NEC Corp. Annual Report 2018

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FY2018 Annual Report · NEC Corp.

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Integrated Report 2018
Year ended March 31, 2018

Message from
the President

p.03

Approach to the
Creation of Value
and Initiatives

p.11

Dialogue and
Co-Creation with
Our Stakeholders

p.15

p.03(cid:665)18

Message from
the CFO

p.19

p.19(cid:665)38

Corporate
Governance

p.39

Business and
Human Rights

p.49

p.39(cid:665)53

Editorial Policy
NEC has published integrated annual reports containing both financial and non-financial information since 2013. This year,
having defined its materiality in July 2018 in line with the Mid-term Management Plan 2020, NEC has changed the name of the
report to the “Integrated Report.”

The Integrated Report 2018 comprises four chapters respectively entitled Business Strategy and Vision, Business Activities,

Management Foundation, and Corporate Data.

Business Strategy and Vision describes the newly formulated the Mid-term Management Plan 2020 and priority themes from
an Environmental, Social and Governance (ESG) perspective, or “materiality.” Business Activities includes a message from the CFO
along with an overview from each of our segments and an introduction of our international business execution structure.
Management Foundation introduces the Company‘s initiatives in support of sustainable management, such as corporate
governance and environmental management promotion.

NEC will keep endeavoring to provide increasingly transparent and continuous information while incorporating feedback from

institutional investors and various other stakeholders.

Reporting Period
April 1, 2017 to March 31, 2018
(hereinafter referred to as “Fiscal 2018.” Any other fiscal
years would be referred to similarly)
This report also includes information obtained after this
reporting period.

Scope of Report
NEC Corporation and its Consolidated Subsidiaries

Business Strategy and VisionManagement FoundationBusiness ActivitiesNEC Corporation Integrated Report 2018Innovation
Management

p.17

Performance
Highlights

p.21

Review of
Operations

p.25

Human Resource
Development
and Diversity
p.50

Promoting
Environmental
Management
p.51

Reference Guidelines
• ISO 26000
• GRI Standards
• United Nations Global Compact
• International Integrated Reporting Council’s

“International Integrated Reporting Framework”
• Japan’s Ministry of Economy, Trade and Industry’s

“Guidance for Collaborative Value Creation”

NEC is a signatory to the United Nations Global Compact.

Other Related Information
• Earnings Releases/Annual Securities Report
• Corporate Governance Report
• Sustainability Report

• Annual Environmental Report
• Information Security Report

Contents

Business Strategy and Vision
03 Message from the President

11 Approach to the Creation of Value and Initiatives

15 Dialogue and Co-Creation with Our Stakeholders

Innovation Management

Business Activities
19 Message from the CFO

Performance Highlights

23 At a Glance

25 Review of Operations

Public Business

Enterprise Business

31 Network Services Business

System Platform Business

35 Global Business

International Business Structure

Management Foundation
39

Corporate Governance

Ensuring Compliance and Risk Management

44 Messages from an Outside Director and

an Audit & Supervisory Board Member

45 Directors and Audit &

Supervisory Board Members

Cross-company Corporate Strategy
Promotion Framework

49 Business and Human Rights

50 Human Resource Development and Diversity

Promoting Environmental Management

Corporate Data
Financial Section
55

58 Non-Financial Section

Corporate Overview

60 Our History

NEC Corporation Integrated Report 2018

Message from the President

To restore NEC’s strength,
now is the time to transform ourselves and
start the journey of development and growth

July 2018

Takashi Niino
President and CEO

September 1954 Born in Fukuoka Prefecture, Japan
March 1977 Graduated from the Faculty of
Engineering of Kyoto University

April 1977 Joined NEC Corporation
April 2008 Senior Vice President
April 2010 Executive Vice President
June 2011 Executive Vice President and Member

of the Board

April 2012 Senior Executive Vice President and
Member of the Board
April 2016 President and CEO (Representative
Director) (to present)

NEC Corporation Integrated Report 2018

Message from the President

NEC’s Role as a Social Value Innovator

Since its establishment in 1899, NEC has been creating products and

combines them with diverse knowledge and ideas in collaboration

services of value to customers under the motto of “Better Products,

with people around the world, this is our aim. As a social value

Better Services.” I believe NEC’s enduring commitment since its

innovator, we will continue to provide value in the form of safety,

foundation to utilize its powerful technical capabilities to provide

security, efficiency and equality, which are prerequisites for all

better value to customers and society is the reason that it has been

people, and an abundant society by leveraging our strengths. This is

accepted by society for 119 years. This approach has been passed

our approach to sustainability and our vision for the Company.

down to us in the NEC Way, which encapsulates the NEC Group’s

In 2005, NEC became a signatory to the United Nations Global

management philosophy, vision and business framework. The NEC

Compact (UNGC), a global initiative aimed at sustainable growth for

Way guides all of us at NEC.

society and companies. In our corporate activities we now observe

Meanwhile, the value that customers and society expect from us is

the compact’s 10 principles pertaining to the fields of human rights,

constantly changing. Up until now, our technologies and products

labor, the environment, and anti-corruption. As part of efforts in

have been a sufficient source of value, but customers and society are

“Orchestrating a brighter world,” I am confident that NEC can also

now requiring increasingly diverse sources of value. To remain an

contribute to the achievement of the Sustainable Development Goals

essential company in the eyes of society in the years to come, we

(SDGs) adopted by the UN in 2015.

must create new value by constantly keeping our finger on the pulse

In addition, with the formulation of the Mid-term Management

of what it consists of.

Plan 2020, NEC has defined its materiality—priority management

To express this resolution both internally and externally, we

themes from an ESG perspective. This outlines the approach to social

adopted “Orchestrating a brighter world” as our Brand Statement in

value creation that we have practiced since our foundation and

2014. This Brand Statement reflects NEC’s determination to realize

connects our business strategies with ESG initiatives as a new

bright, hope-filled societies and ways of life. As a leading integrator

declaration to our various stakeholders of our commitment to

that possesses both computing and network technologies who

achieving the mutual growth of NEC and society.

Review of the Mid-term Management Plan 2018

The Mid-term Management Plan 2018 covered the three years from

fiscal 2017 to fiscal 2019. Under this plan, we worked to transform NEC

into a social value innovator through reorganization of our profit

structure and getting back on the track to growth. In our efforts in

reorganizing the profit structure, we have made steady overall progress

through to fiscal 2018; however, with getting back on the track to

growth, significant underperformance in our existing businesses, which

were meant to support the Company over the short term, left us unable

to realize our operating profit target of ¥150.0 billion. In light of this

situation, we revised our targets before the completion of the plan and

formulated a new mid-term management plan in January 2018.

Mid-term Management Plan 2018

Operating profit
(Billion ¥)

150.0

1 Reorganization of
profit structure

Mostly on track for cost reduction targets

91.4

2 Getting back on the

track to growth

Evidently underperformed in existing
businesses

63.9

41.8

2016
Result

2017
Result

2018
Result

2019
MTP
Target

(Fiscal year ended on March 31)

NEC Corporation Integrated Report 2018Issues Facing NEC

I have always felt that NEC has had an issue with a lack of speed in

Another issue is a lack of execution capability to carry out

responding to changes in society and the markets. This has some

declarations and decisions to completion. The root cause of these

bearing on why we haven’t managed to grow the businesses that we

issues is the absence of a culture of commitment as well as a lack of

had positioned as growth areas in the past. NEC has not moved on

well-defined consequences or rewards at NEC. I am painfully aware

from the approaches and culture of an era where technology itself

that while these fundamental issues have been recognized at NEC for

represented value. I feel that the persistence of old structures and

some time, we have made little progress in improving them. I am

systems inside the Company has been a hindrance to new initiatives.

deeply aware of my responsibility in this regard as CEO.

Overcoming Issues Requires a Cultural Transformation

How then can these issues be overcome? How can we become a

rapidly to changes in global society and leverage our capabilities to

company that tackles its own targets quickly and carries them out to

the fullest.

completion? The only way is to engage with a host of issues,

I have been highlighting that NEC needs to change for some time.

including organizations, systems, human resources, and work styles,

However, while we may recognize the necessity, when we set about

reviewing them from scratch in order to change NEC’s culture. The

making changes, we come up against obstacles and find ourselves at

value of NEC lies in its approach of striving to provide better value to

an impasse. I think this is because we have tried to transform by our

our customers and society with our founding spirit of “Better

own efforts alone. This time, I will make use of external powers as

Products, Better Services.” While retaining this value, we must build

well in order to execute changes thoroughly.

the methods, structures, and culture that will enable us to respond

My Commitment as CEO

NEC has come to a point where it is truly imperative to make major

we must discern what is truly necessary, be prepared to break from

changes. If we do not change, NEC will not survive. With this sense of

our conventional ways of thinking, and drive transformation that will

crisis, I will pour every effort as CEO into changing NEC. To enable

restore NEC’s strength.

NEC to continue developing and growing sustainably with society,

NEC Corporation Integrated Report 2018Overview of the Mid-term Management Plan 2020

Main Points of the Mid-term Management Plan 2020

The Mid-term Management Plan 2020 has set the following mid-term

of ¥90.0 billion, free cash flow of ¥100.0 billion, and ROE of 10%.

targets as a level to be achieved in order to be a sustainable company:

To realize these targets, we have established three mid-term

revenue of ¥3,000.0 billion, operating profit of ¥150.0 billion (5%

management policies: reform of profit structure, achievement of

operating profit ratio), net profit attributable to owners of the parent

growth, and restructuring of execution capabilities.

Mid-term Management Targets

(Billion ¥)
Revenue

Operating profit

(Operating profit ratio)

Net profit attributable to owners of the parent

Free cash flows*

Return on equity (ROE)

* M&A excluded

Mid-term Management Policies

FY2017/3 Results
2,665.0

FY2018/3 Results
2,844.4

FY2021/3 Targets
3,000.0

41.8

1.6%

27.3

99.0

3.4%

63.9

2.2%

45.9

115.8

5.3%

150.0

5.0%

90.0

100.0

10%

(Note) Forecasts and targets as of January 30, 2018

Implement fundamental reform of profit structure, including reduction
of fixed costs, to be able to carry out investments needed to get back
on the track to growth

Reform of profit structure

SG&A expenses (Personnel expense reduction/cost cutting)

Business structure (Telecom carrier business/ Energy business)

Production system

Achievement of growth

Japan

Global

• Securely capture growth opportunities in Japan market

• Shift to service business

• Focus on safety business as the growth engine

• Reorganize global structure supporting growth

Restructuring of execution capabilities

Pursuing the creation of customer value by leveraging the latest technologies

Restructuring of personnel system to enable employees to maximize their capabilities

NEC Corporation Integrated Report 20181 Reform of Profit Structure

For the reform of profit structure, we will take steps to fundamentally

aim to achieve growth by concentrating our previously multi-

reform our profit structure, including reduction of fixed costs, in order

directional operations anew in the energy system integration (SI)

to carry out investments needed to get back on the track to growth.

business centered on NEC Energy Solutions, Inc.

Through three reforms targeting selling, general and administrative

The Telecom Carrier business is facing extremely rapid market

(SG&A) expenses, business structure, and our production system, we

changes, which have dramatically reshaped the state of the business

will create a structure capable of succeeding globally.

up to now. First, in the network infrastructure area, we will strive to

With regard to SG&A expenses, in fiscal 2019 we will carry out

improve profitability. In Japan, we will optimize resources in

structural reforms targeting 3,000 personnel working in back office

accordance with revenue scale, while internationally we will look at

functions and the hardware business in Japan. We will look to

withdrawing from and scaling-down low-profit businesses.

streamline fixed property, IT, and marketing costs, aiming to bring

Meanwhile, the software and services area will be strengthened as a

the SG&A expense ratio down to 20% or less, and we will work to

growth area. In Japan, we will accelerate the shifting of skills and

improve the profit structure so that we can continue the necessary

partnering in order to adapt to changes in our customers’

investments required to transform our business model.

investments and expand our provision of services to telecom carriers.

With regard to our business structure, we will resolutely

We will also grasp diversifying network needs and accelerate our

implement reforms to improve profitability in the Telecom Carrier
business*1 and the Energy business. In the Energy business, we have

made the decision to sell the electrode business and to discontinue

development and production of small-scale storage batteries. We

business development for non-telecom carriers. Outside of Japan, we

will position software and services as a key area and expand our

business, revising our strategy and business structure and setting our
strong TOMS*2 business as a core driver.

Reform of Business Structure: Telecom Carrier Business

New network business in the IoT/5G era

Construction

Transportation

Police

Software &
services

Applications
&
services

Value
Proposition

Network
infrastructures

Current
main business area

Business applications/ Data analysis

Added-value services

Optimized network

Wi-Fi

LPWA

LTE

Telecom Carrier

Enterprise
Customer Segment

Public

Regarding the production system, we will standardize production processes and systems for all factories worldwide and reorganize the global

value chain to achieve further efficiency gains and downsize back-office personnel.

*1 With an organization change on April 1, 2018, the business for international customers was transferred to the Global business and business for customers in Japan was renamed the Network Services business.
*2 TOMS: Telecom Operations and Management Solutions

NEC Corporation Integrated Report 2018Overview of the Mid-term Management Plan 2020

2 Achievement of Growth

To achieve growth, NEC will focus on two areas based on its strengths in

development of platforms that enable people to live abundantly in

artificial intelligence (AI), biometrics, security, and network services.

and outside of Japan, including public safety, digital government,

The first area is NEC Safer Cities. Here, we will expand the

and smart transportation.

Achievement of Growth: NEC Safer Cities

Realizing NEC Safer Cities that utilize biometrics and AI technologies

The second is NEC Value Chain Innovation. In this area, we will work

Meanwhile, in our global domain, we plan to grow revenues

on initiatives for the formation of sustainable smart supply chains. We

mainly in the safety business, expanding the business domain from

will promote initiatives for realizing food supply and demand

areas such as criminal investigation and immigration control to

optimization, cashless transactions, non-stop factories and plants, as

include administrative platforms and citizen services, among others.

well as the provision of technologies such as AI, IoT, and networks.

To accelerate growth in the global domain, we acquired U.K. company

By focusing on these two areas, NEC aims to achieve revenues of

Northgate Public Services Limited in January 2018 and we will

¥3,000 billion in fiscal 2021. Looking at revenues in Japan and

actively continue to pursue M&As in this vein.

internationally, we expect most of the increase from fiscal 2018 to

To achieve rapid growth, NEC shifted to a dedicated operating

fiscal 2021 to be realized outside of Japan, with domestic revenues

structure for its global business in April 2018 and appointed external

remaining stable over this period. This projection is based on an

personnel with abundant global business experience and

expectation of growth opportunities in Japan related to

performance history to take charge. Through this appointment, we

infrastructure preparation for the Olympic and Paralympic Games

seek to examine whether our approach to date has been on the right

Tokyo 2020 and digital government, offset by an expected

path, and to drive our transformation from a wider perspective,

contraction of our existing businesses.

giving consideration to how we might overcome the obstacles that

have defied our efforts up to now.

NEC Corporation Integrated Report 20183 Restructuring of Execution Capabilities

The final policy of the Mid-term Management Plan 2020,

that automates data science processes using AI in the field of big

restructuring of execution capabilities, is the most important one in

data utilization, and analytic work that requires large amounts of

my view. Specifically, we will seek to strengthen business

time to process manually.

development capabilities and build an organization with the capacity

With regard to solutions development via co-creation, we will

to carry out actions to completion. In strengthening our business

step up our initiatives by expanding our bases for co-creation and

development capabilities, we will break away from the closed

trials in Japan and Singapore into other regions. In June 2018, we

innovation mindset to promote solutions development via

announced the establishment of NEC X, Inc. in the U.S. to serve as

co-creation with our customers and business partners, aiming to

an incubator for accelerating the commercialization of our core

create new social value beyond existing frameworks. This approach is

technologies. NEC X, Inc. aims to create an ecosystem centered on

aimed at addressing NEC’s existing task of anticipating customer

the advanced technologies of NEC’s talent and research

needs and accelerating monetization of competitive technologies.

laboratories and to accelerate new business development through

In our effort to break away from the close innovation mindset, we

open innovation.

have already seen results from initiatives such as open research and

In addition, we will strengthen our relations with governments,

solution development, incubation through diverse schemes, and

international institutions, and standardization bodies with a view to

software product delivery services. In April 2018, we announced the

creating new social value as we strive to anticipate the future needs

establishment of dotData, Inc. in the U.S. to develop and sell software

of society and our customers.

Strengthening of business development capability

Break away from
closed innovation

Promotion of
solutions
development via
co-creation

Creation of new
social value beyond
existing
frameworks

[ Examples of Initiatives ]

Endeavor to create
new business models

dotDat a
Automation of data analysis process

Deploy people and technologies
externally to create globally competitive
businesses

NEC X
Specialize in incubation

Accelerate new business development in
Silicon Valley

NEC Corporation Integrated Report 2018Overview of the Mid-term Management Plan 2020

In order to realize an organization with the capacity to carry out

human resources with diverse skills into executive and other

actions to completion, we will introduce structures to allow us to

positions. These measures will enhance our execution capability

complete execution quickly while enabling employees to maximize

while firmly establishing a culture that encourages innovative actions

their capabilities, thereby enhancing NEC’s execution capability.

and challenges.

Specifically, we will define management’s responsibilities and

To realize these initiatives, in April 2018 we launched the NEC Group

authority more clearly to strengthen their commitment to results. We

Culture Transformation Division, appointing a professional from

will also introduce a new evaluation and compensation system for

outside NEC to execute human resource system and culture reforms.

rewarding those who take action and actively hire and appoint

Restructuring of Execution Capabilities

Organization with the
capacity to carry out actions
to completion
Restructuring to enable employees to
maximize their capabilities

Define the management’s responsibilities and
authorities more clearly

Encourage innovative actions and challenges

Accelerate diversification of the NEC Group

It is important that this transformation in our corporate culture

actively share my ideas about the transformation with them. I have

ultimately creates an environment where NEC Group employees can

therefore instituted dialogue sessions where I can personally share

move into action. I believe communication is important to enable

my ideas with NEC Group employees, and I will continue to hold

every employee to undertake this transformation willingly, and I will

these sessions going forward.

Starting the Transformation Process to
Achieve the Mid-term Management Plan 2020

The target operating profit ratio of 5% under the Mid-term

Now is the time when NEC must make dramatic changes if it is to

Management Plan 2020 is not NEC’s final goal. We consider this 5%

be regarded by society as a sustainable company. We are

margin to be only the starting point that will enable us to compete

determined to break from our conventional ways of thinking,

globally as a social value innovator. This is another reason why we

discern what is really necessary, and drive a transformation that will

must first complete the reform of profit structure in fiscal 2019, as it

restore NEC’s strength.

is the first step towards getting back on the track to growth.

NEC Corporation Integrated Report 2018Approach to the Creation of Value and Initiatives

Priority Management Themes from an ESG Perspective
Support NEC's Growth, Society's Development and Maximize Value

Since its foundation, NEC has conducted business with consideration for the environment and society, aiming to achieve
sustainable development for society and the NEC Group. In formulating our Mid-term Management Plan 2020, we
identified “materiality” comprising of new priority management themes for sustainable management from
environmental, social, and governance (ESG) perspectives in order to connect our non-financial initiatives more closely
with our business strategies so that they can be translated into growth not only for NEC but for society. NEC identified
candidate themes making reference to global megatrends, the sustainable development goals (SDGs), and other items
that the Company is observing to achieve its goal of “Orchestrating a brighter world.” We then conducted dialogues with
external experts in the fields of sustainable management, civil society, and medium- to long-term investment, to
determine themes with a strong awareness of connecting them to our mid-term management plan. By working through
a PDCA cycle for the mid-term management plan, we will check on the progress of our initiatives as we move forward.

Priority Management Themes
from an ESG Perspective—Materiality

We identified nine priority management themes based on issues that have a powerful
impact on both NEC and society, arranging them in three layers.

1 Sustainable Growth Enablers
We will engage on these themes to minimize risks to NEC and society,

and to maximize the social value that NEC generates.

2 Engines of Change
We will engage in these themes as engines for maximizing

economic value and social value as well as minimizing risks to
NEC and society.

3 2020 Growth Focus to Create Social Value

The growth areas of the Mid-term Management Plan 2020 are
defined as the themes that management should place
priority on from ESG perspectives.

Sustainable
Growth Enablers

Social Issues

Global megatrends,
SDGs, etc.

Privacy policies and measures aligned with societal expectationsSecurity to maximize ICT possibilitiesGovernance and complianceEnvironmental action with a particular focus on climate changeSustainably and socially literate human resourcesNEC Corporation Integrated Report 2018
Priority Management Themes from an ESG Perspective

Support NEC's Growth, Society's Development and Maximize Value

Engines of Change

Dialogue and
co-creation with our
stakeholders

Innovation
management
with Global No. 1 /
Only 1 Technology

Approach to the Creation of Value and Initiatives

2020 Growth Focus to
Create Social Value

NEC Safer Cities

NEC Value Chain
Innovation

Materiality Identification Process

1 Tentatively define materiality and carry out dialogues with experts

NEC tentatively identified themes making reference to ISO26000, the GRI
Standard, the SDGs, and others, then carried out dialogues with experts.

2 Incorporate ESG perspectives into the Mid-term Management Plan 2020

3 Set up non-financial indicators

4 Hold dialogues with experts on our materiality and indicators

Report materiality and indicators to the Board of
Directors and define materiality

NEC announced that it would establish priority management themes
and KPIs from the ESG perspectives in the first half of fiscal 2019.

NEC examined indicators for quantifying contributions to society as
much as possible.

Dialogues were held on human resource development, privacy and
climate change, as well as overall materiality.

The Chief Strategy Officer (CSO) in charge of corporate strategy reported
to the Board of Directors.

Confirm progress through the PDCA cycle of the Mid-term Management Plan

For further information, please refer to Sustainability Report 2018 “Priority Management Themes from an ESG Perspective—Materiality”

NEC Corporation Integrated Report 2018Vision for the Company and Non-Financial Indicators

For each of the following nine themes, NEC has established a vision for the Company and non-financial indicators for measuring progress.

Materiality

Company Vision and Initiatives

Main Non-financial Indicators and Targets

Sustainable Growth Enablers

Governance and
compliance

p.39, 43

NEC trusted by society
Ensure compliance
Response on human rights issues and maintain and improve quality

Indicator: Number of cases of involvement with serious cartels

and/or bid-rigging
Target for fiscal 2019: 0 (zero)

Environmental action
with a particular focus
on climate change

p.51

Contribute to worldwide reduction in greenhouse gas emissions together with the
efforts our customers and society are making to address climate change
Effectively reduce CO2 emissions associated with NEC’s business activities to zero by 2050
Provide products and services that address environmental issues, primarily climate change

Indicator: Rate of contribution to CO2 emission reductions across

the whole supply chain

Target for fiscal 2021: 5 times

Sustainably and
socially literate human
resources

p.50

Deliver products and services that will be accepted by society, including our
customers
Develop personnel who are capable of sensing the needs of society and discovering
potential issues, and of working swiftly to solve issues
Foster an organizational culture that can take on a diverse range of values and
continuously create social value

Indicator: Rate of employees who have a strong sense that NEC is

changing to create social value by accepting a diverse
range of values

Target for fiscal 2019:
To review the questions in the opinion survey among NEC Group
employees and set a specific target number for fiscal 2021

Develop and provide products and services that are responsive to differences in
privacy needs between different countries and regions due to cultural perspectives
and are sensitive to human rights issues, such as the challenge of discrimination
that could potentially be furthered through the usage of AI
Clarify position on respect for human rights such as privacy in NEC’s business
activities

Privacy policies and
measures aligned with
societal expectations

p.49

Security to maximize
ICT possibilities

Provide an environment that allows customers and society to securely use ICT
Promote efforts to minimize risks in the fields of “Information Security” and “Cyber
Security” in particular

Indicators:
1 To have discussions with multi-stakeholders regarding sensitive

cases from human rights or privacy perspectives

2 Number of cases incorporated in areas such as R&D, product

development and proposals for services, based on the “Human
Rights by Design*” concept
* Incorporation of the approach of respect for human rights (privacy, fairness,

etc.) into each process in the value chain

Target for fiscal 2019:
1 Carry out once per quarter
2 Set the specific target number for fiscal 2021

Indicators and targets:
1 Minimize the effects of major security incidents by ensuring that we
enhance cyber security measures while also enhancing information
security measures in order to prevent leakage of information

2 Promote products and services that incorporate security measures
and case studies taken from the NEC Group’s own information
security practices as a reference

Information
Security Report

Engines of Change

Dialogue and
co-creation with our
stakeholders

Innovation
management

p.15

p.17

Through dialogues with stakeholders, develop insights into the issues customers and
society face and their opinions regarding NEC’s activities, while developing partners
with whom to engage in the co-creation of value

No indicator set

Even if technologies demanded keep changing as society changes, provide value
through technologies as needed by society in the form of products and services

No indicator set

2020 Growth Focus to Create Social Value

NEC
Safer Cities

NEC
Value Chain
Innovation

As populations rapidly concentrate in urban areas, new value is created through
economic growth and the diversification of life and culture; at the same time, cities
also face a wide range of social challenges, such as increasing levels of crime and
terrorism. NEC will contribute to realizing safe, secure, efficient and fair cities where
individuals can exhibit their potential to the full and live better lives, by utilizing
cutting-edge technology such as biometric authentication, AI, and the IoT.

For example, by having a wider range of our customers use NEC
products and services such as biometric authentication solutions and
AI-based crime/disaster-prevention systems and providing these to a
larger number of organizations, NEC will ensure that the social value
we provide will be amplified in terms of both quantity and quality.
For fiscal 2021, NEC will focus on expansion of our international

sales and aims to increase our international sales to ¥200 billion.

Our society faces various kinds of social issues, such as food waste, labor shortages,
changes in consumption patterns, and diversifying threats. NEC will develop cutting-
edge technologies and promote co-creation with customers in order to connect people,
goods, and processes, reaching across the boundaries between enterprises and
industries to create new value. In doing so, NEC will support a more sustainable planet,
sustainable growth for companies, a society where people can live in abundance, and a
brighter world for the future.

For example, NEC aims to amplify the social value we provide by
developing and supplying larger numbers of services, such as
promoting NEC Value Chain Innovation, which aims to optimize the
demand-and-supply balance.

For fiscal 2021, we have set out a goal of expanding our domestic

sales to ¥85 billion in growth fields including NEC Value Chain
Innovation.

NEC Corporation Integrated Report 2018Approach to the Creation of Value and Initiatives

NEC Initiatives for Contributing to the Achievement of the SDGs

Since information and communications technology (ICT) has the potential for responding to a variety of issues, we believe that we can contribute in
various ways to all the goals outlined in the SDGs by engaging in dialogues and co-creation with customers and stakeholders.

For example, looking only at the targets among the areas defined as growth fields in the Mid-term Management Plan 2020, “NEC Safer Cities” and

“NEC Value Chain Innovation,” there are various SDGs initiatives to which NEC wishes to contribute on its own, namely No. 3, No. 7, No. 8, No. 9, No.
11, No. 12, No. 16 and No. 17. There are a large number of targets that could potentially be set out as goals.

Meanwhile, it has been pointed out by some external experts that narrowing down the range of SDGs to pursue brings the risk of narrowing the

scope of our business expansion and the possible range of social value that could be delivered by our products and services as well.

To demonstrate NEC’s approach of contributing to the SDGs on a wider basis, we have categorized the targets of materiality into the two following
areas: “Targets to which NEC wishes to contribute on its own initiative and/or positively,” and “Targets to which NEC is able to contribute or wishes to
contribute in the future,” for each of the SDGs.

Going forward, we will promote educational activities on the SDGs within the Company to ensure that the SDGs are used proactively for expanding

the fields where NEC can contribute and as indicators for measuring the social value that is generated by NEC’s business.

Fields that NEC Contributes to SDGs

Targets to which NEC wishes to contribute on its own initiative and/or positively
Targets to which NEC is able to contribute or wishes to contribute in the future

1.4

3.8

4.a

6.4

2.1
2.4
2.a
2.c

3.6

3.8

3.6
3.8
3.b

4.3
4.4
4.a

4.3
4.4
4.5
4.a

5.2

5.1
5.5

5.2

1.5

2.4

3.d

6.4

8.3

8.1
8.2
8.8

8.1
8.2
8.3
8.8

8.3
8.5
8.7

9.3
9.a

9.1
9.3
9.4

9.1
9.4

9.1
9.3
9.4
9.5
9.a

9.2

10.7

10.5

10.2
10.3

8.7

9.5

9.4

11.2
11.3
11.7
11.b

11.2

11.2
11.3
11.b

11.1
11.7

11.5
11.b

7.2
7.3

7.3

7.2
7.3
7.a
7.b

NEC
Safer Cities

NEC
Value Chain
Innovation

Dialog and co-creation
with our stakeholders

Innovation
management

Sustainably and
socially literate human
resources

Privacy policies and
measures aligned with
societal expectations

Security to maximize
ICT possibilities

Environmental action
with a particular focus
on climate change

Governance and
compliance

14.1

16.6
16.a

17.16

12.2
12.3

13.3

12.8

13.3

12.2
12.3
12.5

13.1

15.2

17.16

17.16
17.17

17.6

16.6
16.7
16.a

16.1
16.2
16.6
16.9
16.a

13.3

16.5

17.16

16.1
16.9
16.10

17.16

16.1
16.3

17.16

16.1
16.2
16.5
16.6

13.1
13.3

14.2
14.5

15.1
15.4
15.5

5.1
5.2
5.5

8.5
8.7
8.8

10.2
10.3

12.7

Figures in the table are the target numbers of the SDGs. Further information can be found on the United Nations website.

https://www.un.org/sustainabledevelopment/

NEC Corporation Integrated Report 2018
Dialogue and Co-Creation with Our Stakeholders

The meaning of value is constantly changing for our customers and society. To provide products
and services that deliver real value, NEC must incorporate processes for dialogue and co-creation
with stakeholders into its corporate activities.
Through dialogue with our stakeholders, we will develop insights into the issues our customers
and society face and their opinions regarding NEC’s activities, while developing partners with
whom to engage in co-creation. By connecting these activities to value, we aim to realize NEC’s
goal of “Orchestrating a brighter world.”

Participating Actively in International Community
Networks and Aiming to Solve Social Issues

NEC introduced its safety solutions, including facial recognition
demonstration, at the World Economic Forum Annual Meeting in
Davos, Switzerland in January 2018, as well as at various
meetings, individual interviews, and receptions. We conducted
lively exchanges of opinions with key members of various
national governments, executives of international institutions,
and CEOs of global corporations on themes such as contributing
to the achievement of the SDGs and public safety.

NEC will leverage the global connections it has created at
Davos in order to deepen its ongoing dialogue with various
stakeholders going forward.

Representative Director and
Chairman of the Board
Nobuhiro Endo at the World
Economic Forum

Social values achieved by co-creating
with customers

Safety

Security

Awareness
of social issues

Amplifying Social Value through
Open Innovation

In April 2018, NEC announced the establishment of dotData,
Inc., a new venture company in Silicon Valley for developing
and selling software that automates data science processes
using artificial intelligence (AI). dotData, Inc. will accelerate
and democratize data science using Big Data in enterprise
organizations.

The new company was founded by a leader in the

development of cutting-edge core technologies as a strategic
carve-out scheme by NEC to create globally competitive
products. The start-up will reinforce business development
while acquiring external capital.

(Photograph from left)
Senior Vice President, Osamu Fujikawa
CEO & Founder of dotData, Dr. Ryohei Fujimaki
Executive Director, Hideto Mori

NEC Corporation Integrated Report 2018
Dialogue and Co-Creation with Our Stakeholders

Practicing Responsible Procurement
with Suppliers

NEC has formulated the NEC Group Procurement Policy based on the international ISO 26000 social
responsibility guidance standard and ISO 20400 sustainable procurement guidance standard. It works
together with its suppliers to conduct procurement with an awareness of six key supply-chain risk
factors (human rights, labor and occupational safety, fair trade, the environment, information security,
and product quality and security).

For example, information security is one of NEC’s priority management themes from an ESG

perspective and we have taken steps to thoroughly strengthen management in this regard, including at
our suppliers. In fiscal 2018, we held seminars for suppliers’ management to explain our measures at
13 locations in Japan, with around 1,500 companies participating. In addition, we conducted
documentation inspections to confirm the status of suppliers’ initiatives among other efforts aimed at
working with suppliers to strengthen information security.

Social values achieved by co-creating
with customers

Efficiency

Equality

Value
creation
by leveraging
ICT

Collaboration
for value creation

Pro Bono Initiatives to Contribute to
Regional Revitalization

NEC promotes pro bono activities in which employees use
their professional skills to help solve social issues as part of
the NEC Group’s social contribution initiative, the “NEC
Make-a-Difference Drive.”

In fiscal 2018, we assisted i local, Inc., (Sanriku Sekken

Koubo KURIYA), a local soap manufacturer and seller in
Onagawa town, Miyagi Prefecture by analyzing its operational
processes and then introducing a new operation system.

Meeting in Onagawa town

NEC also has been engaged in Tohoku reconstruction support activities through the NEC

“TOMONI” Project since 2011. The project supports employees in volunteer activities in the areas
affected by the Great East Japan Earthquake. In 2015, NEC concluded a reconstruction
cooperation agreement with the town of Minamisanriku and is conducting various support
activities such as a monthly “Fukkou Ichi” market to assist the recovery.

Dialogue with Shareholders and Investors Is
Conducive to Corporate Value Enhancement

NEC actively engages in investor relations (IR) activities, including
meetings with shareholders in Japan and internationally,
quarterly financial result briefings and business briefings
conducted mainly by its CEO, CFO and Investor Relations (IR)
Office, a department within the Corporate Strategy Division.
Meanwhile, IR staff proactively relay shareholder and investor
feedback to management, and periodically report to the Board of
Directors. In fiscal 2018, NEC strove to increase opportunities for
dialogue in conjunction with the announcement of the Mid-term Management Plan 2020 and continued
to hold ESG meetings with institutional investors specializing in the environmental field.

Small meeting with the President of NEC

NEC Corporation Integrated Report 2018
Innovation Management

Over the years since NEC was founded, we have cultivated our technologies based on NEC’s motto of “Better
Products, Better Services.” In a society that is constantly changing, the technologies in demand keep changing as
well; by implementing appropriate innovation management in response to the changes of the times, we can continue
to provide the technologies that society demands as products and services and contribute to social value creation.
NEC continuously allocates approximately 4% of its revenue to R&D, concentrating its investment in No.1/Only 1 core
technologies that are needed for social value creation. NEC will engage proactively in open innovation globally to
accelerate the monetization of competitive technologies.

R&D Strategy

At NEC, the Chief Technology Officer (CTO) is responsible for overall
technology development, optimizing development investment
company-wide, and drawing up an open innovation strategy.

R&D is a source of technological development. NEC’s basic approach

to R&D is to deliver value to society as quickly as possible by
identifying the best solutions we should create for the social issues

presented in the SDGs and other guidelines, then efficiently and
rapidly aligning the necessary technology assets to realize them. These
technology assets include NEC’s No.1/Only 1 core technologies that
have been refined to a high level based on technology trends, as well
as technologies produced through open innovation.

“Bio-IDiom” and “NEC the WISE” Support Growth Areas in the Mid-term Management Plan 2020

“Bio-IDiom” is our comprehensive brand for biometric authentication
products, launched in April 2018. It covers six biometric authentication
technologies for face, iris, fingerprint and palmprint, finger vein, voice,
and ear acoustic. One of NEC’s strengths is in multimodal
authentication, which combines multiple biometric authentication

technologies to achieve higher accuracy. By combining these
technologies with the “crowd behavior analysis” of the “NEC the WISE”
AI technology group, and others, we can create completely new value.
NEC will continue to invest intensively in world-leading biometric

authentication and AI technologies.

Prescription

Planning &
optimization
Autonomous and
Adaptive Control

Only 1

Predictive Robust
Optimization Framework

Visualization

Analysis

Digitalization,
improvement of data quality

Recognition & identification
using the five senses

Only 1

Image Clarification

Learning Based
Super-Resolution

Multi-Modal
Image Fusion

Micro-Size ID as a Dot

Discovery of
Rare Critical Events

No.1*1

No.1*2

No.1*3

Only 1

Face Recognition

No.1*4

Only 1

No.1*5

Fingerprint Recognition

Iris Recognition

Object Fingerprint
Recognition

Ear Acoustics
Authentication

Optical Vibration
Sensing

Speech, Emotion
Recognition

Understanding of
meaning & intent
Textual Entailment
Recognition

Crowd Behavior Analysis

Profiling Across
Spatio-Temporal Data

Customer Profile
Estimation

Acoustic Situation
Awareness

Analysis with
interpretation
Heterogeneous
Mixture Learning

Invariant Analysis

Log Pattern Analysis

Automated
Security Intelligence

Predictive Analytics
Automation Technology

Only 1

High-precision analysis
RAPID Machine Learning

Immune Function
Prediction

*1 Ranked 1st four consecutive times in task assessment sponsored by the U.S. National Institute of Standards and Technology (NIST)
*2 Ranked 1st eight times in task assessment sponsored by NIST
*3 Ranked 1st in task assessment sponsored by NIST (2018)
*4 Ranked 1st in task assessment sponsored by NIST (2012)
*5 Ranked 1st in task assessment sponsored by IEEE AASP challenge DCASE2016

NEC Corporation Integrated Report 2018Innovation Management

Major Research Achievements

Core Technology

Achievement

Invariant Analysis

Provided invariant analysis technology for use in satellite and aerospace industries

Client/Fields to develop

Lockheed Martin
Corporation

Autonomous Learning
System-based Anomaly
Detection

Launched a security anomaly detection service capable of unknown cyber-attack
response

System operations, etc.

Face Recognition

Provided face recognition system for improving services for VIP customers

OCBC Bank, Singapore

Face Recognition

Launched access control solution based on using walk-through face recognition

Heterogeneous
Mixture Learning

Forged business collaboration with Japan Weather Association to optimize supply
and demand across entire value chain

Commercial facilities,
event management, etc.

Food manufacture, food
wholesaling, logistics,
retail, etc.

Predictive Analysis
Automation

Established dotData, Inc. in the U.S. to automate data analysis processes

Data analytics, etc.

Log Pattern Analysis

Commercialized product that performs diverse log analysis, anomaly detection, and
causal analysis

System operations, etc.

Machine Learning
Data Processing for
Vector Computer

Accelerated the execution of statistical AI learning process by more than 50 times
compared to conventional technology using data processing for vector computers

Data analytics

High-speed Blockchain

Established the world’s fastest blockchain technology, capable of over 100,000
transactions per second

Financial and various
other transactions and
information sharing

Intellectual Property Strategy

At NEC, because intellectual property is regarded as an essential
business resource supporting the group’s competitiveness and
stability, as well as for contributing to co-creation with our customers,
we strive to strengthen and protect not only our patents and know-how
but also the designs and trademarks that support our global brand.

To create and develop social value, we are not only building
IP-based barriers to entry and securing competitive advantage, but
also building and using our IP portfolio to strengthen and protect
collaborations with customers and partners.

NEC owns some 51,000 patents worldwide (including
approximately 22,000 Japanese patents) as of March 2018.

For further information, please refer to Sustainability Report 2018 “Innovation Management”

NEC Corporation Integrated Report 2018Message from the CFO

Senior Executive Vice President,
CFO (Chief Financial Officer) and Member of the Board (Representative Director)
Takayuki Morita

Performance in Fiscal 2018

The NEC Group recorded consolidated revenue of ¥2,844.4 billion for
fiscal 2018, an increase of ¥179.4 billion (6.7%) year on year. This
increase was mainly due to increased sales in the Public business.
Operating profit improved by ¥22.0 billion year on year to ¥63.9
billion, mainly due to the increase in consolidated revenue. Net profit
attributable to owners of the parent was ¥45.9 billion, an increase of
¥18.6 billion year on year. As a result, return on equity (ROE) was

5.3%, improving by 1.9 percentage points from the previous fiscal
year. Although net profit attributable to owners of the parent was
higher than planned, in consideration of capital requirements for
achieving the Mid-term Management Plan 2020, NEC declared an
annual dividend of ¥60 per share of common stock as announced at
the beginning of the fiscal year.

* On October 1, 2017 the Company changed the number of shares per share unit from 1,000 shares

to 100 shares and carried out a share consolidation of the Company’s shares with a ratio of 10
shares to 1 share.

(Billion ¥)
Revenue

International revenue

International revenue ratio

Operating profit

Operating profit ratio

Net profit attributable to owners of the parent

Return on equity (ROE)

(Billion ¥)
Total assets

Current assets
Non-current assets

Total liabilities

Interest-bearing debt

D/E ratio
Net D/E ratio

Total equity
Equity attributable to owners of the parent

Equity attributable to owners of the parent ratio

FY2017/3
Results

2,665.0
571.0
21.4%
41.8
1.6%
27.3

3.4%

FY2017/3
2,684.0
1,508.7
1,175.3
1,667.9
466.9
0.55
0.27
1,016.1
854.3
31.8%

FY2018/3

Initial Forecasts
2,800.0

50.0
1.8%
30.0

Results

2,844.4
740.2
26.0%
63.9
2.2%
45.9

5.3%

FY2018/3
2,821.4
1,640.3
1,181.0
1,767.1
520.7
0.59
0.20
1,054.3
880.8
31.2%

NEC Corporation Integrated Report 2018

Message from the CFO

Plan for Fiscal 2019

We regard fiscal 2019 as the first step on our envisaged growth
trajectory for fiscal 2021 and beyond. We will execute structural
reforms and consolidate our base for realizing transformation.
We are planning to achieve consolidated revenue of ¥2,830.0
billion, approximately level year on year, as expected declines in the
System Platform Business and Network Services Business are offset by
an increase in the Global Business. We anticipate consolidated

operating profit of ¥50.0 billion after factoring in restructuring costs of
¥40.0 billion, growth investments, and others. Our planned net profit
attributable to owners of the parent is ¥25.0 billion. For annual
dividends, we regret to announce a decrease in the dividend to ¥40
per share of common stock due to a projected year-on-year decline in
net profit.

Net Debt-Equity Ratio

Equity attributable to owners of
the parent, Ratio of equity
attributable to owners of the parent

Operating Cash Flows,
Investment Cash Flows,
Free Cash Flows

(times)

(Billion ¥)

0.53

0.41

0.36

0.27

0.20

823.7

769.8

854.3

880.8

31.4%

30.4%

31.8% 31.2%

695.9

27.8%

94.1

87.9

97.8

92.5

55.2

40.4

65.6

–38.9

–47.5

–32.2

130.0

99.0

6.4

115.8

–14.2

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

J-GAAP

IFRS

J-GAAP

IFRS

J-GAAP

IFRS

(At year-end)

Equity attributable to owners of the parent
Ratio of equity attributable to owners of the parent

Operating Cash Flows
Free Cash Flows

(Years Ended March 31)

Investment Cash Flows

Strengthening Earning Capability to Realize the Mid-term Management Plan 2020

Over the past few years, NEC has been actively working to strengthen
its financial structure, such as its cash conversion cycle. As a result of
these efforts, we have succeeded in building a more stable financial
base, as shown by marked improvements in indicators such as our free
cash flow and net D/E ratio.

We will maintain this financial base while allocating our current
cash reserves to strengthening our earning capability in preparation
for realizing the Mid-term Management Plan 2020 and growth
beyond that. Specifically, we will improve our profit structure even
further by executing structural reforms. In addition, we will execute
growth investments such as M&As aimed at developing new
businesses and increasing operating cash flow.

With regard to M&As, we will maintain the investment budget of

¥200.0 billion set under Mid-term Management Plan 2018. NEC
acquired Northgate Public Services Limited in January 2018, and we
will continue to examine further M&As to follow this. We will endeavor
to execute deals that will increase our earnings, as well as enabling us
to leverage NEC’s existing strengths, in areas such as biometrics and
AI. For investments in excess of our total ¥200.0 billion budget, we
intend to give careful consideration to our financial structure based on
our cash flow status before executing them.

As CFO, I will work to lift our earning capability and increase our

corporate value over the long term.

NEC Corporation Integrated Report 2018

Performance Highlights
NEC Corporation and Consolidated Subsidiaries
For the fiscal years ended or year-end as of March 31

Key Management
Measures

3 4

3,583.1

Revenue

3,115.4

3,036.8

3,071.6

3,043.1

50.9

57.8

73.7

Operating profit

114.6

106.2

2010

2011

2012

2013

2014

2015

2016

¥3,583,148
712,886
19.9
50,905

11,428

134,816
(41,241)
93,575

¥3,115,424
479,349
15.4
57,820

¥3,036,836
481,492
15.9
73,742

JGAAP

¥3,071,609
483,118
15.7
114,647

¥3,043,114
569,172
18.7
106,193

(12,518)

(110,267)

30,434

33,660
(146,244)
(112,584)

83,857
(49,706)
34,151

143,748
(101,742)
42,006

33,742

94,124
(38,893)
55,231

275,970

176,514

161,968

151,676

142,723

134,205

123,995

123,602

109,319

108,093

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International revenue ratio (%) . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net profit (loss) attributable to

owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from operating activities . . . . . . . . . . . . . . . . . .
Cash flows from investing activities . . . . . . . . . . . . . . . . . . .
Free cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures

(property, plant and equipment) . . . . . . . . . . . . . . . . . . . .

83,098

Depreciation

(property, plant and equipment) . . . . . . . . . . . . . . . . . . . .

111,167

Per share data (in yen):

Net profit (loss) attributable to

owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.04
4.00

2,937,644
790,904
1.6
26.9
729,548
0.92

310
142,358

CO2 emissions reduction by providing IT

solutions (thousand tons) . . . . . . . . . . . . . . . . . . . . . . . . . .

1,900

Improvement in energy efficiency

of products (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52,850

62,097

41,980

53,306

45,614

51,167

98,708

45,167

(4.82)
0.00

2,628,931
757,054
–
28.8
675,798
0.89

283
115,840

2,120

(42.44)
0.00

2,557,570
656,956
–
25.7
692,734
1.05

265
109,102

2,310

11.71
4.00

2,580,966
710,666
4.5
27.5
603,451
0.85

270
102,375

2,980

12.99
4.00

2,505,329
695,949
4.8
27.8
575,151
0.83

258
100,914

2,290

¥2,935,517

¥2,821,181

¥2,824,833

¥2,665,035

¥2,844,447

586,844

20.0

128,084

57,302

87,917

(47,510)

40,407

37,425

48,518

22.05

4.00

7.5

31.4

0.63

232

2,540

603,169

21.4

107,306

68,749

97,829

(32,202)

65,627

36,347

44,879

26.45

6.00

8.5

31.8

0.61

217

2,620

603,135

21.4

91,418

75,923

97,829

(32,202)

65,627

36,347

50,493

29.22

6.00

9.5

30.4

0.62

217

2,620

2,620,652

823,650

2,493,441

792,092

2,528,904

769,827

2,683,996

854,264

2,821,351

880,833

10.51

6.00

176.54*

60.00*

520,778

480,987

479,523

466,946

520,743

98,882

98,726

107,729

109,390

2017

IFRS

570,967

21.4

41,838

27,310

92,525

6,425

98,950

31,472

49,853

3.4

31.8

0.55

238

2,630

Millions of yen

2018

740,179

26.0

63,850

45,870

129,981

(14,231)

115,750

45,391

63,831

5.3

31.2

0.59

303

4,220

NEC Corporation Integrated Report 20185

Performance Highlights

Key Management Measures

l Measures to optimize business portfolio
l Measures to grow business and strengthen financial foundation

(Billions of yen)

Fiscal year ended March 31, 2011

2,935.5

128.1

2,821.2

2,824.8

2,665.0

2,844.4

1 Made NEC Electronics Corporation, a semiconductor

business currently Renesas Electronics Corporation, into
an equity-method affiliate

Fiscal year ended March 31, 2012

2 Made the consumer PC business into

an equity-method affiliate

Fiscal year ended March 31, 2013

63.9

Acquired the business support system business of
U.S.-based Convergys Corporation

41.8

2017
IFRS
¥2,665,035
570,967
21.4
41,838

27,310

92,525
6,425
98,950

Millions of yen
2018

¥2,844,447
740,179
26.0
63,850

45,870

129,981
(14,231)
115,750

Acquired the IT service business of
Australia-based CSG Limited

Fiscal year ended March 31, 2014

3 Divested all of NEC’s stakes in NEC Mobiling, Ltd.,

currently MX Mobiling Co., Ltd., a mobile phone sales
business

4 Stopped the development of new smartphones

Fiscal year ended March 31, 2015

5 Divested all of NEC’s stakes in NEC BIGLOBE, Ltd.,

currently BIGLOBE Inc., an internet service provider in
March, 2014

Established NEC Management Partner, Ltd. in a
reorganization of four back office operation subsidiaries

Completed acquisition of an energy storage system
business for electric power companies and established
NEC Energy Solutions, Inc. in the U.S.

107.3

91.4

2010

2011

2012

2013

2014

2015

2016

JGAAP

¥2,935,517
586,844
20.0
128,084

¥2,821,181
603,169
21.4
107,306

¥2,824,833
603,135
21.4
91,418

57,302

87,917
(47,510)
40,407

68,749

97,829
(32,202)
65,627

75,923

97,829
(32,202)
65,627

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥3,583,148

¥3,115,424

¥3,036,836

¥3,071,609

¥3,043,114

owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,428

(12,518)

(110,267)

30,434

International revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

International revenue ratio (%) . . . . . . . . . . . . . . . . . . . . . . .

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

712,886

19.9

50,905

479,349

15.4

57,820

Net profit (loss) attributable to

Cash flows from operating activities . . . . . . . . . . . . . . . . . .

Cash flows from investing activities . . . . . . . . . . . . . . . . . . .

Free cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

134,816

(41,241)

93,575

33,660

(146,244)

(112,584)

Capital expenditures

Depreciation

(property, plant and equipment) . . . . . . . . . . . . . . . . . . . .

83,098

(property, plant and equipment) . . . . . . . . . . . . . . . . . . . .

111,167

Per share data (in yen):

Net profit (loss) attributable to

owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,937,644

Owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

790,904

Return on equity (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Owner’s equity ratio (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Debt-equity ratio (times) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of consolidated subsidiaries . . . . . . . . . . . . . . . . .

5.04

4.00

1.6

26.9

0.92

310

CO2 emissions reduction by providing IT

solutions (thousand tons) . . . . . . . . . . . . . . . . . . . . . . . . . .

1,900

Improvement in energy efficiency

of products (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52,850

62,097

(4.82)

0.00

2,628,931

757,054

–

28.8

0.89

283

2,120

481,492

15.9

73,742

83,857

(49,706)

34,151

41,980

53,306

(42.44)

0.00

2,557,570

656,956

–

25.7

1.05

265

2,310

483,118

15.7

114,647

143,748

(101,742)

42,006

45,614

51,167

11.71

4.00

4.5

27.5

0.85

270

2,980

569,172

18.7

106,193

33,742

94,124

(38,893)

55,231

98,708

45,167

12.99

4.00

4.8

27.8

0.83

258

2,290

Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142,358

115,840

109,102

102,375

100,914

Interest-bearing debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

729,548

675,798

692,734

603,451

575,151

2,580,966

710,666

2,505,329

695,949

R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

275,970

176,514

161,968

151,676

142,723

134,205

123,995

123,602

109,319

108,093

Fiscal year ended March 31, 2016

37,425

48,518

36,347

44,879

36,347

50,493

31,472

49,853

45,391

63,831

22.05
4.00

2,620,652
823,650
7.5
31.4
520,778
0.63

232
98,882

2,540

26.45
6.00

2,493,441
792,092
8.5
31.8
480,987
0.61

217
98,726

2,620

29.22
6.00

2,528,904
769,827
9.5
30.4
479,523
0.62

217
98,726

2,620

10.51
6.00

2,683,996
854,264
3.4
31.8
466,946
0.55

238
107,729

2,630

176.54*
60.00*

2,821,351
880,833
5.3
31.2
520,743
0.59

303
109,390

4,220

Transferred administrative staff functions and shared IT
assets from NEC to NEC Management Partner, Ltd.
(Business Process Optimization Project)

Fiscal year ended March 31, 2017

6 Consolidated Japan Aviation Electronics Industry,

Limited

Fiscal year ended March 31, 2018
(The fiscal year under review)

Acquired U.K. company Northgate Public Services Limited

Fiscal year ending March 31, 2019

Established dotData, Inc. in the U.S.

Established NEC X, Inc. in the U.S.

Notes: 1. Net profit (loss) attributable to owners of the parent per share is

calculated based on the weighted-average number of shares
outstanding during each period.

2. Owner’s equity = equity attributable to owners of the parent
3. The debt-equity ratio is calculated by dividing interest-bearing debt by

owner’s equity.

4. Improvement in energy efficiency of products is based on a comparison

with the fiscal year ended March 31, 2006.

* The amounts reflect a share consolidation (with a ratio of 10 shares to 1 share)

that took effect on October 1, 2017

NEC Corporation Integrated Report 2018

At a Glance
NEC Corporation and Consolidated Subsidiaries
Revenue, operating profit (loss), and composition of revenue are financial results for the fiscal year ended March 31, 2018 (IFRS).

Revenue

Composition of revenue

2,844.4

billion yen

Public Business

Enterprise Business

Network Services Business

System Platform Business

Global Business

Others

33%
14%
13%
19%
16%
5%

Public Business

Enterprise Business

Revenue

Operating profit

933.1 billion yen

53.2 billion yen

Major Products and Services

Systems Integration (Systems Implementation, Consulting)

Maintenance and Support

Outsourcing/Cloud Services

System Equipment

Public Solutions

Public Infrastructure

Examples of Major Customers and
Main Solutions

Public:
Firefighting Command,
Firefighting Emergency Radio Systems,
Disaster Prevention, Traffic Control,
Railroad Communication,
Local Government

Healthcare:
Electric Medical Record,
Regional Healthcare Information
Network

Regional industries:
Backbone service

Examples of Major Customers and
Main Solutions
Government:
Social Security and Tax,
Fingerprint Identification, Air Traffic Control,
Satellite Communications/Earth Observation,
Outdoor Communication, School/
Education, Postal Tracking, Infrastructure
Surveillance/Energy Management

Media:
TV Program Production/
News Production/Transmission,
Digital TV Transmitters

Revenue

408.7 billion yen

Operating profit

35.7 billion yen

Major Products and Services

Systems Integration
(Systems Implementation, Consulting)

Maintenance and Support

Outsourcing / Cloud Services

Examples of Major Customers and
Main Solutions
Manufacturing:
Global SCM,
Product Lifecycle Management,
Production Management,
Sales Management

Retail and Services:
Retail Systems for Stores and Head Offices,
Logistics Management

Finance:
Banking, Business Branch Systems,
Insurance and Securities Infrastructure,
Insurance and Securities Channel

Major Consolidated Subsidiaries

NEC Nexsolutions, Ltd.

NEC Facilities, Ltd.

ABeam Consulting Ltd.

NEC Network and Sensor Systems, Ltd.

NEC Space Technologies, Ltd.

Nippon Avionics Co., Ltd.

Japan Aviation Electronics Industry, Limited

NEC Corporation Integrated Report 2018

At a Glance

(Note) Figures for revenue, operating profit (loss), and composition of revenue for the fiscal year ended March 31, 2018 are

restated to conform with the new segments, which have not been audited by the accounting auditors.

Operating profit

Net profit attributable to
owners of the parent

Free cash flows

63.9

billion yen

45.9

billion yen

115.8

billion yen

Network Services
Business

System Platform
Business

Global Business

Revenue

377.6 billion yen

531.7 billion yen

453.7 billion yen

Operating profit

Operating loss

17.3 billion yen

30.0 billion yen

–28.0 billion yen

Major Products and Services

Network Infrastructure
Core Network,
Mobile Phone Base Stations,
Optical Transmission Systems,
Routers/Switches

Systems integration
(systems implementation, consulting)

Services & Management
OSS*1/BSS*2 , Services/Solutions

*1 OSS: Operation Support System
*2 BSS : Business Support System

Hardware
Servers, Mainframes, Supercomputers,
Storage, Business PCs, POS, ATMs,
Control Equipment,
Wireless LAN Routers

Software
Integrated Operation Management,
Application Servers,
Security and Database Software

Enterprise Network Solutions
IP Telephony Systems,
WAN/Wireless Access Equipment,
LAN Products

Services
Maintenance Services

Safety
Biometric Solutions
(such as Face Recognition,
Fingerprint Identification),
Surveillance

Software Services for Service Providers
(OSS/BSS, SDN*3 / NFV*4)

Network Infrastructure
Submarine Systems
(Submarine Cable Systems,
Ocean Observation Systems),
Mobile Backhaul

System Devices
Displays, Projectors

Energy Storage Solutions

*3 SDN: Software-Defined Networking
*4 NFV : Network Functions Virtualization

Major Consolidated Subsidiaries
NEC Networks & System Integration
Corporation

Major Consolidated Subsidiaries

NEC Platforms, Ltd.

NEC Fielding, Ltd.

NEC Embedded Products, Ltd.

NEC Display Solutions, Ltd.

OCC Corporation

NEC Energy Solutions, Inc.

Netcracker Technology Corporation

Northgate Public Services Limited

NEC Corporation Integrated Report 2018Review of Operations

Public Business

In the Public Business, we provide safe, secure and efficient social solutions for governments,
governmental agencies, local governments, public institutions and other organizations by combining
our distinctive technology assets, including network, sensor and analysis technologies, with a broad
expertise in systems integration.

Revenue

(Billion ¥)

760.4

933.1

945.0

Operating Profit, Operating Profit Ratio

(Billion ¥)

Operating Profit
Operating Profit Ratio

61.0

2018 result

53.2

5.7%

6.5%

Operating profit improved by
¥23.0 billion year on year to
¥53.2 billion, mainly due to
increased revenue.

30.2

4.0%

2018 result
Revenue was ¥933.1 billion, an
increase of ¥172.7 billion
(22.7%) year on year, mainly
due to Japan Aviation
Electronics Industry, Limited
becoming a consolidated
subsidiary, despite decreased
sales from firefighting and
disaster prevention systems.

2017

2018

2019
(Forecasts)

2017

2018

2019
(Forecasts)

(Fiscal year ended on March 31)

Public Business Comprised of Two Areas

Public business consists of “Public Solutions,” which is responsible for business involving regional sales functions and local governments in Japan,

the “Public Infrastructure,” which takes charge of business involving government organizations and enterprises supporting national and social

infrastructure.

Based on the new organization established in April 2017, the “Public Solutions” considers both the local needs and the required policy seeds. In

this area NEC works together with regional stakeholders, such as local governments, universities, and businesses, to accelerate the development of

new regional businesses, such as smart cities and utilization of the Social Security and Tax Number System (“My Number”), and health care. Based on

our many years of achievements gained in supporting government agencies, the “Public Infrastructure” further improves the social infrastructure we

provide to support a safe and comfortable lifestyle for everyone.

NEC Corporation Integrated Report 2018Review of Operations Public Business

Public Business — SWOT Analysis

STRENGTHS

WEAKNESSES

Strong track record gaining high credibility, advanced technologies in the

While there is a high proportion of large-scale projects in Japan, there are

process, and high market share in Japan in delivering products and

fewer projects which provide regular income streams, such as in services,

systems that support social infrastructure – such as systems for

leading to exposure to risk from demand volatility.

governmental organizations, broadcasters, power companies, as well as in

cyber- security –

Additional costs result from the complexity of project management for

large-scale projects and the issues inherent in system development

Ability to propose concepts for customers’ future based on “domain

using cutting-edge technology. These costs can have an impact on

knowledge,” specifically operational expertise and deep understanding of

business results.

database construction acquired through many years of working with

customers.

Provision of vertically integrated solutions with the “NEC the WISE” lineup

of AI technologies, “Bio-IDiom” biometrics, IT and networks including

security, and full-layer ICT including sensing technology.

OPPORTUNITIES

THREATS

The Japanese government’s “Digital Government action plan” will drive

Competition for orders is intensifying, increasing the number of projects

the creation of a common platform for government, and wider use of the

with difficult requirements in cost and delivery. As a result, constant

My Number System is being examined.

improvement of quality and cost competitiveness is necessary.

Expectations for safe, secure, efficient administration of the Olympic and

We need a new business structure that can cope with changes in the

Paralympic Games Tokyo 2020 and further investment to respond to

market environment, such as a shift in the industry itself with the trend

increasing number of tourists visiting Japan.

towards broadcasting via IP and transformation of the viewer rating and

advertising model.

Cyber-attacks pose a growing threat around the world, gaining attention

and increasing demand for reinforcement of systems and monitoring

services for cyber security.

We expect increased investment toward utilization of ICT across a variety of

domains, such as health care and education.

NEC Corporation Integrated Report 2018Public Solutions Business

Japan is facing social issues arising from declining birthrates and aging
population, increasing social security costs, a declining work force, and reduced
spending and economic power. NEC’s job is to grasp these issues and address
them firmly and create sustainable social value. Using our accumulated
experience, the latest AI and biometrics technologies, and co-creation, we will
tackle these issues as a leader in providing value across industry boundaries.

Executive Vice President
Chikara Nakamata

Expanding the Business Domain to
Solve Social Issues

Initiatives in the Medium- to Long-Term

In the environment surrounding the Public Solutions Business,
the market in Japan continues to be brisk, with business model
changes driven, in particular, by AI and IoT developing on a
scale that far exceeds the traditional scope of ICT vendors.
Meanwhile, the traditional ICT market is contracting, and we
need to expand its opportunities in business domains for
solving social issues.

In this environment, the Japanese government’s “Digital
Government action plan” is promoting a review of government
which itself is predicated on digital technology and with a
focus on increasing convenience for citizens and business
operators. In the government sector and various areas where
the government interacts with the private sector, NEC will help
to realize “Digital Government action plan” by working to
create highly convenient services from a user perspective by
leveraging the My Number System and biometrics.

In the area of health care, NEC will contribute to dealing with

labor shortages and managing social security costs, for
example by developing an endoscopy diagnosis support
system that uses AI-driven image analysis technology and an
electronic medical record system intended for use with medical
data. In this way, we will help to realize a healthy, long-lived
society where individually tailored, high-quality healthcare and
medical services can be provided to people easily.

In the lead up to the Olympic and Paralympic Games Tokyo
2020, we will ensure safety and security by providing public
safety-related solutions such as biometrics and behavior
detection and analysis, as well as providing wireless networks
for administration use and urban operation centers.
We will focus our efforts on these areas of digital
government, healthcare, and public safety, as we build
infrastructure to support abundant living for people.

Examples of Initiatives

Healthcare:
Real time endoscope
diagnosis support system
using AI

National Cancer Center Japan and NEC announced the development of a real time endoscopy diagnosis
support system using AI in July 2017. We aim to prevent failure to diagnose bowel cancers and
precancerous lesions (neoplastic polyps in the bowel) during endoscope examinations of the bowel by
discovering them in real time during the endoscopy.

Digital Government:
Contributing to Wider Use of
My Number Cards among
Local Governments

NEC’s system was adopted for the pioneering use of My Number cards as employee identification cards
by the Tokushima prefectural government. The system manages room access based on My Number cards
to provide secure staff access management within designated areas at government buildings.
Meanwhile, in Chiba City, NEC has built a library system that allows patrons to borrow books by simply
swiping their My Number card at the library counter. Through initiatives such as these, NEC will
contribute to wider use of My Number cards.

NEC Corporation Integrated Report 2018Review of Operations Public Business

Public Infrastructure Business

In this area, NEC supports stable operation of key national infrastructure.
The experience and trust we have cultivated over the years ensure stable
profits in excess of company-wide targets. These profits are continuously
invested in advanced technologies including biometric technologies, such as
facial recognition, and space-related technologies, such as “Hayabusa 2.”

Executive Vice President
Kazuhiro Takada

Creation of Stable Earnings and Investment in
Advanced Technologies to Prepare for the Future

Initiatives in the Medium- to Long-Term

We have a duty to support the stable running of mission critical
operations in the field of security using ICT for customers
including governments, governmental agencies, broadcasters
and power companies. By supporting key national
infrastructure over the long term, we will ensure stable
profitability. Under the Mid-term Management Plan 2020, we
will generate stable operating profits in excess of company-
wide targets as an earnings base for the whole company.

To further capture earnings, we will undertake a

transformation towards a profitable structure by increasing cost
efficiency, including cost reductions. In the space business,
which faced profitability issues, we achieved a profit in fiscal
2018 by implementing cost structure reforms and business
portfolio selection and concentration.

Through these improvements to our earnings, we will secure

funds for investments that we will be focused on advanced

technologies—the supporting core of our business. Specifically,
investment targets include biometrics technology, such as
fingerprint, facial, and iris recognition that offer world-leading
accuracy, satellite-related technologies for carrying out
missions in uncharted places in the harsh environment of
space, such as “Hayabusa 2,” and cyber security technologies
including the security field. Continuous investments will
enable us to strengthen our competitive advantages in the
future and our ability to create value.

To support business expansion over the medium to long
term, we will leverage our advanced technologies to provide
solutions for the Olympic and Paralympic Games Tokyo 2020.
These will include cyber security, security ICT such as image
analysis and accident prediction solutions, rigorous and
efficient border control using biometrics, and 4K and 8K TV
broadcasting systems.

Examples of Initiatives

NEC Iris Recognition
Technology Ranked First in
Accuracy Evaluation by U.S.
National Institute of
Standards and Technology

Contributing to 4K and 8K
Broadcasts in Japan and
Internationally

In April 2018, NEC’s iris recognition technology achieved the highest matching accuracy evaluation in an
evaluation test performed by the U.S. National Institute of Standards and Technology (NIST), a world-
leading authority. Furthermore, in past testing performed by NIST, NEC’s facial recognition was ranked first
four consecutive times, and its fingerprint recognition has ranked first eight times in total.

NEC is contributing to the construction of television master control equipment *1 for a BS4K trial broadcast
scheduled to commence in December 2018.
Major broadcasters in countries around the world are conducting trial testing of 4K and 8K broadcasts. NEC has
been the technical partner for trial testing of an 8K terrestrial broadcast by Brazilian broadcaster TV GLOBO, and
NEC’s codecs*2 have been used in 4K broadcast trials by BBC of the U.K. and TV Station of South Korea.
*1 Television master control equipment: A system for compiling broadcast data, including programs and commercials,

and outputting it according to a program

*2 Codec: Image compression and decompression equipment

NEC Corporation Integrated Report 2018Enterprise Business

Our society faces various kinds of social issues, such as food waste, labor
shortages, changes in the consumption environment, and diversifying
threats in both real society and cyber space. NEC will develop cutting-edge
technologies and promote co-creation with customers in order to connect
people, goods, and processes, reaching across the boundaries between
enterprises and industries to draw out the potential of society and create
new value across the entire value chain. To realize this goal, we will work
rapidly to transform our business into a recurring income stream model.

Revenue

(Billion ¥)

408.6

408.7

410.0

Executive Vice President
Hiroshi Kodama

2018 result

Revenue was ¥408.7 billion,
almost remaining flat
year on year.

Operating Profit, Operating Profit Ratio

(Billion ¥)
39.7

9.7%

35.7

8.7%

32.0

7.8%

Operating Profit
Operating Profit Ratio

2018 result

Operating profit worsened by
¥4.0 billion year on year to
¥35.7 billion, mainly owing to
increased investments
in the IoT area.

2017

2018

2019
(Forecasts)

2017

2018

2019
(Forecasts)

(Fiscal year ended on March 31)

Enterprise Business — SWOT Analysis

STRENGTHS

WEAKNESSES

Reliability and achievements cultivated over many years of providing IT
services to domestic clients in the manufacturing, retail and service, and
financial industries
Ability to integrate technology and business to create value and respond
bimodally to customers’ needs in business development and solutions
development scenarios
The knowledge and expertise we have developed in manufacturing
innovation at our own plants as a company in the manufacturing industry,
as well as SCM transformation for global corporations

Need to strengthen initiatives that will impact society positively across the
boundaries between enterprises and industries
In order to achieve further growth, need to transform to a business model
that makes use of knowledge and resources accumulated for each industry
and client and consolidates them across the organization

OPPORTUNITIES

THREATS

Our society faces various kinds of social issues, such as global food waste and
energy consumption, as well as changes in the human resources
environment due to labor shortages, diversification of consumption patterns,
including an emphasis on customer experience and a shift towards cashless
societies, and fraudulent transactions involving internet banking. AI, IoT, and
other advanced digital technologies are increasingly expected to provide
solutions for these social issues.

Although the private sector market in IT is expanding, the acceleration in
adoption of cloud computing and the penetration of AI and IoT are bringing
dramatic change to NEC’s business environment in terms of customers’
investment fields and competitors. We expect a decrease in existing solutions
businesses in the medium term, and new business model creation and the
capability to support customers’ digital transformation will be increasingly
important for achieving growth.

NEC Corporation Integrated Report 2018Review of Operations Enterprise Business

Shift to a Recurring Income Stream Model
through Co-creation

Initiatives in the Medium- to Long-Term

The period through to fiscal 2021 has been positioned as a period of solidifying a base for future growth in the Enterprise Business.

Throughout this period, NEC will offer solutions for solving social issues as services through partnering with customers, thereby

transforming its business model into a recurring income stream model. Towards this goal, we have been working to establish

common business platforms, refine the value of existing businesses where we have strengths, develop human resources, and

prepare and strengthen co-creation programs with customers and partners.

Initiatives in Fiscal 2018 to Realize our Goals

Social Issues

Accomplishments in Fiscal 2018

Optimization of
Supply and Demand

NEC announced the “Demand and Supply Optimization Platform.” Through this solution, NEC will
contribute to the optimization of demand and supply and reduction of food loss and waste by
increasing accuracy in forecasting through the use of white box AI for sharing and utilizing inventory
and sales data among all companies comprising the value chain. In this project, NEC collaborates with
the Japan Weather Association (JWA), combining the weather data and data analysis technologies of
JWA with NEC’s technology to create social value together.

NEC worked with Seven-Eleven Japan Co., Ltd. to use image data from cameras of store terminals to
improve ordering accuracy, and bolster security using face recognition technology while enhancing
the convenience. NEC will keep contributing to labor-saving, sophisticated solutions using AI to
forecast product demand and IoT to ensure stable operations of all store equipment.

Realizing a Safe,
Comfortable Society

Sumitomo Electric Industries, Ltd. and NEC have begun collaborating by using Sumitomo Electric’s rich
range of in-vehicle products and technologies as well as expertise in traffic infrastructure together with NEC’s
cutting-edge technologies in security, AI, IoT, and cloud services. The two companies will take full advantage
of their strengths to develop products with advanced security and to expand mobility business.

Preventing Diversifying
Cyber Space Threats and
Digital Fraud

NEC has provided Japan Exchange Regulation with deep learning technology for market surveillance
operations, which is used in the initial investigation of suspicious transactions. NEC is conducting test
demonstrations with several securities companies aiming to prevent digital fraud, and will help to realize
efficient, sophisticated market surveillance operations.

Realizing a Highly Efficient
Society through ICT

Japan Airlines Co., Ltd. and NEC conducted test demonstrations using AI to perform predictive analysis for
the purchase of airline tickets. These tests confirmed the effectiveness of NEC’s Predictive Analytics
Automation Technology towards resolving the issues of a scarcity of data scientists with advanced
analytical skills and uncertainty as to how best to utilize the enormous amounts of data.

NEC Corporation Integrated Report 2018Network Services Business

As a partner supporting digital transformation of all industries, we will
create new social value by working with various customers to co-create
business. NEC’s total capability in networks and IT will enable us to
expand the value we provide from network infrastructure to services, as
we contribute to realizing a society where people, things, and contexts
are richly connected.

Executive Vice President
Atsuo Kawamura

Revenue

(Billion ¥)

394.5

377.6

360.0

Operating Profit, Operating Profit Ratio

(Billion ¥)
34.6

8.8%

2018 result

Revenue decreased ¥16.9
billion (4.3%) year on year to
¥377.6 billion due to reduced
capital investment by domestic
telecom carriers.

Operating Profit
Operating Profit Ratio

2018 result

Operating profit worsened
¥17.3 billion year on year to
¥17.3 billion, mainly due to
lower revenues and changes in
the product mix.

17.3

4.6%

11.0

3.1%

2017

2018

2019
(Forecasts)

2017

2018

2019
(Forecasts)

(Fiscal year ended on March 31)

Network Services Business — SWOT Analysis

STRENGTHS

WEAKNESSES

Among the best in Japan in terms of track record and accumulated
expertise for delivering networks and IT systems for telecom carriers.
Core technologies in the network area such as 5G, mobile, optical IP and IT,
and network system integration capabilities utilizing on these
technologies.

Easily impacted by market trends in capital investment.
Delay in expanding from business centered on network infrastructure
equipment to software/application service area.

OPPORTUNITIES

THREATS

As traffic expands with sophistication of services, telecom carriers have
increasing needs to improve the sophistication and efficiency of their
infrastructure.
Expected expansion of business opportunities due to connection of
people, things, and contexts with the digital transformation at companies,
including operation reforms.

Capital investment by Japanese telecom carriers is in a low-season
awaiting full-scale investment in 5G.
Possibility that overseas vendors will further increase their share of the
domestic market in the commodities area.

NEC Corporation Integrated Report 2018Review of Operations Network Services Business

Providing Network Services That Can
Support Digital Transformation

Initiatives in the Medium- to Long-Term

Recently, a host of industries have been promoting the use of new technologies such as AI and the IoT to resolve increasingly serious

social issues such as environmental problems and labor shortages. The digital transformation is accelerating in the form of new

business creation through the use of technology and work style reform through management.

NEC has been contributing to the evolution of telecommunications infrastructure by providing telecom carriers with network

control platform systems and services for operations management, along with equipment for network implementation.

Now, in the age of IoT, where everything is connected wirelessly, NEC is leveraging its strengths, including in sophisticated wireless

technologies developed in the telecom carrier market, to realize flexible, efficient networks that can support digital transformation

and networks that can comfortably handle huge data volumes from 5G high-speed, large-capacity, ultra-low latency, multiple device

connections. We are also working to automate and simplify service operations, provide solutions for efficiently operating networks,

and to provide service platforms that will enable and optimize networks and IT environments for flexibly handling various 5G-era

services. By utilizing these, NEC will co-create sophisticated services with telecom carriers and partners from various industries by

combining intelligent networks and advanced IT.

Recently, NEC and a major Japanese telecom carrier agreed on the provision of 5G base station equipment aiming for the

commercialization of 5G services. NEC is also working in the following domains on co-creation products with partners from various

industries in preparation for the 5G era.

Security:

By combining AI for abnormality detection through image analysis with 5G’s characteristic ultra-high speed, large

capacity, low latency communications, NEC is taking steps to create a safe, secure society through trials for realizing

security services for preventing crimes and accidents.

Construction: NEC is working to solve issues at construction sites, such as a shortage of engineers and workers, by conducting

trials of advanced construction technologies such as unmanned construction machinery and real-time remote

construction using 5G.

Healthcare: Local government and telecom carrier with NEC conducted field trials of remote medical examinations using large-

capacity 5G transmission to connect local medical institutions with a medical university, enabling them to

communicate in real time and share images taken by a 4K close-up camera, high-definition echocardiographic

video and MRI images. The trial is part of efforts to realize a society where everyone has equal access to healthcare.

Through these efforts, NEC will create new value for society by co-creation with telecom carriers and partners from various

industries to prepare for the 5G era.

Looking ahead, NEC will provide richly connected value to contribute to the successful digital transformation of society and our customers.

NEC Corporation Integrated Report 2018System Platform Business

There is a growing move towards proactively using ICT for operational
innovation, such as work style transformation, and operational expansion
to capture increasing demand from inbound tourism. NEC is directly
experiencing these global trends as it constantly reviews its platforms to
strengthen products and services centered around AI, IoT image analysis,
and security.

Revenue

(Billion ¥)

548.9

531.7

510.0

Executive Vice President
Kimihiko Fukuda

2018 result

Revenue was ¥531.7 billion, a
decrease of ¥17.2 billion (3.1%)
year on year, mainly due to
decreased sales in maintenance
services.

Operating Profit, Operating Profit Ratio

(Billion ¥)
34.6

Operating Profit
Operating Profit Ratio

30.0

32.0

2018 result

6.3%

5.6%

6.3%

Operating profit declined by
¥4.6 billion year on year to
¥30.0 billion, mainly owing to
a change in the product mix.

2017

2018

2019
(Forecasts)

2017

2018

2019
(Forecasts)

(Fiscal year ended on March 31)

System Platform Business — SWOT Analysis

STRENGTHS

WEAKNESSES

Reliability and high quality cultivated under an intensely competitive
domestic market; high share in Japan for IT platform products
Distinguished group of technologies*, including AI, IoT image analysis
and security

* Image recognition technology including face recognition, heterogeneous mixture learning,

textual entailment recognition technology, etc.

Smaller business scale compared with global mega-vendors due to many
areas being specialized for the Japanese market, leading to relatively lower
profit margins
A need to expand the proportion of software and services as a large
proportion of the business comprise of conventional sales for standalone
hardware

OPPORTUNITIES

THREATS

With the rapid advance of digitalization, an increase in customers’ use of AI
in actual business is expected, and there are rising expectations for new
value creation using AI technology.
As customers increasingly utilize data, they will need to respond to security
risks such as increasingly sophisticated cyber-attacks and information
leakages; increasing demand for advanced security is therefore expected.

The advance of commoditization mainly of general products in the
hardware domain is driving increased global competition.
In areas such as IoT image analysis and AI, more companies are entering
the market, including those from other industries, making it necessary to
establish points of differentiation.

NEC Corporation Integrated Report 2018Review of Operations System Platform Business

Providing Platforms to Support
Business Innovation through Digitalization

Initiatives in the Medium- to Long-Term

In System Platform Business, there is a need to transform the conventional business model. We aim to do more than simply

streamline customers’ business operations by providing highly reliable ICT products; we will work to increase the capabilities of our

customers and contribute to solving their issues by providing NEC’s solutions and services as a comprehensive package.

The key to realizing this transformation is to leverage NEC’s strengths, such as AI, IoT image analysis, and cyber security, to establish

platforms that provide unique value. To achieve this, the System Platform Business will first pursue maximization of profit by

increasing efficiency in every aspect of its existing businesses and reforming its cost structure through operational reforms. We will

then focus our management resources on areas such as AI, IoT image analysis, and security and concentrate on developing a platform

lineup to support digitalization. In this way, we will realize a business portfolio aligned with the needs of today.

Initiatives in Fiscal 2018 for Achieving Our Vision for the Medium to Long Term

In fiscal 2018, we made continuous efforts to improve our costs with a view to improving profits in a harshly competitive business

environment. Specifically, we integrated five companies and departments, including NEC Network Products, Ltd., with NEC Platforms,

Ltd. in April 2017 to streamline our production and development systems and took steps to implement sharing of materials

procurement and resources.

Furthermore, on the business front, as an initiative to build platforms utilizing AI, we started providing a big data analysis platform

that enables an integrated approach from data collection to accumulation, processing, and analysis. We also launched sales of the

SX-Aurora TSUBASA platform, which can be used in new areas such as AI and big data analytics, resource exploration, image analysis,

and security. In addition, we made efforts to maintain our position in existing product areas, achieving the No. 1 share of the

domestic PC server market for the 22nd consecutive year*.

In fiscal 2019 and beyond, we expect the System Platform Business to continue facing a harsh business environment, but we will

streamline our existing businesses while strengthening and expanding our focus businesses.

* CY1996-2017 Japan Product Category: x86 server, Units
Source: IDC Quarterly Server Tracker 2018Q1
Note:

IDC declares a statistical tie in the server market when there is less than one percent difference in the revenues or the unit shipment of two or more vendors.

NEC Corporation Integrated Report 2018Global Business

To accelerate the growth of global business, NEC business divisions that
are primarily tasked with expanding in global markets were newly
incorporated into the Global Business Unit, which was launched in April
2018. The dedicated global structure will improve management speed
and strengthen links between local subsidiaries to provide real solutions
for social issues.

Senior Executive Vice President
Akihiko Kumagai

Revenue

(Billion ¥)

432.9

453.7

505.0

2018 result

Revenue increased ¥20.7
billion (4.8%) year on year to
¥453.7 billion due to
increased sales in safety.

2017

2018

2019
(Forecasts)

Operating Profit (Loss), Operating Profit Ratio

(Billion ¥)

–9.0%

–39.0

2017

0.0%

Operating Profit (Loss)
Operating Profit Ratio

2018 result

Operating loss improved by
¥11.0 billion year on year to an
operating loss of ¥28.0 billion
yen, mainly owing to increased
sales and cost efficiency.

–6.2%

–28.0

2018

2019
(Forecasts)

(Fiscal year ended on March 31)

Global Business — SWOT Analysis

STRENGTHS

WEAKNESSES

Safety business: Integrated systems that fuse world-leading biometric authentication
technology with urban surveillance operation expertise and analysis technologies (status
recognition, crowd behavior analysis, indication detection, etc.), and enable not only past
event analysis but also the ability to grasp phenomena in real time.
Software services for service providers: In addition to product competitiveness and track
records at Netcracker Technology Corporation, product capabilities and advanced solutions
provided through links with SDN/NFV.
Strong presence and adoption results in the markets for network equipment (mobile
backhaul), submarine cable, displays and projectors, and unified communications products.

Need to strengthen the structure to enable expansion of the scope for
providing value in the area of safety to customers beyond governments and
police in the domains requiring safety, security, efficiency and equality.
Need to accelerate shift of business model from equipment sales to a
solutions business.

OPPORTUNITIES

THREATS

Expanding opportunities to realize solutions through ICT, such as skilled labor
shortages in advanced countries and emergence of social issues due to rapid
urbanization in emerging countries.
Expansion in demand for safety solutions in countries where there is growing
interest in safety and security.
Expansion in demand for software services for service providers following
advancement of network services.
The smart energy market is expected to expand following the spread of renewable
energy use, bringing growth in business opportunities in Europe and North America.

Aggressive approach by emerging-market vendors and others in the field
of biometric authentication.
Intensified competition in the field of software services for service
providers due to the rise of the network virtualization market.
Though our mobile backhaul business is in the global market leaders
group, price competition is increasing due to market maturity.

NEC Corporation Integrated Report 2018Review of Operations Global Business

Expansion of Safety Business and Profit Structure
Reforms of Issues Businesses

Initiatives in the Medium- to Long-Term

Realizing “NEC Safer Cities” based on the safety business is the main growth engine for the Global Business. Amid demand for

responses to global issues such as labor shortages, rapid urbanization, geopolitical risk and the risk of spreading terrorism,

NEC will continue to provide traditional solutions in public safety involving recognition and urban surveillance, while expanding its

business scope to encompass digital government, where it will provide asset management and fee payment platforms to national

and local governments, and smart transportation, where it will provide traffic congestion alleviation and public service

improvements that will form the core of smart cities. Through these efforts, we will contribute to realizing a safe, secure, efficient and

equal society.

Looking ahead, we will increase our presence globally by expanding the digital government sector from regions where we have a

track record in the public safety field, such as Singapore, Hong Kong, North America, and Argentina, into the British Commonwealth

and the United States using Northgate Public Services Limited, acquired in January 2018, as a base. In addition, we will make

aggressive use of M&As and partnerships, aiming to achieve revenue of ¥200 billion by fiscal 2021.

In software service for service providers, investment aimed at increasing the sophistication of customer billing and operation

management systems and for establishing new businesses utilizing digitalization and new technologies is accelerating. We will work

with NEC’s subsidiary Netcracker Technology Corporation, leveraging the high competitiveness and customer satisfaction of its

charging and operation management solutions, and its multivendor handling capabilities to provide diverse solutions utilizing our

own track record in advanced virtualization in the field of SDN/NFV. In doing so, we will respond to customers who need to rapidly

start up services associated with digital transformation and expand investments for operational streamlining and profit increase.

In submarine cable, displays and projectors, and unified communications product business, we aim to maintain and expand our

industry presence and business scale, including examining new business models.

In mobile backhaul, where we face challenges, we have assumed increasing price competition and market contraction. We are

therefore implementing selection and concentration measures, including organizations, processes, and resources, and will carry out

structural reforms to restore profitability with a view to securing profits even with a conservative revenue scale. In the same way,

within smart energy, we will focus on Europe and North America, where liberalization of power networks is advanced while

progressively optimizing our operations to improve profits.

NEC Corporation Integrated Report 2018International Business Structure

(As of July 1, 2018)

Strengthening Our Ability to Provide Solutions for Society in
Countries and Regions around the World

NEC will work to strengthen its local proposal and service provision capabilities, enabling it to provide

advanced technologies such as biometric authentication as solutions for individual customers. We will

expand our network of five regional headquarters and local subsidiaries in each country and region, while

strengthening our links with Netcracker Technology Corporation and Northgate Public Services Limited,

which was acquired in January 2018. Particularly, in the safety business we will continue to accelerate our

business expansion utilizing M&As, aiming to contribute to solutions and social value creation for even

more customers worldwide.

Toshiya Matsuki
Executive Vice President
NEC Corporation
Vice President of the Global Business Unit

NEC Corporation of America has been focused on
delivering solutions for society, especially in the areas of
safety, security and operational efficiency for the North
America market. This has traditionally included information
and communications technology (ICT) for service providers,
enterprises, and retail, as well as biometrics authentication
solutions for government agencies.

In the fiscal year ended March 31, 2018, we

accelerated our strategic pivot toward digital
transformation and delivering solutions to enhance the
customer experience across industries. As a result, while
continuing to supply traditional customers among law
enforcement and federal agencies, we expanded our
biometric solutions footprint in airports, stadiums, theme
parks, hotels, casinos, and other spaces.

In the coming year, we will focus on customer

NEC Latin America has its businesses strongly aligned
with the needs of Central and South America and is
promoting business based on deep ties with the local
community. Here in the Latin America/Caribbean area,
there is a demand for environments that enable
people to live more safely and securely. In order to
fulfill these demands, technology such as biometrics
plays an extremely important role in cities with
efficiency and equality.

In the fiscal year ended March 31, 2018, we utilized
various biometrics technologies to provide solutions and
add value to police and border control systems in Mexico,
Costa Rica and Argentina. NEC Latin America will continue

North America

Masahiro (Mark)
Ikeno
President & CEO
NEC Corporation of America

Central and
South America

Masazumi
Takata
Senior Vice President
NEC Corporation,
President & CEO
NEC Latin America

experience solutions along with the enterprise
architecture and core ICT technology that has evolved to
support them. In doing so, we will create new business
opportunities as we transition from the realm of content
processing to context processing.

An example of easing the flight boarding process using optional facial
recognition technology

to collaborate with its customers and partners to
orchestrate a brighter world for the people of Central and
South America.

An immigration e-gate that uses biometrics

NEC Corporation Integrated Report 2018EMEA
(Europe, the Middle East
and Africa)

NEC Europe promotes a sustainable society by providing
solutions tailored to regional needs in Europe, the Middle
East, Africa and Russia.

During the fiscal year ended March 31, 2018, NEC
Europe received orders for biometrics systems from the
South Wales Police in the U.K. and at various airports, as
well as for smart city projects from local governments in
the U.K. and Portugal. In the Middle East, we won
contracts from major telecommunications operators in
the UAE and Saudi Arabia, which further expanded our
achievements in the network field. To accelerate our
business expansion in Africa, we increased our
investment in the South African company XON Holdings
Proprietary Limited to make it a subsidiary. This has
already resulted in the acquisition of a major project.

NEC (China) Co., Ltd. provides solutions in security and
retail as well as telecommunication and IT systems,
tailored to meet the needs of local markets in China,
Hong Kong/Macao, Taiwan, and South Korea.

In the area of security, NEC supplies biometrics
systems, gate systems, and other solutions using
fingerprint and facial recognition technology to national
and regional police and airports, contributing to safe,
stress-free movement. In the area of retail, NEC supplies
cutting-edge solutions to retail stores such as convenience
store chains, enabling unattended operation, and efficient
ordering that helps to reduce food waste losses. In this
way, NEC is contributing to solutions to social issues
facing this region, which has a vast population.

NEC Asia Pacific operates business in 14 countries across
the Asia-Pacific region, helping to solve social challenges
in each country by delivering advanced ICT solutions.

During the fiscal year ended March 31, 2018, in the field

of public safety, NEC Asia Pacific received orders from
multiple governments and law enforcement organizations
in ASEAN for biometrics systems for use in criminal
investigations, border control, and surveillance of critical
infrastructures. In the area of transportation, we provided
BRT systems to the Indian cities of Ahmedabad and Surat,
bringing its track record of BRT solutions in India to four
cities. We also won large-scale managed services contracts
from multiple state governments in Australia and from a
Singaporean government institution.

In the fiscal year ending March 31, 2019, we will

Hironobu
Kurosaki
President & CEO
NEC Europe

China/East Asia

Takeshi
Tsukamoto
President
NEC (China)

APAC
(Asia Pacific)

Tetsuro Akagi
Senior Vice President
NEC Corporation,
CEO
NEC Asia Pacific

Review of Operations Global Business

Looking ahead, we will continue to contribute to
enhancing social infrastructure in EMEA by providing
cutting-edge technologies and solutions including
biometrics and telecommunications solutions in the areas
of safety, smart cities, and energy. Moreover, in response
to emerging demand in the energy and data center areas
in the Middle East
and Africa, we will
work with XON
Holdings Proprietary
Limited and regional
partners to expand
our business.

A police vehicle fitted with a facial
recognition system

NEC also provides Bus Rapid Transit (BRT) systems for
monitoring, management and payment in various regions
including India and Hong Kong, where its development
center is located. Through these and other activities, we will
continue to contribute to realizing an affluent society.

Image recognition self-checkout POS system

further accelerate the development of innovative
solutions by capitalizing on our regional assets such as
the Advanced Centre for Experimentation, which was
established in 2017 in Singapore, to realize “NEC Safer
Cities” together with our customers.

People using the BRT system provided to Surat City

NEC Corporation Integrated Report 2018Corporate Governance

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/
NEC Group Core Values
formulation

2010.4-2013.3
Structure driven by
products and services

1990

1999

2000

2001

2003

2004

2007

2008

2010

2011

2012

2013

2013.4-Present
Structure driven by
markets and customers

Instituting Corporate Officer System

NEC instituted a corporate officer system in April 2000 and worked to delegate authority from the
Board of Directors to corporate officers with the aim of separating management supervision from
business execution and expediting 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 for a total of two Outside Directors in order to
strengthen the supervisory functions of the Board of Directors. The number of members has
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 enhance transparency 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 become the Nomination and

Compensation Committee in 2010.

Instituting the Chief Officer Position

The Chief Officer position was instituted in July 2011 to strengthen a company-wide strategy
for realizing the NEC Group Vision. In April 2017, NEC extended the authority delegated to the
Chief Officers in order to strengthen the corporate functions and accelerate the speed of
decision making.

NEC Corporation Integrated Report 2018Corporate Governance

Overview of the Corporate Governance Structure

Elect and Dismiss

GENERAL MEETING OF SHAREHOLDERS

Accounting
Auditors

Audit

Cooperate

Management/Supervision

AUDIT &
SUPERVISORY BOARD

Cooperate

CORPORATE AUDITING
BUREAU

Audit

BOARD OF DIRECTORS

NOMINATION AND
COMPENSATION COMMITTEE

Report

Supervise

EXECUTIVE COMMITEE

BUSINESS PROGRESS COMMITTEE

CHIEF OFFICERS

Business
Execution

Internal audits

CORPORATE OFFICERS

BUSINESS UNITS/CORPORATE STAFF/AFFILIATE COMPANIES

Purpose and Activities

The Board of Directors holds
regular meetings basically once a
month 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.

Main Matters Discussed in Fiscal 2018
1. Mid-term Management Plan 2020
2. Activity reports from Chief Officers
3. Management plans and progress reports for each

business segment

4. Introduction of a performance-linked stock

compensation plan

5. Sale of the electrode business
6. Acquisition of U.K.-based company Northgate Public

Services Limited

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.

Members

Number of Meetings
in Fiscal 2018

11 Directors

13 times

Attendance rate of
Outside Directors:
95.4%
Attendance rate of
Outside A&SBMs:
100%

6 Inside Directors

5 Outside Directors
(of which 4 are independent
Directors)

Around 20 corporate
officers

18 times

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 adopted by the Board of Directors, with the aim of sharing
management information and promoting business execution efficiency.

Corporate officers and
general managers
of business units etc.

11 times

The Nomination and Compensation
Committee deliberates on (i) nomination for
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 compensation for
Directors, representative Directors and corporate officers with taking the business result of
NEC and other conditions into account and from an objective perspective. The committee
reports the results of its deliberations to the Board of Directors.

Main Matters Discussed in Fiscal 2018
1. Nomination for Directors and A&SBMs
2. Succession planning for the President
3. Stock compensation plan for Directors

The A&SB holds regular meetings basically once a month and extraordinary meetings as
necessary, decides on audit policies, standards, annual auditing plan and other matters,
and receives status reports on audits and on other matters from each A&SBM.

5 Directors

6 times

Outside Directors
Takeshi Kunibe
Motoyuki Oka (Chair)
Kaoru Seto

Inside Directors
Nobuhiro Endo
Takashi Niino

5 A&SBMs

16 times

2 Inside A&SBMs

Attendance rate of
Outside A&SBMs:
100%

3 Outside A&SBMs
(All are independent A&SBMs)

Board of
Directors

Executive
Committee

Business
Progress
Committee

Nomination
and
Compensation
Committee

Audit &
Supervisory
Board
(KANSAYAKU-KAI)
(“A&SB”)

NEC Corporation Integrated Report 2018Continued Strengthening and Improvement of the System

NEC adopts the Company with Audit & Supervisory Board Members (KANSAYAKU) corporate structure to provide a double-check process: the Board of
Directors supervises business execution and the A&SB audits the legitimacy and appropriateness of NEC’s decision making or activities. We have
established a hybrid structure by utilizing the combination of a corporate officer system, multiple Outside Directors, and the Nomination and
Compensation Committee, which we established voluntarily and is comprised of a majority of Outside Directors. In this way, we separate
management supervision from 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 is focusing its
efforts on enhancements and improvements of this system in order to realize more effective corporate governance responding to changes in the
business environment.

Evaluation of the Effectiveness of the Board of Directors

With external advices on a method of effectiveness evaluation of the
Board of Directors, NEC has conducted an analysis and evaluation on
the effectiveness of the Board of Directors once a year to improve the
function of the Board of Directors since Fiscal 2016.

In Fiscal 2018, based on the result of the analysis and evaluation on

the effectiveness of the Board of Directors conducted in the previous
fiscal year, NEC improved the contents to be reported in the Board of
Directors and the format of the meeting materials in order to narrow
down the agenda to be discussed and clarify the point of discussion at
the Board of Directors. Furthermore, NEC introduced a new mechanism
in order to reflect opinions and advices of Outside Directors in the
operation of business. Under this mechanism, NEC notified those
opinions and advices to the relevant parties in NEC, and reported the
progress to the Board of Directors.

Procedure of the analysis and evaluation

(1) Questionnaire
In Fiscal 2018, NEC sent a questionnaire regarding the role,
composition and operation of the Board of Directors to all Directors
and A&SBMs, and all of them answered the questionnaire. Before
sending the questionnaire, NEC improved the questionnaire by
adding questions for free descriptive answers and questions for
evaluation of achievement of the measure introduced in the previous
fiscal year based on the result of the analysis and evaluation
conducted in the previous fiscal year so that evaluation and opinions
of Directors and A&SBMs could be reflected more adequately on their
answers to the questionnaire.

(2) Discussion based on the result of the analysis and evaluation
After analyzing the effectiveness of the Board of Directors based on the
result of the questionnaire, NEC reported such result to the Board of
Directors in March 2018. In the said Board of Directors, all Directors
and A&SBMs discussed the improvement for the Board of Directors
from the viewpoint of the reinforcement of the function and
governance system of the Board of Directors, the best practice to
discuss the management strategy and a method for decision making

and the clarification of management policy looking ahead to the
future vision of NEC.

Summary of the results of the analysis and evaluation for
Fiscal 2018

In conclusion, it has been evaluated that in terms of the decision
making for NEC’s important business execution and a method for
discussion for management strategies and management plan, the
Board of Directors is structured and operated to facilitate active
discussion among the Directors, and the Board of Directors has been
appropriately supervising the business execution. Meanwhile, it has
been confirmed that the Board of Directors needs to improve a
method for the discussion for future vision of NEC and strategies to
improve corporate value of NEC for medium and long term, and a
method for distributing information to Directors in order to enrich
constructive discussion in the Board of Directors.

Future challenges

Based on the results above, by conducting the following
countermeasure, NEC will continuously enhance and strengthen the
Board of Directors function in order to deepen the Directors’ and
A&SBMs’ understanding of the President’s vision for the future of NEC,
and deliberation on the mid- and long-term management strategy.

To arrange opportunities for sufficient discussion of a long term
management strategy;
To improve the contents of information distributed to Directors
in advance for discussion in the Board of Directors;
To arrange an opportunities for exchanging opinions among the
Chairman of the Board, the President and the Outside Directors;
In each Board of Directors, to report the recent important
matters and topics by the President to other Directors; and
To improve the format of the meeting materials.

NEC Corporation Integrated Report 2018Corporate Governance

Remuneration for Directors and Audit & Supervisory Board Members (KANSAYAKU)

For the purpose of continuously improving corporate value and strengthening its competitiveness, NEC’s basic policy on the remuneration for
Directors and A&SBMs is to set the level and system appropriate for a global company which enables NEC to secure excellent human resources and
serves as an incentive to improve performance of the NEC Group.

Remuneration System
Monthly
remunerations

Bonuses
(short term incentive)

Stock compensation
(mid-and long-term incentive)

Inside Directors

Outside Directors

A&SBMs

Remuneration for Directors
Remuneration for Directors consists of fixed monthly remunerations and
performance-linked bonuses as short term incentive, and performance-
linked stock compensation as mid- and long-term incentive.

Neither bonuses nor stock compensation are paid to Outside

Directors, from the viewpoint of securing their independence from NEC
because NEC expects that Outside Directors play a leading role in
supervision over business execution.

The fixed monthly remunerations

The fixed monthly remunerations are determined according to the
positions of Directors and the distinction of Inside Director and Outside
Director, to the extent of the maximum amount *1 approved at the
General Meeting of Shareholders.
*1 The maximum monthly remuneration for Directors is 65,000,000 yen (approved at the 153rd

Ordinary General Meeting of Shareholders held on June, 27 1991).

The bonuses

The bonuses are calculated by, adding to the standard amount determined
for each positions of Directors, evaluation, under certain rules, of the
contribution by Director to the business results during previous fiscal year.

Standard amount for each
Director position

Evaluation of performance of duties
(calculated by revenue, operating profit and others)

Bonus

The stock compensation

NEC shares will be granted after the expiry of period of Mid-term
Management Plan in accordance with the Directors’ titles and the level
of the achievement of Mid-term Management Plan.

Number of granting shares based on
the applicable Directors’ titles

Performance-based
allotment rate

Stock
compensation

Revenue
Achievement Level

×35% +

Operating Profit
Achievement Level

×35% +

ROE
Achievement Level

×30%

Remuneration for Audit & Supervisory Board Members
Remunerations for A&SBMs are only fixed monthly remunerations and
do not include bonuses linked to the business results because the
responsibility of A&SBMs is to audit execution of Directors’ duty.

The fixed monthly remunerations

The fixed monthly remunerations are determined depending on
whether he or she is a full-time A&SBM or not, to the extent of the
maximum amount *2 approved at the General Meeting of
Shareholders.
*2 The maximum monthly remuneration for A&SBMs is 12,000,000 yen (approved at the 170th

Ordinary General Meeting of Shareholders held on June 23, 2008).

[ Process of Determination ]
Remuneration for Directors is determined by the resolution of the
Board of Directors, based on the results of the deliberation from an
objective viewpoint by the Nomination and Compensation Committee,
the majority of the members of which are the Outside Directors (one of
whom is the chairperson).

Remuneration for A&SBMs is determined through discussions

between A&SBMs.
[ Determination of the Level of Remuneration ]
In order to ensure objectiveness and properness of the remuneration
for Directors and A&SBMs, the level of the remuneration is determined
on the result of the third party’s investigation regarding the
remunerations of other companies whose business contents and scale
are similar to those of NEC.
[ Amounts of Remuneration for Fiscal 2018 ]

(Millions of yen)

Total amount by type

Monthly
remunerations

Inside Directors

Inside A&SBMs

Outside Directors
and A&SBMs

281

Bonuses

113

–

Stock
compensation

Total amount

Headcount

–

420

Notes: 1. NEC does not disclose remuneration per individual.

2. The total amount of the stock compensation is the value posted during Fiscal 2018.
3. The headcount of Inside Directors includes one Director who retired at the close of the
179th Ordinary General Meeting of Shareholders held on June 22, 2017. Of these, six
Directors are eligible to receive stock compensation.

4. The headcount of Inside A&SBMs includes one A&SBM who retired at the close of the

179th Ordinary General Meeting of Shareholders held on June 22, 2017.

5. NEC abolished its retirement allowance system for Directors and A&SBMs at the close of

the 168th Ordinary General Meeting of Shareholders held on June 22, 2006.

Composition of
Remuneration for
Inside Directors
in Total
(Fiscal 2018)

Stock compensation
6%

Bonuses
27%

Monthly remunerations
67%

For further details on the corporate governance of NEC Corporation, please visit the following URL:

https://www.nec.com/en/global/about/governance.html

NEC Corporation Integrated Report 2018

Ensuring Compliance and Risk Management

NEC considers “compliance” to not only mean compliance with the law, but also in the wide sense to include
compliance with socially accepted norms and common sense. Likewise, our “risk management” activities include
properly understanding risks that have an impact on the company’s business, and taking preventive measures
efficiently and effectively, including compliance violations.
NEC positions compliance at the foundation of management, and recognizes compliance and risk management as
priority themes “Materiality” which are essential for corporate governance. We, including the top management, will
continue to promote these company-wide efforts.

Establishing “NEC Compliance Day”

In fiscal 2017, NEC Corporation received notification of three violations
of the Antimonopoly Act from the Japan Fair Trade Commission. On
November 18, we received an on-site inspection in regard to
transactions for wireless digital emergency firefighting equipment. To
keep these events fresh in mind and reconfirm the importance of
compliance for each individual, we have decided to make November
18 “NEC Compliance Day.”

In the period around NEC Compliance Day, NEC Corporation and its

domestic consolidated subsidiaries held workplace roundtable
meetings on themes such as preventing fraudulent accounting and
compliance with the competition law. These provided opportunities for
individual employees to consider compliance themselves. On the day,
the President, the Chief Compliance Officer (CCO) and all general
managers (approximately 130 people) of NEC Corporation, and the
Presidents of domestic consolidated subsidiaries communicated
messages to employees reaffirming the importance of compliance.

Fostering a Corporate Culture that Makes Compliance a Top Priority
through Face-to-Face and Dialogue-Based Educations

As part of NEC’s effort to ensure compliance, we annually conduct an
online education course on compliance, and moreover, we conduct fair
trading education including multiple case studies for employees
mainly working in divisions undertaking public sector projects every
year. In fiscal 2018, in addition to these education programs, NEC also
worked to ensure compliance with the competition law by conducting
140 face-to-face education programs for employees of NEC
Corporation and its domestic consolidated subsidiaries to

communicate the facts, including the background to the three bid-
rigging incidents caused by NEC Corporation. Furthermore, we also
conducted dialogue-based education for upper management
personnel at sales divisions throughout Japan, mainly regional
headquarters and branches. We conducted a discussion on the
organizational management for practicing compliance and
reconfirmed how we should behave.

Measures to Prevent another Competition Law Violation

In fiscal 2018, NEC transferred and changed the employees who had
had long-term responsibility for the same governmental agency-
related customers to prevent competition law violations. We also
conducted special courses for employees who had not been able to be
applied for their assignment reasons and so forth, confirming

important points of the competition law in person. In addition, we
conducted internal audits, email monitoring, and other steps,
identifying nascent infringements of the competition law and acting
quickly to counter them in cases that will likely cause a risk.

For further information, please refer to Sustainability Report 2018 “Compliance and Risk Management”

NEC Corporation Integrated Report 2018Messages from an Outside Director and
an Audit & Supervisory Board Member

Creating a competitive business model
with a healthy sense of urgency

Today’s society is in the midst of a fundamental transformation that is being driven by technologies such
as AI, IoT, and big data. Such a dramatic shift in our environment presents significant business
opportunities for NEC, considering that its competitive advantages are derived from its cutting-edge
technologies and top-tier talent pool.

With international competition becoming even more intense, it is no longer enough to develop the

most advanced technologies. A company is also required to triumph over its competitors from a
business standpoint. I have been an Outside Director of NEC for seven years, and during this time I have
come to the conclusion that developing the ability to consistently convert technological prowess into
revenue is a challenge which NEC should be focusing on. In order to achieve this goal, NEC would first
need to acquire a clear understanding of current trends, how those trends are evolving, and customers’
latent needs. Using this understanding as the starting point, NEC would then move beyond its
traditional boundaries and engage in dynamic third-party collaborations while establishing a
competitive business model that will flourish on the global stage.

Outside Director
Takeshi Kunibe

The Mid-term Management Plan 2020 which was introduced in Fiscal 2019 is an important step towards realizing this transformation. Given

the rapid pace at which technology is evolving, it is vital that all NEC directors, corporate officers, and employees share a healthy sense of
urgency and focus on swiftly achieving the mid-term management targets. I hope to see NEC push forward with its efforts to create social value
under its brand message “Orchestrating a brighter world” by assembling knowledge and expertise from both internal and external sources.
I look forward to supporting NEC in realizing sustainable growth and increasing its corporate value in my role as an Outside Director.

Appointment as an Outside Audit & Supervisory Board Member
at a time of transformation

I was appointed Outside Audit & Supervisory Board Member in June 2018. NEC is working to enable
people to live in abundance by using advanced technologies. I feel strongly motivated to participate in
NEC’s activities as a global corporation providing social value in the form of safety, security, efficiency and
equality. I am also aware that I will need to prepare myself to grow further so that I can contribute not only
in my own field of expertise, but also in the various areas covered by NEC’s diverse business activities.

I have worked for many years as an attorney at law specializing in labor law and have been involved

in corporate legal affairs in the fields of personnel and labor. Over this time, the labor law field has
continued to change in step with economic trends and social changes. Furthermore, as society
undertakes workstyle reforms going forward, Japan’s personnel and labor affairs are going to be
radically transformed. As society changes at a dizzying pace, I believe the experience and knowledge
that I have accumulated in the fields of personnel and labor will prove to be a strength.

NEC is taking steps to restructure execution capabilities under the Mid-term Management Plan 2020.

Outside Audit & Supervisory
Board Member (KANSAYAKU)
Taeko Ishii

These include introduction of a fair personnel evaluation and compensation system that rewards people who produce results and a sweeping
transformation of the corporate culture. People are the foundation that supports a company’s organizations and technologies, and transforming
personnel systems to achieve corporate growth requires serious and bold decisions. My strengths in the fields of personnel and labor will find
use in risk management as NEC faces these huge changes. I plan to contribute to increasing corporate value by actively providing opinions from
a legal perspective and an external perspective.

NEC Corporation Integrated Report 2018Directors and Audit & Supervisory Board Members
(As of July 1, 2018)

Directors

Nobuhiro Endo
Chairman of the Board (Representative Director)
Mr. Endo has been engaged in the management of
NEC as President (Representative Director) since
2010 and as Chairman of the Board (Representative
Director) since April 2016.

Takashi Niino
President (Representative Director) and
CEO (Chief Executive Officer)
After being engaged in the management of the
financial solutions business and the NEC Group’s
management strategies, Mr. Niino has been
engaged in the management of NEC as President
(Representative Director) and CEO since April 2016.

Takayuki Morita
Senior Executive Vice President,
CFO (Chief Financial Officer) and
Member of the Board (Representative Director)
After being engaged in the management of NEC’s
M&A and global business, Mr. Morita has been in
charge of its global business strategy and in April
2018 was appointed as Representative Director
and Senior Executive Vice President and Member of
the Board.

Norihiko Ishiguro
Senior Executive Vice President and
Member of the Board
Mr. Ishiguro has extensive experience and a track
record relating to industrial policy and a trade policy
through working at the Ministry of Economy, Trade
and Industry. In addition, he has been in charge of
global business strategy and external relations as
Senior Executive Vice President since October 2016.

Katsumi Emura
Executive Vice President,
CTO (Chief Technology Officer) and
Member of the Board
After being engaged in the management of
intellectual properties and Research and
Development, Mr. Emura is now in charge of the
NEC Group’s technology strategy.

Hajime Matsukura
Executive Vice President,
CSO (Chief Strategy Officer),
CHRO (Chief Human Resources Officer) and
Member of the Board
After being engaged in the management of
corporate strategies at the corporate departments
and in the NEC Group’s operational reform, Mr.
Matsukura is now in charge of the NEC Group’s
corporate strategies and human resource strategies.

Takeshi Kunibe
Member of the Board
Director President (Representative Executive Officer),
Sumitomo Mitsui Financial Group, Inc.
Mr. Kunibe has extensive experience and deep
insight with management of a bank.
• Attendance at meetings of the Board of Directors:
11 out of 13

Motoyuki Oka
Member of the Board
Honorary Adviser, Sumitomo Corporation
Mr. Oka has extensive experience and deep insight
with management of a general trading company
including the management of overseas firms.
• Attendance at meetings of the Board of Directors:
13 out of 13

Kunio Noji
Member of the Board
Chairman of the Board, Komatsu Ltd.
Mr. Noji has extensive experience and deep insight
with management of a manufacturing company.
• Attendance at meetings of the Board of Directors:
12 out of 13

Kaoru Seto
Member of the Board
Special Adviser, Yamato Holdings Co., Ltd.
Mr. Seto has extensive experience and deep insight
as a manager of a logistics service company.

(Appointed in June 2018)

Noriko Iki
Member of the Board
President, Japan Institute for Women’s
Empowerment & Diversity Management
Ms. Iki has abundant experience and deep insight in
the fields of administration and diplomacy.

(Appointed in June 2018)

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: Mr. Motoyuki Oka Mr. Kunio Noji, Mr. Kaoru Seto and Ms. Noriko Iki
Independent A&SBMs: Mr. Takeshi Kikuchi, Mr. Kazuyasu Yamada and Ms. Taeko Ishii
2. Attendance at meetings: the number of attendance at meetings (meetings of the Board of
Directors or meetings of the Audit & Supervisory Board) out of the number of the meetings
held in the fiscal year ended March 31, 2018

NEC Corporation Integrated Report 2018
Directors and Audit & Supervisory Board Members

Board of Directors

11 Directors

The Board of Directors makes important decisions regarding the Company’s
business execution, starting with deciding on its basic management policies. It
also fulfills the responsibility of overall supervision 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, specialties and gender.

Chairman of the Board
(Chair of the Board of Directors)

Outside Directors
(of which 4 are
independent Directors)

Non-Corporate Officer
Corporate Officer

Inside
Directors

Career background
and specialties of
5 Outside Directors

Tenure of
5 Outside Directors

1
Finance
1
General Trading Company
1
Manufacturing
Logistics services
1
Government and diplomacy 1

7 years
5 years
0 years

1
2
2

Audit & Supervisory Board (KANSAYAKU-KAI)

5 Audit & Supervisory Board Members

NEC appoints as Audit & Supervisory Board Members 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.

3 Outside Audit &
Supervisory Board
Members
(All members are
independent Audit &
Supervisory Board
Members

2 Inside Audit &
Supervisory
Board Members

Career background and
specialties of 3 Outside
Audit & Supervisory
Board Members

Audit & Supervisory Board Members (KANSAYAKU)

Hajime Kinoshita
Audit & Supervisory Board Member (full-time)
Mr. Kinoshita has experience being in charge of the
legal and internal control division for many years.

Isamu Kawashima
Audit & Supervisory Board Member (full-time)
Mr. Kawashima has experience as the person
responsible for accounting and financial affairs of
the Company for many years.

Takeshi Kikuchi
Audit & Supervisory Board Member
Attorney at Law
Mr. Kikuchi has a lot of experience and professional
insight as an attorney at law in the field of IT and
other fields.
• Attendance: At meetings of the Board of Directors:

13 out of 13

At meetings of the Audit & Supervisory Board:

16 out of 16

Kazuyasu Yamada
Audit & Supervisory Board Member
Certified Public Accountant
Mr. Yamada has a lot of auditing experience as a
Certified Public Accountant and professional insight
in finance and accounting.
• Attendance: At meetings of the Board of Directors:

13 out of 13

At meetings of the Audit & Supervisory Board:

16 out of 16

Taeko Ishii
Audit & Supervisory Board Member
Attorney at Law
Ms. Ishii has a lot of experience and deep insight as
an attorney at law in the fields of personnel affairs,
labor and others.

(Appointed in June 2018)

For further details on the Directors and Audit & Supervisory Board Members of
NEC Corporation, please visit the following URLs:

Directors

https://www.nec.com/en/global/about/executives/directors.html

Audit & Supervisory Board Members (KANSAYAKU)

https://www.nec.com/en/global/about/executives/auditors.html

Certified public accountant
Attorney at law (IT field, etc.)
Attorney at law
(personnel affairs, labor, etc.)

1
1

NEC Corporation Integrated Report 2018Cross-company Corporate Strategy Promotion Framework
(As of July 1, 2018)

NEC introduced its Chief Officer System in 2011 in order to promote a strategy that spans across the entire
company. We have appointed Chief Officers to cover themes representing efforts that go beyond the boundaries
of our business units and Group companies. Here, each of the Vice Presidents and Chief Officers, the head of the
Central Research Laboratories, and the head of the Business Innovation Unit, who are in a position to plan and
execute cross-company strategies, will introduce the issues they face in their respective areas and their efforts to
solve those issues.

Norihiko Ishiguro

Senior Executive Vice President

Takayuki Morita

Senior Executive Vice President,
CFO (Chief Financial Officer)

Akihiko Kumagai

Senior Executive Vice President

Katsumi Emura

Executive Vice President,
CTO (Chief Technology Officer)

We will increase our presence and speed, realizing growth
on a global level as a company that creates value for society
I will strive to increase NEC’s presence further so that it can make an even greater contribution to solving
the world’s issues and grow even more as a global social value creation company. To this end, I will increase
and proactively undertake PR and sales activities pitched at governments, local governments, and public
institutions, international institutions, and local companies, both in Japan and internationally. At the same
time, I will work to transform our organizational culture so that NEC can realize the fullest value for
customers even faster than before.

Realizing an operating profit ratio of 5% by fiscal 2021
The greatest issue facing NEC today is strengthening its earning capability. As CFO, I will steadily promote
the following three initiatives to achieve the Mid-term Management target of a 5% operating profit ratio: 1)
resolute optimization of fixed costs, 2) execution of countermeasures for underperforming businesses with
clear timeframes, 3) execution of growth investments, including M&A, to generate additional earnings.

A culture of “playing offense”
In today’s world, where huge amount of information fly back and forth, companies need to respond much
faster than in the past, and it is critical to stay one step ahead at all times by taking proactive approaches.
Particularly, in order to win in the global market where competition becomes tougher everyday and the
needs from customers are diverse, we need to be proactive in proposing new solutions rather than waiting
for requests from customers. I am committed to create a culture of taking risks and playing offense, with
everyone working together.

Taking a wide look at technology and building core
competencies for the next generation of business growth
I intend to read the trends in society and technologies from a long-term perspective, then plan and execute
multifaceted technology strategies to contribute to the next generation of NEC’s growth. In businesses that
utilize AI and data, we will create a competitive advantage by taking a wide look at our technological
competencies, as well as social standing, intellectual property, standards, and rules. We will also leverage
NEC’s strengths in technology to strengthen ties with customers, and others such as academia, and venture
companies. We will proactively advance these activities to maximize the social value that NEC provides.

Kazuhiro Sakai

Executive Vice President,
CIO (Chief Information Officer) and
CISO (Chief Information Security Officer)

Establishing a digital management foundation
We are in an era where to survive companies must visualize their businesses through digitalization, and
use that information as an asset to continuously transform and innovate their approach. As CIO and CISO,
I will promote digitalization of business processes and workstyle reforms to establish a digital management
foundation to support NEC as it shifts into a higher gear.

NEC Corporation Integrated Report 2018Cross-company Corporate Strategy Promotion Framework

Hajime Matsukura

Executive Vice President,
CSO (Chief Strategy Officer) and
CHRO (Chief Human Resources Officer)

Carrying out the Mid-term Management Plan 2020
to completion
I consider it my No.1 mission to achieve the Mid-term Management Plan 2020 with a sense of conviction,
and to restore the trust of all our stakeholders. To help achieve it, the most important task is to transform
NEC’s culture through reforms of the personnel evaluation and compensation system, and other means. To
this end, we will unify the business strategy and personnel strategy, and accelerate our efforts to create a
strong business model and develop human resources.

Makoto Enomoto

Senior Vice President,
CMO (Chief Marketing Officer)

Establishing the NEC brand as an essential presence
in the digital age
While treasuring our traditional NEC brand image of being trustworthy and familiar, NEC will prepare for an
era where digital technology penetrates every part of society by positioning itself to realize a safe, secure,
efficient, and equal society through the power of innovation.

I will promote end-to-end marketing and support NEC’s transformation, responding quickly to market

trends and customers’ expectations to ensure that NEC is recognized and supported as an essential
presence by all manner of stakeholders.

Motoo Nishihara

Senior Vice President in charge of
the Central Research Laboratories

Taking on the challenge of new global research and
development to create robust businesses
Society is changing dramatically through AI and IoT. NEC’s Central Research Laboratories is responsible for
creating the next robust businesses and driving businesses going forward. Through our global research
laboratory network, world-leading research personnel, and co-creation with global business partners, we will
provide outstanding technological capabilities, business verification, and the necessary common platform.
By transforming R&D into an ecosystem-type structure, we will create key technologies to unlock one-to-

many solutions that have unrivalled impact.

Shinobu Obata

Senior Vice President,
CCO (Chief Compliance Officer)

Further promoting compliance among Group employees
in Japan and internationally
The NEC Group has treated compliance as an important management priority for some time. Management
has often declared that compliance is a top priority and has been promoting employee awareness through
various measures. I aim to study and implement even more effective measures to further promote
compliance among Group employees and firmly establish compliance as a part of the NEC Group’s
corporate culture.

Osamu Fujikawa

Senior Vice President in charge of
the Business Innovation Unit

Strengthening business development capability by
creating customer value using the latest technologies
Up to now, NEC has received high evaluations from the markets for its latest technologies, but has not
shown a sense of urgency in developing them into businesses. As such, it has not reached its full growth
potential. I will pursue various possibilities to create new business opportunities without being tied to
existing paradigms and accepted ideas, involving inventive people from in and outside the Company in
order to realize growth by promoting commercialization of core technologies.

Shigeki Shimizu

Senior Vice President,
CSCO (Chief Supply Chain Officer)

Realizing a sustainable global supply chain
I will engage in co-creation with NEC’s partners and focus on streamlining and optimizing the entire supply
chain through to the delivery of our technology and solutions as value to customers. By contributing to
further gains in quality and safety, I will contribute to driving NEC’s global business expansion by realizing
environmentally friendly, sustainable supply chains.

For further details on the corporate officers of NEC Corporation, please visit the following URL:

https://www.nec.com/en/global/about/executives/svp.html

NEC Corporation Integrated Report 2018
Business and Human Rights

As a global company that operates its business globally, NEC believes that it is imperative for us to mitigate and
prevent any negative impacts our corporate activities may have on human rights. Guided by this belief, NEC makes
it clear that it endeavors to respect human rights under all circumstances in the NEC Group Charter of Corporate
Behavior and the NEC Group Code of Conduct, which are the foundations of its corporate activities. The “NEC
Group Human Rights Policy” states that NEC will promote initiatives on respecting human rights across the
Company’s entire value chain by dialogue and consultation with its stakeholders and implementing human rights
due diligence.

Dialogue with External Experts on Privacy Issues

The increased use of AI and IoT brings a risk of privacy infringements
and negative impact on human rights in the form of discrimination.

Privacy is one of the Company’s materiality issues, and in April 2018

we held a dialogue session based on the theme of “Privacy-related
challenges for business.”

During the dialogue, we heard opinions pointing out that “the
flipside of technology is that there are ethical issues and NEC is called
upon to communicate its stance,” also that “it is important to include
consideration of ethical issues in business and to develop these as
competitive strengths.” Furthermore, we heard a strong message that
“the future era of manufacturing is one of QCD*”E”, and people would
like companies to change their values towards “E”thics and “E”cology

while considering whether they have properly prioritized human
aspects ahead of technology, or whether they have put ethical
perspectives on the back-burner.”

* QCD: Quality,
Cost, Delivery

Dialogue with external experts

Compliance with the UK Modern Slavery Act

NEC also complies with international rules and regulations on human
rights. NEC issued the statement on the UK Modern Slavery Act on behalf
of itself and its consolidated subsidiaries in 2017. The statement asserts
that NEC Group companies respect human rights and will never accept

forced labor based on the NEC Group Charter of Corporate Behavior, the
NEC Group Code of Conduct and the NEC Group Human Rights Policy.
It also explains the various measures implemented to prevent modern
slavery within the NEC Group organization and across its supply chain.

I Want to Contribute to
Social Development in Africa

Assistant Manager, Africa Business Development Office,
Safer City Sales Division, NEC
Miho Hara

During my student days, I participated in an internship at an African NGO and I have wanted to contribute to the lives of African
people ever since. Since joining the Company, I have been responsible for overall sales in the East African region. In my second
year, I was posted to Nairobi in Kenya for on-the-job training, and there I learned sales skills such as proposing, negotiating,
and responding flexibly through serving local customers.

NEC has been helping to enhance telecoms networks in Africa. Having a telecoms environment has enabled the rapid
spread of new services such as mobile money. When I see this startling pace of development in Africa, it really impresses me
with the huge potential that ICT brings to society.

Meanwhile, we are currently focused on the safety business utilizing biometrics. I am working each day to try and make

daily life safer and more secure for people using ICT, while giving consideration to human rights such as privacy.

As a mother with one
child, I work short hours
and so I strive to make
my work more efficient.

For further information, please refer to Sustainability Report 2018 “Respecting Human Rights” “Personal Information Protection and Privacy” “Dialogue Sessions on Materiality with Experts”

NEC Corporation Integrated Report 2018Human Resource Development and Diversity

NEC is aiming to develop human resources who are able to continuously create value for society, constantly acting
from a customer-oriented perspective with a high sense of ethical values and a deep understanding of the
essential issues faced by customers and society, based on the approach of “self-development,” where employees
consciously develop their own skills. In addition, we consider that promoting diversity and inclusion and fostering
an organizational culture that can incorporate diverse perspectives and ideas will lead to new value creation and
innovation. Based on these ideas, in April 2016 we formulated our “People Philosophy”*.

* A philosophy that states our ideas and attitudes for human resources that will lead the creation of value for society based on the “NEC Group Values” and “NEC Group Code of Conduct.”

Dialogue with External Experts on the Theme of “Sustainably and
Socially Literate Human Resources”

In April 2018, NEC held a dialogue session on its materiality theme,
“Sustainably and socially literate human resources.”

Participants evaluated NEC’s human resource development policy
highly, but also commented that “the program is lacking with regard
to independent learning, and it would be desirable to develop human
resources who are capable of taking responsibility for their own
learning cycles.” We also received a critical comment that “NEC should
cultivate a corporate culture where people can take up new challenges

without fearing failure. Innovation does not come about through
coercion.” We responded by noting that “partly because NEC has
mission critical solutions that support social infrastructure, there have
been times when NEC’s culture has felt as though it will not tolerate
failure; however, recently the corporate culture has started to change,
with top management beginning to talk more about their aspirations.”
NEC will further accelerate its activities while confirming its own

direction of creating value for society.

Developing Human Resources Who Can Support Innovation

In our R&D divisions, in order to create solutions for society, we are
actively promoting development of human resources who can take on
advanced global issues and recruitment of experienced personnel
with wide-ranging knowledge on social issues. We are also taking
steps to stimulate personnel exchanges between operating divisions
and research divisions in an effort to develop skills to promote
commercialization of technologies.

In addition, we are aggressively recruiting people with the highest
levels of skill in their industries, both in Japan and internationally. We
will continue to encourage richly diverse human resources from
various professional fields to engage in multidimensional discussions,
respecting one another regardless of gender or nationality, as we
transform our organization to enable it to generate great innovations.

We Should Not Stop by Just Experiencing Social Issues,
We Need to Create Fields and Mechanisms that Takes
It All the Way to Commercialization

Head of NEC Laboratories India,
Akihiko Iketani, Ph.D

At the Value Co-creation Center, when we decide on research themes, we start with social issues as a starting point, rather than
technologies. Currently, we are working on the themes of urban congestion and aging infrastructure.

Having diversity within companies has become more and more important these days. My group also has members coming

from diverse backgrounds. In my group, however, we have never tried to consciously push diversity. It is just that the human
resources we gathered to achieve our goal happened to be a woman or someone with a foreign nationality. To me, diversity is
not a goal in itself; it is merely a means to an end.

There are numerous training modules in NEC and at other companies that enable participants to experience social issues.

However, the problem is that after they complete the training, they return to their ordinary lives and forget about what they have learned. In July 2018,
NEC opened its sixth global research facility in India. Here, I want to create fields and mechanisms where employees not only experience social issues, but
also conduct research and development to solve the social issues and ultimately commercialize them.

For further information, please refer to Sustainability Report 2018 “Diversity and Inclusion” “Human Resource Development and Training” “Dialogue Sessions on Materiality with Experts”

NEC Corporation Integrated Report 2018
Promoting Environmental Management

The negative effects that are brought about by climate change cover a range of different circumstances, such as
an increasing number of natural disasters caused by abnormal weather conditions, depletion of water resources,
and effects on the supply of and demand for food.
NEC has set “environmental action with a particular focus on climate change” as one of its “materiality,” the priority
management themes from an ESG perspective. Since fiscal 2017, we have been focusing on measures to mitigate
and adapt to climate change.

Strengthening Climate Change Countermeasures

In fiscal 2018, NEC formulated guidelines on climate change
measures from a long-term perspective up to 2050. Based on these
guidelines, we aim to reduce CO2 emissions linked to our business
operations to effectively zero by 2050 as well as reduce CO2 emissions

from the whole supply chain by cooperating with suppliers and
partners. Through these efforts, NEC is contributing to reductions in
greenhouse gases on a global scale.

The Four Components of the Climate Change Policy Guidelines for 2050

II. Achieving sustainable society by collaboration

3 Low carbon society
as the global target
(Keeping global average temperature rise
between 1.5 and less than 2 degrees)

4 Safe and secure society
that is strong against
climate change risks

1 Aiming for zero CO2 emissions
from supply chains

2 Strict measures against
climate change risks
in supply chains

I. Building sustainable management foundation

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g
n
a
h
c
e
t
a
m

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l
c

f
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i
t
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Furthermore, we are committed to achieving our CO2 emission reduction targets by 2030 as Science Based Targets (SBT), and we are proceeding

with the development of specific SBTs.

NEC Corporation Integrated Report 2018

Promoting Environmental Management

Progress on “Environmental Management Action Plan 2020/2030”

In accordance with the Environmental Management Action Plan
2020/2030, NEC has set a goal of attaining a level of CO2 reduction for
society that is five times the total volume of CO2 emissions from its

entire supply chain through the provision of NEC products and services
by 2020. In fiscal 2018, NEC’s contribution to reducing CO2 emissions
was 21.78 megatons, 3.5 times its impact of 6.16 megatons.

Climate Change Mitigation Target for 2020

5 times

Social value created
by NEC

1.2 times

1.5 times

2.4 times

Adaptation
4.53 megatons

3.5 times

Adaptation
5.39 megatons

11.81 megatons

14.88 megatons

Mitigation
14.00 megatons

Mitigation
16.39 megatons

Contribution

Preparation for climate
change (adaptation)
+
CO2 emissions
reductions (mitigation)

FY2015/3

FY2016/3

FY2017/3

FY2018/3

FY2021/3(Target)

Impact

9.50 megatons

9.65 megatons

7.76 megatons

6.16 megatons

Supply chain CO2
emissions
(Scope 1, 2, 3)

Impact of NEC’s
businesses

Improvements to Environmental Management through Dialogue with Our Stakeholders

NEC holds dialogues with stakeholders, aiming to promote deeper understanding of its efforts in non-financial areas. We also seek to improve future
initiatives and information disclosure by ascertaining opinions from external experts and the ESG information required by investors.

IR Meetings related to ESG

Continuing from fiscal 2017, NEC held an IR meeting specializing in
the “E” (environment) of ESG. A total of 13 institutional investors from
12 companies participated.

At the meeting, we gave an explanation of our progress on mid-

term environmental management targets as well as our newly
formulated guidelines on climate change measures looking ahead to
2050. We received wide ranging feedback and proposals, such as
requests to clearly indicate how environmental activities connect with
business competitiveness, or how we are trying to connect them.
Looking ahead, we will hold regular IR meetings related to ESG to
improve our ESG initiatives.

Dialogue with External Experts Regarding
Climate Change

NEC conducted a dialogue between our personnel responsible for
environmental management promotion and in charge of demand-
supply optimization solution business promotion, and external experts
with perspectives on sustainable management and the environment.
The experts mentioned with regard to NEC’s desired environmental
management, KPIs for environmental targets, and initiatives to
connect these with operations, that “NEC should strategically conduct
environmental management to find ways of connecting
environmental issues to sales and increased brand value, and ways of
developing human resources to achieve this,” and that “NEC needs to
take a wide perspective, such as driving innovation by envisaging a
future of limited electric power availability.” The knowledge that we
obtained through these dialogues will be reflected in our initiatives on
environmental management.

NEC Corporation Integrated Report 2018Examples of Providing Environmental Value through Business

DMIC logistic visualization solution in India

Energy efficiency in
mobile phone base stations in India

NEC and DMICDC*1 have established a joint venture company,
DMICDC Logistics Data Service Limited. Since July 2016, it has
provided the information service basis to visualize distribution
infrastructure and to perform real-time searches based on positional
information of containers being transported.

The joint venture company affixes RFID tags to shipping containers
being loaded and unloaded at ports of Mumbai. It has also installed
RFID reader/writers at locations such as port entrances and exits, toll
plazas on the expressway, and inland container depots where customs
inspections are carried out. The information is uploaded to the cloud
and shared with other logistics systems.

By this service, consigners and freight forwarders could obtain
accurate positional information of their container in transit along the
1,500 km stretch between Delhi and Mumbai on a near real-time
basis, just inputting the container number.

As the result, this service shortens shipping lead times, reduces
inventory levels, improves the accuracy of production plans and also
contributes to reduce the consumption of fossil fuel by realizing
efficient transportation.

NEC approved this service as “ECO Symbol Star*2” since we expect
that the service will reduce approximately 170,000 t-CO2e emission
annually in addition to shortening shipping lead times and to
reducing shipping cost.

RFID easily attachable to container using magnets

*1 DMICDC: Delhi Mumbai Industrial Corridor Development Corporation Limited.
*2 Eco Symbol Star: Assigned to NEC hardware, software, and service products that are

environmental top runners. These products meet NEC‘s self-defined standards such as reducing
CO2 emissions by 50% or more compared to conventional products.

The number of base stations is expanding rapidly due to the sharp
increase of mobile phone subscribers nationwide in India. However,
there are many regions in India with fragile power supplies that suffer
from frequent power outages and regions that are not supplied with
power at all. In such regions, mobile telecom operators use diesel
generators during power outage to operate base station continuously,
therefore the burden of diesel fuel cost of the generator becomes a big
financial problem.

Since the Indian government requests for green-industry, mobile

base station companies in India are required to reduce fuel
consumption by diesel generators, operation cost and CO2 emissions
simultaneously on the viewpoints of both business management and
environmental issue.

These issues were taken up for the energy related discussion

between the governments of India and Japan (the India-Japan Energy
Dialog), and the demonstration project by Japan’s New Energy and
Industrial Technology Development Organization (NEDO) opened to
the public in 2013.

As the result of NEC’s application for the project, NEC was selected

by NEDO to implement the demonstrational operation from
September 2013 to March 2017. Through this operation, the energy
management systems, which consisted of photovoltaic generation
systems, lithium-ion rechargeable battery systems, remote monitoring
of whole EMS systems, operation planning and battery charging/
discharging control, were installed into 20 mobile phone base stations
in India. Since the systems were confirmed to be able to reduce the
annual CO2 emissions to about 40% of their original level by the most
suitable operation plan using the data acquired by the system itself,
NEC approved this EMS system as “ECO Symbol Star.”

Through the 2-year-operation on the actual sites, we could acquire

know-how needed as a business, like various knowledge for the
operation. We are going to link these findings to develop specific
business in India
where more than
400,000 mobile
phone base
stations exist.

Demonstration Project for Telecom Tower Sites in India

For further information, please refer to Sustainability Report 2018, “Environmental Management Initiatives“ “Dialogue Sessions on Materiality with Experts“

NEC Corporation Integrated Report 2018Corporate Data

5 5 Financial Section

5 5 Consolidated Statements of Financial Position

5 6 Consolidated Statements of Profit or Loss

Consolidated Statements of Comprehensive Income

Consolidated Statements of Cash Flows

5 7 Consolidated Statements of Changes in Equity

5 8 Non-Financial Section

59 Corporate Overview

60 Our History

Note: Please refer to the separate publication “Integrated Report 2018 (Financials)” for details of “Note XX” on pages 55 to 57.

NEC Corporation Integrated Report 2018Financial Section (See notes to consolidated financial statements.)
NEC Corporation and Subsidiaries
Years Ended March 31, 2017 and 2018

Consolidated Statements of Financial Position

Millions of yen

2017

2018

Millions of yen

2017

2018

Assets

Current Assets

Liabilities and equity

Liabilities

Current liabilities

Cash and cash equivalents (Note 16) . . . . . . . .

¥ 239,970

¥ 346,025

Trade and other payables (Note 24) . . . . . . .

¥ 497,051

¥ 512,115

Trade and other receivables (Note 15) . . . . . . .

952,258

Inventories (Note 14) . . . . . . . . . . . . . . . . . . . . .

205,855

Other financial assets . . . . . . . . . . . . . . . . . . . . .

4,485

931,231

220,254

6,350

Bonds and borrowings (Note 20) . . . . . . . . .

118,915

Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

155,161

Other financial liabilities . . . . . . . . . . . . . . . .

Other current assets . . . . . . . . . . . . . . . . . . . . . .

106,169

112,543

Accrued income taxes . . . . . . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,508,737

1,616,403

Provisions (Note 23) . . . . . . . . . . . . . . . . . . . .

139,687

171,434

9,835

13,844

45,621

12,507

21,014

52,210

Assets held for sale (Note 17) . . . . . . . . . . . . . .

—

23,932

Other current liabilities (Note 22) . . . . . . . .

145,683

158,840

Total current assets . . . . . . . . . . . . . . . . . . . . .

1,508,737

1,640,335

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,002,541

1,051,376

Non-current assets

Property, plant and equipment, net
(Notes 8 and 10) . . . . . . . . . . . . . . . . . . . . . . .

419,078

399,590

Goodwill (Notes 9 and 10) . . . . . . . . . . . . . . . .

63,220

103,967

Liabilities directly associated with
assets held for sale (Note 17) . . . . . . . . . . .

－

11,689

Total current liabilities . . . . . . . . . . . . . . . .

1,002,541

1,063,065

Non-current liabilities

Bonds and borrowings (Note 20) . . . . . . . . .

342,854

376,383

Other financial liabilities . . . . . . . . . . . . . . . .

8,285

9,118

Defined benefit liabilities (Note 21) . . . . . . .

264,272

275,326

Provisions (Note 23) . . . . . . . . . . . . . . . . . . . .

13,736

13,754

Other non-current liabilities
(Note 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36,242

29,420

Intangible assets (Notes 9 and 10) . . . . . . . . . .

142,139

156,248

Total non-current liabilities . . . . . . . . . . . .

665,389

704,001

Investments accounted for
using the equity method (Note 12) . . . . . . . .

68,132

67,747

Other financial assets . . . . . . . . . . . . . . . . . . . . .

262,284

Deferred tax assets (Note 13) . . . . . . . . . . . . . .

156,622

245,852

142,402

Other non-current assets
(Notes 10 and 21) . . . . . . . . . . . . . . . . . . . . . .

63,784

65,210

Total non-current assets . . . . . . . . . . . . . . . . .

1,175,259

1,181,016

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,667,930

1,767,066

Equity

Share capital (Note 18) . . . . . . . . . . . . . . . . . . . . .

397,199

Share premium (Note 18) . . . . . . . . . . . . . . . . . . .

147,879

138,704

Retained earnings (Note 18) . . . . . . . . . . . . . . . .

235,601

265,879

Treasury shares (Note 18) . . . . . . . . . . . . . . . . . . .

(3,101)

(3,364)

Other components of equity
(Notes 18 and 21) . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity attributable to
owners of the parent . . . . . . . . . . . . . . . . . . . . .

76,686

82,415

854,264

880,833

Non-controlling interests (Note 11) . . . . . . . . . .

161,802

173,452

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,016,066

1,054,285

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥2,683,996

¥2,821,351

Total liabilities and equity . . . . . . . . . . . . . . . . .

¥2,683,996

¥2,821,351

NEC Corporation Integrated Report 2018Financial Section

Consolidated Statements of Profit or Loss

Consolidated Statements of Cash Flows

Revenue (Notes 6 and 25) . . . . . . . . . . . . . . . . . . .
Cost of sales (Notes 14 and 28) . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selling, general and administrative expenses
(Note 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income (loss) (Note 27) . . . . . . .
Operating profit (Note 6) . . . . . . . . . . . . . . . . . . .

Financial income (Notes 6 and 29) . . . . . . . . . . . .
Financial costs (Notes 6 and 29) . . . . . . . . . . . . . .
Share of profit of entities accounted for
using the equity method (Note 6) . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . .

Millions of yen

2017
¥2,665,035
1,909,414
755,621

2018
¥2,844,447
2,046,853
797,594

698,413
(15,370)
41,838

38,420
20,817

8,617
68,058

729,855
(3,889)
63,850

29,553
11,568

5,106
86,941

Income taxes (Note 13) . . . . . . . . . . . . . . . . . . . . .
Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,834
¥ 35,224

26,784
¥ 60,157

Net profit attributable to

Owners of the parent . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . .

27,310
7,914
¥ 35,224

45,870
14,287
¥ 60,157

Earnings per share attributable to
owners of the parent
Basic earnings per share (yen) (Note 31) . . . . .
Diluted earnings per share (yen) (Note 31) . . . . .

105.10
105.10

176.54
176.54

Note: The Company implemented share consolidation with a ratio of 10 shares of common share to 1 share as of October

1, 2017. The basic earnings per share (“EPS”) and diluted EPS on common share are calculated assuming that the
share consolidation was carried out from the beginning of the fiscal year ended March 31, 2017 (April 1, 2016).

Consolidated Statements of Comprehensive Income

Net profit
Other comprehensive income, net of tax
Items that will not be reclassified to profit or loss
Remeasurements of defined benefit plans
(Notes 18 and 21) . . . . . . . . . . . . . . . . . . . . . .
Share of other comprehensive income of
associates (Note 18) . . . . . . . . . . . . . . . . . . . . .
Total items that will not be reclassified to
profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

Items that may be reclassified subsequently
to profit or loss
Exchange differences on translating foreign
operations (Note 18) . . . . . . . . . . . . . . . . . . . .
Cash flow hedges (Note 18) . . . . . . . . . . . . . . .
Available-for-sale financial assets (Note 18) . . . .
Share of other comprehensive income of
associates (Note 18) . . . . . . . . . . . . . . . . . . . . .
Total items that may be reclassified
subsequently to profit or loss . . . . . . . . . . . . .
Total other comprehensive income,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . .

Total comprehensive income attributable to

Millions of yen

2017
¥ 35,224

2018
¥60,157

56,276

3,368

534

56,810

3,378

(1,869)
623
15,533

702

14,989

(6,434)
(92)
8,462

1,520

3,456

71,799
¥107,023

6,834
¥66,991

Owners of the parent . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99,929
7,094
¥107,023

51,599
15,392
¥66,991

Cash flows from operating activities

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization (Note 6) . . . . . . . . . . . . .

Impairment loss (Notes 6 and 10) . . . . . . . . . . . . . . . . . .

Increase (decrease) in provisions . . . . . . . . . . . . . . . . . . .

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of (profit) loss of entities accounted for

using the equity method . . . . . . . . . . . . . . . . . . . . . . . .

Decrease (increase) in trade and other receivables . . . .

Decrease (increase) in inventories . . . . . . . . . . . . . . . . . .

Increase (decrease) in trade and other payables . . . . . .

Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest and dividends received . . . . . . . . . . . . . . . . . . . .

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities . . . . . . . . .

Cash flows from investing activities

Purchases of property, plant and equipment . . . . . . . . .
Proceeds from sales of property,

plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquisitions of intangible assets . . . . . . . . . . . . . . . . . . .

Purchases of available-for-sale financial assets . . . . . . .
Proceeds from sales of available-for-sale

financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Purchase of shares of newly consolidated subsidiaries .

Acquisitions of subsidiaries, net of cash acquired . . . . .

Proceeds from sales of shares of subsidiaries . . . . . . . . .

Purchases of investments in affiliated companies . . . . .
Proceeds from sales of investments in affiliated

companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Proceeds from collection of loans receivable . . . . . . . . .

Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by / (used in) investing activities

Cash flows from financing activities
Increase (decrease) in short-term borrowings, net

(Notes 16 and 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Proceeds from long-term borrowings (Notes 16 and 20) . .

Repayments of long-term borrowings (Notes 16 and 20) . .

Proceeds from issuance of bonds (Notes 16 and 20) . . .

Redemption of bonds (Notes 16 and 20) . . . . . . . . . . . .

Dividends paid (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . .

Dividends paid to non-controlling interests . . . . . . . . . .

Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in financing activities . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and

cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net increase (decrease) in cash and

Millions of yen

2017

2018

¥ 68,058
80,376
2,571
12,302
(38,420)
20,817

¥ 86,941
96,037
1,530
(7,450)
(29,553)
11,568

(8,617)
22,201
22,659
(31,666)
(43,141)
107,140
5,866
(8,646)
(11,835)
92,525

(5,106)
12,244
(16,115)
17,036
(16,701)
150,431
6,076
(5,764)
(20,762)
129,981

(37,201)

(43,253)

2,676
(7,888)
(4,117)

4,359
(984)
11,220
339
(162)

23,698
12,958
1,527
6,425

15,228
204,082
(240,127)
—
(10,000)
(15,592)
(2,386)
(86)
(48,881)

6,334
(10,134)
(2,336)

12,442
(23,110)
5
228
(471)

21,997
25,466
(1,399)
(14,231)

8,214
11,512
(65,864)
100,000
(40,000)
(15,586)
(4,258)
(1,257)
(7,239)

(2,422)

(2,447)

cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47,647

106,064

Cash and cash equivalents, at the beginning of

the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in cash and cash equivalents resulting from
transfer to assets held for sale (Note 17) . . . . . . . . . .

Cash and cash equivalents, at the end of the year

192,323

239,970

—

(9)

(Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 239,970

¥ 346,025

NEC Corporation Integrated Report 2018
Consolidated Statements of Changes in Equity

Equity attributable to owners of the parent

Millions of yen

Share
capital

Share premium

Retained
earnings

Treasury
shares

Other
components
of equity

Total

Non-
controlling
interests

Total equity

As of April 1, 2016 . . . . . . . . . . . . .

¥397,199

¥147,755

¥223,883

¥(3,077)

¥ 4,067

¥769,827

¥ 67,393

¥ 837,220

Net profit . . . . . . . . . . . . . . . . . . . . .

Other comprehensive
income (Note 18) . . . . . . . . . . . . .

Comprehensive income . . . . . . . .

Purchase of treasury shares
(Note 18) . . . . . . . . . . . . . . . . . . . .

Disposal of treasury shares
(Note 18) . . . . . . . . . . . . . . . . . . . .

Cash dividends (Note 19) . . . . . . .

Subscription rights to shares . . . .

Changes in interests in
subsidiaries (Note 11) . . . . . . . . .

Total transactions with owners . .

—

(2)

—

121

124

27,310

—

27,310

—

(15,592)

—

(26)

—

(15,592)

(23)

—

27,310

7,914

35,224

72,619

99,929

(820)

7,094

71,799

107,023

—

(26)

—

(26)

(15,592)

(2,386)

(17,978)

121

(15,491)

—

89,701

87,315

89,822

71,824

As of March 31, 2017 . . . . . . . . . .

¥397,199

¥147,879

¥235,601

¥(3,101)

¥76,686

¥854,264

¥161,802

¥1,016,066

Equity attributable to owners of the parent

Millions of yen

Share
capital

Share premium

Retained
earnings

Treasury
shares

Other
components
of equity

Total

Non-
controlling
interests

Total equity

As of April 1, 2017 . . . . . . . . . . . . .

¥397,199

¥147,879

¥235,601

¥(3,101)

¥76,686

¥854,264

¥161,802

¥1,016,066

Net profit . . . . . . . . . . . . . . . . . . . . .

Other comprehensive
income (Note 18) . . . . . . . . . . . . .

Comprehensive income . . . . . . . .

Purchase of treasury shares
(Note 18) . . . . . . . . . . . . . . . . . . . .

Disposal of treasury shares
(Note 18) . . . . . . . . . . . . . . . . . . . .

Cash dividends (Note 19) . . . . . . .

Put option, written over shares
held by a non-controlling
interest shareholder . . . . . . . . . .

Changes in interests in
subsidiaries (Note 11) . . . . . . . . .

Total transactions with owners . .

—

(5)

—

45,870

—

45,870

—

(15,592)

(2,113)

(7,057)

—

(271)

—

(9,175)

(15,592)

(263)

—

45,870

14,287

60,157

5,729

51,599

1,105

15,392

6,834

66,991

—

(271)

—

(271)

(15,592)

(4,258)

(19,850)

(2,113)

—

(2,113)

(7,057)

516

(6,541)

(25,030)

(3,742)

(28,772)

As of March 31, 2018 . . . . . . . . . .

¥397,199

¥138,704

¥265,879

¥(3,364)

¥82,415

¥880,833

¥173,452

¥1,054,285

NEC Corporation Integrated Report 2018Non-Financial Section
NEC Corporation and Consolidated Subsidiaries
For the years ended or at year-end of March 31, 2017 and 2018

CO2 emissions reduction by
providing IT solutions . . . . . . . . . . . . . .

Improvement in energy
efficiency of products*1 . . . . . . . . . . . .

Greenhouse gas emissions*2*3

Scope 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scope 2 . . . . . . . . . . . . . . . . . . . . . . . . . . .

296

56 Thousand tons

282 Thousand tons

Scope 3 . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,410

5,820 Thousand tons

Energy usage*3

Electricity . . . . . . . . . . . . . . . . . . . . . . . . .

5,708

5,685

Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fuel (heavy oil and kerosene) . . . . . . .

938

131

984

119

TJ*4

Water usage*3 . . . . . . . . . . . . . . . . . . . . . .

2,240

2,314 Thousand m3

Industrial waste*3

Emission volume
(general waste + industrial waste) . .

42.6 Thousand tons

Resource reuse rate . . . . . . . . . . . . . . . .

90.6

91.0

2017

2018

Units

2017

2018

Units

2,630

4,220 Thousand tons

Number of employees
by region Total . . . . . . . . . . . . . . . . 107,729

109,390

People

Japan . . . . . . . . . . . . . . . . . . . . . . . .

80,478

79,642

People

China/East Asia . . . . . . . . . . . . . . . .

5,329

4,739

People

Asia Pacific . . . . . . . . . . . . . . . . . . . .

9,347

10,985

People

EMEA . . . . . . . . . . . . . . . . . . . . . . . .

5,406

6,636

People

North America . . . . . . . . . . . . . . . . .

2,819

2,710

People

Latin America . . . . . . . . . . . . . . . . .

4,350

4,678

People

Ratio of outside directors to
all directors*5 . . . . . . . . . . . . . . . . .

Number of female managers*5*6*8
(As of April 1 of each year) . . . . . . . . . .

Ratio of female managers*5*6*8
(As of April 1 of each year) . . . . . . . . . .

Ratio of employees
with disabilities*5
(As of June 1 of each year) . . . . . . . . . .

Number of people utilizing
childcare leave*5*6*8 . . . . . . . . . . .

Number of people utilizing
nursing care leave*5*6*8 . . . . . . . .

Average age of employees*5*6*8 . .

Average length of
employment*5*6*8 . . . . . . . . . . . . .

Labor accidents and
disasters*7*8

45.5

368

372

People

5.5

5.8

2.04*8

2.24

376

358

People

43.1

People

43.4 Years old

18.8

19.0

Years

Frequency rate . . . . . . . . . . . . . . . .

0.18

0.3717

Severity rate . . . . . . . . . . . . . . . . . .

0.00

0.0019

*1 Comparison with products in the fiscal year ended March 31, 2014.

*2 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 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

*3 External assurance received. The scope of assurance includes NEC Corporation and consolidated subsidiaries subject to environmental governance.

*4 TJ: Terajoule

*5 Scope: NEC Corporation

*6 Excluding corporate officers, advisors, and non-permanent employees

*7 Scope: NEC Corporation

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

*8 Externally assured figures.

NEC Corporation Integrated Report 2018

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

109,390
(NEC Corporation and consolidated subsidiaries)
(As of March 31, 2018)

Total Number of Shares Issued

260,473,263 shares (As of March 31, 2018)

President

Board

Business Innovation Unit

System Integration, Services & Engineering Operations Unit

Global Business Unit

Stock Exchange Listing

Tokyo (Securities Code: 6701)

Regional Headquarters (RHQs)

Shareholder Register Administrator

Sumitomo Mitsui Trust Bank, Limited
1-4-1, Marunouchi, Chiyoda-ku, Tokyo

Classification of Shareholders (Shareholding Ratio)
(As of March 31, 2018)

Japanese Individuals and Others
27.16%

Japanese Government and
Local Government
0.00%

Number of
Shareholders:
176,576

Financial Institutions
30.19%

Securities Companies
3.69%

Other Corporations
3.52%

Foreign Investors
35.44%

Major Shareholders (Top 10) (As of March 31, 2018)

Public Solutions Business Unit

Branch Offices

Public Infrastructure Business Unit

Enterprise Business Unit

Network Services 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)

Nomura International (Hong Kong) Limited - Unclaimed Client Account

Bnymsanv As Agent / Clients Lux Ucits Non Treaty 1

Japan Trustee Services Bank, Ltd. (Trust Account No.9)

Sumitomo Life Insurance Company

NEC Employee Shareholding Association

Japan Trustee Services Bank, Ltd. (Trust Account No.5)

State Street Bank West Client - Treaty 505234

Japan Trustee Services Bank, Ltd. (Trust Account No.4)

Note: The shareholding ratio is calculated by excluding the number of treasury stock (630,032 shares)

13,625

12,780

7,814

7,425

7,193

5,600

5,177

4,944

4,890

4,323

5.24

4.92

3.01

2.86

2.77

2.16

1.99

1.90

1.88

1.66

NEC Corporation Integrated Report 2018

Our History

1899

Nippon Electric Company,
Limited is established

1974

The ACOS Series 77 mainframe computer family is announced

1928

NE-Type phototelegraphic
equipment transmits scenes of
Imperial Accession Ceremony
of Emperor Hirohito between
Kyoto to Tokyo

1954

Begins research into computers

1956

Produces first domestic-made
XB switching system

1958

Develops fully transistorized
NEAC-2201 computer

1964

Trans-Pacific TV broadcasts of
the 18th Olympiad in Tokyo are
successfully implemented using
NEC-supplied ground facilities for
satellite communications

1968

Develops 144-bit high-speed
N-channel MOS (Metal Oxide
Semiconductor) IC memory

1970

Produces Osumi experimental satellite

1971

The NS-100 fully automated postal sorting system is developed

1977

“C&C” or the integration of
computer and
communications technologies
is first announced at
INTELCOM ‘77

1979

The PC-8001 personal computer is announced

1985

The SX-2 supercomputer
demonstrates the world’s
fastest performance

1991

A unique graphite crystal is
discovered and named
“carbon-nanotubes”

2002

The Earth Simulator, the world’s fastest supercomputer system
for resolving global environmental problems, is completed

2003

Constructs one of the world’s largest mission-critical systems,
the i-mode gateway system “CiRCUS”

2008

Broadcasting transmitters provided to 110 countries in total

2010

Asteroid explorer “HAYABUSA” successfully returns to Earth

2014

Formulation of brand message “Orchestrating a brighter world”

Ultra-compact radio communication system PASOLINK
delivered to 150 countries in total

2016

Submarine cable
installation reaches over
250,000 km, enough to
circle the earth six times

Biometric solutions adopted by 70 countries in total

NEC Corporation Integrated Report 2018Cautionary Statement with Respect to Forward-Looking Statements
This material contains forward-looking statements regarding estimations, forecasts, targets and plans in relation to the results of operations, financial conditions and other overall
management of the NEC Group (the “forward-looking statements"). The forward-looking statements are made based on information currently available to NEC and certain assumptions
considered reasonable as of the date of this material. These determinations and assumptions are inherently subjective and uncertain. These forward-looking statements are not
guarantees of future performance, and actual operating results may differ substantially due to a number of factors.
The factors that may influence the operating results include, but are not limited to, the following:
• Effects of economic conditions, volatility in the markets generally, and fluctuations in foreign currency exchange and interest rate
• Trends and factors beyond the NEC Group's control and fluctuations in financial conditions and profits of the NEC Group that are caused by external factors
• Risks arising from acquisitions, business combinations and reorganizations, including the possibility that the expected benefits cannot be realized or that the transactions may result in

unanticipated adverse consequences

• Developments in the NEC Group's alliances with strategic partners
• Effects of expanding the NEC Group's global business
• Risk that the NEC Group may fail to keep pace with rapid technological developments and changes in customer preferences
• Risk that the NEC Group may lose sales due to problems with the production process or due to its failure to adapt to demand fluctuations
• Defects in products and services
• Shortcomings in material procurement and increases in delivery cost
• Acquisition and protection of intellectual property rights necessary for the operation of business
• Risk that intellectual property licenses owned by third parties cannot be obtained and/or are discontinued
• Risk that the NEC Group may be exposed to unfavorable pricing environment due to intensified competition
• Risk that a major customer changes investment targets, reduces capital investment and/or reduces the value of transactions with the NEC Group
• Risk that the NEC Group may be unable to provide or facilitate payment arrangements (such as vendor financing) to its customers on terms acceptable to them or at all, or risk that the

NEC Group's customers are unable to make payments on time, due to the customers' financial difficulties or otherwise

• Risk that the NEC Group may experience a substantial loss of, or an inability to attract, talented personnel
• Risk that the NEC Group's ability to access the commercial paper market or other debt markets are adversely affected due to a downgrade in its credit rating
• Risk that the NEC Group may incur large costs and/or liabilities in relation to internal control, legal proceedings, laws and governmental policies, environmental laws and regulations,

tax practice, information management, and human rights and working environment

• Consequences of natural and fire disasters
• Changes in methods, estimates and judgments that the NEC Group uses in applying its accounting policies
• Risk that the NEC Group may incur liabilities and losses in relation to its retirement benefit obligations
The forward-looking statements contained in this material are based on information that NEC possesses as of the date hereof. 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 the NEC Group. NEC does not intend to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Trademarks
• NEC is a registered trademark of NEC Corporation in Japan and other countries.
• All other names may be trademarks of their respective owners.

NEC Corporation Integrated Report 2018The information contained in Integrated Report 2018 is also available on NEC’s website.

NEC home page
https://www.nec.com

Sustainability
https://www.nec.com/en/global/csr/
The above link offers further details of NEC’s approach to sustainable
management based on ESG, “Sustainability Report 2018,” and
related information.

Division
in Charge

Sustainability Promotion Office,
Corporate Communications Division

Evaluation by External Parties (As of July 2018)

FTSE4Good Index Series

oekom Corporate Rating

Euronext Vigeo World 120

Ethibel Pioneer & Excellence

STOXX Global ESG Leaders Index

Morningstar Socially Responsible
Investment Index

MSCI ESG Leaders Indexes

THE INCLUSION OF NEC Corporation IN ANY MSCI INDEX,
AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE
MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A
SPONSORSHIP, ENDORSEMENT OR PROMOTION OF NEC
Corporation BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI
INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND
THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR
SERVICE MARKS OF MSCI OR ITS AFFILIATES.

Investor Relations
https://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

Internet IR
Excellence
Award
2017

NEC Corporation Integrated Report 20187-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan
Telephone: +81-3-3454-1111