NEC Corp.
Annual Report 2015

Plain-text annual report

7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan Telephone: +81-3-3454-1111 N E C C o r p o r a t i o n A n n u a l R e p o r t 2 0 1 5 Annual Report 2015 Year ended March 31, 2015 0910-0229 NEC will create “an information society friendly to humans and the earth” Way. A more concrete application of this principle is our declaration of image of “orchestrating a brighter world,” reflecting the principle to our NEC serves to society and customers with values contributes to by security, efficiency and equality through the power of ICT to offer medium- to long-term development of the NEC Group. by contributing to customers and society through the practice of the NEC becoming a “Social Value Innovator.” We have developed a corporate key business activities. continuing to present to society or customers values such as safety, solutions to social problems. We hope that our contribution underpins the Sustainable Development of Society and the NEC Group through The NEC Way Global environment Stakeholders Stakeholders Customers/ Shareholders and Other Investors/ Business Partners/ Customers/ Shareholders and Other Investors/ Business Partners/ Customers/ Shareholders and Other Investors/ Business Partners/ Customers/ Shareholders and Other Investors/ Business Partners/ Local Communities/ Employees, etc. Local Communities/ Employees, etc. Local Communities/ Employees, etc. Local Communities/ Employees, etc. Local Communities/ Employees, etc. Build trust through communication An information society friendly to humans and the earth Provide active disclosure and feedback NEC Group Core Values (What we value and base our behavior on) Daily work Daily work Daily work Daily work Fiscal year plan Fiscal year plan Fiscal year plan Fiscal year plan Fiscal year plan Mid-term growth plan Mid-term growth plan Mid-term growth plan Mid-term growth plan Mid-term growth plan NEC Group Vision 2017 NEC Group Vision 2017 NEC Group Code of Conduct (Corporate ethics and compliance) NEC Group Corporate Philosophy NEC Group Charter of Corporate Behavior The NEC Way includes the Group Corporate Philosophy, the Group Vision 2017, the Group Core Values, the Group Charter of Corporate Behavior, and the Group Code of Conduct. NEC Group Corporate Philosophy: NEC strives through “C&C” to help advance societies worldwide toward deepened mutual understanding NEC Group Vision 2017: NEC Group Core Values: and the fulfillment of human potential To be a leading global company leveraging the power of innovation to realize an information society friendly to humans and the earth Passion for Innovation, Self-help, Collaboration, and Better Products, Better Services d NEC Corporation Annual Report 2015 NEC will create “an information society friendly to humans and the earth” Way. A more concrete application of this principle is our declaration of image of “orchestrating a brighter world,” reflecting the principle to our NEC serves to society and customers with values contributes to by security, efficiency and equality through the power of ICT to offer medium- to long-term development of the NEC Group. by contributing to customers and society through the practice of the NEC becoming a “Social Value Innovator.” We have developed a corporate key business activities. continuing to present to society or customers values such as safety, solutions to social problems. We hope that our contribution underpins the Solutions for Society Value innovation Value for society (cid:127) Open innovation (cid:127) Partnering (cid:127) Financing (cid:127) Consulting (cid:127) Operational management services, etc. Core ICT assets Big Data SDN Cloud platform Cyber security, etc. Focusing on fundamental issues New values and market creation Safety Ensuring a wide range of safety, from individual to country Security Serving society and the earth Efficiency Realizing sustainable growth Equality Closing the social divide and eliminating inequality Corporate Key Message: Orchestrating a brighter world 6つのメガトレンド NEC fuses innovative ICT technology, services and knowledge cultivated over many years to provide social solutions through collaboration and cooperation with people around the globe and realize a safe, secure, efficient and equal society that brightens people’s lives. Orchestrating a brighter world includes NEC’s strong determination for the future. 新興国の成長と新たな課題 連鎖する資源・環境問題 成熟社会モデルの模索 人口増加や都市化による水・食糧な どの消費拡大が、他の資源や環境に 新興国では急激な経済成長で、国力 拡大が進む一方、環境問題や資源不 1 多大なインパクトを与える。 2 足などの新たな課題が発生。 3 先進国では少子高齢化 や設備老 朽 化などの変化が、現在の法制度や社 会システムの変革を迫る。 個の力の向上と影響力拡大 パワーの集中から拡散へ 多様化する脅威と安全安心ニーズ インターネットの発展で、個の影響力 がグローバルに拡大する一方、サイ 4 バーリスクなど懸念も広がる。 5 新興国や個の影響力の拡 大により、 世界は分散化し、新たなパワーバラ ンスで再構築される。 6 世界の大きな変化は、現実世界から サイバー空間まで多様な脅威を発生 させ、安全安心需要が向上する。 NEC Corporation Annual Report 2015 02 社会価値創造 7つのテーマ 個々人が躍動する豊かで公平な社会 Quality of Life 地球との共生 Sustainable Earth 枠を超えた多様な働き方 Work Style 安全 安心 Real time Dynamic Remote リアルタイム ダイナミック リモート 効率 公平 安全・安心な都市・行政基盤 Safer Cities & Public Services 産業と ICT の新結合 Industry Eco-System 安全・高効率なライフライン Lifeline Infrastructure 豊かな社会を支える情報通信 Communication Contents Management Policies 04 Message from the President 07 Progress on “Mid-term Management Plan 2015” 11 Message from the CFO Business Activities for Value Creation 13 Performance Highlights 15 At a Glance 17 Review of Operations 25 Sales Structure in Japan 26 Sales Structure for the International Business 30 Business Activities for Solving Social Issues 30 Contribute to Creating an Equal Society in Colombia through ICT 31 Contribute to Enhancing Expressway Safety and Security through the Use of SDN 32 Contribute to Solving Water-Related Social Problems through ICT 33 Contribute to a More Efficient City through a Smart City Project in Santander, Spain 34 Infrared Thermography to Prevent the Spread of Ebola in African Countries Business Foundation to Support Value Creation 35 Corporate Governance 38 Messages from Outside Director and Audit & Supervisory Board Member 39 Directors and Audit & Supervisory Board Members 41 Business Execution Structure 43 Stakeholder Engagement 45 Empowering Our People 47 Earning Customer Trust 48 Promoting the NEC Group “Environmental Management Action Plan 2017/2030” and New Objectives for Climate Change 49 R&D and Intellectual Property Strategy 51 Compliance and Risk Management Corporate Data 52 Financial Section 61 Non-Financial Section 62 Corporate Overview 03 NEC Corporation Annual Report 2015 Editorial Policy Since 2013, NEC has published an integrated annual report that provides both financial and non-financial information. Annual Report 2015 comprises four chapters: I Management Policies; II Business Activities for Value Creation; III Business Foundation to Support Value Creation; and IV Corporate Data. The first chapter outlines thoughts about NEC’s “Mid-term Management Plan 2015” and medium- to long-term value creation. The second chapter includes an introduction to specific examples of activities in addition to outlining business structure and social value creation. The third chapter introduces the management foundation supporting NEC’s medium- to long-term corporate value enhancement through such means as corporate governance, directors and members of the Audit & Supervisory Board and the business execution structure. By exchanging opinions with the International Integrated Reporting Council (IIRC), institutional investors and various other stakeholders, and reflecting their opinions in its reporting, NEC will continue to provide clearer and more useful information going forward. Reporting Period April 1, 2014 to March 31, 2015 (This report also includes information obtained after this reporting period) Scope of Report NEC Corporation and its Consolidated Subsidiaries Reference Guidelines • Global Reporting Initiative (GRI) “Sustainability Reporting Guidelines 4.0” • United Nations Global Compact • ISO 26000 NEC is a signatory to the United Nations Global Compact. Other Related Information • Earnings releases/annual securities report • Corporate Governance Report • Corporate Social Responsibility (CSR) • Annual Environmental Report • Information Security Report • Social Contribution Activities Evaluation by External Parties FTSE4Good Global Index Euronext Vigeo World 120 Index ETHIBEL PIONEER & EXCELLENCE STOXX ESG LEADERS Morningstar Socially Responsible Investment Index EcoVadis MSCI ACWI ESG Index MSCI World ESG Index Message from the President Sustainable Development At NEC, we ensure continual development of the NEC Group accountability. The Corporate Governance Code was and contribute to a sustainable society by implementing adopted in June, and the NEC Group will continue to bolster The NEC Way, a cohesive framework that outlines the NEC initiatives emphasizing dialogue with stakeholders as we Group’s management practices and operations. aim to ensure highly-effective corporate governance. We NEC is working to realize “an information society are also committed to keeping open communications with friendly to humans and the earth” as asserted in the NEC stakeholders to improve our operations and build Group Vision 2017, based on NEC’s Corporate Philosophy. relationships of trust. With belief that enterprises must contribute to the well- One of the ongoing practices began in 2005, when NEC being of society, everyone at NEC values moral and is became a signatory to the United Nations Global Compact committed to meeting compliance standards in daily (UNGC). NEC continues to conduct corporate business business operations and putting into practice the NEC activities in compliance with the ten principles in the areas Group Core Values. In doing so, the NEC Group aims to solve of human rights, labor, the environment, and anti-corruption social and environmental issues which affect people’s lives. based on the UNGC framework. It is also important to maintain proactive disclosure of NEC is also participating proactively in international activities and challenges to our stakeholders and fulfill frameworks such as “Transforming our world: the 2030 04 NEC CorporationAnnual Report 2015Management Policies Value Creation through Information and Communications Technology 効率 安心 目立たないところ で地球や社会を支 える 効率 持続可能な成長の 実現 公平 価値創造の手段 社会・お客様の 本質的価値の追求 ・ オープン 　イノベーション ・ パートナリング ・ ファイナンシング Agenda for Sustainable Development” that will be adopted 豊かな社会を実現するための 4つの提供価値 安全 国家から個人まで 幅広い安全に対応 by the United Nations this September, and we are striving a diverse culture where people from different backgrounds issues. To be an innovative company, it is vital to establish 安全 and different ideas can collaborate. Going forward, NEC will promote innovation as well as global leaders who will lead innovation to enhance societal value. 安心 to solve social issues through our “Solutions for Society.” The concept of innovation takes on a very important meaning in the context of NEC’s efforts to solve social ・ コンサルティング ・ 運用サービス など ICT アセット ビッグデータ SDN クラウド基盤 サイバーセキュリティ declared our commitment to transforming the NEC Group など into a “Social Value Innovator.” Through our “Solutions for In line with the “Mid-term Management Plan 2015,” we 新たな価値・ 市場の創造 Society.” 多様な格差や不公 as well as provide additional clarity for the “Solutions for 平の解消 公平 The NEC Group takes full advantage of Information and Society,” we are working to provide the values of safety, Communications Technology, or ICT to provide value, such as security, efficiency and equality. 6つのメガトレンド safety, security, efficiency and equality through the Observing the megatrends in the world, we see some “Solutions for Society.” We place particular importance on social problems are emerging, such as resources and three keywords: “real-time,” “dynamic,” and “remote.” This is 連鎖する資源・環境問題 新興国の成長と新たな課題 成熟社会モデルの模索 人口増加や都市化による水・食糧な どの消費拡大が、他の資源や環境に 新興国では急激な経済成長で、国力 拡大が進む一方、環境問題や資源不 because these are strengths rooted in the technologies and 先進国では少子高齢化 や設備老 朽 化などの変化が、現在の法制度や社 会システムの変革を迫る。 environmental issues, as well as growth in emerging 1 多大なインパクトを与える。 2 足などの新たな課題が発生。 3 countries. In the fiscal year under review, we have selected know-how that we have cultivated over the years, and the the areas in which we can contribute to solving problems, source of the value the NEC Group provides. 個の力の向上と影響力拡大 パワーの集中から拡散へ 多様化する脅威と安全安心ニーズ インターネットの発展で、個の影響力 がグローバルに拡大する一方、サイ 新興国や個の影響力の拡 大により、 世界は分散化し、新たなパワーバラ ンスで再構築される。 世界の大きな変化は、現実世界から サイバー空間まで多様な脅威を発生 させ、安全安心需要が向上する。 For example, in the field of Big Data utilization, new and we have established seven themes for social value 4 バーリスクなど懸念も広がる。 5 creation. Formulating these seven themes enables us to services leveraging ICT are being created. In these services, 6 further clarify the direction the NEC Group should pursue, massive amounts of data are processed and analyzed in real Seven Themes for Social Value Creation Quality of Life Sustainable Earth Work Style Real time Dynamic Remote Safer Cities & Public Services Industry Eco-System Lifeline Infrastructure Communication 05 NEC Corporation Annual Report 2015 time, and the analytics are applied to forecast future events NEC possesses many powerful technologies and and create dynamic solutions for our customers. Moreover, solutions in ICT, including face recognition technology with these services can be provided to the customers remotely. the world’s most accuracy, as well as in domains such as By pursuing the real-time nature of ICT, as well as its analytic engines, Big Data, SDN, cloud platform and safety. dynamism and remote properties, we provide social We will utilize ICT to link these technologies with individual solutions that contribute to the world through values of infrastructure systems and continue to contribute to the safety, security, efficiency and equality. building of infrastructure that offers new value. Maximizing Corporate Value In April 2013, we announced our “Mid-term Management as its know-how and cooperate with a variety of partners Plan 2015.” The first year of the plan was positioned as a to build a social infrastructure in 2020. Furthermore, we year for preparation, the second set as a year for delivering will focus on legacy-building achievements while results, and the third positioned as a year for growth. In the accelerating the development and expansion of “Solutions fiscal year ending March 31, 2016 (the upcoming fiscal for Society” that aims to create a more advanced social year), as the year of growth, we will focus on initiatives infrastructure through ICT. aimed at accelerating our growth strategy and improving As a social value innovator, NEC is committed to our profitability. delivering safety, security, efficiency and equality worldwide In addition, we believe it is necessary to reform our to connect to our own growth. We will continue to create corporate culture to increase corporate value over the long- new value to achieve our mid-term management plan and term horizon. At the NEC Group, there is a deeply-rooted realize our Group vision, together with the sustainable culture of providing prominent value to each client in a growth of society and the NEC Group in the future. customized manner. However, to be competitive on a global I look forward to your continued understanding and scale and grow our business, we must build up a single, support as we endeavor to reach our goals. common platform that we provide to multiple customers. Therefore, we will also work on establishing a business model that will be integrated into our corporate culture. June 2015 In terms of our initiatives over the medium to long-term span, we have concluded a partnership agreement with the Tokyo Organising Committee of the Olympic and Paralympic Games, and NEC has become a Gold Partner for the Tokyo 2020 Olympic and Paralympic Games (Tokyo 2020). Tokyo 2020 is an opportunity for Japan to evolve into a mature society, and also represents a chance for NEC to accelerate its transformation into a social value innovator through contributions primarily to Tokyo 2020's Specialist Public Safety Equipment & Software and Network Equipment that will help create a legacy* for solving social problems. NEC provides biometric authentication technologies including the face recognition technology, and the world's first commercialized SDN-based network solutions. We will leverage our track record in providing technologies as well Nobuhiro Endo President, NEC Corporation * Legacy: Tangible and intangible assets in sports, society(culture, education), environment, urban development, and economy that are built in cities and countries for the hosting of the Olympics and Paralympic Games 06 NEC CorporationAnnual Report 2015Management Policies Progress on “Mid-term Management Plan 2015” The fiscal year ended March 31, 2015 (the fiscal year under review) marked the second year of the “Mid-term Management Plan 2015,” and during the year we focused on business activities aimed at achieving growth. Having declared our intention to transform the NEC Group into a Social Value Innovator, we are engaging in businesses based on the three policies of focusing on “Solutions for Society,” focus on Asia and the promotion of ‘locally-led’ businesses, and stabilizing our financial foundation. We have positioned the fiscal year ending March 31, 2016 (the upcoming fiscal year), the final year of the mid-term management plan, as a year for growth. In the upcoming fiscal year, we will grow our businesses and create the launching point for the next mid-term management plan. In this feature, we introduce the achievements made during the second year of the mid-term management plan, as well as initiatives we will undertake in the third year. Main Initiatives and Performance in Fiscal 2015 (1) Focus on “Solutions for Society” NEC concentrates its management resources in “Solutions for Society,” and provides advanced social infrastructure using ICT (information and communications technology). We are transforming into a Social Value Innovator and aim to contribute to the realization of an affluent society, a society that ensures safety, security, efficiency and equality. Mid-term Management Policy (1) Focus on Solutions for Society Transformation into a “Social Value Innovator” • Focus management resources on businesses that advance social infrastructure through ICT • Create new business models with the understanding that social problems provide an opportunity for growth (2) Focus on Asia, Promotion of “Locally-led” Businesses Create a foundation for growth as a company able to compete globally • Focus on emerging and developing countries, in particular in Asia • Realize increased sensitivity to local needs, increased business speed (3) Stabilize Our Financial Foundation • Enhance cost competitiveness • Create an earnings structure that generates operating income of ¥150 billion and free cash flows of ¥100 billion • Use hybrid finance to ensure financial reserve Achieve an operating income ratio of 5% and an overseas sales ratio of 25% In the fiscal year under review, we focused on SDN (Software-Defined service. The strengths of our service are high cost performance, Networking), a next-generation network technology that provides strong performance, and high reliability. Furthermore, we will newly both efficiency and safety. In Japan, NEC was selected as the partner build the NEC Kobe Data Center to strengthen the domestic data vendor for NTT DOCOMO, INC.’s development of network virtualization center business. technology. We progressed on preparations for a large-scale trial on a In Big Data, we delivered a Predictive Monitoring and Diagnostics commercial network aimed at launching Virtualized Customer Premises System for large-scale plants to The Chugoku Electric Power Co., Inc. Equipment (vCPE) solutions for Telefónica Brasil, S.A. Already, NEC has This system detects abnormalities in equipment at an early stage and delivered more than 250 systems for a variety of customers, including provides information on locations of possible abnormalities, allowing hospitals, transportation systems, municipalities, telecom operators, time for repairs before a malfunction occurs. In the state of Texas in and data centers. the U.S., we worked on a project for a Water Leak Detection Service. In the cloud business, we utilized the NEC Kanagawa Data By combining high-precision sensors and the cloud, this service allows Center to expand sales of the “NEC Cloud IaaS” cloud platform water utilities to manage water resources at low cost. 07 NEC CorporationAnnual Report 2015In safety, in June 2014 we began full-scale operations of the Cyber Security Factory to support the comprehensive information security of approximately 100 companies. This facility was newly constructed as a core base for protecting information assets from cyberattacks. On the other hand, our face recognition technology, which supports a more secure society, was ranked No. 1 for the third consecutive time in benchmark testing performed by the U.S. National Institute of Standards and Technology (NIST). Our fingerprint recognition technology was also ranked highest in the industry. Finally, in smart energy, NEC delivered smart meter communication units for Tokyo Electric Power Company, Incorporated. We also established NEC Energy Solutions, Inc. in the U.S. as part of our effort to globally expand the energy storage business. M a n a g e m e n t P o l i c i e s Focus on Solutions for Society l Delivered backbone network using SDN to NEXCO-West, and the town of Nishihara in Okinawa Prefecture, Japan l Cooperating with KT Corporation in the SDN field l Conducted vCPE*1 trail with Telekom Austria l Selected as NTT DOCOMO, INC.’s partner for commercializing network virtualization technology l Established a strong global sales/support force with NetCracker in SND/NFV*2 l Formed a partnership with the Foxconn Technology Group for datacenter services l Telefónica Brasil, S.A. begin a massive trial using NEC’s vCPE solutions over the commercial broadband network SDN Big Data Safety/ Security Energy l Commenced full-scale operations of the “Cyber Security Factory” l Ranked first for facial recognition and fingerprint recognition in the benchmark test by NIST l Applied face recognition technology to a monitoring system in Tigre, Argentina l Provided an ID system for concert-goers using facial recognition technology l Delivered infrared thermography cameras as a countermeasure against Ebola l Built an integrated disaster-prevention system using the world’s first crowd behavior analysis technology for Toshima City Office, Tokyo l Delivered a Predictive Monitoring and Diagnostics System to the Shimane Nuclear Power Plant for Chugoku Electric Power Co., Inc. l Launched Water Leak Detection Service commercially for early leakage detection l Helped to launch smart waste collection service in Santander, Spain l Cooperating with Texas State University in a social infrastructure project including water management l Delivered a remote monitoring and maintenance system for an IHI Transport Machinery Co., Ltd. mechanical multistory parking lot l Delivered ‘NEC Cloud laaS’ to Cloud Sumitomo Life Insurance Group and Meiji Fresh Network Co., Ltd. etc. l Established NEC Energy Solutions, Inc. in U.S.A., a world leading EMS company l Commissioned a grid energy storage installation in the U.K. l Delivered 125 EV/PHV charging infrastructure to Tokyo Midtown in Japan *1 vCPE:virtualized Customer Premises Equipment *2 NFV:Network Functions Virtualization (2) Focus on Asia, Promotion of “Locally-led” Businesses The NEC Group is expanding international business with an aim to Technology Corp., provided Swisscom AG, a leading Swiss telecom company for Operational Support System or OSS. We also agreed establish a foundation for growth in Asia in particular, where there with Swisscom to discuss further for providing technology for next- is robust demand for social infrastructure. We are paying close generation Telecom Operations and Management Solutions attention to local needs and work to accelerate the development of (hereafter, TOMS) and Management and Network Orchestration “locally-led” businesses. (hereafter, MANO). During the fiscal year under review, in the telecom carrier Moreover, in the IT-related business, we began new businesses business, NEC worked on a number of large projects for submarine globally in both the IT and social infrastructure fields. During the cable systems in the Asia-Pacific region. In addition, we received an fiscal year under review, NEC integrated the public transportation order for the world’s first submarine cable system crossing the fare system of Dhaka (Bangladesh) and introduced facial recognition South Atlantic Ocean as well as an order from Zambia’s Zamtel for a technology into the urban surveillance system of Tigre (Argentina). large mobile backhaul project. NEC and its subsidiary, NetCracker We also participated in a smart waste collection management NEC Corporation Annual Report 2015 08 service in Santander (Spain), and provided managed IT service in Australia. These projects were obtained by offering the NEC Group’s technologies and expert solutions in a global market, and going forward, we will develop these as the pillars of our solutions for further growth. Main Initiatives in Global Business Greater China and APAC l Commenced demonstration tests for energy management system for mobile phone base stations in India l Deployed leading face recognition solution at Lemon Tree Hotels for advanced security l Provided face recognition technology to Surat City Police l Cooperating with KT Corporation in SDN field l Awarded an order to build New Trans-Pacific Cable System “FASTER” l Began construction of “SEA-US” (the South-East Asia-United States ) Cable System l Awarded an order to build a submarine cable system between Thailand l Delivered a transit fare system for public transportation in and Hong Kong Dhaka, Bangladesh l Built ICT infrastructure for the Myanmar International Convention Center l Implemented solutions for SMRT Corporation to enhance bus service excellence l Signed MOU with Singapore Economic Development Board to collaborate on cyber security, smart energy, health care and IoT l Implemented nationwide digital TV transmitters for Thai Public Broadcasting Service l Provided cloud service Obbligato for SaaS, to auto part and machine tool manufacturer in Thailand l Won a contract for management and provision of Centralised Processing facilities for the Australian Department of Defence l Awarded a next generation WiFi and video solution, “iPASOLINK EX” for public safety purposes from the Liverpool City Council, Australia l Won TOMS contract from Singtel Optus Pty Limited, an integrated telecommunications service provider in Australia EMEA l Collaborated with Arqiva with the BBC on a series of live trails of over-the-air 4K Ultra High Definition (UHD) broadcasts Americas l Delivered ICT system for a stadium in Natal, Brazil l Collaborated with Brazil’s largest TV network, for l Formed a partnership with Ymens to develop trustworthy government live 4K terrestrial broadcasting trial cloud services for Romania l Helped to launch smart waste collection service in Santander, Spain l Collaborated with Dacom B.V. on precision farming solution field tests in Romania l Awarded a contract for microcell backbone/ access from Zamtel, Zambia l Delivered infrared thermography cameras as a countermeasure against Ebola l Started large-scale trial on a commercial network aimed at launching vCPE solutions for Telefónica Brasil, S.A. l Applied face recognition technology for a monitoring system in Tigre, Argentina l Collaborating with the Mexican Space Agency in satellite development l Cooperating with Texas State University in a social infrastructure project l Built ICT rooms at schools and community centers in Colombia (3) Stabilize Our Financial Foundation In terms of building a stable financial foundation, the NEC Group To this end, NEC acquired 100% stakes of NEC Fielding, Ltd., in enhancing efficiency in system integration and services. aims to secure solid net income and consistently generate 100 Furthermore, we reorganized the domestic hardware and software billion yen of free cash flows per year by establishing stronger development and production offices, thereby strengthening profit structure. Furthermore, NEC hones cost competitiveness to “Solutions for Society.” We also established NEC Management accelerate its growth in a global market. Partner, Ltd. and initiated measures to improve business processes. 09 NEC Corporation Annual Report 2015 processes and reduce workload of indirect operations by 30%. We will allocate abundant resources from these initiatives into growth fields, such as businesses related to the Social Security and Tax Number System and the Tokyo 2020 Olympic and Paralympic Games, thereby achieving more efficient business management. In fiscal 2016, we will set the course of direction that the NEC Group can follow to achieve future growth, and create the next medium-term management plan. Going forward, our goal remains to contribute to realizing a better society by developing “Solutions for Society.” NEC is transforming into a “Social Value Innovator” to serve a broader range of stakeholders. Carrying Out NEC’s Growth Strategy In the “Mid-term Management Plan 2015,” the NEC Group has established “Solutions for Society,” as a focus business for global reach, and is advancing initiatives to deliver lasting growth. In the two years after our announcement of the midterm plan, we built stronger business portfolio with clearer focus areas. In the third and final year of the plan, we strive to make major contributions to markets. In looking back at the past two years, the environment has improved in domestic public infrastructure investment, including outdoor communications systems, initiatives related to fire prevention digital technology, and initiatives related to the adoption of the Social Security and Tax Number System in Japan. On the other hand, some markets were slower than we initially expected, namely, the launch of the market for SDN for telecom carriers and the launch of energy markets, which we had expected would expand significantly. Furthermore, the weakening of the yen resulted in higher materials costs, particularly in the system platform business. Taking these into consideration, in fiscal 2016, we will focus on accelerating growth strategies and improving profitability. With respect to accelerating the growth strategies, we plan to increase strategic investments in SDN and energy by ¥15 billion year on year in fiscal 2016, and boost both sales and profits of these businesses over the medium term. We will also increase the sales ratio of focus businesses, such as SDN, cloud, Big Data, safety, and smart energy, from 10% to 15% year on year. In terms of bolstering initiatives aimed at improving our level of profitability, we are taking initiatives to streamline business 10 NEC CorporationAnnual Report 2015Management Policies Message from the CFO Isamu Kawashima Executive Vice President, CFO (Chief Financial Officer) and Member of the Board Fiscal 2015 Performance The NEC Group recorded consolidated net sales of ¥2,935.5 billion for fiscal 2015, a decrease of ¥107.6 billion or 3.5% year on year. While the Public business saw an increase in sales, there was a decrease in the System Platform business. Also, sales of Others declined due to deconsolidation of the Internet service business and mobile phone sales business. Regarding profitability, consolidated operating income improved by ¥21.9 billion year on year, to ¥128.1 billion, mainly due to increased sales in the Public business and improved mobile phone business. Dividends and Returns to Shareholders Consolidated net income was ¥57.3 billion, a year-on-year improvement of ¥23.6 billion. Despite a decrease in subsidiaries and affiliates’ stock, there was improvement in operating income as well as in non-operating income including equity in earnings of affiliates and foreign exchange gain. In addition, there were minority interests in income from making NEC Fielding, Ltd. a wholly-owned subsidiary. As a result, return on equity (ROE) was 7.5%, a 2.7 percentage point improvement from the previous fiscal year. NEC intends to adopt a policy that best responds to the rapidly changing business environment. Thus, the Company considers, among other factors, the following in determining its cash dividends: the profits earned in the relevant fiscal year; the financial outlook for the following fiscal year, the dividend payout ratio, and the internal demand for funds such as capital expenditures. NEC attained the target for operating income and net income, and a dividend of ¥4 per share was issued as promised at the beginning of the period. For the fiscal year ending March 31, 2016, NEC plans for an annual dividend of ¥6 per share of common stock while no interim dividend will be paid. (Billion ¥) Net sales Overseas sales Overseas sales ratio Operating income Operating income ratio Net income Return on equity (ROE) Fiscal 2015 Financial State FY2014/3 Results FY2015/3 Initial plan Results 3,043.1 569.2 18.7% 106.2 3.5% 33.7 4.8% 3,000.0 120.0 4.0% 35.0 2,935.5 586.8 20.0% 128.1 4.4% 57.3 7.5% Total assets were ¥2,620.7 billion as of March 31, 2015, an increase of the end of the previous fiscal year to ¥1,576.8 billion, mainly due to an ¥115.3 billion compared with the end of the previous fiscal year. Current increase in accounts receivable-trade. assets as of March 31, 2015 increased by ¥73.9 billion compared with 11 NEC CorporationAnnual Report 2015 Noncurrent assets as of March 31, 2015 increased by ¥41.4 As a result, the owner’s equity as of March 31, 2015 was ¥823.7 billion compared with the end of the previous fiscal year to ¥1,043.9 billion, mainly due to increased retirement benefit assets. Total liabilities as of March 31, 2015 decreased by ¥1.2 billion compared with the end of the previous fiscal year, to ¥1,736.5 billion. The balance of interest-bearing debt amounted to ¥520.8 billion, a decrease of ¥54.4 billion compared with the end of the previous fiscal year. The debt-equity ratio as of March 31, 2015 was 0.63, an improvement of 0.20 points compared with the end of the previous fiscal year. The balance of net interest-bearing debt as of March 31, 2015, calculated by offsetting the balance of interest- bearing debt with the balance of cash and cash equivalents, amounted to ¥339.6 billion, a decrease of ¥28.9 billion compared with the end of the previous fiscal year. The net debt-equity ratio as of March 31, 2015 was 0.41, an improvement of 0.12 points compared with the end of the previous fiscal year. Total net assets were ¥884.2 billion as of March 31, 2015, an increase of ¥116.5 billion compared with the end of the previous fiscal year, mainly due to the recording of net income and an increase in the remeasurements of defined benefit plans for the fiscal year ended March 31, 2015. billion and owner’s equity ratio was 31.4%, an improvement of 3.6 points compared with the end of the previous fiscal year. Net cash inflows from operating activities for the fiscal year ended March 31, 2015 were ¥87.9 billion, a worsening of ¥6.2 billion compared with the previous fiscal year, mainly due to worsened working capital. Net cash outflows from investing activities for the fiscal year ended March 31, 2015 were ¥47.5 billion, an increase of ¥8.6 billion as compared with the previous fiscal year. This was mainly due to increased outflows for business acquisitions, while in the same period of the previous fiscal year, the acquisition of trust beneficiary rights set to land and buildings of the NEC Group’s Tamagawa business facilities was offset by cash inflows from the gain on sales of subsidiaries and affiliates’ stocks. As a result, free cash flows, the sum of cash flows from operating activities and investing activities for the fiscal year ended March 31, 2015 totaled a cash inflow of ¥40.4 billion, a decrease of ¥14.8 billion year on year. Net Debt-Equity Ratio Owner’s Equity, Owner’s Equity Ratio Operating Cash Flows, Investment Cash Flows, Free Cash Flows (Billion ¥) 823.7 150.0 143.7 (Billion ¥) 900.0 757.1 0.67 0.62 0.57 0.53 (times) 0.8 0.6 0.4 0.2 710.7 695.9 657.0 0.41 600.0 28.8% 27.5% 27.8% 31.4% 25.7% 300.0 100.0 83.9 94.1 87.9 50.0 33.7 34.2 42.0 55.2 40.4 0 –112.6 –146.2 –49.7 –38.9 –47.5 –101.7 0 2011 2012 2013 2014 2015 (At year-end) 0 2011 2012 2013 2014 Owner’s Equity Owner’s Equity Ratio 2015 (At year-end) –200.0 2011 2012 2013 2014 2015 Operating Cash Flows Free Cash Flows Investment Cash Flows Initiatives for Fiscal 2016 NEC has achieved year-beginning targets for operating income and The NEC Group is preparing for the voluntary adoption of net income for the past three years consecutively, including the International Financial Reporting Standards (IFRS) from the fiscal year under review, and is shaping a structure capably of recording year ending March 31, 2017, to enhance the international stable profits in addition to focusing on “Solutions for Society.” The comparability of its financial information in capital markets. business plan for the year ending March 31, 2016, the final year of At NEC, we will continue with our initiatives in establishing a the “Mid-term Management Plan 2015,” is to accelerate in strategic strong finance foundation. In doing so, we aim to achieve initial investments necessary for NEC to enter its growth trajectory. This targets in the upcoming fiscal year, and to record results in will enable well-balanced business portfolio centered on sales and accordance with a year for growth. earnings growth in target domains or overseas to grow, and achieve better profitability and improved cash flows. 12 NEC CorporationAnnual Report 2015Management Policies Performance Highlights NEC Corporation and Consolidated Subsidiaries For the years ended or at year-end of March 31, 2010, 2011, 2012, 2013, 2014 and 2015 NEC Electronics Corporation became an equity-method affiliate The consumer PC business became an equity-method affiliate Transferred NEC Mobiling, Ltd. 3,583.1 Net sales 3,115.4 3,036.8 3,071.6 Sales of the current businesses 2,600.0 2,550.0 50.9 57.8 Operating income 2,730.0 114.6 2,630.0 73.7 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,583,148 ¥3,115,424 ¥3,036,836 ¥3,071,609 2010 2011 2012 Millions of yen 2013 Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712,886 Percentage of international sales to consolidated net sales (%) . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures (property, plant and equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation (property, plant and equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per share data (in yen and U.S. dollars): Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on equity (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner’s equity ratio (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt-equity ratio (times) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CO2 emissions reduction by providing IT solutions (thousand tons) . . . . Improvement in energy efficiency of products (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.9 50,905 49,429 11,428 134,816 (41,241) 93,575 275,970 83,098 111,167 5.04 4.00 2,937,644 790,904 1.6 26.9 729,548 0.92 310 142,358 1,900 44 479,349 15.4 57,820 41 (12,518) 33,660 (146,244) (112,584) 176,514 52,850 62,097 481,492 15.9 73,742 42,050 (110,267) 83,857 (49,706) 34,151 161,968 41,980 53,306 (4.82) 0.00 (42.44) 0.00 2,628,931 757,054 — 28.8 675,798 0.89 283 115,840 2,120 53 2,557,570 656,956 — 25.7 692,734 1.05 265 109,102 2,310 66 483,118 15.7 114,647 92,024 30,434 143,748 (101,742) 42,006 151,676 45,614 51,167 11.71 4.00 2,580,966 710,666 4.5 27.5 603,451 0.85 270 102,375 2,980 64 13 2014 2015 ¥3,043,114 ¥2,935,517 Millions of U.S. dollars 2015 $24,463 4,890 Percent change 2015/2014 –3.5% 3.1 1,067 934 478 733 (396) 337 1,118 312 404 0.18 0.03 21,839 6,864 20.6 62.1 69.8 –6.6 — –26.8 -6.0 -62.1 7.4 69.7 0.0 4.6 18.3 520,778 4,340 –9.5 569,172 18.7 106,193 69,152 33,742 94,124 (38,893) 55,231 142,723 98,708 45,167 12.99 4.00 2,505,329 695,949 4.8 27.8 575,151 0.83 258 100,914 2,290 75 586,844 20.0 128,084 112,112 57,302 87,917 (47,510) 40,407 134,205 37,425 48,518 22.05 4.00 2,620,652 823,650 7.5 31.4 0.63 232 98,882 2,540 91 NEC CorporationAnnual Report 2015Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,583,148 ¥3,115,424 ¥3,036,836 ¥3,071,609 Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712,886 2010 2011 2012 Millions of yen 2013 Percentage of international sales to consolidated net sales (%) . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures (property, plant and equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation (property, plant and equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per share data (in yen and U.S. dollars): Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on equity (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner’s equity ratio (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt-equity ratio (times) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CO2 emissions reduction by providing IT solutions (thousand tons) . . . . Improvement in energy efficiency of products (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.9 50,905 49,429 11,428 134,816 (41,241) 93,575 275,970 83,098 111,167 5.04 4.00 2,937,644 790,904 1.6 26.9 729,548 0.92 310 142,358 1,900 44 479,349 15.4 57,820 41 (12,518) 33,660 (146,244) (112,584) 176,514 52,850 62,097 2,628,931 757,054 — 28.8 675,798 0.89 283 115,840 2,120 53 481,492 15.9 73,742 42,050 (110,267) 83,857 (49,706) 34,151 161,968 41,980 53,306 2,557,570 656,956 — 25.7 692,734 1.05 265 109,102 2,310 66 483,118 15.7 114,647 92,024 30,434 143,748 (101,742) 42,006 151,676 45,614 51,167 11.71 4.00 2,580,966 710,666 4.5 27.5 603,451 0.85 270 102,375 2,980 64 (4.82) 0.00 (42.44) 0.00 Stopped the development of new smartphone models Divested NEC BIGLOBE Ltd. (Billion ¥) 2,935.5 128.1 3,043.1 2,890.0 106.2 2014 2015 ¥3,043,114 ¥2,935,517 569,172 18.7 106,193 69,152 33,742 94,124 (38,893) 55,231 142,723 98,708 45,167 12.99 4.00 2,505,329 695,949 4.8 27.8 575,151 0.83 258 100,914 2,290 75 586,844 20.0 128,084 112,112 57,302 87,917 (47,510) 40,407 134,205 37,425 48,518 22.05 4.00 2,620,652 823,650 7.5 31.4 520,778 0.63 232 98,882 2,540 91 Key Management Measures l Measures to restructure business portfolio n Measures to grow business and strengthen financial foundation Year ended March 31, 2011 l Made the semiconductor business NEC Electronics Corporation, currently Renesas Electronics Corporation, into an equity- method affiliate Year ended March 31, 2012 l Made the consumer PC business into an equity-method affiliate n Acquired Global View S.A., which provides video surveillance services in Argentina Year ended March 31, 2013 n Acquired the business support system business of U.S.-based Convergys Corporation n Acquired IT service business of Australia-based CSG Limited l Made NEC TOKIN Corporation into an equity-method affiliate Year ended March 31, 2014 l Divested the Group’s equity stakes in NEC Mobiling, Ltd., currently MX Mobiling, Co., Ltd., a mobile phone business l Stopped the development of new smartphone models in mobile phone business Year ended March 31, 2015 (fiscal year under review) l Divested the Group’s equity stakes in NEC BIGLOBE Ltd. currently BIGLOBE, Inc., an Internet Service Provider in March, 2014 n Made NEC Fielding, Ltd., a network operation and maintenance service provider, a wholly-owned subsidiary n Established NEC Solution Innovators, Ltd. in a reorganization of seven software subsidiaries n Established NEC Platforms, Ltd. in a reorganization of four hardware development and manufacturing companies n Established NEC Management Partner, Ltd. in a reorganization of four staff service subsidiaries n Completed acquisition of storage system business to power companies and established NEC Energy Solutions, Inc. in North America Millions of U.S. dollars 2015 $24,463 4,890 Percent change 2015/2014 –3.5% 3.1 1,067 934 478 733 (396) 337 1,118 312 404 0.18 0.03 21,839 6,864 20.6 62.1 69.8 –6.6 — –26.8 -6.0 -62.1 7.4 69.7 0.0 4.6 18.3 4,340 –9.5 Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥120 = U.S.$1. 2. Net income (loss) per share is calculated based on the weighted- average number of shares outstanding during each period. 3. Owner’s equity is the sum of total shareholders’ equity and total accumulated other comprehensive income. 4. The debt-equity ratio is calculated by dividing interest-bearing debt by owner’s equity. 5. Improvement in energy efficiency of products is based on a comparison with the year ended March 31, 2006. 14 NEC CorporationAnnual Report 2015Business Activities for Value Creation At a Glance NEC Corporation and Consolidated Subsidiaries Net sales, operating income and composition of sales are financial results for the year ended March 31, 2015. Public Business Net sales Operating income Main customers 821.9 billion yen 74.8 billion yen Government, public, healthcare, finance and media Major Products and Services Composition of sales Systems Integration (Systems Implementation, Consulting), Maintenance and Support, Outsourcing/Cloud Services, 28% System Equipment Examples of Solutions by Business Sector/Industry Government: Social Security and Tax, Fingerprint Identification, Air Traffic Control, Satellite Communications/ Earth Observation, Outdoor Communication Enterprise Business Net sales Operating income Main customers 270.5 billion yen 8.3 billion yen Manufacturing, retail and services Telecom Carrier Business Net sales Operating income Main customers 740.2 billion yen 62.0 billion yen Telecom carriers System Platform Business Net sales Operating income 728.9 billion yen 31.4 billion yen Others Net sales Operating income 374.1 billion yen 4.0 billion yen Major Products and Services Composition of sales Systems Integration (Systems Implementation, Consulting), Maintenance and Support, Outsourcing/Cloud Services 9% Composition of sales Network Infrastructure Major Products and Services Core Network, Mobile Phone Base Stations, Submarine Systems (Submarine Cable Systems, Ocean Observation Systems), Optical Transmission Systems, Routers/Switches, Mobile Backhaul (“PASOLINK”) 25% Composition of sales Hardware Major Products and Services Servers, Mainframes, Supercomputers, Storage, Business PCs, Tablet Devices, POS, ATMs, Control Equipment, Wireless LAN 25% Routers, Displays, Projectors Software Integrated Operation Management, Application Servers, Security and Database Software Composition of sales Smart Energy Major Products and Services (Electrodes/Energy Storage Systems, Energy Management Systems, EV/PHV Charging Infrastructure, AMI*, Solutions for Utilities) 13% Mobile Phones Lighting Equipment * AMI (Advanced Metering Infrastructure): A communications unit for smart meters 15 NEC CorporationAnnual Report 2015 Public: Local Government, School/Education, Postal Tracking, Firefighting Command, Firefighting Emergency Radio Systems, Disaster Major Consolidated Subsidiaries NEC Facilities, Ltd. Prevention, Traffic Control, Railroad Communication, Infrastructure NEC Engineering, Ltd. Surveillance/Energy Management Healthcare: Electronic Medical Record, Regional Healthcare Information Network Finance: Banking, Business Branch Systems Media: TV Program Production/News Production/Transmission Systems, Digital TV Transmitters NEC Network and Sensor Systems, Ltd. NEC Space Technologies, Ltd. Nippon Avionics Co., Ltd. Examples of Solutions by Business Sector/Industry Manufacturing: Global SCM, Product Lifecycle Management, Production Major Consolidated Subsidiaries ABeam Consulting Ltd. Management, Sales Management Retail and Services: Retail Systems for Stores and Head Offices, Logistics Management Services & Management Telecom Operations & Management Solutions (TOMS), Services/Solutions Major Consolidated Subsidiaries NEC Network Products, Ltd. NEC Communication Systems, Ltd. OCC Corporation NEC Networks & System Integration Corporation NetCracker Technology Corp. Enterprise Network Solutions IP Telephony Systems, WAN/Wireless Access Equipment, LAN Products Services Data Center Infrastructure, Maintenance and Support Major Consolidated Subsidiaries NEC Platforms, Ltd. NEC Fielding, Ltd. NEC Display Solutions, Ltd. NEC Embedded Products, Ltd. Major Consolidated Subsidiaries NEC Energy Devices, Ltd. NEC Energy Solutions, Inc. NEC Mobile Communications, Ltd. NEC Lighting, Ltd. NEC Nexsolutions, Ltd. NEC Management Partner, Ltd. B u s i n e s s A c t i v i t i e s f o r V a l u e C r e a t i o n NEC Corporation Annual Report 2015 16 Review of Operations Public Business In the public business, we provide safe, secure and efficient social solutions for domestic and foreign governments, governmental agencies, local governments, public institutions, financial institutions and other organizations by combining our distinctive technology assets, including network and sensor technologies and analysis technology, with a broad expertise in systems integration. Tomonori Nishimura Executive Vice President Fiscal 2015 Performance In the public business, sales were ¥821.9 billion, an increase of 11.3% year on year, due to large projects for government agencies including a field communication system, and high demand in wide-area disaster prevention digitization of firefighting emergency radio system. Operating income improved ¥16.2 billion year on year to ¥74.8 billion, mainly owing to increased sales. Fiscal 2015 Main Accomplishments In addition to responding to large projects and special demand, NEC strengthened technologies and productivity in growth areas and developed solutions to return concrete results. Strengthening Technical Capabilities and Productivity Ranked first for facial recognition and fingerprint identification in the benchmark test by the U.S. National Institute of Standards and Technology (NIST) Began operations at the Satellite Integration Center, where satellites are assembled, assessed and tested among other things Commenced full-scale operations of the Cyber Security Factory to support the implementation and operation of cyberattack countermeasures to protect customers’ information assets Solutions Development Launched network solutions supporting the Social Security and Tax Number System in preparation of local governments starting their procurements related to the system Launched the Water Leak Detection Service using cutting-edge technologies from collection and analysis of Big Data to detect leaks in water pipes rapidly and minutely Launched the NeoFace Monitor security software to prevent illegal access to PCs by requiring facial recognition to log on Specific Results Delivered the Predictive Monitoring and Diagnostics System to The Chugoku Electric Power Co., Inc. for use in the No. 2 reactor at the Shimane Nuclear Power Plant Delivered backbone network using SDN to West Nippon Expressway Company Limited (NEXCO-West) Provided an ID system for concert-goers using facial recognition technology Built an integrated disaster-prevention system using the world’s first crowd behavior analysis technology for Toshima City Office, Tokyo Sales (Billion ¥) 1,000.0 800.0 600.0 400.0 200.0 Operating Income, Operating Income Ratio (Billion ¥) 80.0 60.0 58.658.6 821.9 738.4 738.4 680.7 49.0 7.9% 9.1% Large-scale space chamber at the Satellite Integration Center Cyber Security Factory 40.0 7.2% 20.0 0 2013 2014 2015 0 2013 2014 2015 Operating Income Operating Income Ratio NeoFace Monitor, PC security software using facial recognition 17 NEC Corporation Annual Report 2015 For Future Growth OPPORTUNITIES NEC’S RESPONSE Activated domestic investments in preparation for the introduction of the National ID number system and hosting of the Tokyo 2020 Olympic and Paralympic Games Expanded investment in urban infrastructure centered on emerging countries/Measures against degradation of infrastructure THREAT FACTORS Loss of opportunities from a shortage of resources Take a proactive approach to domestic customers by leveraging our strengths in sensors, networks, IT and other fields Enter international markets with competitive solutions including Predictive Monitoring and Diagnostics System, water management solutions, complete airport solutions, cyber security and biometrics Effectively leverage resources, including the standardization of devel- opment processes Business Environment ICT investment in Japan is on the road to recovery and there is a tailwind of support for social infrastructure projects ahead of the January 2016 implementation of the Social Security and Tax Number System in which individual numbers will start being used, and the Tokyo 2020 Olympic and Paralympic Games. In the international market, meanwhile, demand for constructing new infrastructures is arising at cities in newly emerging countries, while in developed countries there are needs for infrastructure diagnostics and preventative preservation to counter degradation of existing infrastructures. It is estimated that markets for transport, water and energy will expand in particular. NEC's Issues and Responses Under this business environment, NEC works to expand sales by responding to demand unique to Japan in the Social Security and Tax Number System, regional revitalization, national resilience projects, and the New Basic Plan on Space Policy. In addition, with initiatives taken in focus businesses in Japan and overseas such as Big Data, SDN, cloud-based services and safety, we will establish new businesses that will provide a foothold for growth going forward. NEC carried out field trials with customers and delivered systems. Our initiatives include the Predictive Monitoring and Diagnostics System (PMDS), a safe operation system for large-scale facilities that detects equipment irregularities at the predictive stage; a Water Leak Detection Service that inspects and efficiently manages waterway leaks; and complete airport solutions that support air traffic control through to service facilities within airports for safe Medium- to Long-Term Value Creation and smooth operations. Moreover, we are steadily expanding results of the Cyber Security Factory, which protects customers’ information assets from cyberattacks. Currently, we are providing security monitoring services to about 100 companies. Additionally, NEC holds the world’s most accurate facial and fingerprint identification technologies, and we are expanding the applications of the technologies with immigration control and urban surveillance to applications such as verifying people entering concert halls and preventing illegal access to PCs. On the other hand, NEC acknowledges possible risks of losing business opportunities due to resource shortage in system integration. In response, NEC is working to standardize development processes to enhance efficiency. The public business is largely related to social infrastructure, and the projects are characteristically long in life cycle. As a result, it is important to conduct business development with future outlook in an early state to deliver medium- to long-term growth. To this end, we initiated the development of a Water Leak Detection Service for a local government in the state of Texas, U.S.A. which then led to initiatives such as conducting joint research on social infrastructure projects with Texas State University in fields other than detection of water leaks. We will expand growth on a global scale by steadily commercializing these initiatives and continuing activities that produce results. Going forward, NEC will proactively propose solutions incorporating cutting-edge technology in response to market opportunities, including the Tokyo 2020 Olympic and Paralympic Games. Furthermore, we will accelerate the transformation as a service provider in the ICT field for global development, while focus on building business models that are competitive in the international market. 18 NEC CorporationAnnual Report 2015Business Activities for Value Creation Enterprise Business NEC provides IT solutions in manufacturing and retail/services in the private sector, launching new services to help create new value for customers. In particular, we are accelerating development in the total supply chain management (SCM) business for manufacturing, retail and logistics worldwide as it will be a growth field going forward. Chikara Ishii Senior Vice President Fiscal 2015 Performance In the enterprise business, sales decreased 0.7% year on year to ¥270.5 billion. While sales to the retail and services showed solid growth, sales to the manufacturing sector decreased. Operating income improved by ¥1.8 billion year on year to ¥8.3 billion, owing to cost reduction and the improved profitability of system integration services, despite reduced sales. Fiscal 2015 Main Accomplishments NEC provides “NEC Global Enterprise Solutions”, an integrated solution based on our strong track record in Japan and prominent services. In fiscal 2015, NEC expanded its sales and services globally in addition to Japan. To Create Supported Pioneer Corporation for a project to renew the global SCM system Provided cloud based PLM*1 service "Obbligato for SaaS" for a Thai automotive component and harvesting machinery manufacturer To Transport Launched global sales of the Logistics Visualization System software that enables transparent logistics process Provide Yamato System Development Co., Ltd. with a system to support product inspection, which utilizes image recognition technology Launched a project to integrate the traffic fare system in Dhaka, Bangladesh To Sell Enhancement of chain store solutions for retailers worldwide: Cost-effective touch screen POS and software Launched cloud service for car dealerships in emerging markets Renewed the management system for the Universal Express® Pass of Universal Studios Japan®*2 *1 PLM: Product Lifecycle Management *2 NEC is an official marketing partner of Universal Studios Japan®. ® Universal Studios. CR15-2523 272.3 272.3 270.5 251.6 Sales (Billion ¥) 300.0 200.0 100.0 0 2013 2014 2015 19 NEC Corporation Annual Report 2015 Operating Income, Operating Income Ratio (Billion ¥) NEC Global Enterprise Solutions System 10.0 8.0 6.0 4.0 2.0 0 6.56.5 5.5 2.2% 2.4% 3.1% 2013 2014 2015 Operating Income Operating Income Ratio Retail Logistics Manufacturing In-Store Operation, Merchandising, CRM, Payment Logistics Visualization System ERP/SCM/MES, PLM, M2M, Electronics Design and Development Support Hospitality Automotive Cross Industry Smart Hospitality Dealer Management System ERP, Business Consulting Services, LCM Service For Future Growth OPPORTUNITIES NEC’S RESPONSE Recovery in IT investment in Japan as domestic corporate business performance improves Japanese business models for convenience stores and retail services to be further deployed in the international markets THREAT FACTORS Cost competition to intensify in Japan Leverage NEC’s unique technologies to develop value chain innovations Expand “NEC Global Enterprise Solutions” that reflect our strengths and track record in Japan and international market Reduce costs through further cost management Business Environment In Japan, IT investments are expected to improve with recovery in the performance of domestic companies though some industries show weaker momentum than others. It is notable that IT investments that contribute to a customer’s business growth or to create new business for customers have gained vigor. Furthermore, markets are projected to expand for enterprise SDN, which has already entered a period of widespread adoption, and security, in addition to Big Data utilization and cloud-based services. That said, the IT market for private-sector demand in Japan is highly competitive, and slips easily into price competition. As a result, securing profits remains a challenge in these fields. Globally, there are opportunities to broaden business with Japanese companies making inroads to emerging countries, or an expansion in local markets. NEC's Issues and Responses On the basis of this business environment, NEC is responding with ongoing efforts to reduce costs through cost management to improve profitability of the Enterprise Business. In addition, we continue to establish the competitive “Solutions for Society” by accelerating the value chain innovations of “to create, transport and to sell” to deliver the “Solutions for Society” closest to people’s lives and lifestyles. Furthermore, in addition to expanding SDN solutions to accelerate business development in the SDN market, NEC is leveraging its unique technologies to focus on growth areas: security solutions such as measures against targeted attacks, information leaks and corporate response to the Social Security and Tax Number System; failure sign monitoring systems and demand forecasts using Big Data; and cloud services catered to customers’ needs. In expanding global business, NEC sets “NEC Global Enterprise Solutions,” a set of strong solutions with prominent track records in Japan, as its core solutions. With it, we will move ahead to grow in Asian market. Medium- to Long-Term Value Creation Improving profitability is the key factor for the medium- to long- term growth of the Enterprise Business. NEC is approaching this by shifting the business model of the Enterprise Business. This includes that in addition to increasing the ratio of upstream processes such as consulting in the systems integration business, we will move ahead with packaging and toward cloud-based services centered on growth areas. This will entail converting the traditional customization model to a business model premised on horizontal development. Globally, NEC will further expand “NEC Global Enterprise Solutions” and strengthen the business by leveraging the expertise of Regional Business Support Centers (RBSC) in global development. We aim to broaden target regions and industries, and create new businesses in the international market. 20 NEC CorporationAnnual Report 2015Business Activities for Value Creation Telecom Carrier Business In the telecom carrier business, we supply equipment mainly to telecom carriers for network implementation, along with network control platform systems and operating services. NEC’s wealth of experience in large-scale network implementation and strong technical capabilities contribute to the development of highly reliable communications networks. Shunichiro Tejima Executive Vice President Fiscal 2015 Performance In the telecom carrier business, sales were ¥740.2 billion, an increase of 2.0% year on year, thanks to increased international business through submarine cable systems and mobile backhaul even as Japanese sales were flat. Operating income improved by ¥1.6 billion year on year, to ¥62.0 billion owing to increased sales and streamlined costs, despite accelerated investment in growth fields such as software-defined networking (SDN) and Telecom Operations & Management Solutions (TOMS),. Fiscal 2015 Main Accomplishments We focused on expanding sales in the international markets and in new growth areas such as TOMS and SDN. We are also ahead of our peers in Japan with our response to new technologies. SDN/NFV* Strengthened the global structure in the SDN/NFV field for telecom carriers with NetCracker Technology Corp. Worked together with a leading South Korean telecom carrier, KT Corporation in the SDN field Implemented vCPE trials with the Telekom Austria Group TOMS Received an order for an operational support system from major Australian telecom carrier Singtel Optus Pty Limited Completed an OSS development project for the main service division of Swisscom AG and are jointly exploring further expanding the scope of next-generation TOMS and MANO Submarine Cable Systems Won an order for the FASTER submarine cable system linking Japan and the U.S. Won an order for the SEA-US submarine cable system linking Southeast Asia and the U.S. Concluded a contract for SACS, the world’s first submarine cable system for the South Atlantic Japan Delivered LTE-A base stations Cooperated with NTT DOCOMO, INC. on 5G testing * NFV: Network Functions Virtualization 709.3 725.8 725.8 740.2 Sales (Billion ¥) 800.0 600.0 400.0 200.0 Operating Income, Operating Income Ratio (Billion ¥) 71.6 60.360.3 10.1% 8.3% 8.4% 80.0 60.0 40.0 20.0 0 2013 2014 2015 0 2013 2014 2015 Operating Income Operating Income Ratio An iPASOLINK established in Thailand’s Nakhon Sawan Province 21 NEC Corporation Annual Report 2015 For Future Growth OPPORTUNITIES NEC’S RESPONSE Expansion of global communications infrastructure market in the emerging nations Strong need to reduce capital investments and operating costs as communications infrastructure becomes more complex THREAT FACTORS Maturation of the Japanese market and increased competition from global vendors Business Environment Global marketing of solutions such as TOMS and SDN that reduce capital investments and operating costs for customers Maintain domestic advantage through prompt response to advanced technologies The environment for business targeting telecom carriers is expected to be severe in Japan by a matured market in which we expect to see a decrease in investments in network infrastructure. Furthermore, we expect that competition will intensify as markets become increasingly borderless. Globally, however, the market is expected grow particularly in emerging countries, backed by a steady increase in needs for network infrastructure. In addition, services such as TOMS, which contributes to reducing customers’ operating costs, are expected to grow. Moreover, while the market launch of SDN/NFV is delaying, telecom operators are working steadily in commercial application of the service, which is expected to trigger significant changes in the telecom carrier business. NEC's Issues and Responses Amid such an operating environment, NEC will firmly maintain its domestic advantage in the intensifying global competition by promptly providing network devices with advanced technologies to our customers. In the international market, we will growth in existing businesses such as submarine cable systems and mobile backhaul in response to the need for infrastructure expansion. Furthermore, we have positioned TOMS and SDN/NFV as focus fields, and we will contribute to our customers in and outside of Japan in cutting their capital expenditures and operating costs. For SDN/NFV, in particular, we acknowledge that establishing a prominent position in the newly commercialized market is important in expanding our business when the market starts to grow. To this end, we are investing in development and sales resources to accelerate business development. Medium- to Long-Term Value Creation Medium-to long-term growth in the telecom carrier business relies on an extension of steady growth in TOMS and the rapid commercialization of SDN/NFV. We expect to see demand in the TOMS market to grow in response to advancing network operation controls going forward. NEC will expand business with its subsidiary NetCracker Technology Corp. For telecom carrier SDN/NFV, we believe that obtaining rapid commercialization results will expand business opportunities among global telecom carriers. To this end we will actively move forward with proposal, and field tests for Telefónica Brasil, S.A. and other global carriers. Furthermore, in preparation for the full-scale commercialization of SDN/NFV for telecom carriers going forward, we have collaborated with NetCracker Technology in strengthening the global sales expansion network for SDN/NFV solutions. Looking ahead, NetCracker Technology has been delivering to more than 250 companies in 58 countries, utilizing solution selling methods cultivated by marketing TOMS to accelerate proposal activities directed at telecom carriers across the globe. 22 NEC CorporationAnnual Report 2015Business Activities for Value Creation System Platform Business In the system platform business, we provide products for business, ranging from terminals to network and computer equipment, software products and service platforms, as well as solutions and services based on them. Our solution platforms, which organically combine these products, solutions and services, reduce labor and improve efficiency for customers, while at the same time creating new value based on ICT. Shinichi Shoji Executive Vice President Fiscal 2015 Performance In the system platform business, sales were ¥728.9 billion, a decrease of 6.6% year on year, due to the special demand for corporate PCs that occurred in the previous fiscal year and the reduction of enterprise networks. Operating income was ¥31.4 billion, an increase of ¥0.7 billion year on year due mainly to structural reforms in enterprise networks and integration of NEC Fielding, Ltd. in spite of the rapid devaluation of the yen. Fiscal 2015 Main Accomplishments We strengthened the business in growth areas such as cloud platforms and SDN, as well as bolstered the profit structure. Reinforcing Profitability The new company NEC Platforms, Ltd. integrated development and production functions of subsidiaries to strengthen production capabilities Improved business operations by making NEC Fielding, Ltd. a wholly owned subsidiary Growth Areas Began development of the next-generation vector supercomputer aiming for performance more than 10 times greater than existing models Commenced operations at NEC Cloud IaaS/Kanagawa Data Center Strengthened SDN strategies for the private sector, government agencies and data center operators (reinforced the “NEC SDN Solutions” system) Existing Areas Achieved the leading share in 2014 enterprise telephony equipment market in Japan and the third largest share worldwide*1 The “Express5800 series” PC server lineup achieved the No. 1 share*2 in the Japanese market for the 19th consecutive year *1 Source: Gartner, "Market Share: Enterprise Telephony Equipment, Worldwide 2014," 17 March 2015 (Seat License Shipment base) Graph created by NEC, based on research by Gartner The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of Annual Report 2015) and the opinions expressed in the Gartner Report(s) are subject to change without notice. *2 Source: CY1996-2014 Japan x86 Server Market (Unit, Factory Revenue (Yen)) Source: IDC, Worldwide Quarterly Server Tracker 2015Q1 IDC declares a statistical tie in the server market when there is less than one percent difference in the factory revenues of two or more vendors. Operating Income, Operating Income Ratio (Billion ¥) Global Share of Enterprise Telephony Equipment (Worldwide Market Share CY2014)*1 Sales (Billion ¥) 780.8 780.8 800.0 744.4 728.9 600.0 400.0 200.0 40.0 30.0 20.0 10.0 32.7 30.730.7 Others 49.0% 4.4% 3.9% 4.3% Company D 6.5% 0 2013 2014 2015 0 2013 2014 2015 Operating Income Operating Income Ratio 23 NEC Corporation Annual Report 2015 Company A 14.4% Company B 11.9% NEC 10.3% Company C 7.9% For Future Growth OPPORTUNITIES NEC’S RESPONSE Popularization and expansion of cloud services and Big Data due to the uptake of the IoT Expansion of demand for security THREAT FACTORS Price competition to intensify in the general-purpose market Costs to increases due to weak yen Accelerate creation of new services in growth areas such as Big Data and cloud services Create solution platforms in preparation for the IoT Maintain cost competitiveness through further cost reductions and development cost efficiency Business Environment The environment encompassing the system platform business has become increasingly harsh in recent years with customers seeking lower costs particularly in the general-purpose hardware. Added to that, costs rose in the latter half of fiscal 2015 due to the rapid yen depreciation, which is expected to continue through fiscal 2016. On the other hand, the market is expected to grow in areas that can strengthen competitiveness and cost reductions for customers. These include cloud platforms, SDN, Big Data and security, and advanced information processing platforms supporting the enormous amounts of digital data generated by the popularization of the IoT (Internet of Things) going forward. NEC's Issues and Responses To provide strong ICT assets as a foundational business and support business units in promoting the “Solutions for Society” amid such an operating environment, the System Platform Business Unit will streamline costs and expenses by standardizing parts used in various types of hardware. Moreover, we are reforming the development and production framework to raise cost competitiveness and maintain our position in the existing market. Medium- to Long-Term Value Creation The general-purpose market is expected to become fierce in competition going forward. For the system platform business to deliver significant value over the medium- to long-term in this environment, NEC is reforming its business models from providing various types of hardware, software and components parts, to providing the combination of these items as solutions. In addition, we are creating new solutions in fields such as SDN, safety and security, Big Data and cloud platforms for further growth. NEC sees sales expansion in these areas as an immediate goal and is accelerating business development by investing in the growth areas. NEC has proprietary technology and expertise in Big Data engines with vector supercomputers, virtualized platforms evolving SDN and edge computing. NEC will leverage these strengths going forward as we strive to take the lead in the upcoming IoT age. Furthermore, we will integrating these three strengths and accelerate creation of solution platforms that provides higher added-value. 24 NEC CorporationAnnual Report 2015Business Activities for Value Creation Sales Structure in Japan Manabu Kinoshita Executive Vice President In charge of Corporate Sales and Sales Operations Unit Providing Solution through Sales Network Nationwide NEC’s domestic sales network consists of 64 branch offices and sites nationwide. NEC’s approach is to leverage the entire capabilities of One NEC, integrating the solution assets of each business unit and affiliated companies and to present solutions for realizing advanced social infrastructure utilizing ICT. We provide these solutions for a wide range of customers including telecom carriers, governments, government agencies, local governments, public institutions and private sectors. Cooperation between sales partners is another key point that sustains our domestic business. In the sales partner business, hardware is our core product, but we expect intensified price competition for general-purpose products. In the future, we need to expand the business into new area such as cloud-based services and SDN. NEC views market change as a chance and will co-create new value with sales partners by providing competitive solutions and services, as well as an enhancement of support to the sales partners. NEC’s Branch Network Spreads Across Japan NEC Headquarters Office and Branches (64 locations) Responding to Customer Needs and Accelerating Growth NEC’s domestic business accounts for about 80% of its total sales and underpins the business foundation of the entire Company. To sustain the growth of domestic business, domestic sales focuses on business in the areas of SDN, Big Data, cloud services, and cyber security—all NEC strengths. Furthermore, NEC is facilitating business development in new markets with significant potential, such as adaptation of the Social Security and Tax Number System to the private sector, and dealing with the increasing development of social infrastructure brought on by the Tokyo 2020 Olympic and Paralympic Games, as well as increasing tourism to Japan. Transforming into Social Value Innovative Sales In NEC’s transformation into a “Social Value Innovator,” a domestic sales force is taking a role in creating new value to solve essential issues that society and customers face. To this end, we carefully examine changes in market and customers’ business issues, and connecting these with our assets in creating new value for the customers. Under the theme of “transformation into a Social Value Innovator,” we are investing sales skill development of each sales force in improving multi-faceted analytical capabilities on market environments and customer challenges and in having extensive knowledge on leading edge technologies and solution assets in the company. Going forward, domestic business teams will work on creating new social value as a point of customer contact in the field, and contributing to the development of a society in which people can live more prosperous lives. * Number of NEC branch offices (as of March 31, 2015) For further details about NEC branch offices and their locations, please visit the following website: http://jpn.nec.com/profile/branch.html (Japanese only) 25 NEC Corporation Annual Report 2015 Sales Structure for the International Business Takayuki Morita Executive Vice President In Charge of Global Business Unit B u s i n e s s A c t i v i t i e s f o r V a l u e C r e a t i o n Three Keys to Achieving the Mid-term Management Policy NEC’s mid-term management policy is to create a foundation for growth globally by focusing on Asia and promoting “locally-led” businesses. There are three key points to achieving this and expanding “Solutions for Society” on a global scale. The first point is to create globally appealing solutions, the second is to enhance our ability to provide engineering services locally, and the third is to foster relationships of trust to provide long-term solutions with our customers. Focus on Safety and Networks that Leverage the Strengths of NEC Firstly, in terms of creating solutions, it is important that we define areas that leverage the strengths of NEC in global markets—where environments and income levels are diverse and geographically spread out—and develop business on a priority basis. Specifically, safety and networks are our two areas of focus. In the area of safety, we have expanded business by leveraging NEC’s world- leading technologies in facial and fingerprint recognition. Our safety business is centered on the Global Safety Division (GSD) established in Singapore in 2013. In fiscal 2015, our achievements include winning orders in the Middle East, South America and other new markets. In the area of networks, NEC leads in the development and provision of solutions and focuses on the areas of SDN/NFV. In preparation for commercialization, we are proactively promoting the new network technologies, and while collaborating with our subsidiary, NetCracker Technology Corporation in application of its extensive global experience, NEC will continue to step up its activities in anticipation of future market expansion. Strengthening Local Operations In addition to upgrading and expanding NEC solutions, we are engaging in partnerships as well as mergers and acquisitions in our aim to provide services locally. In Australia, in 2012, we acquired the IT services business of CSG Limited, a company with a well- services are highly acclaimed by customers. In South America, we have acquired a video surveillance company and are developing and providing solutions that incorporate our image recognition and behavior analysis technologies. In the area of cloud services, NEC established IT managed services domain for governments. Through initiated a joint venture with Singapore Technologies Electronics CSG, we provide many government agencies with ICT integrated Limited in Singapore and a joint business with the Foxconn managed services, including our strong networks solutions. Our Technology Group in Taiwan. Building Relationships of Trust through Proactive Project Participation Finally, NEC proactively participates in collaboration and several projects in improving the operation and management of demonstration testing with government agencies in earning social infrastructure. For example, NEC provided solutions for a trustful relationships. In Singapore, coinciding with the waste collection system utilizing sensors and Big Data analysis, and establishment of GSD, we have set up a research laboratory and established and managed a cloud city operations center in have expanded collaboration with government agencies including Santander, Spain. We also participated in a water conservation the Singapore Economic Development Board and Singapore’s management project in the U.S. state of Texas. Agency for Science, Technology and Research. In Chongqing China, NEC will continue to pursue the steady growth of its global we have entered into a strategic partnership with the city business while taking these initiatives to a deeper level and government and are working on an eco-center project to achieve energy-efficient operation. In addition, we have participated in expanding them. NEC Corporation Annual Report 2015 26 Sales Structure for the International Business by Regional Headquaters (As of July 1, 2015) NEC set global revenue growth as an important theme of its “Mid-term Management Plan 2015.” By quickly responding to the unique needs of each region—North America, Central and South America, EMEA (Europe, the Middle East and Africa), Greater China region and APAC (the Asia/Pacific region)—NEC will generate locally led businesses. Note: RHQ is the acronym for Regional Headquarters Main Initiatives In 2014, NEC Corporation of America expanded its Unified Communications (UC) portfolio by integrating both SDN and biometrics technologies to deliver one of the industries’ most innovative communication offering. The Retail solution team also enhanced their portfolio by developing a new point of sale system that integrates hardware, software and services enabling a full life-cycle management retail solution. In addition, Cloud solutions were also expanded and now include UC-as-a-Service and cloud-based contact center solutions. Major advancements were also made in Federal Government signing contracts for both Biometrics and UC solutions. Looking forward to 2015, NEC Corporation of America will continue to prioritize solutions that provide value to both businesses and individuals. Shinsuke Takahashi President & CEO NEC Corporation of America Message from the Head of RHQ NEC Corporation of America provides solutions that improve social infrastructure while providing safety, security, and operational efficiency. From foundational solutions like software-defined networking (SDN) to advanced Biometric security solutions, today’s portfolio is focused on improving business productivity while positively impacting society. Complimenting these solutions are unique Big Data and Analytics capabilities adding value and predictability across the entire portfolio. Prioritizing social solutions has already led to new opportunities in Airports, Federal Government and Local Utilities and in the coming years these solutions will present significant growth opportunities. Masazumi Takata President & CEO NEC Latin America Message from the Head of RHQ There are great examples of how we contribute to improve the quality Main Initiatives NEC has achieved business expectations in Latin America region, with a consistent growth in sales in 2014 and good prospects for 2015. The positive results come from several projects in which the Company is applying key ICT solutions, such as the digitalization of Mexican passport with highly standards for security, facial recognition for the Brazilian airports to support custom clearance process, virtual classroom e-learning solution in Argentina, biometrics system for a bank in Chile and enablement of Colombian rural area with a quick and easy access to the Internet to narrow the citizen’s digital divide. Looking forward to 2015, NEC Latin America will continue to expand of various services of our customers. Our solutions are leveraged by its business and sales in safety, security and other growing areas to innovative approach that serves to create real social value. We strengthen its market presence in Latin America. collaborate with our customers and partners closely to prepare better products and services that enable society advancement. We are very excited with the possibilities NEC will have in near future to further contribute to Latin America in its tremendous growth opportunity to a next stage. 27 NEC Corporation Annual Report 2015 Naoki Iizuka President & CEO NEC Europe Message from the Head of RHQ As the final year of “Mid-term Management Plan 2015,” and the year to set the solid basis for the next mid-term management plan, our goal is to establish NEC’s broader presence in the EMEA region. We will continue to expand our communication business in SDN, TOMS, and cloud services for telecom carriers. In addition, we will also promote the expansion of the enterprise business in emerging countries. Furthermore, NEC is exploiting biometrics and smart city projects for public sectors and smart energy business in the EMEA region. As a “locally rooted NEC,” we will strengthen these business and contribute to the communities. Kiyofumi Kusaka President NEC (China) Message from the Head of RHQ The Greater China region is becoming a key market in the NEC Group. The B u s i n e s s A c t i v i t i e s f o r V a l u e C r e a t i o n Main Initiatives In fiscal 2015, while we saw geopolitical risk in some areas, we fortified the business foundation across the EMEA region. In the Middle East, we received an order to build a large communications project in Saudi Arabia, and sales have increased at NEC Africa since its establishment in 2011. We will further reinforce our business operations in emerging market. In Europe and the Middle East, there are global telecom carriers expanding business in Asia, Central and South America, and Africa. We are building strong relationship with them by collaborating with Japan and other RHQs. Looking ahead, we are actively promoting public safety, smart city and cyber security as growth drivers for the next mid-term management plan. We are marketing face recognition solutions to not only government agencies but to enterprise arena. Moreover, we are engaged in tangible smart city projects in Spain and the U.K. to improve the sustainability of cities by utilizing cloud computing, SDN and other innovative technologies. Main Initiatives In response to interests in security in the Greater China region, we took steps to fortify the facial recognition business. In Hong Kong, we received an order for a large-scale IT solution from the government, and in Taiwan, we delivered an automatic ticket gate system for trains and cutting-edge kiosk terminals for large convenience stores. In fiscal 2016, we will continue to boost the security business while expanding into energy, healthcare, and other fields. Taking advantage of the relocation of NEC China’s Beijing office closer to the city center, we installed the most advanced solutions, such as facial recognition and SDN, thus turning the office into a showroom and creating an economic growth rate of the Greater China region, compared to the rapid growth of the past 10 years, has shifted to a “constant speed.” However, environment where customers can directly experience these the size of China’s economy has already surpassed that of Japan’s and solutions. China has solidified its position as the world’s second economic superpower. At the same time, China is rapidly changing its disposition from having being viewed as the world’s factory to now being seen as a massive consumer market. NEC China will introduce NEC’s advanced technologies and products more rapidly to its ever-changing market and meet diverse and complex customer expectations. In Taiwan and Hong Kong, we expect to receive orders for large projects and aim for steady business expansion. NEC Corporation Annual Report 2015 28 Main Initiatives In fiscal 2015, we received several orders of large-scale managed service projects for government agencies and enterprises in Australia and Singapore. In the area of public safety, we have delivered facial recognition systems to India, and are taking advantage of our strategic partnership with INTERPOL in the area of cyber security. Further, in Singapore, we have developed an inter-agency collaboration system and have aggressively promoted it to governments in various countries. In the next fiscal year, we will further expand business in the areas of safety and security, strategic business fields, as well in healthcare, smart energy, retail, logistics and transportation, SDN/NFV, and managed services. As a leading player in the Asia-Pacific region, we are committed to contribute to the region’s development. Toshiya Matsuki CEO NEC Asia Pacific Message from the Head of RHQ NEC Asia Pacific is expanding business within the 10 nations of ASEAN, as well as in India and Oceania. The Asia-Pacific market shows strong growth and in addition to ASEAN economic integration, demand for infrastructure in Indonesia, India, the Philippines, Myanmar, and Vietnam, which all face a demographic dividend period, is expected to reach about ¥8 trillion by 2020. NEC Asia-Pacific will focus on the “Solutions for Society” based on ICT and use the advanced technologies of biometrics, cyber security, SDN, Big Data analysis, and smart energy to contribute to the realization of a “Safer City.” We will actively promote the development of solutions tailored to local needs and the creation of business models, while taking a leading role in the further growth of NEC’s global business. Promote Locally-led Safety Businesses Centered on GSD NEC has selected the “safety business” as a pillar of its global growth strategy. In this business, the Global Safety Division Accelerating SDN/NFV Solution Deployment with NetCracker Technology In preparation for the full-scale commercial deployment of SDN/ (GSD), established in Singapore in April 2013, is the key to NFV by telecom carriers, NEC is actively marketing to domestic achieving growth. GSD is set out for product planning and and overseas telecom carriers. In fiscal 2015, to further development, and sales support for the global market. GSD accelerate this initiative, we strengthened collaboration with our worked closely with NEC Laboratories Singapore, a research lab subsidiary NetCracker Technology Corp., in development, sales established in September 2013, to create and expand locally and marketing in this area, and built a system for global sales led businesses. expansion of SDN and NFV. In fiscal 2015, GSD launched the NeoFace solution series, NetCracker Technology has extensive experience with which was developed and rooted in local needs. We won orders in Telecom Operations & Management Solutions (TOMS) for global new markets including the Middle East and South America. In telecom carriers. It also has development know-how for solutions fiscal 2016, we will fully expand the safety business by (MANO) that perform integrated operations of SDN/NFV. facilitating the success of our inter-agency collaboration system As a pioneer that provides comprehensive SDN/NFV and as demonstrated in Singapore in 2014, and by accelerating the MANO, we will focus on expanding our presence and performance horizontal deployment of new solutions that leverage our among global telecom carriers. partnership with INTERPOL in the area of cyber security. 29 NEC Corporation Annual Report 2015 Business Activities for Solving Social Issues Contribute to Creating an Equal Society in Colombia through ICT In Colombia, South America, raising international competitiveness in some key social fields such as health care, education, politics, and agriculture, is an urgent task for economic growth and for improving the quality of citizens’ lives. Yet, inequitable distribution of benefits depending on residence is a problem. To eliminate this inequality, Colombia has taken a number of measures, but among them ICT shows tremendous potential. However, hampered by a harsh environment, including rugged mountain terrain and the Amazon rainforest, the Internet penetration rate in Colombia was only about 18% in 2013 and roughly just 1% in non-urban areas (in reference to MINTIC site; http://colombiatic.mintic.gov.co/602/w3-article-5085.html). Colombia education, politics, and agriculture. To further enhance the plan’s effectiveness and to connect to future development, MINTIC took the lead in interacting closely with residents and constantly gathering feedback from various regions. As a result, demand for ICT environments exceeded expectations and the need for an increase in network connections mounted with the sharp growth in the number of users of the terminals. In addition, the need for improved access to education has become evident with the increased ability of residents to express their needs. Colombia has begun a study to determine the best steps it can take based on this feedback. By uncovering and solving social issues that are closely tied to the community and customers, NEC will help bring about an abundant and equal society where individuals can thrive and everyone can enjoy the benefits of ICT. Support to “Vive Digital” Colombia’s Ministry of Information Technologies and Communications (MINTIC) is promoting the spread of ICT infrastructure throughout the country under the Plan Vive Digital, a measure aimed at closing the digital divide and having all citizens enjoy the benefits of ICT, and a pillar of its policy for economic development. As part of the Plan Vive Digital, NEC participated in Kiosco Vive Digital, which aims to create more than 4,200 ICT rooms as Internet access points throughout Colombia. NEC was selected to participate as a project member, through the official public bid process in Colombia, because of its experience setting up Internet connections in numerous countries, its capability of offering detailed support locally and for proposing a deployment plan in anticipation of Colombia’s future. In this project, NEC built an Internet environment via communication satellites for approximately 650 community spaces, including schools and community centers in the areas that are located far from urban zones and have less than 100 residents, and installed PCs, printers and IP phones. In this way, places where it had been difficult to obtain the latest information, such as the Amazon wilderness and mountainous regions, can now gather information and do business via the Internet. Always Keeping Abreast of Residents’ Needs through Interactive Communication Through this plan, the Colombian government, which until then had no means of swift and reliable communication with these remote villages, was able to communicate and provide information to all citizens, including background on vital areas such as health care, 30 NEC CorporationAnnual Report 2015Business Activities for Value Creation Contribute to Enhancing Expressway Safety and Security through the Use of SDN Driven by its founding motto “100% safety and reliability,” West Nippon Expressway Company Limited (NEXCO-West), which operates the expressways of West Japan, has actively promoted road maintenance and traffic safety measures. Further, NEXCO-West has taken steps to enhance disaster recovery, raise local collaboration and customer satisfaction and has contributed to the development of western Japan based on the Group’s collective efforts. Above all, western Japan is the area where damage from Tonankai or Nankai earthquakes is expected and the expressway plays a key social role in delivering relief supplies and personnel in times of emergency or disaster. With that in mind, NEXCO-West is improving the earthquake resistant roads, conducting disaster-preparedness drills in collaboration with local organizations and reinforcing the functions of the traffic control centers by building a backup system and a wide area network infrastructure. Functions of Traffic Control Centers and the Challenges of Existing Network Configuration The traffic control centers observe local traffic volumes and weather patterns using ample information from traffic measurement facilities, and weather forecast equipment located at regular intervals on the expressway network. They also function as the “control towers” that provide guidance concerning on-the-spot traffic regulations, the handling of accidents and other matters. NEXCO-West has set up traffic control centers in Kansai, Chugoku, Shikoku, and Kyushu that operate 24 hours a day, 365 days a year to support expressway safety. However, at NEXCO-West, networks that connect the traffic control centers and roadside equipment such as traffic measurement facilities and weather forecast equipment are built separately for each region and only exchange information within those regions. Therefore, if the traffic control center of one region ceases operation in the event of a disaster, its monitoring and control of that region’s expressways become difficult. In order to solve this problem, a mutual backup system that could compensate and take over and manage a center’s functions was required. Achieving Flexible Operational Management through Centrally-Controlled Software To solve this problem, NEXCO-West adopted NEC’s SDN solution. NEC built an SDN network linking multiple routes between 45 traffic control centers and expressway offices within a 4,000-km-wide area to create a wide area network that connects multiple traffic control centers in each region and enables advanced route control. Since this network’s configuration can be changed instantly through centrally controlled software in case of an emergency, the access point of the network’s roadside equipment can be quickly switched. Therefore, even during a disaster, a mutual backup system can cover for each region’s center functions and stable expressway service is maintained. Future Development SDN is a technology that revolutionizes existing networks and adds new value to existing infrastructure. At NEC, SDN is held up as one key area in the “Solutions for Society.” We will promote a safe and secure social infrastructure for solving social issues with customers by providing a wide range of solutions that leverage SDN. Example of an SDN backup traffic control-framework for traffic control centers Normal Times Emergency Each Traffic control center monitors own area Control functions taken over by another center (Example below shows case of disaster in Kyushu) Kyushu Traffic control center Chugoku Traffic control center Kansai Traffic control center Kyushu Traffic control center Chugoku Traffic control center Kansai Traffic control center Chugoku Branch Office Kansai Branch Office Chugoku Branch Office Kansai Branch Office Shikoku Branch Office Kyushu Branch Office Shikoku Traffic control center Shikoku Branch Office Kyushu Branch Office Shikoku Traffic control center 31 NEC CorporationAnnual Report 2015Contribute to Solving Water-Related Social Problems through ICT Early Detection of Water Pipe Leaks with “Water Leak Detection Service” ensuring minimal wastage of water With the world’s population expected to increase to more than 9 billion in 2050 and due to economic development and urbanization in emerging nations, world water demand will continue to grow. In addition, an investigative report by the Intergovernmental Panel on Climate Change (IPCC) warns that many regions face severe water shortages due to the effects of climate change caused by global warming. If this persists, it is predicted that two-thirds of the world’s population will become “water-stressed” in 2025 and experience the inconvenience that water shortage has on daily life. Under these circumstances, it is important to use precious water resource without wasting it. Unfortunately, there are many cities around the world with water leak rates exceeding 10% due to aging pipes that are not being upgraded because of cost issues and other factors. Therefore, water resources are being wasted. However, trying to eliminate water leaks while still using old water- works infrastructure is a global challenge. The Water Leak Detection Service that NEC launched in September 2014 contributes significantly to the efficient use of precious water resources minimizing the wastage due to leak. With conventional water leak detection methods, the most common approach is for a maintenance specialist is to use a dedicated instrument to listen by ear from the street level for the sound of water leaking from water pipes buried in the ground. As a result, extensive checking is required and timely detection is difficult. In contrast, by simply installing a sensor in a water pipe valve, NEC’s Water Leak Detection Service can pinpoint a leak within a range of about one meter by using a large amount of minute vibration data. Therefore, water leaks that had until now been mostly left undetected for a long time can be detected at an early stage. Stopping water leak damage early also contributes to a reduction in the energy needed for desalination. Moreover, it becomes possible to provide water tailored to demand. This is achieved with weather forecasting, demand forecasting based on the analysis of vast amounts of water usage, and predicting failures by analyzing equipment operation data. All of this is accomplished with a wide range of technologies, such as sensing, machine-to-machine communications (M2M), cloud computing, and Big Data analysis. These are areas in which NEC is competent. In addition, the Water Leak Detection Service places no extra load on aging water pipes and can extend the life of waterworks infrastructure. Moreover, because it is possible to find signs of broken and faulty water pipes and equipment‘s resulting in preventive maintenance “smart water management” becomes a reality, creating a stable supply of water without waste. NEC will continue to provide new value through smart water management, including its Water Leak Detection Service, to solve social problems related to water. Water leak sensor logger B u s i n e s s A c t i v i t i e s f o r V a l u e C r e a t i o n NEC Corporation Annual Report 2015 32 Contribute to a More Efficient City through a Smart City Project in Santander, Spain Santander has actively participated in the European Union’s Seventh Framework Programme for Research (FP7)*1, Horizon2020*2. Now, Santander is also very much engaged in 12 relevant projects in the north of Spain. In addition, NEC is eagerly promoting the development of a smart city. NEC, in partnership with a local waste collection service provider, has been participating in upgrading the city’s waste collection service, and began developing a “Cloud City Operations Center.” The center is not only designed to make the entire city’s administrative services visible but also manages, predicts, and automates those services. *1 A multi-year research grant program that covers 10 fields, including ICT. FP7 was carried out over seven years starting in 2007 *2 A seven-year funding program for EU research and innovation that started in 2014, succeeding FP7 Santander’s Waste Collection Management Service With a typical waste collection service, the waste collectors simply establish a specific collection route and times. Then, the waste is collected from containers installed in each area of the city. In contrast, NEC’s waste collection management service utilizes M2M sensors mounted in collection containers. The accumulated amount of waste is turned into digital data that is transmitted through a network to a control center. At the center, the collected data is analyzed to determine the optimum collection time and route and then displayed on a monitor mounted in each waste collection vehicle. In this way, the waste collectors can place the highest priority on collection from containers with the greatest amount of waste. This enables more efficient waste vehicle operation and reduces unimportant and useless work. The result is both lower operating costs and reduced environmental impact that would otherwise come from unnecessary vehicle exhaust. Moreover, a smartphone application linked to the waste collection management service allows users to make reports when the collection containers are full of waste or when they discover illegal dumping. This has contributed to a cleaner and more pleasant city for the residents. Santander Startup of Cloud City Operations Center as Base for Smart City Operations Santander is promoting the visual display of its administrative services in all areas of the city, including its waste-collection management services. Therefore, NEC, in partnership with Santander, started a Cloud City Operations Center. The center constantly monitors and analyzes environmental data, such as air temperature, traffic volume, noise, CO2 levels, and the brightness of natural light. The data comes from the M2M sensors installed throughout the city thanks to the FP7 initiative and is used for a wide range of public services. As a result, NEC is providing services that enhance the quality of citizens’ lives through the comprehensive display of the service operations, the analysis and management of integrated data, and forecasts and automation based on them. The citizens now enjoy a more efficient way of using public services in their city lives. M2M sensor 33 NEC CorporationAnnual Report 2015Infrared Thermography to Prevent the Spread of Ebola in African Countries Preventing the spread of deadly diseases such as Ebola is an urgent task for maintaining a safe and secure society. Key points are how to suppress the disease when it is spreading and how to prevent its resurgence after it has ended. NEC’s Supply of Infrared Thermographic Cameras as an Important Measure against Ebola In November 2014, the Japanese government added U.S.$100 million to its aid to combat the Ebola epidemic in West Africa. As part of this effort, NEC delivered 13 non-contact infrared thermographic cameras to three African countries (Côte d'Ivoire, Ethiopia, and Ghana) through the Japan International Cooperation Agency (JICA). Operation of the cameras began in early February 2015. NEC plans to expand delivery of the cameras to other African countries through fiscal 2016. Because Ebola is accompanied by fever during its onset, the survival rate of an infected person increases through early fever detection enabling early isolation, and early treatment. This also lowers the risk of infection to others. Performance and Safety of the Cameras The cameras provided have very similar functions as cameras supplied to Japanese airports, including Narita International Airport. By not missing slight temperature changes, even for high fevers, and by making temperature distribution information visual in real time, the cameras can detect fever onset and existence with great accuracy, even in people walking rapidly. Moreover, because the cameras can measure the body surface temperature of a person passing through an airport or crossing a border checkpoint without contact in real time, the safety of personnel performing the measurements is protected. With its high measurement accuracy and safety, in addition to helping to greatly curtail the current spread of Ebola, the camera is an effective measure against the possibility of future resurgence. Demonstration at the African Union Summit At the African Union Summit in Ethiopia in January 2015, NEC, which was the only corporate participant, demonstrated the cameras with the cooperation of Japan’s Ministry of Foreign Affairs and the Japanese Embassy in Ethiopia. The demonstration attracted a tremendous amount of interest from African heads of state attending the summit. Taking advantage of this opportunity, NEC called attention to the usefulness of the cameras and made a strong appeal for contributions to prevent the spread of Ebola. NEC’s Contributions to Safety and Security NEC views providing people with safety and security as benefits that the Company can contribute to society. Therefore, NEC will continue to leverage its assets to the maximum extent and help solve the challenges facing the world. B u s i n e s s A c t i v i t i e s f o r V a l u e C r e a t i o n Infrared thermography camera InfReC R300SR series (manufactured by Nippon Avionics Co., Ltd., an NEC subsidiary) Camera being used at an international airport in Côte d'Ivoire NEC Corporation Annual Report 2015 34 Corporate Governance Basic Policy In recognition of the fact that reliable corporate governance is essential to the continuous creation of social value and the maximization of corporate value, NEC is committed to strengthening its corporate governance practices through (1) assurance of transparent and sound management, (2) realization of prompt decision making and business execution, (3) clarification of accountability and (4) timely, appropriate and fair disclosure of information. Main Initiatives for Strengthening Corporate Governance NEC Group Corporate Philosophy formulation 2000.4-2003.3 In-house company structure 2003.4-2010.3 Business line structure NEC Group Charter of Corporate Behavior/Code of Conduct formulation NEC Group Vision 2017/ NEC Group Core Values formulation 2010.4-2013.3 Structure driven by products and services 2013.4-Present Structures driven by markets and customers 1990 1999 2000 2001 2003 2004 2007 2008 2010 2011 2012 2013 35 Institution of Corporate Officer System NEC instituted a corporate officer system in April, 2000 and worked to delegate authority form the Board of Directors to corporate officers in aim to separate management supervision from business execution and expedite business execution based on prompt decision making. Reducing the Number of Directors The number of Directors was reduced to streamline the Board of Directors. The aim is to ensure even sounder management through greater discussion at meetings of the Board of Directors and to deliver prompt decision making. Reduction in the number of Directors (At the conclusion of the Ordinary General Meeting of Shareholders) 1999 37 2000 17 From 2012 onward 11 Appointing Multiple Outside Directors NEC added an Outside Director in June 2001 to a total of two Outside Directors in order to strengthen the supervisory functions of the Board of Directors. The members have increased and the system of five Outside Directors has continued since its inception in June 2007. Ratio of Outside Directors to all Directors (At the conclusion of the Ordinary General Meeting of Shareholders) 1999 2.7% 2010 33.3% From 2012 onward 45.5% Shortening Directors’ Terms In June 2004, the term of Directors was shortened from two years to one year in order to clarify their responsibility for management. Establishing a Nomination and Compensation Committee The committee has been established to ensure the transparency, validity and objectivity of nomination and remuneration of Directors*. The committee is made up of five members, including three Outside Directors, one of whom is appointed as the chairperson. * The Compensation Committee established in 2001 was enhanced to the Nomination and Compensation Committee in 2010. http://www.nec.com/en/global/about/executives/committee2.html Instituting Chief Officer Positions The chief officer position was instituted in July 2011 for the purpose of developing company- wide strategy and for leading business units in the promotion of the company’s business, toward realization of the NEC Group Vision 2017. Corporate Directors are appointed as chief officers and they function to oversee business execution by each business unit from a company-wide perspective. NEC CorporationAnnual Report 2015Continued Strengthening and Improvement of the System NEC adopts the company with the Audit & Supervisory Board Members (KANSAYAKU) (“A&SBMs”) to serve a double-check process: Board of Directors supervises the business execution and the Audit & Supervisory Board (KANSAYAKU-KAI) (“A&SB”) audits the legitimacy and appropriateness of Director's decision-making or activities. We have established a hybrid structure by a combination of a corporate officer system, multiple Outside Directors, and a Nomination and Compensation Committee comprised of Outside Directors as majority. In this way, we separate management supervision from the business execution while striving to ensure management transparency and soundness. NEC believes that its corporate governance is functioning adequately under the current system described above. However, NEC realizes the importance of further strengthening its corporate governance in order to focus on the “Solutions for Society” and strive to create social value and maximize corporate value. NEC actively incorporated concrete measures to strengthen its governance ahead of Japan’s “Corporate Governance Code” that entered into force in June 2015, and NEC is focusing its efforts on enhancements and improvements of this system in order to realize more effective corporate governance. Independence Criteria for Outside Directors and Audit & Supervisory Board Members NEC declares that an Outside Director and an Outside Audit & Supervisory Board Member (KANSAYAKU) who is not fallen under any of the following description is independent of NEC. (1) Presently or at any time within the past three years, any of his or her relative within the second degree of relationship holds or held a position equal to or higher than a general manager at NEC or a Group subsidiary (2) Presently or at any time within the past three years, the person is or was a person executing the operations (“executing person”) of a major business partner*1, or any of his or her relative within the second degree of relationship is or was an executing person at a major business partner*1 (if such a person holds or held a position equal to or higher than a position equivalent of a general manager at NEC) (3) In any one of the past three fiscal years, the person or any of his or her relative within the second degree of relationship has received financial compensation of ¥10 million or more (excluding remuneration for Directors or A&SBMs ) from NEC (4) Presently or at any time within the past three years, the person or any of his or her relative within the second degree of relationship has belonged to Accounting Auditors of NEC (5) Presently or at any time within the past three years, the person or any of his or her relative within the second degree of relationship has been an executing person of an organization that has received a significant amount of donation from NEC*2 *1 Major business partner: 1) A business partner with the total amount of transactions with NEC (consideration for offering products/services and procurements) exceeding 2% of sales of NEC or such business partner; or, 2) A business partner from which NEC’s annual average outstanding borrowings exceeding 2% of total assets of NEC in any one of the past three fiscal years *2 Organization that has received a significant amount of donation from NEC: An organization that has received from NEC a significant amount of donation exceeding the greater of ¥10 million, or 2% of the gross income of such organization, in any one of the past three fiscal years Enhancing the Effectiveness of the Board of Directors For Directors and A&SBMs to be able to appropriately fill their expected roles and responsibilities, NEC has stipulated a policy of implementing periodical training for Directors and A&SBMs so that they can acquire the necessary expertise and information regarding the roles and responsibilities of Directors and A&SBMs (including legal responsibilities), and the necessary expertise and information regarding the company’s business. NEC takes steps for Outside Directors and A&SBMs to deepen understanding of the NEC Group, including tours of NEC and subsidiary business sites and exhibitions. We will continue to provide various kinds of support. Outside Director and A&SBMs on tour at the OCC Corporation’s Submarine System Plant in Kitakyushu City, Fukuoka Prefecture To enhance deliberations at meetings of the Board of Directors, Outside Directors and Outside A&SBMs are provided documents in advance of meetings of the Board of Directors. They are also given briefings in advance on particularly important items to be included on the board’s agenda. In addition, the Board of Directors receives from CFO for shareholders’ opinions obtained through IR activities, and from CSO for issues or measures related to sustainability, and it has opportunities to share and discuss such matters. Looking ahead, we plan to conduct an analysis and assessment of the effectiveness of the Board of Directors with the objective of further enhancing their functions. For further details on the corporate governance of NEC Corporation, please visit the following websites: http://jpn.nec.com/profile/en/governance.html 36 NEC CorporationAnnual Report 2015Business Foundation to Support Value Creation Overview of the Corporate Governance Structure Elect and Dismiss Elect and Dismiss Elect and Dismiss GENERAL MEETING OF SHAREHOLDERS Audit Management/Supervision Accounting Auditors Cooperate AUDIT & SUPERVISORY BOARD 5 A&SBMs, including 3 Outside A&SBMs Audit BOARD OF DIRECTORS 11 Directors Chairman of the Board President 4 Chief Officers 5 Outside Directors Deliberate and Report NOMINATION AND COMPENSATION COMMITTEE 5 members, including 3 Outside Directors Cooperate Supervise Cooperate CORPORATE AUDITING BUREAU EXECUTIVE COMMITEE Around 20 corporate officers BUSINESS PROGRESS COMMITTEE Corporate officers and general managers of business units etc. (Corporate officers) Business Execution Internal audits Business units/Corporate staff/Affiliate companies Board of Directors The Board of Directors holds regular meetings once a month, in principle and extraordinary meetings as necessary to determine important matters related to business execution, including business realignment, funding plans and financing and investment, as well as matters concerning business plans. Status of Fiscal 2015 Chief officers provided activity reports and management plans and progress reports for each business segment. The Board of Directors actively discussed such reports as well as resolution agenda such as restructuring domestic production bases, operating efficiency and business reforms. A broad range of advice was given by Outside Directors, in particular, tapping into their own extensive experience in such roles as corporate management, and based on their deep insights. Executive Committee The Executive Committee discusses important NEC Group management issues such as policies and strategies. This committee extensively discusses matters of particular importance prior to putting them forward to the meetings of the Board of Directors for approval. In doing so, the committee enhances the deliberations and ensures appropriate decision making. Business Progress Committee The Business Progress Committee deliberates and reports on matters related to the status of the NEC Group's business execution, such as monitoring progress with respect to meeting budgets approved by the Board of Directors, with the aim of sharing management information and promoting execution efficiency. Nomination and Compensation Committee The Nomination and Compensation Committee deliberates on (i) nomination of Directors, Representative Directors and Audit & Supervisory Board Members (KANSAYAKU) (“A&SBMs”), the chairman of the Board, and the president and (ii) the structure and the level of remuneration for Directors, representative Directors and corporate officers from an objective perspective. The committee reports the results of its deliberations to the Board of Directors. Audit & Supervisory Board (KANSAYAKU-KAI) (“A&SB”) A&SB holds regular meetings once a month and extraordinary meetings as necessary, decides on audit policies, standards, and other matters, and receives status reports on audits from each A&SBMs and on other matters. Form of Organization Company with the Audit & Supervisory Board Members (KANSAYAKU) Chair of the Board of Directors Chairman Directors No. of Directors 11 (of which Outside Directors: 5) Term 1 year Audit & Supervisory Board Members No. of A&SBMs 5 (of which Outside A&SBMs: 3) (KANSAYAKU) (“A&SBMs”) Term 4 years Independent Directors/Independent A&SBMs No. of Independent Directors: 4, No. of Independent A&SBMs: 3 Policy regarding incentive payments to Directors Remuneration and bonuses linked to business results*1 Remuneration*2 (For fiscal 2015) Directors A&SBMs Total amount in remuneration: ¥354 million for a headcount of 11 (of which, Outside Directors: 5, Total remuneration: ¥60 million) Total amount in bonus: ¥72 million for a headcount of 6 Total amount in remuneration: ¥96 million for a headcount of 7 (of which, Outside A&SBMs: 4, Total remuneration: ¥36 million)*3 *1 Director bonuses are linked to the NEC Group’s performance to assure performance incentives. Bonuses are not paid to Outside Directors in order to help ensure their independence. *2 NEC does not disclose remuneration per individual. For NEC’s basic remuneration policies and systems, please refer to the Business Report in the notice of the 177th Ordinary General Meeting of Shareholders. *3 The above headcounts include 2 A&SBMs who retired at the close of the 176th Ordinary General Meeting of Shareholders held on June 23, 2014. 37 NEC CorporationAnnual Report 2015Messages from Outside Director and Audit & Supervisory Board Member Revitalize Our Board, Increase Our Corporate Value Three years have passed since I assumed my post as an outside director. Since then, the Company’s operating performance has improved steadily against the fast-changing business environment. I believe that it is the fruit of the orchestrated effort by the Board members in guiding the Company through structural reforms and realignment of business portfolio to implement “scrap and rebuild” of better organization. It is noteworthy that the board members have had intense discussions to determine how the NEC Group should contribute to better society for long into the future as an acclaimed corporate citizen. Looking ahead, I believe that for NEC to accelerate its growth is by incorporating the proprietary technologies into new business models. For example, in the “Solutions for Society,” we can offer solutions to a large number of social issues with the technologies that we already have and with new technologies we will develop. My visits to business sites have confided me that NEC and its technologies have vast possibilities in various fields, including ICT and energy. It is my role to use my perspective from outside the Company and assist NEC to turn these possibilities into real business. I am committed to offer my opinions proactively with respect to internal proposals, thereby further vitalizing the Board of Directors. With the adoption of the Corporate Governance Code in June, the members of the Board are working to ensure that the framework properly functions and moreover, it is carried out with high conscience. I cannot emphasize enough the importance of having a governance system that is best suited for the company’s future vision for itself. As a member of the Board, I will continue to work in attaining sustainable growth of the NEC corporate value. Outside Director Hitoshi Ogita Compliance and Corporate Citizenship Form “the Arteries” of a Company I was appointed to the post of outside Audit & Supervisory Board Member in June 2014. Since then, I have taken on the responsibility to guide the NEC Group in compliance with laws and regulations. I believe that establishing and maintaining strong compliance to regulations is of particular importance to NEC, with its advanced technologies and a global presence as a solution provider to both social infrastructure and systems utilized in risk management for society. Often times, corporate scandals do not occur from a lack of understanding of complex laws and regulations. In many cases, corporate scandals are simply of illegal activities at a fundamental level that goes against common knowledge. It is my understanding that such activities occur when the reasoning and practices inside an organization drift away from the common knowledge and an organization loses its flexibility. In the world of physics and mechanical engineering, the term “compliance” refers to the elasticity or flexibility of an object. For a company, the spirit of compliance and corporate citizenship is like “an artery” to a living organism. A living organism cannot survive if its arteries lose their flexibility and blood stops circulating. Likewise, an organization cannot live no matter how hard it works to improve its operating performance, if the spirit of compliance and corporate citizenship does not work as “the arteries” in the organization. All employees of the NEC Group are serious, hard-working, and knowledgeable in their fields. While continuing to value and protect these strengths, I ask employees to possess a “flexible spirit” and sensitivities for the common knowledge. At NEC, all Group companies are taking steps to enhance their compliance systems. As an outside Audit & Supervisory Board Member, I plan to voice my opinions based on my view from outside the Company. I am committed to contribute in fostering a healthier and suppler NEC culture. Outside Audit & Supervisory Board Member (KANSAYAKU) Kyoko Okumiya NEC Corporation Annual Report 2015 38 B u s i n e s s F o u n d a t i o n t o S u p p o r t V a l u e C r e a t i o n Directors and Audit & Supervisory Board Members (As of June 22, 2015) Directors Kaoru Yano Chairman of the Board Yano has served as President (Representative Director) and Chairman of the Board (Representative Director). Nobuhiro Endo President (Representative Director) After being engaged in the management of network business and NEC Group’s management strategies, Endo has since 2010 been President (Representative Director). Takashi Niino Senior Executive Vice President, CSO (Chief Strategy Officer), CIO (Chief Information Officer) and Member of the Board (Representative Director) After being engaged in the management of the financial solutions business, Niino is now in charge of the NEC Group’s management strategies. Junji Yasui Senior Executive Vice President, CSCO (Chief Supply Chain Officer) and Member of the Board (Representative Director) After being engaged in the management in a broad range of fields of IT solutions business and network business, and Yasui is now in overall charge of the NEC Group’s supply chain. Takaaki Shimizu Executive Vice President, CMO (Chief Marketing Officer) and Member of the Board After being engaged in the management of the government and public solutions business and IT solutions business, Shimizu is now in charge of marketing and business innovation strategies. Isamu Kawashima Executive Vice President, CFO (Chief Financial Officer) and Member of the Board After being engaged in the management of accounting and financial affairs at the business units and overseas subsidiaries, Kawashima is now in charge of the NEC Group’s accounting and financial strategies. Takeshi Kunibe Member of the Board President and Chief Executive Officer, Sumitomo Mitsui Banking Corporation Director and Member of the Board of Directors, Sumitomo Mitsui Financial Group, Inc. Kunibe has extensive experience and deep insight as a bank manager. • Attendance at meetings of the Board of Directors: 12 out of 12 Hitoshi Ogita Member of the Board Adviser to the Board, Asahi Group Holdings, Ltd. Ogita has extensive experience and deep insight with management of a manufacturing company. • Attendance at meetings of the Board of Directors: 12 out of 12 Kaori Sasaki Member of the Board President and CEO, UNICUL International, Inc. President and CEO, ewoman, Inc. Sasaki has wide range of knowledge on marketing and perspective of consumers. • Attendance at meetings of the Board of Directors: 11 out of 12 Motoyuki Oka Member of the Board Senior Adviser, Sumitomo Corporation Oka has extensive experience and deep insight with management of a general trading company, on including the management of overseas firms. • Attendance at meetings of the Board of Directors: 10 out of 12 Kunio Noji Member of the Board Chairman of the Board, Komatsu Ltd. Noji has extensive experience and deep insight with management of a manufacturing company. • Attendance at meetings of the Board of Directors: 12 out of 12 Notes: 1 NEC has notified the Tokyo Stock Exchange of its four independent Directors and three independent Audit & Supervisory Board Members (“A&SBMs”). Independent Directors include; Mr. Hitoshi Ogita, Ms. Kaori Sasaki, Mr. Motoyuki Oka and Mr. Kunio Noji. Independent A&SBMs include; Mr. Satoshi Itoh, Ms. Kyoko Okumiya and Mr. Takeshi Kikuchi. 2. Attendance at meetings: the number of attendance at meetings (meetings of the Board of Directors or meetings of A&SBMs) out of the number of the meetings held in the fiscal year ended March 31, 2015 39 NEC Corporation Annual Report 2015 Audit & Supervisory Board Members (KANSAYAKU) Board of Directors Fujio Okada Audit & Supervisory Board Member (full-time) Okada has extensive experience in management of the legal and internal control division. Tetsuya Fujioka Audit & Supervisory Board Member (full-time) Fujioka has accounting experience for many years and experience as former General Manager of Corporate Finance Division. Satoshi Itoh Audit & Supervisory Board Member Certified Public Accountant Itoh has extensive audit experience and specialized financial and accounting knowledge as a certified public accountant over many years • Attendance: At meetings of the Board of Directors: 11 out of 12 At meetings of the Audit & Supervisory Board: 15 out of 15 Kyoko Okumiya Audit & Supervisory Board Member Attorney at Law Okumiya has extensive knowledge and specialized experience as an attorney at law. • Attendance: At meetings of the Board of Directors: 10 out of 10 At meetings of the Audit & Supervisory Board: 11 out of 11 (Appointed in June 2014) Takeshi Kikuchi Audit & Supervisory Board Member Attorney at Law Kikuchi has extensive knowledge and specialized experience as an attorney at law in fields such as IT. (Appointed in June 2015) For further details on the Directors and Audit & Supervisory Board Members of NEC Corporation, please visit the following websites: Directors http://www.nec.com/en/global/about/executives/directors.html Audit & Supervisory Board Members (KANSAYAKU) http://www.nec.com/en/global/about/executives/auditors.html Directors 11 Internal Directors 6 Outside Directors 5 (of which 4 are independent Directors) The Board of Directors makes important decisions for the Company’s business execution, starting with deciding on its basic management policies. It also fulfills the responsibility of overall supervising of business execution, and therefore requires viewpoints based on broad knowledge, and the Board of Directors is comprised with consideration given to diversity in such factors as career background, specialist field and gender. Chairman of the Board (Chair of the Board of Directors) B u s i n e s s F o u n d a t i o n t o S u p p o r t V a l u e C r e a t i o n Outside Directors Internal Directors Non-Corporate Officer Corporate Officer Audit & Supervisory Board (KANSAYAKU-KAI) Audit & Supervisory Board Members 5 Internal Audit & Supervisory Board Members 2 Outside Audit & Supervisory Board Members 3 (All members are independent Audit & Supervisory Board Members) NEC appoints of the Audit & Supervisory Board Members with the personnel who have the knowledge and experience necessary for audits, such as considerable expertise in finance and accounting or experience as an attorney at law, and who strengthen the auditing functions of the Audit & Supervisory Board. NEC Corporation Annual Report 2015 40 Business Execution Structure (As of July 1, 2015) At NEC, the president, chief officers, corporate officers in charge of business units and other officers interact actively in exchanging information and discussion to enhance management speed and to execute business from a companywide perspective. Takashi Niino Senior Executive Vice President, CSO (Chief Strategy Offi cer), CIO (Chief Information Offi cer) In fi scal 2015 (the year under review) or the second year of the Mid-Term Management Plan 2015, we were able to achieve some positive results in the global development of “Solutions for Society”, an area of focus for NEC. In fi scal 2016(the upcoming fi scal year), we will enhance our business model and grow these operations as a Social Value Innovator, and further pursue the NEC Group operational reforms and work on formulating the next mid-term management plan to be a leading global company. Hideichi Okada Senior Executive Vice President In charge of Global Business Strategy Expanding the global business is necessary to achieve the NEC Group’s management targets. I believe it is our mission at NEC to leverage our information and communications technologies to provide social infrastructure essential for safe living that people around the world want and for development in emerging countries, as well as to deliver services that please our customers. I will work to gain the understanding of top leaders in countries around the world and carry out with these initiatives quickly. Tomonori Nishimura Executive Vice President In charge of Public Business Unit The upcoming fi scal year is the fi nal year of the current “Mid-term Management Plan 2015,” and NEC is committed to making it a year in which we deliver on the goals of the plan. Currently, the market is looking for NEC to both grow and become more profi table. To this end, we will boost NEC’s brand strength as a Social Value Innovator, by making our products and services globally competitive and widening the scope of our contribution to society through our business. In the upcoming fi scal year, the Public Business Unit will evolve into a more profi table business unit by paving the way for overseas sales growth and by further improving the business structure. Junji Yasui Senior Executive Vice President and CSCO (Chief Supply Chain Offi cer) Our eff orts over the past two years have shaped NEC into a company capable of posting sustainable profi ts. In the fi nal year of “Mid-Term Management Plan 2015,” we will go a step further and grow. At the same time, as we expand our global reach, NEC ensures compliance with trade and import/ export management, as well as to further improve the quality of our products and services. We have had success in raising the level of customer satisfaction and improving to resolve quality issues, and now we are ready to make further improvements, with global growth in our sights. Through activities to make product quality an integral part of NEC Group’s culture, we will continue to build the foundation upon which we will become a leading global company. Manabu Kinoshita Executive Vice President In charge of Corporate Sales and Sales Operations Unit In the upcoming fi scal year as the fi nal year of the current Mid-term Management Plan, we focus on three key initiatives targeting continuous growth in the domestic business. First, we enhance sales support functions related to the domains that NEC is focusing on, such as SDN, Big Data, cloud, safety/security, and energy, as well as key sectors including local governments, healthcare, electric power, and broadcasting for further expansion of sales in Japan. Second, we expand the sales partner business by introducing new products and services such as the Social Security and Tax Number System, cloud, and SDN. Finally, we develop salesforce capability in creating new value for our customers and society. We will grow domestic business through these initiatives, and to improve the level of customer satisfaction. Masato Yamamoto Executive Vice President In charge of System Integration, Services & Engineering Operations Unit The “Mid-Term Management Plan 2015,” which was formulated in April 2013, calls for NEC to focus on “Solutions for Society”. As a part of this, I am particularly interested in enhancing our ability to create products, services and solutions that satisfy our customers around the world. We will continue to integrate the NEC Group’s capabilities, and continue tirelessly to be better at what we do and to provide the best for our customers. 41 NEC Corporation Annual Report 2015 Takayuki Morita Executive Vice President In charge of Global Business Unit I believe our mission is to work with our customers, partner companies, and government bodies around the world to realize a managed service of cutting- edge solutions for society. We leverage NEC’s technologies ranked No. 1 in the world, in fi elds such as biometrics-related technology, network and other virtualization technology, and Big Data-related technology using correlation analytics, and to continuously provide such managed services globally. To this end, in addition to providing commercial-base systems, we are engaged in many fi eld trials throughout the world. NEC will continue to propose new types of value for society. Takaaki Shimizu Executive Vice President and CMO (Chief Marketing Offi cer) In charge of Business Innovation Unit NEC has established seven themes of social value innovation, and set these as areas in which we will contribute to society going forward. IoT is integrated into all types of industrial fi elds at a rapid pace. Having devoted ourselves to network and computer technologies for 116 years, NEC will continue to be an innovator in the fi eld of IoT. This innovation is supported by our cutting-edge technologies in fi elds including Big Data, cloud, SDN/NFV, and cybersecurity, as well as our system integration capabilities to deliver these technologies as solutions to our customers. Going forward, we will continually refi ne our technologies and capabilities, and provide new values needed by society. Isamu Kawashima Executive Vice President and CFO (Chief Financial Offi cer) In the fi scal year under review, we worked in building a stable fi nancial foundation while delivering profi t at the same time. We have achieved the income targets we set at the beginning of the year for three consecutive years, and continue to grow our business operations. In the upcoming fi scal year, the fi nal fi scal year of “Mid-Term Management Plan 2015,” we aim to provide fi nancial support for the execution of growth strategies in key areas, including SDN, Big Data, cloud, safety/security, and energy, and continue to build a foundation for business expansion. Katsumi Emura Senior Vice President In charge of Central Research Laboratories NEC is continuously working with customers to deliver innovations. Over the years, we have used our world-leading face recognition technology and unique Big Data analytics technologies to create a host of powerful solutions, including integrated surveillance of cities and infrastructure as well as secure and stable facility operations. We have already begun to roll out these solutions globally. In the upcoming fi scal year, we will further strengthen our global research activities to create new solutions for society, and contribute to NEC’s future growth. Nobuhiro Odake Senior Vice President In charge of Supply Chain Management Unit Our unit is working to enhance and improve the supply chain optimized for the NEC Group as a whole. Underlying our activities is the strong belief that we are always responsible to provide the highest value for our customers. In the upcoming fi scal year, we will fully apply IoT and the related technologies to make our supply chain faster and more visible through process innovation. Our activities for customer satisfaction come before anything else. Taking this idea to heart, we will raise the level of our procurement, production, delivery and product quality even higher. For further details on the corporate officers of NEC Corporation, please visit the following website: http://www.nec.com/en/global/about/executives/svp.html Shunichiro Tejima Executive Vice President In charge of Telecom Carrier Business Unit Telecom Carrier Business Unit brings together NEC’s IT and network technologies to build information and communications platforms and thereby contribute to the realization of an affl uent society. In the upcoming fi scal year, we are committing ourselves to serve a wide range of customers in and outside of Japan in delivering solutions to the challenges they face. We will achieve further growth on a global scale with solutions combining SDN, which makes network building easy through virtualization, and TOMS, which boosts network operating effi ciency. Shinichi Shoji Executive Vice President In charge of System Platform Business Unit System Platform Business Unit continues to provide strong ICT assets as a platform to support “Solutions for Society”, as well as sales and system engineers backing the business. Our strong ICT assets are obtained with cost competitiveness on a global scale and high quality, with added value that our competitors cannot imitate. We will take a steadfast approach to evolving components, and continue to lead the IoT era with a solution platforms that integrates NEC’s unrivaled strengths in Big Data engines centered on vector computers; virtualized platforms that evolves SDN; and edge computing. Takemitsu Kunio Senior Vice President In charge of Smart Energy Business Unit In the global electric utility market, “Distributed Energy” is increasingly widespread as a new energy source. ICT is used for sophisticated power control, a great example of the “integration of ICT and energy technology” that NEC has been proposing over the years. In fi scal 2015, we achieved notable growth by enhancing our product assets, such as large and small electricity storage systems and AMI. In the upcoming fi scal year, we will promote the ICT driven distributed energy, which is expected to become increasingly widespread in Japan, too. We will establish a business model that better serves the market and customers, and achieve sustainable business growth. Susumu Makihara Senior Vice President In charge of Personnel and General Aff airs Increasing the global competitiveness of our work force is essential in order for NEC to grow. However, Japan is facing demographic issues because of the aging of society and a declining birthrate. Therefore, in fi scal 2015, NEC took initiatives to further pursue diversity in its employment in terms of gender and nationality. Moreover, we have implemented succession planning to develop our future leaders. In addition, in the upcoming fi scal year, we will carry out more initiatives to improve our work styles and establish workplaces more appropriate for a diversifi ed pool of talent. Chikara Ishii Senior Vice President In charge of Enterprise Business Unit Enterprise Business Unit contributes to the realization of a safe, secure and affl uent society by providing value to customers in the manufacturing, retail and service sectors. In the upcoming fi scal year, we will further expand our business globally by jointly creating value with customers, centered on value chain innovations linking manufacturing, distribution and sales, and work tirelessly to make the fi nal year of the “Mid-Term Management Plan 2015” a year of growth that will lead NEC into the future. B u s i n e s s F o u n d a t i o n t o S u p p o r t V a l u e C r e a t i o n NEC Corporation Annual Report 2015 42 Stakeholder Engagement The NEC Group is carrying out reforms aimed at becoming a social value innovator capable of continuously contributing to society for over 100 years. To this end, it is important for the Group to be sensitive to societal trends and expectations. Through communications with various stakeholders, the Group will continue to work with them to find solutions to social issues. Customers Sales activities Customer satisfaction surveys NEC Customer Communication Center Shareholders and Investors Investor relation (IR) meetings, dialogs with organizations that evaluate socially responsible investing (SRI) Suppliers Meetings with suppliers to exchange information, compliance hotline, CSR-Process Management Reviews (CSR-PMR), etc. Local Communities NEC Make-a-Difference Drive (employee volunteering), dialogs and collaboration with non-profit organizations (NPOs), etc. NEC Group Employees Labor-management councils, compliance hotline, ONE NEC Survey, Engagement Survey, etc. Global Environment Dialogs with Shareholders and Investors Shareholders and other investors constitute one of NEC's most important stakeholder groups. By raising the transparency of management through timely, appropriate, and fair disclosure, NEC aims to deepen the investment community's understanding of our corporate value. Dialogs with shareholders (interviews) are primarily conducted by the Investor Relations Office (IR Office), the department within the Corporate Strategy Division responsible for investor relations. The Company president and CFO also meet with key shareholders. However, before In addition to individual meetings, members of senior management hold management briefings and quarterly financial-result briefings for the media, securities analysts, and institutional investors. Also, executives responsible for individual businesses have briefings on their businesses, including tours of facilities and briefings on research progress. During the fiscal year under review, management conducted financial-result briefings such as: • the president speaking at briefings in April and October, • a tour of our Fuchu Plant’s Satellite Integration Center in July, members of senior management meet with the shareholders, they talk • an R&D briefing in December, and with the IR Office, Corporate Communications Division, Accounting • a seminar on business related to Japan’s upcoming Social Security and Division, Finance Division, Legal Division, and other relevant internal Tax Number System in March. divisions. The reason for these prior meetings is to ensure a shared Members of senior management also engage in dialog with understanding of both the management strategies and the overall shareholders through the General Meeting of Shareholders. Additionally, operating performance to disclose. This is an effective way of preventing the IR Office holds briefings for individual investors several times a year the disclosure of what could be considered “insider information”. In at branches of securities companies. During the fiscal year under review, addition, officer(s) from the IR Office always sit in on meetings between approximately 350 people attended such briefings, which were held in shareholders and members of senior management, and later report on the seven cities across Japan. details of the meeting to relevant NEC managers. In principal, more than Shareholders’ opinions and one IR Office officer will attend the meetings with shareholders, thereby the ideas gained through these ensuring mutual checks to control the information disclosed. During the IR activities are regularly fiscal year under review, the Company held 440 meetings (88 more than provided as feedback to senior in the previous fiscal year) with securities analysts and institutional management. Then, once each investors inside and outside of Japan. In this way, we engaged in dialog with more than 800 people representing approximately 700 companies. quarter, the CFO reports on shareholders’ opinions and ideas at a Board of Directors Meeting. 43 NEC CorporationAnnual Report 2015Identifying Reform Issues through Dialogs with “CSR Review Forum-Japan” (an NPO) to Become a Social Value Innovator From mid-May to early June 2015, NEC held discussions with CSR Review Forum-Japan (CRF), which is an alliance of NGOs, NPOs, consumer groups, and labor groups. CRF and various individual NEC divisions had talks to review their own activities about core issues based on ISO 26000, a standard providing international guidance for social responsibility. This review process has been ongoing since 2011. As in the previous year, Senior Executive Vice President Takashi Niino participated and talked about making changes to become a social value innovator, as reflected in the Company’s mid-term management policy. He discussed developments such as the NEC Vision books and the new brand message “Orchestrating a brighter world,” which were released during the fiscal year under review. In this way, there was meaningful dialog on how to foster a better corporate culture as well as on current progress. After the various discussions, CRF commented as follows: • ”We hope that NEC’s “Solutions for Society” is added to the next mid- term management plan.” • ”In resolving social issues, we would like Japanese companies to further leverage their special attributes. Japanese companies are conscientious, precise, and friendly to the weak, which are qualities that many non-Japanese companies do not possess as much.” • ”The social issues that the world faces cannot be solved by one private-sector company alone. The issues are too large and will take a long time to solve. Consequently, it is important that a number of companies form a network to solve them.” • ”It is important for companies to tell shareholders and investors that they wish to also be evaluated on their long-term social value creation, not just on their business results.” NEC assured CRF that it will continue to deepen discussions about the importance of linking our businesses to social issues. Among other approaches, we will also explore more ways to inform the public about the “Solutions for Society,” selecting assessment indicators to measure the extent to which social issues are being resolved. Dialogs on Contributions by Business Sector to the UN’s Millennium Development Goals many solutions have been implemented over the past 14 years. This has been done in collaboration with 1,800 public and private sector organizations from more than 60 countries. NEC will continue to generate stakeholder dialogs with the UN, NGOs, and representatives of governments around the world to propose additional solutions. In April 2015, “The 15th Infopoverty World Conference” was held at the United Nations’ headquarters. It was held by the Observatory for Cultural and Audiovisual Communication (OCCAM), a non-governmental organization registered with the United Nations Economic and Social Council and the Department of Public Information. People representing various countries took part. Mr. Masahiro Ikeno, vice president of NEC’s Global Business Unit, represented the Company to share its “Solutions for Society” (such as an ID system using NEC’s biometric identification technology and a broadband network system) to promote NEC’s ability to improve safety, security, efficiency, and social equality with information and communication technologies. A participant’s comment: “NEC has such excellent solutions and successful cases, which I learned about for the first time. We would like to maintain regular contact with them.” OCCAM’s comment: “We can develop policy guidelines and give advice on what the international community should do for governments. However, we also need the involvement of private companies to implement practical solutions for each government. We hope NEC can continue to be involved in these efforts.” Since the adoption of the UN’s MDGs*, the conference has been held every year, starting in 2001. A variety of stakeholders such as * MDGs: governments, companies, and NGOs have been taking part in the conference and share innovative solutions with each other. As a result, Millennium Development Goals. They were adopted at the UN’s headquarters in New York. They range from halving extreme poverty rates to eradicating poverty and hunger by the target date of 2015. 44 NEC CorporationAnnual Report 2015Business Foundation to Support Value Creation Empowering Our People The NEC Group, to make additional progress with our global business, has established new practices under an “NEC Group Human Rights Policy” as we strive to further respect human rights. We actively promote women’s success in the workplace, and are strengthening the training of employees who can excel in a global environment. In addition, we conduct research into employee awareness both domestically and overseas to promote quality workplaces, and strive to acquire official certification regarding safety and health. Formulating the “NEC Group Human Rights Policy” As a global company, NEC supports the following codes of conduct and guidelines advocated by the United Nations, the International Labor Organization (ILO), the European Commission, and other organizations. l The International Bill of Human Rights (United Nations) l The ILO Declaration on Fundamental Principles and Rights at Work l The United Nations Global Compact l Guiding Principles on Business and Human Rights (UNGP) (United Nations) l The ICT Sector Guide on Implementing the UN Guiding Principles on Business and Human Rights (European Commission) Promoting Women’s Success in the Workplace NEC appointed and promoted personnel irrespective of gender even before the enactment of the Equal Employment Opportunity Law in 1985. NEC’s recruitment of new graduates in recent years has seen the ratio of women among them grow to around 20% to 25%. In addition, the percentage of the total number of managers who are women exceeds 5%. In addition, there are 96 management-class female employees who are ranked in the position of department manager or higher, including division leaders and branch managers. The percentage of such women is 3.8%. (The figures are as of April 2015.) In addition, NEC is actively engaged in creating workplaces where women can succeed in line with the action plan below, which is outlined in the Japan Business Federation (Keidanren) Action Plan on Women’s Active Participation in the Workforce. In 2004, NEC added an item expressing respect for human rights to its “NEC Group Charter of Corporate Behavior” and in April 2015 newly formulated the NEC Group Human Rights Policy as a commitment to stakeholders. This policy states that NEC shall engage in dialog and discussion with stakeholders to develop and implement due diligence on human rights. It also requires that a similar respect for human rights be shown not only by NEC Group employees, but also by business partners in the value chain and by other associates. of employees who have restrictions on working hours, including shorter working hours while raising children. l An interactive event for young and mid-career female employees In December 2014, NEC held a diversity promotion event called “Think About Your Career, Your Dreams.” This was an interactive event for female employees held by SELENE (short for “Scarlet Elegance in NEC”), a volunteer group of NEC female managers. The event had two main aims. One was to make women realize there are many options for their career plans, life plans, and work styles. The other was to enable the participants to meet many different people from within the Company. About 80 young and mid-career female employees took part. l Seminar on support for returning to work while raising children In February 2015, NEC held a seminar on support for returning to the Voluntary Action Plan on Promotion of Women to Managerial and Board Positions Achieve a percentage of women ranked department manager or higher of 5% by April 2018 Raise career awareness and form networks of young and mid-career employees using female managers, mainly those ranked as relatively high business unit managers Strengthen the support of employees aiming to be working parents Promote innovative working styles by utilizing ICT and with a focus on diversity In line with this action plan, in fiscal 2015 NEC implemented the workplace for employees who were on leave to raise children. It was attended by about 50 employees on such leave. Participants learned about the current state of the Company, systems supporting working parents, and self-management techniques. They also worked in groups to positively reflect on returning to the workplace. l Career development events for female sales staff Since fiscal 2013, networking events such as following policies and events aimed at providing women with career national women’s sales staff events and support and raising employee awareness. l Business unit manager interviews about employing women at the position of department manager women’s leadership training have been held across the Company for the purpose of training female sales staff. These events are NEC conducted interviews to gain opinions and proposals regarding not limited to employees, but also involve matters that included the career experience needed for such employment, fields in which success can be expected, and reviews of the working styles exchanges with salespeople from different sectors, helping broaden perspectives through networking with people from other companies. 45 NEC CorporationAnnual Report 2015Making Global Professionals More Visible and Training Them To further support our global growth from the personnel side, in fiscal 2011, the NEC Group began building a framework for training professionals capable of succeeding in a global organization. NEC created a global-standard framework on human resources and skills to provide a common global scale for gauging the capabilities of human resources. Based on this, NEC developed a Web-based SaaS- style management tool for human resources and skills to improve the visibility of the skills of professionals at overseas subsidiaries. Moreover, in fiscal 2015, NEC carried out skills surveys at overseas subsidiaries that have yet to introduce such management tools. We were able to visualize the skills of about 80% of the service personnel, systems engineers, and software developers. For employees at overseas subsidiaries who are expected to become leaders to drive global business, we are implementing global leader training. Through this training, we will help them share what the NEC Group aims to be and expand personal business networks by gathering leadership candidates from various regions. Employee Surveys: One NEC Survey and Engagement Survey The NEC Group conducts One NEC Surveys each year for all employees of Group affiliates in Japan to better understand employees’ opinions and thoughts about the Company, workplaces, and jobs. In addition, since fiscal 2012, NEC has carried out Engagement Surveys for employees of overseas Group companies every other year. The results of both surveys are utilized to determine the direction of human resources initiatives and measures to develop organizations. One NEC Survey (Japan) In fiscal 2015, this survey was conducted at NEC Corporation and 33 NEC Group companies in Japan. The purposes were to identify the factors that motivate each employee to perform better and improve customer satisfaction. Responses were obtained from 48,857 employees, making the response rate about 84%. More than 70% of the respondents expressed positive opinions about their high degree of trust in their co-workers, their desire to contribute to customers, and their loyalty to NEC. However, only from 40% to 50% of the employees Tackling Health and Safety had positive opinions about career opportunities, evaluation systems, and work processes. Based on these results, NEC will further enhance and promote career opportunities to provide employees better future prospects and a greater sense of growth. Engagement Survey (Overseas Subsidiaries) In fiscal 2015, this survey was conducted at overseas subsidiaries in 30 countries managed by the Global Business Unit. It was in seven languages. Responses were obtained from 7,900 employees and the response rate was 77%. More than 60% of the respondents expressed positive opinions regarding teamwork and customer-oriented work execution. In contrast, the positive response rates for career opportunities, evaluation systems, and work environments were about 35%. This tendency is similar to the responses of employees in Japan. Based on these trends, NEC will collaborate with each region to develop the organization further. A fundamental NEC principle is that "NEC will maintain and enhance comfortable and supportive workplaces to ensure the health and safety Efforts to Acquire OHSAS 18001 Certification The NEC Group has been working since fiscal 2011 to obtain OHSAS of all people working at its business sites." Based on that, NEC provides 18001 certification by fiscal 2015 for occupational health and safety, various occupational health and safety and health enhancement taking into account the characteristics of activities company-wide, taking into account the characteristics of each each company and workplace. Certification company and workplace. Adoption and Functioning of the NEC Group’s Occupational Health and Safety Management Regulations NEC established a company-wide Occupational Health & Safety Policy in 2010. It was used to regulate specific actions in individual situations. In 2012, the NEC Group’s Occupational Health and Safety Management Regulations were established as part of efforts to enhance the quality of the activities. has already been obtained for 11 NEC Group companies thought to be likely to have health and safety risks, including the NEC Kansai Building, sales bases, and production lines. Looking forward, we are moving ahead with OHSAS certification or implementation of a similar program for other NEC Group companies. OHSAS certificate 46 NEC CorporationAnnual Report 2015Business Foundation to Support Value Creation Earning Customer Trust NEC considers value for customers from a societal perspective, and will continue to work with customers to contribute to solving social problems. All of our employees discuss how to maximize value for customers, create opportunities to share awareness, and utilize ICT to contribute to solving social issues where customers are located. “The NEC Group Values Day:” Aimed at Maximizing Benefits for Customers and Society NEC uses July 17, the anniversary of the company’s founding in 1899, as “NEC Group Values Day,” a day on which all employees reaffirm the four values of great importance to our company: Better Products, Better Services; Passion for Innovation; Collaboration; and Self-help. On that day, employees at each workplace spend time discussing what the values are so as to better satisfy customers’ expectations. Employees also discuss what they should do to maximize such values, using it as an opportunity to foster a mindset of putting ideas into action based on a sense of ownership. In 2014, we added a “Values Achievement Award” to our “NEC Contributors of the Year” event. The event honors employees and teams that contribute to customers, markets, and/or society and help grow the NEC Group’s culture by being aware of the value their work provides to customers. In 2014, there were seven recipients of the award. Award recipients included a team that helped with “Sports Festival in Tokyo 2013” by volunteering with operations and cleaning sidewalks. The team also worked closely with Tokyo’s Koto Ward and other organizations to develop and provide a smartphone app that offered information on competition venues during the festival. Another team provided customers with manufacturing know-how linking sales and production plants and is working with clients to promote production innovations. Local Subsidiary’s Efforts to Support Developing Countries As part of its social contribution program in the Philippines, NEC Telecom Software Philippines, Inc., worked with the Japan International Cooperation Agency (JICA) to support a program that fosters exchanges between high schools in the Philippines and Japan. With the aim of improving communication skills that allow people to enjoy global success, Subangdaku Technical Vocational School in Cebu (one of Philippines’s model schools for technical education) and Chiba Prefectural Ichikawa High School of Technology in Japan connected via a network and discussed differences in the cultures and learning methods at the two schools. The students felt a sense of affinity based on the schools’ having many subjects in common, such as math and physical education. But, through ICT, they also got a real sense of the differences between the schools, such as the clothing, accents, the number of class periods for occupational technology classes and specialized courses, and the different things they were producing in their classes. Following the completion of the program, students from both schools said that the program helped them speak with confidence and that they started to enjoy communicating in English. Going forward, NEC will continue to earn the trust of local communities through locally rooted global social contribution activities in the communities where we operate. NEC Contributors of the Year awards ceremony Network-based exchange program between high school students in Japan and the Philippines 47 NEC CorporationAnnual Report 2015Progress of NEC Group “Environmental Management Action Plan 2017/2030” and New Objectives for Climate Change In fiscal 2011, we established NEC Group “Environmental Management Action Plan 2017/2030,” which defines mid- and long- term environment management targets. In addition, we have been working on new targets to strengthen our contribution to combating climate change since last year. NEC Group Environmental Management Action Plan 2017/2030 includes specific targets based on three key perspectives: • low carbon emissions • ecosystem and biodiversity preservation • resource recycling and conservation. One of the goals of the low carbon emissions is to contribute to a reduction in CO2 emissions from customers and society through the provision of IT solutions. With respect to this goal, we are working to reduce CO2 emissions by 15 million tons by fiscal 2018. During fiscal 2015, we contributed to reductions of 2.54 million tons. With this, our cumulative CO2 emission cuts over the five years since fiscal 2011 stood at 11.71 million tons. Therefore, we are making good progress toward achieving the 15-million-ton goal. Another low-carbon target is to reduce CO2 emissions during the use of our products by improving their energy efficiency. In this regard, NEC aims to achieve an 80% reduction by fiscal 2018 compared with that for fiscal 2006 products. In fiscal 2015, the reduction was already 91%, which was significantly higher than the target. This reduction was primarily due to the growth in shipments of network equipment with extremely high energy-efficiency improvements. From the perspective of ecosystem and biodiversity preservation, over 9,880 employees worldwide have participated in social contribution activities associated with such preservation. In addition, NEC added three new solutions utilizing our advanced technologies and products to contribute to the preservation of biodiversity. These include a solution that supports the destruction of invasive foreign species and a cultivation management portal. As a result, we now have a total of nine solutions for biodiversity preservation. With respect to resource recycling and conservation, one target is to expand the application of NEC’s NeCycle® bioplastic. NEC is making progress with this, including NeCycle® usage in base units for point-of- sale (POS) terminals. Last year, NEC began initiatives to increase our contributions to “adaptation” to climate change in addition to furthering our contributions to curbing greenhouse gas emissions (or the “mitigation” of climate change). These include preparing for natural disasters, food shortages, water shortages, and other problems that are on the rise due to the impacts of climate change. With respect to the mitigation, we started measures to reduce the overall supply chain emissions involving our Tamagawa Plant. To do so, we integrated the management of energy at the community level, increased the accuracy of Scope 3 data by strengthening collaboration with suppliers, and enhanced reliability through third-party verifications. With respect to the adaptation, we have created a brochure that explains specifically, and in simple language, how IT can help with adaptation. We then began to bolster our solutions contributing to adaptation and started a trial to quantitatively assess the level of contribution of the solutions. Through these initiatives, NEC is working toward achieving a new environmental management target for CO2 reductions that is five times greater than that for the overall CO2 emissions from our entire supply chain by fiscal 2020. Social Value that NEC Contributes for Climate Change (50.00) million tons Preparations for climate change (adaptation) (cid:127) Water, food, forests, and extending infrastructure life by preventing and protecting against disasters (cid:127) Ecosystem (agriculture, fishing), etc. 15.00 million tons 11.71 million tons Amount of contribution to CO2 emissions reductions t a r g e t N e w t a r g e t P r e v o u s i 2014 2017 2020 Supply chain CO2 emissions (Scope 1, 2, 3) 9.50 million tons (10.00) million tons CO2 emissions reductions (mitigation) (cid:127) Equipment energy-saving controls (cid:127) Reducing paper, lowering transport volume, etc. Fiscal 2020 Fiscal 2020 5X NEC Corporation Annual Report 2015 48 B u s i n e s s F o u n d a t i o n t o S u p p o r t V a l u e C r e a t i o n R&D and Intellectual Property Strategy NEC aims to create a “Solutions for Society” and conducts research and development activities in close collaboration with intellectual property and standardization strategies. Researchers go out to visit customers, work through a variety of hypotheses until they can identify the exact problem, and then strive to create potential solutions that contribute to business and maximize value by using NEC’s No. 1 technologies and unique technologies as our sources of competitiveness. Main Research Domains and R&D Strategy NEC aims to provide value that will ensure the safety, security, efficiency and equality in society by promoting the development of “Solutions for Society” under the “Mid-term Management Plan 2015.” R&D activities at NEC improve technology that supports current businesses in providing the solutions. Furthermore, the R&D programs are designed to create technologies for future businesses that can provide added value for society. All in all, successful R&D activities support the sustainable development of the Company. Regarding research domains, R&D activities are set to make vital contributions to seven themes related to social value innovation. These include “data science,” which creates new values from Big Data using visualization and analyzing technologies, and “platforms” that are needed to respond to the large-scale, complicated issues actually facing the world. NEC possesses many proprietary and highly competitive technological assets in both these areas. We continue to reinforce NEC’s strengths in these areas, and furthermore, strengthen sources of value provision in real-time, dynamic, remote and secure, thereby enhancing the competitiveness of the “Solutions for Society.” Contributing to the Creation of Integrated Solutions Based on Seven Themes for Social Value Innovation and R&D Activities Centered on Data Science and Platforms D a t a S c i e n c e l P a t f o r m V i s u a l i z a t i o n A n a y z e l C o n t r o l Computing networking Security Face recognition Crowd behavior analysis Invariant analysis Heterogeneous mixture learning Autonomous and adaptive control Many-core parallel processing technology SDN Optical digital coherence Ultra-small wireless HW Light weight encryption Protects system from unknown attacks I n t e g r a t e d s o u t i o n s l Real-time Infrastructure preventive maintenance Secure distribution Dynamic Smart traffic Optimum water supply Remote Secure High efficient system Securely operate infrastructure S e v e n t h e m e s f o r s o c i a l l v a u e i n n o v a t i o n At NEC, we apply a process in determining R&D activities to carry on. As a result, in fiscal 2015, we contributed to creating the new The process involves focusing on domains in which NEC can provide “Solutions for Society,” including through solution with the Predictive high value; creating core competence after thoroughly refining strong Monitoring and Diagnostics System for large-scale complex facilities technologies; and then delivering strong solutions by collaborating utilizing Invariant Analysis technology* and through the integrated with partners and customers. We find this process important from the disaster readiness system using crowd behavior analysis technology. viewpoint of contributing to business with greater value through R&D. * Invariant Analysis technology is an analytics-based technology that extracts and models the relationships within large amounts of data to enable the detection of behavior that is anomalous with the model, thus allowing discovery of potential performance issues. 49 NEC Corporation Annual Report 2015 By Leveraging the No. 1/Only 1 Technologies We Create “Solutions for Society” in Collaboration with Partners and Customers S e v e n t h e m e s f o r s o c i a l l v a u e i n n o v a t i o n Customer challenges Partners (Technical cooperation) Deliver solutions Core competency No.1/Only 1 technology Solution prototype Verify value with partners and leading customers Competitor analysis, NEC strategy Customers (Knowledge/Verify) C r e a t e “ S o u t i o n s l f o r S o c i e t y ” Moreover, to expand these types of initiatives globally, NEC is moving ahead with R&D in the five regions globally including North America, Europe, China, Singapore and Japan. We will leverage their local advantages and accelerate the creation of new business by initiating collaborations with these regions. Through its R&D programs, NEC aims to contribute to development of “Solutions for Society” as outlined in the “Mid-term Management Plan 2015,” and to create new value to help realize “an information society friendly to humans and the earth” described in the NEC Group Vision 2017. R&D Achievements in Fiscal 2015 l Developed technology to observe and measure internal deterioration of a structure through video Developed the world’s first technology capable of measuring and estimating internal deterioration inside structures such as roads or bridges based on video images of the surface taken by camera. Contributed to early detection of structural deterioration and more efficient repairs, and reducing the cost of maintenance inspections. l Developed software technology to integrate different types of networks to expand SDN usage Developed the world’s first technology to enable service providers and telecommunications carriers to efficiently build and operate wide area networks through integrated management of multiple types of different networks such as optical or wireless. l Strengthened heterogeneous mixture learning technologies that automatically discover massive patterns hidden in Big Data Developed new data analysis techniques to automate NEC’s heterogeneous mixture learning technology. Enabled high-speed, highly accurate large-scale demand forecasts based on millions of target data, including sales forecasts by product and energy demand forecasts. l Developed “Fingerprint of Things” recognition technology capable of identifying industrial products and parts through fine surface patterns Developed the world’s first “Fingerprint of Things” recognition technology that enables instantaneous and highly accurate identification to identify specific products and their respective manufacturers by using image recognition of fine patterns naturally generated on the surface of industrial products or parts and matching these with cloud-based data. Application of this technology enables selection of optimum distribution routes and ensures the authenticity of products without any special device or identification tags. B u s i n e s s F o u n d a t i o n t o S u p p o r t V a l u e C r e a t i o n Intellectual Property Strategy The NEC Group owns approximately 65,000 patents worldwide, including to obtain patents that are strong and used extensively. some 22,000 patents in Japan as of March 2015. The Company positions Furthermore, NEC believes that participating in standardization intellectual property as important management resources for the NEC initiatives will help create and expand businesses, and will also contribute Group’s business competitiveness and stability, and is working to to the stable offering of products and services. In addition to pursuing a strengthen its intellectual property capability. Specifically, NEC is business model that utilizes standardization, NEC is engaged strategically concentrating on establishing a global patent portfolio, to support quickly in standardization activities by actively participating in standards achieving an overseas sales ratio of 25% as targeted in “Mid-term organizations both in Japan and overseas. Also, as part of its external Management Plan 2015.” In such areas as SDN and energy in particular, NEC is carrying out Group-wide strategic patent projects on a global basis engagements with intellectual property, NEC is actively pursuing licensing activities to reduce business risks and expand business opportunities. NEC Corporation Annual Report 2015 50 Compliance and Risk Management NEC actively promotes thorough compliance activities and the strengthening of its risk management, including within its supply chain. In these ways, NEC strives to ensure sound business activities for society. Thorough Internal Compliance and Risk Management NEC believes that compliance and risk management are essential for a company to exist within society and to meet society’s expectations and requirements. Consequently, every year, NEC identifies risks companywide that it needs to address on a priority basis, and carries out improvement activities. NEC also conducts web-based training related to compliance on a continuing basis for NEC Corporation and domestic subsidiaries. In addition, the Company carries out the following initiatives. l Compliance with Competition Laws and Corruption (Bribery) Prevention NEC and its domestic and overseas subsidiaries are thorough in abiding by policies regarding competition-law compliance and corruption prevention. To achieve this, we promote awareness-raising and system improvement activities by which we conduct business activities that place compliance as the highest priority in a fiercely competitive world. In fiscal 2015, about 5,000 people, including officers and employees of domestic subsidiaries, underwent group training. All the members of the business units in charge of areas regarded as being at high risk for bribes were advised to take part. At overseas subsidiaries, training for all officers and employees was implemented through e-learning. l Compliance Self-Checks In fiscal 2015, NEC started new self-check compliance testing for all general managers of NEC and officers of domestic subsidiaries (except for listed subsidiaries). The self-checks encourage awareness of compliance weaknesses in the checker’s own division and promote early Strengthening Suppliers’ CSR detection and elimination of problems by giving feedback to each division in the form of an analysis of the results and advice on best practices. l Compliance Hotline The Company established a compliance hotline at NEC Corporation and a third-party organization as a point of contact for consultation and reporting in the event an employee for some reason cannot consult a superior or associated division about actions that are or may be a breach of the "NEC Group Code of Conduct." In fiscal 2015, there were 65 cases of consultations or reports, such as doubts about internal systems or management and claims about the possibility of breaches of ethical behavior. Details of the matters consulted on or reported were evaluated by the internal divisions in charge to determine whether the claims required a follow-up survey. Then, the results of any survey were given to those who requested consultation. NEC has been working to implement thorough compliance practices, including through the above measures. However, in November 2014, the Fair Trade Commission conducted on-site inspections on suspicion of NEC’s violation of the Antimonopoly Act of Japan in connection with transactions concerning radio systems for firefighting. Moreover, in May 2015, there were more such inspections in connection with transactions concerning telecommunications equipment for electric power systems. Taking these incidents very seriously, the NEC Group is cooperating fully with the commission’s investigations. NEC is engaged in a variety of initiatives to bolster suppliers’ CSR based that progress had been made. Going forward, we will expand the on the NEC Group Procurement Policy. number of assessments carried out and the regions to assess. One aspect of that has been CSR-Process Management Reviews (CSR-PMR), which have been conducted since fiscal 2013. The reviews involve visiting suppliers’ sites and conducting onsite assessments of human rights, labor, health, and safety. Unlike a regular audit, a feature of this activity is the concept of joint CSR capability building, which involves dialog with the supplier to raise the CSR abilities of both parties. In fiscal 2015, CSR-PMR assessments were conducted in collaboration with a local NGO on three production contractors in China. As a result, several problems were found that included employment conditions, working hours, and health and safety management. We Assessment at a plant issued corrective-action recommendations and subsequently confirmed 51 NEC CorporationAnnual Report 2015Financial Section 53 Consolidated Balance Sheets Contents 55 Consolidated Statements of Operations 56 Consolidated Statements of Comprehensive Income 57 Consolidated Statements of Changes in Net Assets 59 Consolidated Statements of Cash Flows Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥120 = U.S.$1. 2. Please refer to the separate publication “Annual Report 2015 (Financials)” for details of “Note XX” on pages 53 to 60. 52 NEC CorporationAnnual Report 2015Corporate Data Consolidated Balance Sheets NEC Corporation and Subsidiaries March 31, 2014 and 2015 ASSETS CURRENT ASSETS: Millions of Yen Thousands of U.S. Dollars (Note 1) 2014 2015 2015 Cash and cash equivalents (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 206,637 ¥ 181,132 $ 1,509,433 Short-term investments (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade notes and accounts receivable (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets (Notes 19 and 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,322 842,308 214,395 74,431 167,626 (4,810) 1,972 928,367 241,146 65,351 163,968 (5,151) 16,433 7,736,392 2,009,550 544,592 1,366,400 (42,925) Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,502,909 1,576,785 13,139,875 PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION (Note 8): Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,585 175,570 17,878 63,075 26,078 57,787 172,177 20,189 67,643 20,319 481,558 1,434,808 168,242 563,692 169,325 Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,186 338,115 2,817,625 INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 6 and 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,170 157,078 1,308,983 Investments in affiliated companies (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net defined benefit asset (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets (Notes 19 and 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,293 76,203 98,285 40,123 108,398 10,404 112,897 (15,539) 656,234 90,153 66,985 94,194 39,424 85,114 74,622 102,682 (4,500) 705,752 751,275 558,208 784,950 328,534 709,283 621,850 855,684 (37,500) 5,881,267 TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,505,329 ¥2,620,652 $21,838,767 See notes to consolidated financial statements. 53 NEC CorporationAnnual Report 2015 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Millions of Yen Thousands of U.S. Dollars (Note 1) 2014 2015 2015 Short-term borrowings (Notes 8 and 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 32,415 ¥ 28,988 $ 241,567 Current portion of long-term debt (Notes 8 and 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade notes and accounts payable (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities (Notes 10, 13, 19 and 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LONG-TERM LIABILITIES: Long-term debt (Notes 8 and 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net defined benefit liability (Notes 3 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities (Notes 11, 19 and 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMMITMENTS AND CONTINGENT LIABILITIES (Notes 18, 20 and 21) NET ASSETS (Notes 12 and 24): SHAREHOLDERS’ EQUITY: Common stock: Authorized — 7,500,000 thousand shares 66,126 446,494 152,792 287,758 985,585 476,610 220,457 2,213 52,801 752,081 106,267 466,677 169,070 298,546 1,069,548 385,523 228,686 2,410 50,293 666,912 885,558 3,888,975 1,408,917 2,487,883 8,912,900 3,212,692 1,905,717 20,083 419,108 5,557,600 Issued — 2,604,733 thousand shares in 2014 and 2015 . . . . . . . . . . . . . . . . . Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,199 148,402 182,570 397,199 148,694 207,021 3,309,992 1,239,116 1,725,175 Treasury stock—at cost: 6,515 thousand shares in 2014 and 5,916 thousand shares in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,976) 725,195 (3,025) 749,889 (25,208) 6,249,075 ACCUMULATED OTHER COMPREHENSIVE INCOME: Valuation difference on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . Deferred gains or losses on hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remeasurements of defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . MINORITY INTERESTS (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,292 (1,359) (1,521) (60,658) (29,246) 71,714 47,385 (271) 12,795 13,852 73,761 60,542 394,875 (2,258) 106,625 115,433 614,675 504,517 Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767,663 884,192 7,368,267 TOTAL LIABILITIES AND NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,505,329 ¥2,620,652 $21,838,767 54 NEC CorporationAnnual Report 2015Corporate Data Consolidated Statements of Operations NEC Corporation and Subsidiaries Years Ended March 31, 2013, 2014 and 2015 NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,071,609 ¥3,043,114 ¥2,935,517 $24,462,642 COST OF SALES (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,142,243 929,366 2,128,457 914,657 2,039,499 896,018 16,995,825 7,466,817 2013 Millions of Yen 2014 Thousands of U.S. Dollars (Note 1) 2015 2015 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 9 and 14) . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-OPERATING INCOME: Interest and dividends income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of affiliated companies, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subsidy income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-OPERATING EXPENSES: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement benefit expenses (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for contingent loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPECIAL GAINS (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPECIAL LOSSES (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME TAXES (Note 13): 814,719 114,647 808,464 106,193 767,934 128,084 6,399,450 1,067,367 5,247 409 446 535 8,940 15,577 5,979 11,631 1,327 19,263 38,200 92,024 16,780 39,525 6,251 2,719 593 2,165 6,507 5,658 8,126 4,468 2,361 5,879 47,150 67,717 37,233 19,675 48,992 18,235 26,492 220,767 10,036 11,325 11,452 22,463 55,276 69,152 58,341 43,532 10,066 10,357 5,872 16,169 42,464 112,112 7,801 23,176 83,883 86,308 48,934 134,742 353,867 934,267 65,008 193,133 69,279 83,961 96,737 806,142 Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME BEFORE MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,724 (198) 30,526 38,753 33,558 8,808 42,366 41,595 31,868 8,944 40,812 55,925 265,567 74,533 340,100 466,042 MINORITY INTERESTS IN NET INCOME (LOSS) OF SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,319 7,853 (1,377) (11,475) NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 30,434 ¥ 33,742 ¥ 57,302 $ 477,517 PER SHARE OF COMMON STOCK (Note 23): Basic net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See notes to consolidated financial statements. 2013 ¥11.71 — 4.00 Yen 2014 U.S. Dollars (Note 1) 2015 2015 ¥12.99 ¥22.05 — 4.00 — 4.00 $0.18 — 0.03 55 NEC CorporationAnnual Report 2015 Consolidated Statements of Comprehensive Income NEC Corporation and Subsidiaries Years Ended March 31, 2013, 2014 and 2015 2013 Millions of Yen 2014 Thousands of U.S. Dollars (Note 1) 2015 2015 INCOME BEFORE MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥38,753 ¥41,595 ¥ 55,925 $ 466,042 OTHER COMPREHENSIVE INCOME (Note 16): Valuation difference on available-for-sale securities . . . . . . . . . . . . . . . . . . Deferred gains or losses on hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remeasurements of defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of other comprehensive income of associates accounted for using equity method . . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,096 (845) 16,724 — 5,690 23,665 ¥62,418 ¥53,468 8,950 15,858 (253) 4,450 — 1,239 21,294 ¥62,889 ¥54,917 7,972 12,028 674 11,218 78,611 4,150 106,681 ¥162,606 100,233 5,617 93,483 655,092 34,583 889,008 $1,355,050 ¥160,309 $1,335,908 2,297 19,142 56 NEC CorporationAnnual Report 2015Corporate Data Consolidated Statements of Changes in Net Assets NEC Corporation and Subsidiaries Years Ended March 31, 2013, 2014 and 2015 Thousands Outstanding number of shares of common stock Shareholders’ equity Accumulated other comprehensive income Millions of Yen Common stock Capital surplus Retained earnings Treasury stock Total Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency Remeasurements translation adjustments of defined benefit plans Total rights Minority interests Stock subscription Total net assets BALANCE, MARCH 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 ¥397,199 ¥192,834 ¥ 82,659 ¥ (2,939) ¥669,753 ¥16,273 ¥ (142) ¥ (28,928) ¥ — ¥ (12,797) ¥ 24 ¥120,634 ¥777,614 Deficit disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . (44,426) (3) BALANCE, MARCH 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 397,199 148,405 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid, ¥4 per share . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . (2) 44,426 30,434 252 157,771 33,742 (10,394) 1,451 (11) 4 (2,946) (35) 5 — 30,434 (11) 1 252 — 700,429 33,742 (10,394) (35) 3 1,451 — BALANCE, MARCH 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 397,199 148,402 182,570 (2,976) 725,195 Cumulative effects of changes in accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restated balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,199 148,402 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid, ¥4 per share . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . (2) 294 (22,458) 160,112 57,302 (10,393) (2,976) (54) 5 (22,458) 702,737 57,302 (10,393) (54) 3 294 — BALANCE, MARCH 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 ¥397,199 ¥148,694 ¥ 207,021 ¥ (3,025) ¥749,889 2,060 18,333 (934) (1,076) 21,908 (7,020) — — 23,034 10,237 (24) — 4,847 125,481 15,959 34,292 (283) (1,359) 5,499 (1,521) (60,658) (60,658) (39,483) (29,246) 34,292 (1,359) (1,521) (60,658) (29,246) — — — — (53,767) 71,714 (1,608) 70,106 13,093 ¥47,385 1,088 ¥ (271) 14,316 ¥ 12,795 74,510 ¥ 13,852 103,007 ¥ 73,761 — ¥ — (9,564) 93,443 ¥ 60,542 ¥884,192 Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. Dollars (Note 1) Common stock Capital surplus Retained earnings Treasury stock Total Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency Remeasurements translation adjustments of defined benefit plans Total rights Minority interests Stock subscription Total net assets BALANCE, MARCH 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,309,992 $1,236,683 $1,521,416 $ (24,800) $6,043,291 $285,767 $(11,325) $ (12,675) $(505,484) $(243,717) $ — $597,617 $6,397,191 Cumulative effects of changes in accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,150) (187,150) Restated balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,309,992 1,236,683 1,334,266 (24,800) 5,856,141 285,767 (11,325) (12,675) (505,484) (243,717) — — (13,400) 584,217 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid, $0.03 per share . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . 477,517 (86,608) (450) 42 (17) 2,450 477,517 (86,608) (450) 25 2,450 — BALANCE, MARCH 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,309,992 $1,239,116 $1,725,175 $ (25,208) $6,249,075 Conforming to separate financial statements, total translated amounts seem to be inconsistent with calculation in some cases. See notes to consolidated financial statements. 57 109,108 $394,875 9,067 119,300 620,917 858,392 $ (2,258) $106,625 $115,433 $614,675 — $ — (79,700) 778,692 $504,517 $7,368,267 — 30,434 (11) 1 252 27,857 836,147 33,742 (10,394) (35) 3 1,451 (93,250) 767,663 (24,066) 743,597 57,302 (10,393) (54) 3 294 (200,550) 6,196,641 477,517 (86,608) (450) 25 2,450 NEC CorporationAnnual Report 2015  Deficit disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid, ¥4 per share . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . Cumulative effects of changes in accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid, ¥4 per share . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . Cumulative effects of changes in accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid, $0.03 per share . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of scope of equity method . . . . . . . . . . . . . . . . Net changes in items other than shareholders’ equity during the year . . . . . . . . . . . . (44,426) (3) (2) (2) 294 44,426 30,434 252 157,771 33,742 (10,394) 1,451 (22,458) 160,112 57,302 (10,393) (187,150) 477,517 (86,608) (17) 2,450 (450) 42 (11) 4 (35) 5 (54) 5 — 30,434 (11) 1 252 — 700,429 33,742 (10,394) (35) 3 1,451 — (22,458) 702,737 57,302 (10,393) (54) 3 294 — (187,150) 477,517 (86,608) (450) 25 2,450 — Thousands Outstanding number of shares of common stock Shareholders’ equity Accumulated other comprehensive income Millions of Yen Common stock Capital surplus Retained earnings Treasury stock Total Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency translation adjustments Remeasurements of defined benefit plans Total Stock subscription rights Minority interests Total net assets BALANCE, MARCH 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 ¥397,199 ¥192,834 ¥ 82,659 ¥ (2,939) ¥669,753 ¥16,273 ¥ (142) ¥ (28,928) ¥ — ¥ (12,797) ¥ 24 ¥120,634 ¥777,614 BALANCE, MARCH 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 397,199 148,405 (2,946) 2,060 18,333 (934) (1,076) 21,908 (7,020) — — 23,034 10,237 (24) — 4,847 125,481 BALANCE, MARCH 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 397,199 148,402 182,570 (2,976) 725,195 15,959 34,292 (283) (1,359) 5,499 (1,521) (60,658) (60,658) (39,483) (29,246) Restated balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,199 148,402 (2,976) 34,292 (1,359) (1,521) (60,658) (29,246) — — — — (53,767) 71,714 (1,608) 70,106 — 30,434 (11) 1 252 27,857 836,147 33,742 (10,394) (35) 3 1,451 (93,250) 767,663 (24,066) 743,597 57,302 (10,393) (54) 3 294 BALANCE, MARCH 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,733 ¥397,199 ¥148,694 ¥ 207,021 ¥ (3,025) ¥749,889 13,093 ¥47,385 1,088 ¥ (271) 14,316 ¥ 12,795 74,510 ¥ 13,852 103,007 ¥ 73,761 — ¥ — (9,564) 93,443 ¥ 60,542 ¥884,192 BALANCE, MARCH 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,309,992 $1,236,683 $1,521,416 $ (24,800) $6,043,291 $285,767 $(11,325) $ (12,675) $(505,484) $(243,717) $ — $597,617 $6,397,191 Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. Dollars (Note 1) Common stock Capital surplus Retained earnings Treasury stock Total Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency translation adjustments Remeasurements of defined benefit plans Total Stock subscription rights Minority interests Total net assets Restated balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,309,992 1,236,683 1,334,266 (24,800) 5,856,141 285,767 (11,325) (12,675) (505,484) (243,717) — — (13,400) 584,217 (200,550) 6,196,641 477,517 (86,608) (450) 25 2,450 BALANCE, MARCH 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,309,992 $1,239,116 $1,725,175 $ (25,208) $6,249,075 Conforming to separate financial statements, total translated amounts seem to be inconsistent with calculation in some cases. See notes to consolidated financial statements. 109,108 $394,875 9,067 119,300 620,917 858,392 $ (2,258) $106,625 $115,433 $614,675 — $ — (79,700) 778,692 $504,517 $7,368,267 58 NEC CorporationAnnual Report 2015Corporate Data Consolidated Statements of Cash Flows NEC Corporation and Subsidiaries Years Ended March 31, 2013, 2014 and 2015 2013 Millions of Yen 2014 Thousands of U.S. Dollars (Note 1) 2015 2015 CASH FLOWS FROM OPERATING ACTIVITIES 　Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . ¥ 69,279 ¥ 83,961 ¥ 96,737 $ 806,142 　Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Amortization of long-term prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Impairment losses on property, plant and equipment, and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Increase (decrease) in allowance for doubtful accounts . . . . . . . . . . . . . 　Decrease in product warranty liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Increase (decrease) in provision for loss on 83,612 6,748 21,949 15,428 591 (1,183) 76,977 4,972 15,934 17,085 (4,163) (1,220) 78,717 5,126 8,932 16,814 (11,030) (979) 655,975 42,717 74,433 140,117 (91,917) (8,158) construction contracts and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,987 (6,634) (5,763) (48,025) 　Increase (decrease) in provision for business structure improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Increase (decrease) in provision for contingent loss . . . . . . . . . . . . . . . . . . . . 　Increase (decrease) in provision for loss on repurchase of computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Interest and dividends income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Equity in earnings of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Gain on change in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Gain on sales of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Loss on retirement of property, plant and equipment . . . . . . . . . . . . . . . . . 　Gain on sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Loss on sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Write-off of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Gain on sales of investments in affiliated companies . . . . . . . . . . . . . . . . . 　Loss on sales of investments in affiliated companies . . . . . . . . . . . . . . . . . 　Loss on contribution of securities to retirement benefit trust . . 　Gain on insurance claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Increase in trade notes and accounts receivable . . . . . . . . . . . . . . . . . . 　(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　(Increase) decrease in accounts receivable, other . . . . . . . . . . . . . . . . 　Increase (decrease) in trade notes and accounts payable . 　Others—net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from insurance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,644) (3,575) (1,143) (5,247) 5,979 (409) (2,657) (1,569) 636 (9,057) 2 804 (1,728) 880 5,898 (1,625) (9,600) 5,496 (2,792) (8,548) 18,328 171,840 4,481 (5,928) (28,653) 2,008 9,086 10,476 1,583 (6,251) 10,036 (2,719) (365) (368) — (2,698) 23 1,738 (53,923) 64 — — (22,680) 24,327 3,380 (4,034) (26,937) 127,650 6,216 (8,914) (30,828) — 392 787 (464) (5,658) 10,066 (8,126) — (3,276) — (2,216) 10 1,044 (1,706) — — — (74,822) (21,830) 5,665 16,668 21,635 126,723 5,721 (10,132) (34,395) — 3,267 6,558 (3,867) (47,150) 83,883 (67,717) — (27,300) — (18,466) 83 8,700 (14,217) — — — (623,516) (181,917) 47,208 138,900 180,292 1,056,025 47,675 (84,433) (286,625) — Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥143,748 ¥ 94,124 ¥ 87,917 $ 732,642 See notes to consolidated financial statements. 59 NEC CorporationAnnual Report 2015 CASH FLOWS FROM INVESTING ACTIVITIES 　Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (46,012) ¥ (89,458) ¥ (42,461) $ (353,842) 2013 Millions of Yen 2014 Thousands of U.S. Dollars (Note 1) 2015 2015 　Proceeds from sales of property, plant and equipment . . . . . . . . . . . . . . . 　Acquisitions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Disbursements for acquisitions of shares of 5,208 (14,556) (1,159) 27,601 newly consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,072) 　Proceeds from acquisitions of shares of newly consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from sales of shares of subsidiaries being excluded from the consolidation . . . . . . . . . . . . . . . . . . 　Disbursements for sales of shares of subsidiaries being excluded from the consolidation . . . . . . . . . . . . . . . . . . 　Purchases of investments in affiliated companies . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from sales of investments in affiliated companies . . . . . 　(Increase) decrease in short-term loans receivable, net . . . . . . . . . . . . . . 　Disbursements for loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Collection of loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Others—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES 　Decrease in short-term borrowings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Repayments of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Redemption of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Dividends paid to minority shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Others—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Net cash 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 YEAR . . DECREASE IN CASH AND CASH EQUIVALENTS RESULTING FROM CHANGE OF SCOPE OF CONSOLIDATION . . . . . . . . . . . . . . — 553 (524) (582) 1,151 187 (17,543) 195 1,811 (101,742) (70,289) 58,456 (82,996) — (4) (3,949) (25) (98,807) 5,440 (12,327) (995) 14,907 (806) 116 42,504 — (27,693) 26,515 (50) (169) 247 2,876 (38,893) (26,745) 138,630 (76,239) (70,000) (10,378) (5,218) (33) (49,983) 13,790 (8,974) (1,367) 8,729 114,917 (74,783) (11,392) 72,742 (10,518) (87,650) — 33 (3,378) (7,127) — 63 (155) 907 2,948 — 275 (28,150) (59,392) — 525 (1,292) 7,558 24,567 (47,510) (395,917) (2,275) 9,875 (46,933) (20,000) (10,358) (2,579) 243 (72,027) (18,958) 82,292 (391,108) (166,667) (86,317) (21,492) 2,025 (600,225) 6,200 4,257 6,115 50,958 (50,601) 251,843 9,505 197,132 (25,505) 206,637 (212,542) 1,721,975 (4,110) — — — CASH AND CASH EQUIVALENTS, AT END OF YEAR . . . . . . . . . . ¥197,132 ¥206,637 ¥181,132 $1,509,433 NON-CASH INVESTING AND FINANCING ACTIVITIES 　Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Contribution of securities to retirement benefit trust . . . . . . . ¥1,670 26,437 ¥1,326 — ¥781 — $6,508 — 60 NEC CorporationAnnual Report 2015Corporate Data Non-Financial Section NEC Corporation and Consolidated Subsidiaries For the years ended March 31, 2014 and 2015 Number of employees by region Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,914 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,504 2014 Greater China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ratio of outside directors to all directors*1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Female managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ratio of female managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Response rate of employees’ survey (Domestic) *2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Response rate of employees’ survey (Overseas) *3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Labor accidents and disasters*4 Frequency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severity rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CO2 emissions reduction by providing IT solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Improvement in energy efficiency of products*5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greenhouse gas emissions*6 Scope 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,706 7,025 3,507 3,144 2,028 45.5 390 5.1 82 — 0.09 0.00 2,290 75 60 295 Units People People People People People People People % People % % % 2015 98,882 78,056 4,882 6,926 4,540 2,502 1,976 45.5 386 5.2 84 77 0.09 0.00 2,540 Thousand tons 91 % 58 337 Thousand tons Thousand tons Scope 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,206 9,098 Thousand tons Energy usage Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fuel (heavy oil and kerosene) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 21 3.0 628 21 2.7 Million kWh Million m3 Thousand kl Water usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,645 2,375 Thousand m3 Industrial waste Emission volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resource reuse rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 76.0 25.6 81.4 Thousand tons % *1 Scope: NEC Corporation *2 Scope: NEC Corporation and 33 domestic consolidated subsidiaries *3 Scope: Overseas subsidiaries in 30 countries overseen by the Global Business Unit *4 Scope: NEC Corporation and domestic consolidated subsidiaries Frequency rate: Number of deaths and injuries due to industrial accidents divided by total working hours times one million Severity rate: Number of lost working days divided by total working hours times one thousand *5 Compared with fiscal 2006 *6 Greenhouse gas refers to CO2 (carbon dioxide), CH4 (methane), N2O (nitrous oxide), HFCs (hydrofluorocarbons), PFCs (perfluorocarbons), SF6 (sulphur hexafluoride), and NF3 (nitrogen trifluoride). Greenhouse gas emissions are calculated based on the following categories stated by the Greenhouse Gas Protocol (GHG Protocol). Scope 1: Direct GHG emissions occur from sources that are owned or controlled by the Company Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam Scope 3: Other indirect emissions covering corporate upstream and downstream processes not included in Scope 2 61 NEC CorporationAnnual Report 2015 Corporate Overview Company Name NEC Corporation Organization Chart Address 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan Established July 17, 1899 Number of Employees 98,882 (NEC Corporation and consolidated subsidiaries) (As of March 31, 2015) Shares of Common Stock Issued 2,604,732,635 shares (As of March 31, 2015) President Board Business Innovation Unit System Integration, Services & Engineering Operations Unit Supply Chain Management Unit Stock Exchange Listing Tokyo (Stock Code: 6701) Corporate Sales and Sales Operations Unit Transfer Agent for Common Stock Sumitomo Mitsui Trust Bank, Limited 1-4-1, Marunouchi, Chiyoda-ku, Tokyo Composition of Shareholders (Percentage of shares) (As of March 31, 2015) Japanese Individuals and Others 31.90% National and Local Governments 0.00% Number of Shareholders: 211,835 Foreign Investors 36.02% Financial Institutions 26.31% Securities Companies 2.41% Other Corporations 3.36% Major Shareholders (Top 10) (As of March 31, 2015) Branch Offices Global Business Unit Regional Headquarters (RHQs) Public Business Unit Enterprise Business Unit Telecom Carrier Business Unit Smart Energy Business Unit System Platform Business Unit Central Research Laboratories Corporate Staff Name of Shareholders Number of Shares Held (Thousands of shares) Shareholding Ratio (%) The Master Trust Bank of Japan, Ltd. (Trust Account) Japan Trustee Services Bank, Ltd. (Trust Account) NEC Employee Shareholding Association The Chase Manhattan Bank 385036 Nippon Life Insurance Company Sumitomo Life Insurance Company The Bank of New York Mellon SA/NV 10 Credit Suisse Securities (USA) LLC SPCL. For EXCL.BEN Japan Trustee Services Bank, Ltd. (Trust Account No. 4) State Street Bank West Client – Treaty 505234 Note: The shareholding ratio is calculated by excluding the number of treasury stock (5,852,991 shares). 129,161 105,848 51,816 47,660 41,977 41,000 36,570 32,679 32,476 32,078 4.97 4.07 1.99 1.83 1.62 1.58 1.41 1.26 1.25 1.23 62 NEC CorporationAnnual Report 2015Corporate Data CAUTIONARY STATEMENTS: This annual report contains forward-looking statements pertaining to strategies, financial targets, technology, products and services, and business performance of NEC Corporation and its consolidated subsidiaries (collectively “NEC”). Written forward-looking statements may appear in other documents that NEC files with financial instruments exchanges or regulatory authorities, such as the Director of the Kanto Finance Bureau, and in reports to shareholders and other communications. NEC is relying on certain safe-harbors for for- ward-looking statements in making these disclosures. Some of the forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” “targets,” “aims,” or “anticipates,” or the negative of those words, or other comparable words or phrases. You can also identify forward-looking statements by discussions of strategy, beliefs, plans, targets, or intentions. Forward-looking statements necessarily depend on currently available assumptions, data, or methods that may be incorrect or imprecise and NEC may not be able to realize the results expected by them. You should not place undue reliance on forward-looking statements, which reflect NEC’s analysis and expectations only. Forward-looking statements are not guarantees of future performance and involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Among the factors that could cause actual results to differ materially from such statements include (i) global economic conditions and general economic conditions in NEC’s markets, (ii) fluctuating demand for, and competitive pricing pressure on, NEC’s products and services, (iii) NEC’s ability to continue to win acceptance of NEC’s products and services in highly competitive markets, (iv) NEC’s ability to expand into foreign markets, such as China, (v) regulatory change and uncertainty and potential legal liability relating to NEC’s business and operations, (vi) NEC’s ability to restructure, or otherwise adjust, its operations to reflect changing market conditions, (vii) movement of currency exchange rates, particularly the rate between the yen and the U.S. dollar, (viii) the impact of unfavorable conditions or developments, including share price declines, in the equity markets which may result in losses from devaluation of listed securities held by NEC, and (ix) impact of any regulatory action or legal proceeding against NEC. Any forward-looking statements speak only as of the date on which they are made. New risks and uncertainties come up from time to time, and it is impossible for NEC to predict these events or how they may affect NEC. NEC does not undertake any obligation to update or revise any of the forward-looking statements, whether as a result of new information, future events, or otherwise. The management targets included in this annual report are not projections, and do not represent management’s current estimates of future performance. Rather, they represent targets that management will strive to achieve through the successful implementation of NEC’s business strategies. Finally, NEC cautions you that the statements made in this annual report are not an offer of marketable securities for sale. Marketable securities may not be offered or sold in any jurisdiction in which required registration is absent or an exemption from registration under the applicable securities laws is not granted. Trademarks • NEC is a registered trademark of NEC Corporation in Japan and other countries. • All other names may be trademarks of their respective owners. 63 NEC CorporationAnnual Report 2015NEC will create “an information society friendly to humans and the earth” Way. A more concrete application of this principle is our declaration of image of “orchestrating a brighter world,” reflecting the principle to our NEC serves to society and customers with values contributes to by security, efficiency and equality through the power of ICT to offer medium- to long-term development of the NEC Group. The information contained in Annual Report 2015 is also available on NEC’s website. NEC home page http://www.nec.com by contributing to customers and society through the practice of the NEC becoming a “Social Value Innovator.” We have developed a corporate key business activities. continuing to present to society or customers values such as safety, solutions to social problems. We hope that our contribution underpins the Corporate Social Responsibility http://www.nec.com/en/global/csr NEC constantly strives to enhance the corporate social responsibility (CSR) information available on its website. Division in Charge CSR Promotion and Social Contributions Office, Corporate Communications Division Investor Relations http://www.nec.com/en/global/ir Posted on the NEC Investor Relations (IR) website are IR presentation materials and other documents, NEC’s financial position and business results, stock and bond information, and much more. NEC constantly strives to enhance the disclosure on this website. Division in Charge Investor Relations Office, Corporate Strategy Division C o r p o r a t e D a t a NEC Corporation Annual Report 2015 64 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan Telephone: +81-3-3454-1111 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan Telephone: +81-3-3454-1111 N E C C o r p o r a t i o n Annual Report 2015 Annual Report 2015 Year ended March 31, 2015 Year ended March 31, 2015 0910-0229 0910-0229 

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