

279.2

280

0%

Net Sales

257.9

270

+5%

Operating Income

10.0

10.5

+0.5

(to Sales)(3.9%)(3.9%)

0.0pt

Net income

6.5

6.7

+0.2

(2.5%)(2.5%)

0.0pt

attributable to owners of the parent(to sales)

14

FY18/3© NEC Networks & System Integration Corporation 2017

FY2018/3 Forecasts by Segment（Forecasts as at April 27, 2017）▐ Aiming for high sales and income ineach segment.
（¥bn.）

Operating Income( )shows growthrate without solar
PJs orders

Sales

YOY

280.0
Others

4.8

257.9
6.6

96.3

SocialInfra.

Carrier
Networks

69.3

Enterprise
Networks 109.6

16/3
15

82.4
61.6

270
5

86

（5.0%）

+5%

(+2%)

+4%

( +2%)

65

107.4

114

17/3

18/3
(Forecasts)© NEC Networks & System Integration Corporation 2017

14.1

+6%

(+2%)

( ) Operating margin

10.0（3.9%）
SocialInfra.

9.5(9.9%)

6.0(7.3%)

YOY

10.5 +0.5（3.9%）

6.1+0.1(7.1%)

Carrier
3.5
Networks (5.1%)(5.8%)(5.7%)

3.7+0.1

Enterprise
Networks

8.8

9.1

+0.3
0.0

8.9

3.6

(8.1%)(8.2%)(8.0%)

Others/-7.8(+4%) Elimination

-8.4

-8.4

16/3

17/3

18/3
(Forecasts)+6%

FY2018/3 Basic Policy
Aiming for regrowth with FY2017/3 as thebottom, taking advantage of the acceleration in
strategic areas.

▌Top line expansion

 Expansion of the strategic areas (Service,
Infrastructure and Global)
・Work style innovation, Mega solar, Broadcasting/CATV,
Disaster prevention, Outbound, etc.

▌Strengthening of earnings capability Improvement of efficiency of the basementbusiness and strengthening of strategic areas
・Promotion of cost efficiency improvement (COS and SG&A) by
optimizing the in-house allocation of resources, etc.

16

© NEC Networks & System Integration Corporation 2017

Service Business(Forecast as at April 27, 2017)▌Strengthening businesses related to work
style innovation

Sales(¥bn.)

 Expanding businesses based on the results of our own
practice of work style innovation as well as on the customer
base of EmpoweredOffice▌Strengthening the cyber security business The expansion of business fields, including terminal control
and the prevention of information leaks via the cloud,harnessing our strengths in security operation andmonitoring platform (SOC, NOC)./ The sophistication ofoperation and monitoring services, using AI and other new
technologies
・SOC: Security Operation Center

51

57

62

・NOC: Network Operation Center▌Accelerating the development of IoT services
 Accelerating the launches of value-added services, such as
the global SIM service, and the IoT cloud service incollaboration with global partners.
17© NEC Networks & System Integration Corporation 2017

16/3
16/3期

17/3
17/3期

18/3
18/3期
(Forecast)Service Business (Work Style Innovation)

Enterprise Networks▌Development of businesses making the most of ourpioneering advocacy of work style innovation (expertise andIntroducing telework across thecustomer base)board this fiscal year (5,000 people)
Work style innovation and improvements, including
an improvement in personnel systems, at theCompany and expertise based on them

EmpoweredOffice for ten years: shown
to more than 30,000 people

Accumulation of business expertise and the customer base of EmpoweredOffice
Use of expertiseStrengthening consulting
How to improve business
operations and systems,
including personnel
systems,

How to improve the officeenvironment andefficiency

・Sales expansion using the customer base・Further accumulation of expertise

Differentiation by providing a wide
range of services and products
Consulting
Systems, offices,businesses

Expansion services and products
for work style innovation

Accelerating the development
and launches of ICT services
Services taking advantage of leading-edge
technologies, including AI, IoT

18© NEC Networks & System Integration Corporation 2017

Use of work style ICT

Products, solutions

EmpoweredOfficesolutionsAI, IoT

Business cloud infrastructure
ICT platform/ devices

Infrastructure Business(Forecast as at April 27, 2017)▌Steady execution of the X-Elio projects

Sales(¥bn.)▌Focusing on fields where active investment is expected40
 Broadcasting, CATV, Disaster prevention,
New mega solar power plants▌In response to intensifying competition in
the public sector, among other fields

29

31

 Focusing on fields & customers where we cantake advantage of our strengths
・ICT field, existing customers
 Strengthening cost competitiveness andstreamlining through cost reduction and theflexible allocation of resources
19© NEC Networks & System Integration Corporation 2017

16/3

16/3期

17/3

17/3期

18/3
18/3期
(Forecast)Infrastructure Business (Mega Solar)

All segments▌Steady execution of the X-Elio projects
 Build a project management system▌Project Overview
by setting up a Company-wide Total order: Approx. ¥15.5bnorganization dedicated to the Rated capacity: Total of 58Mw
 Total development area: 850,000 ㎡
projects.
(the size of 13 Wembley Stadium)

Currently implementing thecivil engineering phase.

Construction period: Oct. 2016 to Aug.
2018

Ranging from civil engineering and the building of facilities
such as electricity, panels and monitoring devices tosubsequent maintenance.

Track record and building know-how in mountainous areas via
X-Elio projects＋
Collaboration with Japanese financial institutions

Panoramic view of the project site
(Taiwa Tomiya)▌Activities to receive orders for large
development projects
 Advance into Japan of overseas solar power
generation operators such as X-Elio⇒High potential of the Japanese market
20© NEC Networks & System Integration Corporation 2017

Site preparation in the mountain area
(Shiroishi)

Global Business(Forecast as at April 27, 2017)▌Outbound business

Sales(¥bn.)

 Focusing on the ASEAN region, especially
Myanmar, where the market is active
 Expanding local business through localization

25
23

23

16/3
16/3期

17/3
17/3期

 Expanding the infrastructure business bytapping into ODA projects▌Inbound business Taking advantage of markets that are revitalizing as
inbound tourists are expanding Hotels, tourism, airports, multilingual services, etc.
 Expanding sales in response to full-scale investment
for the Olympics and Paralympics
21© NEC Networks & System Integration Corporation 2017

18/3
18/3期
(Forecast)Global Business (Myanmar Business)

SocialInfrastructures▌Strong start-up of the joint venture in Myanmar (iSGM)(Operation began in June 2016)

 Receiving a series of orders for the SI of infrastructure and telecom station
facilities, while introducing a technology support project for telecom carriers in
an environment of robust telecom infrastructure investment.

Sales in the first year

¥1bn.

Progressoutperformed
initial plans

Employees

40

At the beginning(June, 2016)175

At the endof March,
2017

Employees
quadrupledwithbusiness
growth.

Further deepening and expansion in the Myanmar market, taking advantage
of local costs and Japanese quality, the strengths of iSGM.

Strengt
heningareas
22

 Expansion of local business domains … Deepening ties withlocal telecom carriers and participation in ICT business for thegovernment and corporate sectors
 Strengthening of the offshore business, such as softwaredevelopment© NEC Networks & System Integration Corporation 2017

SocialInfrastructures

Global Business (Myanmar Business)

At present(175 people)※March,2017

At the beginning (40 people)※June,201623© NEC Networks & System Integration Corporation 2017

Strategic Areas of Midterm Plan: FY2018/3 Forecast(Forecast as at April 27, 2017)▐ Increase sales in strategic areas and reduce the decline
in sales in the basement business.

Sales(¥bn.)

257.9

280.0

Total
Strategic areas
total

103

+8%

Strategic
areas

51

57

Infrastructure

29
23

31
23

The basementbusiness

177

-17%

〜
〜

〜
〜
16/3
16/3期

24

© NEC Networks & System Integration Corporation 2017

+14%

127

111

Service

Global

270

147

17/3
17/3期

+9%

62

+29%
+9%

40
25

-3%

143

〜
〜

18/3 (Forecast)
18/3期

（Forecast as at April 27, 2017）

Dividend Plan

Increasing the corporate value through growth investment
and continuing to increase shareholder return based on stabledividends at the same time.

▐ Taking DOE (dividend on equity ratio) into account.
 FY17/3: Year-end dividends: ¥36 per share (Full year ¥72)
 FY18/3: Planning increased dividends of ¥74 per share

Planning increase
for the 11th year
in a row

Dividend
per share
(¥)

14
7
7

07/3
25

45

25

26

28

13

14

20

22

10

11

14

10

11

11

13

14

08/3

09/3

10/3

11/3

12/3

© NEC Networks & System Integration Corporation 2017

60
30

64
32

74

70

72

35

36

37

Yearend37

Interim

26
19
13/3

30

32

35

36

14/3

15/3

16/3

17/3

18/3(Forecast)In closing

First Year of Regrowth
Achieve the target in FY 2018/3
andAccelerate strategic areas.
Business
growthOrganizational
growthHumangrowthConduct business giving top priority to compliance

26

Enhance shareholder value© NEC Networks & System Integration Corporation 2017

（ref.）End of FY2017/3 (March 2017) Balance Sheet（¥bn.）Cash and cash equivalents
Notes & accounts receivable
Inventories
Others

Diff.

15.8
-13.7
-0.7
0.0

Noncurrent Assets

167.6
28.9

169.0
28.5

1.4
-0.5

Assets

196.6

197.5

0.9

Others

39.2
8.5
54.5

36.5
8.3
56.1

-2.7
-0.2
1.6

Liabilities

102.2

100.8

-1.4

97.1

100.1

3.0

-4.4

-5.5

-1.2

1.7

2.1

0.4

Liabilities & Net Assets

94.4
196.6

96.7
197.5

2.3
0.9

Owner's Equity Ratio

47.2%

47.9%

+0.7ptCurrent Assets

Notes and accounts payable
Loans

Shareholders' equity
Accumulated othercomprehensive income
Non-controlling interests

Net Assets

27

End of Mar/16 End of Mar/17
43.9
59.6
104.8
91.2
9.2
8.5
9.7
9.7

© NEC Networks & System Integration Corporation 2017

(ref.) FY2017/3 Cash Flows（¥bn.）

15.9

-3.5

19.9

17.8
6.6

FCF

32.8

35.4

51.4 Net
Cash *

15/3

16/3

-1.5

-5.2

60
50
40
30
20
10

19.3

33.5

26.2

38.0

0
11/3

12/3

13/3

14/3

*Net cash means an amount obtained by deducting loans payable from cash and cash equivalents
28© NEC Networks & System Integration Corporation 201717/3

Cautionary Statement
Forecasts and targets of results mentioned in this document are future estimates andare 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 aspressure 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.

The Group implemented the realignment of domestic subsidiaries to facilitate theefficient management of group companies, such as the integration (absorption-typemerger) of Toyo Networks & System Integration Co., Ltd by NEC Magnus Communications,Ltd. As a result, changes were made to the consolidated financial results from the firstquarter under review, such as the inclusion of Toyo Networks & System Integration Co.,
Ltd, which had been included in the “others” segment previously, in the “Carrier Networks”
segment, which includes NEC Magnus Communications, Ltd.
Segment information for the fiscal year ended March 2015 has been changed to reflect
the change in the content of business segments.

29© NEC Networks & System Integration Corporation 2017

NEC Networks & System Integration Corporationis committed to increasing customer value byredesigning future communications from the user’s
perspective.

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31© NEC Networks & System Integration Corporation 2017