NEC Corp.
Annual Report 2021

Plain-text annual report

Integrated Report 2021 NEC creates the social values of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential. NEC Way Our Stance as a Company Purpose NEC creates the social values of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential. Principles The Founding Spirit of “Better Products, Better Services,” Uncompromising Integrity and Respect for Human Rights, and Relentless Pursuit of Innovation The NEC Way is a common set of values that form the basis for how the entire NEC Group conducts itself. Our Stance as Good Businesspeople Code of Values Code of Conduct 01 By putting the NEC Way into practice, we will create social value. Since its founding, NEC has worked to provide social value by putting forth its own unique approach to each era. We will pursue innovation and work to realize NEC’s Purpose, with the goal of living harmoniously with the earth and creating mutual understanding between people, no matter the era, no matter the conditions. NEC Integrated Report 202102 Life NEC 2030VISION Global warming, the destruction of the environ- ment, food and water shortages, energy issues, economic disparities—these are some of the many global issues that stand in the way of realizing our vision of society. To realize our Purpose in a time of rapid social change, we have put together NEC 2030VISION as a compass to indicate the business direction and path for NEC to follow. Life Society Environment Changing Consumer Needs Consumer needs can be categorized into three layers. At the base is the “Environment,” which forms the foundation of life for all people and organisms on earth. Above that is “Society,” the basis on which cities, work, and communication are supported. The highest layer is “Life,” which supports and improves the comfort and lifestyles of consumers in their daily lives. These three layers are our starting points for value creation. Society Environ- ment 03 Bringing people together and filling each day with inspiration Fostering mental and physical well-being and long life Improvement of lifestyle Free and open learning opportunities Nurturing prosperous cities with inclusive and harmonious societies Creating sustainable societies by shaping new industries and workstyles Sharing hopes that transcend time, space, and generational boundaries Democratization of data use Social stability through data democratization Free and equal communication services Cities without traffic congestion and accidents Government services from the consumer’s perspective Safe and secure cyberspace Closing the gap in employment opportunities Living harmoniously with the earth to secure the future Realization of a decarbonized society Implementation of global warming countermeasures Guaranteeing food and water security NEC Integrated Report 202104 NEC Initiatives for Contributing to the Achievement of the SDGs In 2005, NEC became a signatory to the United Nations Global Compact, a global initiative aimed at sustainable growth for society and companies. We are now promoting corporate activities based on the Ten Principles of the UN Global Compact pertaining to the four fields of human rights, labor, the environment, and anti-corruption, which align with “uncompromising integrity and respect for human rights,” one of the Principles of the NEC Way. Moreover, each and every member of the NEC Group, from officers to employees, performs their day-to-day activities based on the NEC Group Code of Conduct. 　Furthermore, based on the Ten Principles of the UN Global Compact, the SDGs pledge that “no one will be left behind” is aligned with the NEC Purpose, to “promote a more sustainable world where everyone has the chance to reach their full potential.” 　Information and communications technology (ICT) has the potential for responding to a variety of issues. Therefore, we believe that we can contribute significantly to all of the targets set out in the SDGs by drawing on our leading-edge technologies in such fields as AI (biometrics, etc.) and 5G, as well as our competence in R&D and implementation as we engage in dialogue and co- creation with a range of stakeholders. NEC 2030VISION and Areas of Contribution (Fiscal 2022 and Onward) We believe that by working to fulfill the NEC 2030VISION, we can contribute to the achievement of the following SDGs in particular. We take hints from the SDGs to point out the issues and challenges facing society and use the SDGs as a guide when setting targets for creating social value—which we aim to do through our business—and also for managing progress. No Poverty Zero Hunger Health Education Gender Equality Water and Sanitation Energy Employment Infrastructure No Inequality Cities Consumption and Production Climate Action Oceans Land Peace and Justice Partnerships Living harmoniously with the earth to secure the future ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Nurturing prosper- ous cities with inclusive and harmonious societies Creating sustainable societies by shaping new industries and workstyles Sharing hopes that transcend time, space, and generational boundaries Bringing people together and filling each day with inspiration ● ● ● ● ● NEC Integrated Report 2021 05 Contents Cover Story NEC’s Past, Present, and Future 06 Message from the President 14 16 What is NEC NEC’s Value Creation Journey NEC’s Business Model 18 20 Value Creation Process Review of the Mid-term Management Plan 2020 22 Mid-term Management Plan 2025 30 34 R&D and Business Development CFO Message 38 Roundtable: Creating Social Value through NEC’s R&D NEC, for Those Who Seek Challenge 43 CHRO Message 44 Messages from Employees Living Harmoniously with the Earth to Secure the Future At a Glance Business Overview 40 46 50 52 Management That Supports Corporate Value Creation 58 Risks and Opportunities 60 62 64 Supply Chain Sustainability Respecting Human Rights Corporate Governance 70 72 69 Messages from Outside Directors Directors and Audit & Supervisory Board Members Cross-Company Corporate Strategy Promotion Framework Corporate Data 74 76 Corporate Overview Financial and Non-Financial Highlights Editorial Policy NEC has published annual reports containing both financial and non-financial information since 2013. Starting in 2018, having defined its materiality, NEC has changed the name of its annual report to the “Integrated Report.” 　Integrated Report 2021 comprises initiatives for achieving the NEC 2030VISION and the Mid-term Management Plan 2025, which are based on NEC’s “Purpose.” NEC has also compiled a section on extremely high-profile human resources, focusing on the appeal of said human resources as well as NEC’s culture. 　The Message from the President explains the philosophy behind the NEC Way and the NEC 2030VISION, and the Mid-term Management Plan 2025 explains the strategic and cultural aspects. Furthermore, this report focuses on people, who are the driving force behind man- agement implementation of NEC’s “Purpose,” and features roundtable discussions with young researchers and messages from our employ- ees who are at the forefront of creating value. The report also sum- marizes the management that supports the creation of corporate value, focusing on “materiality”—management priority themes from an ESG perspective. 　NEC will keep endeavoring to provide increasingly transparent and continuous information while incorporating feedback from various stakeholders. Reporting Period April 1, 2020 to March 31, 2021 (hereinafter referred to as “fiscal 2021”; all other fiscal years are referred to similarly). This report also includes information obtained after this reporting period. Scope of Report NEC Corporation and its consolidated subsidiaries 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 • Information Security Report 06 Message from the President Takayuki Morita President and CEO (Representative Director) April 1983 Joined NEC Corporation April 2002 General Manager, Business Development Division April 2006 Senior Vice President, Executive General Manager, Corporate Business Development Unit April 2008 Senior Vice President July 2011 Executive Vice President April 2016 Executive Vice President, CGO (Chief Global Officer) June 2016 Executive Vice President, CGO and Member of the Board April 2018 Senior Executive Vice President and Member of the Board (Representative Director) June 2018 Senior Executive Vice President, CFO (Chief Financial Officer) and Member of the Board (Representative Director) April 2021 President and CEO (Representative Director) (to present) NEC’s Past, Present, and Future 07 We will create new social value promoting digital transformation, thinking about the future of both society and our customers, with Purpose-driven Management at the foundation. The spread of COVID-19 continues to have a massive impact on the world today. It has brought about many important changes to our lives, sometimes leading to benefits, other times exposing problems. While some of these changes were forward-facing, such as the acceleration of digitali- zation and the expansion of workstyle reforms and cashless payments, the pandemic also shone a light on the sluggish efforts to digitalize Japanese society as well as the issue of the digital divide, making it a strong reminder of the impact of technology. The pandemic, in a rather unplanned fashion, sped up the changes that would ring in the next generation of society, and after getting a glimpse into our ideal trajectory, I expect that there will be great strides taken toward the digitalization of society in the future. This experience has taught us that, if digitalization is to go forward, we cannot just transform our technology. We must also transform institutional and social systems, and we must transform our minds in a way that will accept these changes. For people’s minds to change, this transformation needs to take place without leaving the vulnerable behind; there needs to be an effort to build public trust toward digitalization and a willingness among every person, ourselves included, to adapt. Our lives along with the future of the country will change drastically depending on our efforts to digitalize. As a social value innovator, NEC will continue to call on its R&D and highly trusted social implementation technology to serve as a base for promoting digital transformation across society, and to create new social value as part of ensuring a better future for society and our customers. NEC Integrated Report 202108 Message from the President The NEC Way and the NEC 2030VISION Creating a More Sustainable World Where Everyone Has the Chance to Reach Their Full Potential Since its founding, NEC has created social value and engaged in social contribution by consis- tently working to resolve social issues. Guided by our founding spirit of “Better Products, Better Services,” in 1977 we advocated for “C&C” (the integration of computers and communications), a concept that foresaw the internet-driven world of today and one that is spreading throughout our current society. To determine our ideal direction for the future, we asked ourselves what NEC is as a company and what we should do going forward; we looked back on the strengths we had culti- vated over our history and we reexamined our purpose for being. This reaffirmed our strengths when it came to technology for supporting Japan’s infrastructure and mission-critical systems, as well as our track record in these efforts. These strengths were something we could transform into new value that could contribute to society. Believing that this was our purpose for being, we made a declaration to become a social value innovator, in 2013. Subsequently, in April 2020 we redefined the NEC Way, a common set of values that form the basis for how the entire NEC Group conducts itself. As part of the NEC Way, we determined NEC’s Purpose, “Orchestrating a brighter world,” which involves creating “the social values of safety, security, fairness, and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential.” NEC Way The NEC 2030VISION as a Compass for Management If society identifies with our Purpose, I see it as confirmation that we are a trusted organization and that society sees value in NEC’s existence. To clarify what we are trying to achieve through this Purpose, we formulated the NEC 2030VISION to express what our ideal 2030 future looks like. The NEC 2030VISION looks at future customers and uses their ideal environment, society, and life as the three points of a compass aimed at showing the path and business direction for NEC to follow. If our direction is in sync with the society heading into the future, we should be able to overcome the various difficulties that come along the way to achieving this ideal. By using our business activities to realize the NEC 2030VISION, we will be able to seize the future together. NEC’s Past, Present, and Future09 Mid-term Management Plan 2025 Purpose-driven Management—A Combination of Strategy and Culture The Mid-term Management Plan 2025 is a business plan Purpose formulated to achieve the NEC Way and the NEC 2030VISION. Since this five-year plan was set to take place over such a period of change, it was developed based on the idea that this plan should not be an exten- sion of what we were already doing, and should instead be focused on investments that would transform the Company, as well as ensure that these investments were made responsibly until they began showing results. Strategy Culture To that end, we looked thoroughly into a resource plan that would better integrate our business and financial strategies and allow us to meet our expectations for business after five years’ time. Purpose-driven Management, as we have defined it, involves working on strategy and culture as one. The plan’s strategy is aimed at achieving growth by translating NEC’s technological strengths into value for customers, and accelerating business expansion globally and transform- ing business domestically. Our strategies and Purpose are realized by people. This means we need a strong culture that supports highly motivated human resources. Bearing this relationship in mind, we have positioned strategy and culture as one. NEC’s Growth Model NEC’s strengths lie in its R&D and its high-quality implementation capabilities, which it has used to support social and network infrastructure up to the present day. In order to convert these strengths into value for customers, we intend to develop technologies such as biometrics and AI into a shared platform, supplemented externally through M&As when necessary. We will then use these as a means to expand business, securing high profits and creating cash flow both globally and in Japan. Specifically, we will focus on digital government and digital finance as well as global 5G worldwide, including Japan. We are also working to transform our IT business in Japan. To do this, we will take advantage of two aspects of our business. The first of these is one of our strengths, the integration of our NEC’s Growth Model business from upstream consulting to downstream implementation, and the second is our shared platform, which features superior technology. Using these to their fullest, we will drive DIGITAL GOVERNMENT DIGITAL FINANCE GLOBAL 5G Strong Focus Biometrics AI CORE DX 5G/TOMS* Cloud + M&A + M&A Security R&DR&D Public & Communication Infrastructure IT SERVICES & PRODUCTS Transformation * Telecom operations and management solutions 1 © NEC Corporation 2021 NEC Integrated Report 202110 Message from the President growth across our entire domestic business and enter new markets targeting the digital transformation (DX) of society and companies. We will also optimize our existing IT business as a whole by making the best use of our assets. By working to improve low profit businesses, we will be able to achieve higher profitability than our competitors. Business Strategy: Achieve Growth by Converting Our Strengths into Value for Customers ① Digital Government / Digital Finance Three companies central to this strategy are NEC Software Solutions UK (formerly Northgate Public Services (UK) Limited), KMD Holdings ApS (KMD), and Avaloq Group AG (Avaloq), which were acquired during the previous mid-term management plan. Over the course of the Mid-term Management Plan 2025, we will generate synergies between these three European companies and NEC. Our goal is to grow business by expanding synergies, not only in terms of sales, costs, and asset utilization but also in areas where we can integrate government and finance. A common question that follows one of our acquisitions is when we will integrate it into the Group. I believe that if we take a uniform approach toward integration, the strengths of the com- pany could be lost. Instead, we make the best possible use of its strengths and culture, we respect its positive aspects while working to align its vectors with ours, and we create sound and sustainable synergies. In Japan, we will promote government digitalization. Since government systems operate for long periods of time and need to be reliable, this task requires a company that can fulfill all of its social responsibilities, which includes having the necessary technology, track record and finan- cial standing for the job. We are proud of our track record of contributions made through mis- sion-critical social infrastructure and the protection we have given Japan in the handling of sensitive data, without any problems of note. I would also like for us to make major contributions to the digitalization of the Japanese government. As we pursue this goal, I believe that we can make great use of the extensive know-how and experience of NEC Software Solutions UK and the Denmark-based KMD, both of which have been central to the digitalization of governments of advanced European nations. Other strengths in our favor include our technical excellence when it comes to biometrics and other forms of per- sonal authentication, as well as our credibility, which we have built through many years of doing business with local and central governments. During this digitalization process, it is important to possess comprehensive strength, which includes experience and resources, in order to facilitate a smooth system migration, and this is yet another instance where NEC’s strength can be put to work as well. ② Global 5G Looking at global 5G, we will use our domestic commercial performance as the basis for gaining a share of the global market. With the introduction of a variety of rules and standardization regard- ing the opening of base station specifications, coupled with better hardware performance, Open RAN is entering a stage where it can be applied globally. What will be helpful for us in terms of developing products for the global market is the fact that we are engaged in domestic business related to 5G with global-oriented companies such as NTT Corporation and Rakuten Mobile, Inc. In the global market, mobile operators welcome an increase in suppliers out of a strong desire for a more competitive environment and more efficient operations, achieved by increasing com- munication equipment options. Under such conditions, NEC was selected as a commercial vendor for Open RAN by UK-based Vodafone in June 2021. In the same month, NEC was also selected as a vendor for deploying Open RAN as part of a commercial project headed by Deutsche Telekom. NEC’s Past, Present, and Future 11 Although our current focus is on base stations, we intend to expand our business into the area of software and services going forward. The shift that took place in the computer market 20 years ago, from being controlled through software with proprietary specifications to open software, is taking place in the world of networks, which suggests that communications equipment and software will become more integrated in the future. Looking at this trend, we anticipate that, in addition to base stations, the market for software and virtualization technology aimed at effi- cient network operation will develop and expand as well. In light of this, we will leverage our products, including those from Netcracker Technology Corp., which excels in operations support system (OSS) and business support system (BSS) software, to expand business in the Japanese and global markets. ③ Core DX Core DX employs four strategies aimed at achieving business growth. One involves expanding value provision by adopting a consistent approach, from consulting, which includes activities conducted by ABeam Consulting Ltd., to delivery. The second involves enhancing our IT common platform technology and offerings. The third would have us strengthen competitive- ness through global strategic collaboration with AWS (Amazon) and Azure (Microsoft). And the fourth strategy achieves business growth through flagship projects for the national and local governments as well as for “super cities.” There is increasing demand among customers for comprehensive solutions that cover consultation to delivery. In anticipation of this situation, we acquired ABeam Consulting, which is best-in-class in Japan in terms of the number of consultants and scale of sales. In addition, NEC has launched its own strategic consulting unit in order to strengthen its approach to strategic partners. When we talk of “seizing the future together,” we have to demonstrate how society should change when a technology goes into effect, how we should keep and utilize data, and what systems will be necessary in response. We also need to communicate both the good and bad aspects of these matters. More than ever, we will be proactive toward presenting our vision for the future, offering up ideas for what we should do and change, delivered from the perspective of the end-user. NEC is also taking steps to transform itself into a platform for DX experimentation. This has two major benefits. One is that our own DX will increase our competitiveness as a company. The other is that, by using ourselves as a platform to substantiate cutting-edge DX, we can become a strong -use case for customers. To promote these potential benefits, we established a Transformation Office under my direct supervision and will carry out a corporate transformation, which includes business processes, aimed at completion in three years’ time. With these efforts, NEC will become a world-class global company at the forefront of DX, both in name and practice. What is more difficult than creating IT systems themselves is transforming business processes and maintaining a data registry. This is due to the fact that the business processes that the systems are based on, and by extension, the workstyle and approach for each process as well as the data, for which entry methods vary for each system, need to be arranged neatly. This will take time, but we will take steady steps forward to accomplish this goal. Over the past year and a half, we have neared completion of our blueprint for transformation and have begun rolling it out into the field. ④ Creation of Future Growth Businesses As part of the Mid-term Management Plan 2025, we will work to create future growth businesses, which will help realize the ideal environment, society, and life laid out in the NEC 2030VISION. We will leverage 10 years of cultivated know-how and methods related to new business develop- ment to promote commercialization of NEC’s disruptive technology. NEC Integrated Report 202112 Message from the President We can refer to specific examples in the healthcare and life science businesses and in businesses related to carbon neutrality. The target we have set for NEC’s healthcare and life science businesses is a business value of ¥500 billion by fiscal 2031, with efforts that include AI-based drug discovery and endoscopic image analysis as well as life support solutions that utilize visualization of health conditions. For businesses related to carbon neutrality, our goal is to contribute to a decarbonized society through more efficient and optimal energy management, made possible by developing products for decarbonization management solutions and by commercializing circular economies. When evaluating these businesses, we will use internal rate of return (IRR) as an indicator to assess the return on our investments and will also determine the pros and cons of individual investments. At the same time, we will continue to manage our investments while bearing in mind the scale of risk for a new business area. One cannot evaluate a new business with the same indicators that measure a stable, already established business. For new areas, we will set both qualitative and quantitative indicators and keep watch over their progress while using these areas to improve NEC’s business value. Financial Strategy: Maximizing Long-Term Profit and Optimizing Short-Term Profit Our financial strategy involves continuously generating cash, both as a source for sustainable growth and as a means to improve corporate value further. To these ends, we will shift from conventional profit and loss (P&L) management to management that emphasizes capital efficiency and conduct capital allocation focused on business growth. For our financial measurement methodologies, we balance business growth in response to market expectations with maintenance and improvement of financial soundness. For non- financial measurement methodologies, we promote management that supports sustainability through efforts made under the Mid-term Management Plan 2025. To guide these efforts, we have set KPIs and formulated materiality from the perspective of ESG, with “E” representing the environment; “S” which stands for society but also represents security, AI and human rights, and diversity; and “G” representing corporate governance, supply chain sustainability, and com- pliance. Our goal is to remain a part of ESG indices used for ESG investment, and to do so, we are building up non-financial initiatives rooted in materiality and providing highly transparent infor- mation disclosure. Inclusion in ESG indices is not only a testament to the trust society and the capital markets have in a company, it also fosters pride and motivation in employees. I For more information on NEC’s financial strategy, please refer to the CFO Message on page 30. For more information on materiality, please refer to the Materiality section on page 28. Human Resources and Culture To create social value in the coming times, we need highly capable human resources and the ability to attract such human resources. I believe that the key to having both is a corporate culture that allows people to play an active role. Providing an open organization and environment that allows people to see outside their circle as they work is an important part of acquiring human resources. Thanks to the various measures implemented under the previous mid-term management plan, the employee engagement score at NEC has increased dramatically. Currently, we are making solid efforts to enhance the level of internal communication. I believe it is important to bridge the gap between management and employees by providing opportunities for both sides to meet face to face and engage in two-way communication. As part of this effort, we are holding online town hall meetings, and this year we have already held 12 such meetings, not only for employees in Japan but employees overseas as well. I believe that establishing a flatter and more open organizational environment is an important part of making the organization stronger. NEC’s Past, Present, and Future13 We will implement strategic and cultural measures steadily in order to create new social value, with Purpose- driven Management as our compass. We cannot forget our pool of human resources. While continuing to enhance recruitment from outside the Company, we will promote diversity from within in the form of women, foreign nationals, young people, and everyone in between, actively looking to hire talented and highly motivated people. In doing so, we will transform our company and live up to the motto of our HR policy: “NEC, for those who seek challenge.” I For more information on NEC’s human resources, please refer to “NEC, for Those Who Seek Challenge” on page 40. Venturing Toward New Growth After reaching the target set under the previous mid-term management plan in fiscal 2021 of an operating margin of 5%, we assessed that we had managed to establish a solid foundation for improving our financial standing and facilitating business growth. The Mid-term Management Plan 2025 is now meant to serve as a new beginning. It has been formulated to help us realize our ideal vision for the Company and strikes a balance between devising future strategies for compet- ing in the global market, making aggressive investments for growth, and creating new markets. As one of the leading figures in formulating the plan, I personally think that we have created something grounded and feasible, thanks to having crafted it in collaboration with the officers who will be in charge of each of its important measures. As for the human resources who will make this strategy a reality, we intend to take the cultural reforms advanced in the previous mid-term management plan and push them one step further. When we achieve best-in-class in employee engagement globally, every aspect of these employees—their creativity, productivity, competitive- ness, the list goes on—will manifest itself in a drastic leap in the Company’s competitive strength. By implementing our measures related to both strategy and culture in a steady fashion, we will create social value, which will lead us to reaching the financial and non-financial targets laid out in the Mid-term Management Plan 2025. This in turn will allow NEC to realize its Purpose. Going forward, NEC will continue working as a good corporate citizen needed by society, toward sus- tainable growth aimed at realizing a better future. NEC Integrated Report 202114 NEC’s Value Creation Journey Nippon Electric Company, Ltd. (NEC) was established in 1899 as Japan’s first joint venture with a foreign-owned company. In keeping with its founding spirit of “Better Products, Better Services,” NEC has continued to provide services using its distinctive technologies in addition to ICT equipment such as telecommunications equipment and computers. 1899 Establishment of Nippon 社会価値創造型企業への変革 Electric Company The Founding Spirit of “Better Products, Better Services” Create customer satisfaction and pleasure by consistently providing better products and services. 1977 C&C Announced The Integration of Computers and Communications The aspiration of enabling people throughout the world to connect anytime, anywhere, and with anyone, is aligned with the SDGs aspiration to “leave no one behind.” Founder: Kunihiko Iwadare Announcement of C&C at INTELCOM ’77 1899 1928 1964 1970 1987 2007 Network Nippon Electric Company, Ltd. established Transmitted scenes of International satel- Japan’s first Started manufac- Ultra-compact radio communica- Imperial Accession lite TV broadcasts of satellite, Osumi turing optical tions system PASOLINK secured Ceremony of Emperor the Tokyo Olympics submarine relay top global market share Hirohito equipment 1954 1958 1974 1982 IT Began research Developed the first The ACOS Series 77 The PC-9801 personal into computers domestically produced mainframe computer computer announced fully transistorized family announced NEAC-2201 computer 1960 1971 1984 2004 AI Started development of optical character Fully automated Received an order in No. 1 in fingerprint recognition (OCR) postal sorting the U.S. for fingerprint 1 authentication* system matching services NEC’s Past, Present, and Future15 2013 Transformation into a Social Value Innovator 2020 NEC Way As the value expected by customers and society changed To mark the 120th anniversary of our founding, in 2020 from our tangible technologies and products to the intan- we defined our “Purpose” within the NEC Way as “NEC gible creation of value, we responded under the Mid-term creates the social values of safety, security, fairness and Management Plan 2015 by declaring our intention to efficiency to promote a more sustainable world where transform into a Social Value Innovator. everyone has the chance to reach their full potential.” 2010 2016 2018 2019 Asteroid explorer Submarine cable Asteroid explorer Began shipping base stations for “HAYABUSA” successfully returned to Earth installation reaches HAYABUSA 2 reached 5G networks over 250,000km, the asteroid Ryugu enough to encircle the Earth six times 2002 2012 2015 2020 The Earth Simulator, the Built ICT infrastructure for Contributed to Started quantum world’s fastest supercom- multiple stadiums used in implementation of computing application puter system for resolv- the Soccer World Cup held the Individual services ing global environmental in Brazil Number System problems, completed NEC’s strengths developed to date 2009 2016 2018 2019 No. 1 in facial authentication* 2 Biometrics solutions adopted in Established the Entered the drug discovery business 70 countries in total biometric authenti- specializing in advanced immuno- Formulated the AI technology brand “NEC the WISE” cation brand “Bio-IDiom” therapy using “NEC the WISE” *1 Ranked 1st eight times in task assessment sponsored by the U.S. National Institute of Standards and Technology (NIST)　*2 Ranked 1st six times in task assessment sponsored by NIST NEC Integrated Report 202116 What is NEC Establishment 1 Number of employees* Approximately 2 * 1 Average age of employees* 115,000 Male 44.2 years old Female 41.5 years old 1899 Market capitalization 3 Revenue* Public Solutions Business Public Infrastructure Business Enterprise Business Network Services Business Global Business Others 14% 23% 17% 18% 15% 13% Composition of Revenue 2,994.0 billion yen Owner’s equity ratio* 4 R&D expenses* 3 Approximately 1.6 trillion yen 3 EBITDA* billion yen 295.8 9.9% 35.7% *1 As of March 31, 2021　　*2 For NEC Corporation on a standalone basis　　*3 Actual results for fiscal 2021　　*4 Actual results for March 31, 2021 *5 Ratio of employees returning to work who started childcare leave in fiscal 2019　　*6 Based on the Act on for Promotion of the Employment of Persons with Disabilities Law, as of June 1, 2021　　*7 Ranked 1st six times in benchmark testing held by the U.S. National Institute of Standards and Technology (NIST) *8 Ranked 1st eight times in benchmark testing sponsored by the NIST　　*9 Ranked 1st two times in benchmark testing sponsored by the NIST billion yen 114.6 NEC’s Past, Present, and Future17 Approximately 115,000 Average age of employees* 1 2 * CDP (Climate Change, Water Security, and Supplier Engagement) Number of cases of serious involvement with cartels and/or bid-rigging A List Diversity-related indicators Ratio of male and female hires* 3 2 * Ratio of female managers* 1 0 cases Ratio of employees returning after 2 childcare leave* * 5 Ratio of employees 6 2 with disabilities* * Male 71.2% Female 28.8% 9.2% 98.5% 2.37% 1 Number of patents* Technological capabilities Facial authentication* 7 8 Fingerprint identification* Approximately 9 Iris recognition* 46,000 Global No. 1 NEC Integrated Report 202118 Value Creation Process When implementing NEC’s Mid-term Management Plan 2025, NEC will provide value to its various stakeholders by connecting strategy and culture based on its unique tangible and intangible assets. Additionally, NEC aims to fulfill the NEC 2030VISION, which is the specific vision for its “Purpose.” The direction of NEC’s Purpose and the NEC 2030VISION is identical in spirit to the SDGs’ pledge to “leave no one behind,” and NEC will contribute to the achievement of the SDGs through dialogue and co-creation with various stakeholders, taking advantage of the technologies and competence in implementation that it has cultivated. Capital Strategy Financial Operating cash flow: 1.3 trillion yen* * The fiscal years ending March 31, 2022 to 2026 Manufacturing Business process / IT establishment Create a Transformation Office Intellectual R&D expenditure: Approximately 4.0% of revenue Human Consolidated number of employees (As of March 31, 2021): 114,714 Social and relationship Maintain and develop deep domain knowledge based on long-term customer relationships Generate global synergies through M&A Natural Expansion of renewable energy installations Purchase of renewable power NEC’s Growth Model “Maximizing long-term profit” and “Optimizing short-term profit” Non-financial measurement methodolo- gies to underpin sustainable growth Culture Transformation of people and culture Establishment of business infrastructure Creation of shared vision for a brighter future with customers NEC’s Business Model19 NEC creates the social values of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential. NEC 2030VISION Life Society Environment Investors Balance business growth and improvement of financial soundness Customers Provide safe & secure social infrastructure and services by leveraging strengths in technology Suppliers Create sustainable social value through collaboration and co-creation with suppliers Employees Transformation to a company that pursues innovation and brings together diverse human resources: “Employer of Choice” Society / Environment Contribution to climate change measures (Decarbonization) NEC Integrated Report 202120 Review of the Mid-term Management Plan 2020 Performance Results and Key Management Measures Achieve the targets for operating profit and operating profit ratio set out in the Mid-term Management Plan 2020 by repositioning NEC on a growth trajectory by optimizing our business portfolio, growing our business, and strengthening our financial foundation FY2011 FY2014 FY2019 Made NEC Electronics Corporation, a Divested all of NEC’s stakes in NEC Mobiling, Established dotData, Inc. in the U.S. semiconductor business and currently Ltd., currently MX Mobiling Co., Ltd., a mobile Established NEC X, Inc. in the U.S. Renesas Electronics Corporation, into phone sales business Acquired Danish company KMD an equity-method affiliate FY2015 Holding ApS Sold shares in electrode business FY2012 Divested all of NEC’s stakes in NEC BIGLOBE, Made the consumer PC business into Ltd., currently BIGLOBE Inc., an internet FY2020 an equity-method affiliate service provider, in March 2014 Sold shares of Nippon Avionics Co., Ltd. FY2013 FY2017 FY2021 Acquired the business support system Consolidated Japan Aviation Electronics Decided to convert NEC Display business of U.S.-based Convergys Industry, Limited Corporation FY2018 Acquired U.K. company Northgate Public Services Limited Solutions Ltd. into a joint venture Acquired Swiss company Avaloq Group AG Trends in Business Performance Revenue (Billions of yen)　 Operating profit (Billions of yen)　 Operating profit ratio (%) 3,115.4 3,036.8 3,071.6 3,043.1 2,935.5 2,824.8 2,844.4 2,913.4 2,665.0 3.7% 114.6 3.5%3.5% 106.2 4.4% 128.1 3.2% 2.4%2.4% 73.7 1.9% 57.8 91.4 1.6% 41.8 2.2% 63.9 2.0% 57.8 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note: Financial results were reported under Japanese Generally Accepted Accounting Principles (JGAAP) until fiscal 2015. From fiscal 2016 onward, results have been reported under International Financial Reporting Standards (IFRS). NEC’s Business Model21 Main Initiatives and Core Objectives of the Mid-term Management Plan 2020 1 2 3 Reform of Profit Structure Reduction of SG&A Expenses Career transition support measures Business Structure Reforms Decision to stop receiving new orders in the energy business Sale of electrode business Joint venture for display business ▲ ▲ ▲ ▲ Production Structure Reform ▲ Optimization of NEC Platforms production structure, sale of Tsukuba Research Laboratories Growth Achievement ▲ Safer Cities Acquisition of Northgate Public Services Limited (currently NEC Software Solutions UK Limited) in the United Kingdom, KMD Holding ApS in Denmark, and Avaloq Group AG in Switzerland 5G ▲ ▲ Strategic cooperation with NTT Corporation and Rakuten Mobile, Inc. Launch of trial tests with the United Kingdom and Germany ▲ Digital Transformation (DX) Establishment of digital platforms and offerings Restructuring of Execution Capabilities Strengthening of Business Development Capabilities ▲ ▲ ▲ ▲ ▲ ▲ Establishment of dotData and NEC X with aim of monetizing new technology Entry into drug discovery business Transformation of NEC’s Culture Revision of the NEC Way Revamp of the corporate officer system, one-year terms of office Introduction of new evaluation system that encourages innovative actions and challenges Hiring and appointment of diverse talent to executive and other positions Background to Formulating the Mid-term Management Plan 2020 Slump in Profitability (Fiscal 2017 operating profit ratio of 1.6%) Decline of Existing Businesses Exceeding Expectations Inability to Fully Implement 3,095.2 2,994.0 5.1%5.1% 153.8 4.1%4.1% 127.6 Initiatives for “Materiality” —Priority Management Themes from an ESG Perspective Incorporate world-renowned Environmental, Social, and Governance (ESG) indices E: Contribute to decarbonization through business S: Minimize the impact of serious security incidents, promote businesses that prioritize respect for human rights, transform NEC’s culture, and promote inclusion and diversity G: Achieve zero cases of involvement with serious cartels and/or bid-rigging, reinforce Board of Directors system, revise remuneration system for directors and A&SBMs, and promote initiatives 2020 2021 (FY) for collaborating with suppliers S For more details on ESG-related goals, achievements and progress, and degree of completion, please refer to page 11 of Sustainability Report 2021. NEC Integrated Report 202122 Mid-term Management Plan 2025 Mid-term Management Plan 2025 Achievement of NEC’s “Purpose”—A Combination of Strategy and Culture The NEC Group has formulated the Mid-term Management Plan 2025, which concludes in fiscal 2026, with the aim of realizing the NEC 2030VISION and NEC’s “Purpose” set forth in the NEC Way. Under the Mid-term Management Plan 2025, we have set indices for strategic and cultural targets for promoting the management of NEC’s Purpose. Strategy: We will achieve growth through acceleration of global growth and transformation of domestic businesses by providing customer value through NEC technology. In financial terms, our financial strategy is integrated with our business strategy, with the first priority being to maximize long-term profit, followed by optimizing short-term profit. Culture: We believe that our cultural strength is the strength of people to implement our strategies and realize our purpose. We will aim to be a company that pursues innovation and brings together diverse human resources under the NEC Way—the NEC Group’s common set of values that form the basis for how the Group conducts itself. Purpose Strategy Culture EBITDA Growth Rate: 9% annual average (FY2021–FY2026) 50% Engagement Score (FY2026) Accelerate global growth and business transformation Transform to a company that pursues innovation and in Japan by leveraging strengths in technology, “Maximizing brings together diverse people under the NEC Way long-term profit” and “Optimizing short-term profit” (common values): “Employer of Choice” Mid-term Management Targets (Billions of yen) Revenue Adjusted operating profit Adjusted net profit 1 EBITDA* 2 ROIC* (Growth rate from FY2021) (Revenue %) (Revenue %) (Revenue %) FY2021 Results FY2026 Targets 2,994.0 3,500.0 — 178.2 6.0% 165.4 5.5% 295.8 9.9% 4.7% 3.2% 300.0 8.6% 185.0 5.3% 450.0 12.9% 6.5% *1 EBITDA = Gross profit – SGA expenses + Depreciation/amortization *2 ROIC = (Unadjusted operating income – Deemed corporate tax [30.5%]）÷（Term-end interest-bearing debt + Term-end net assets [Including minority interest]） NEC’s Business Model23 Achieve Earnings Growth through Both Growth Businesses and Base Businesses Growth businesses are classified as digital government/digital finance, global 5G, core DX, and future growth businesses, whereas base businesses are all other businesses. In growth businesses, the NEC Group will prioritize the allocation of resources in order to acquire and strengthen its competitive advantage, with the aim of driving growth in revenue and profits. In base businesses, given the cautious business environment, the focus will be on improving profitability and aiming to steadily improve profit. Revenue Adjusted Operating Profit 3,500.0 billion yen 300.0 billion yen Component ratio of growth businesses 32.9% Component ratio of growth businesses 12.7％ FY2021 FY2026 Growth businesses DG / DF Global 5G Core DX Future growth businesses Base businesses Adjusted OP ratio 8.6％ Adjusted OP ratio 5.1%* Growth businesses Adjusted OP ratio 12.9% Base businesses Adjusted OP ratio 10.0% Others FY2021 FY2026 * Excluding “One-time profit/loss” in the statement of profit or loss Business Strategies Strategy Digital government/ Digital finance • Transform into a top-class vertical SaaS vendor in the global DG/DF market Global 5G business Japanese market from primarily a base station hardware provider to a full software and • Aim for 20% market share in the Open-RAN market in 2030, including expansion in the hardware solutions provider • Expand our value proposition through a comprehensive approach encompassing consulting to delivery • Price strategy and gross profit improvement through common ICT platform technologies and offerings Core DX business • Strengthen competitiveness through hybrid IT (Cloud/DC/On-Premises) alliances and in-house optimization • New business opportunities (social, enterprise transformation) Expand the DX domain by leveraging the implementation capabilities of technology/policy linkage/E2E Future growth businesses • Create growth businesses that will realize the NEC 2030VISION with strong technologies and inbound innovation Base businesses • Maintain profitability above our competitors for our high -and medium-profit base businesses • Improve profitability by establishing a monitoring system for low-profit businesses Financial Strategies Maximizing long-term profit and Optimizing short-term profit Culture Transformation of culture and how we work • Use continuously generated cash flow to fund sustainable growth and enhance corporate value through optimal capital allocation and by building robust financial and non-financial measurement methodologies • Transformation of people and culture • Establishment of business infrastructure • Creation of a shared vision for a brighter future NEC Integrated Report 2021 24 Mid-term Management Plan 2025 Business Strategy Digital Government and Digital Finance Business Mid-term Targets (Billions of yen) 300.0 193.1 Revenue CAGR 4%* 125.1 17% EBITDA margin 4% Adjusted OP ratio FY2021 FY2026 Total　 Acquired companies * CAGR is pro forma based. Global 5G Business Mid-term Targets (Billions of yen) 1 190.0* We intend to expand business in digital governments and digital finance by promoting organic growth in the European market and leveraging three European companies acquired during the Mid-term Management Plan 2020—NEC Software Solutions UK, KMD Holdings ApS (KMD), and Avaloq Group AG (Avaloq). We will also engage in cross-sales and bolt-on acqui- sitions toward the same goal. We are also taking steps to integrate and optimize our existing assets while restructuring our business foundation. Both of these actions will help stabi- 210.0 20% 12% lize our business foundation. In addition, we will increase business synergies through deeper integration of government and finance and other domains, made possible by taking advantage of cost syner- gies, sales synergies, and greater usage of digital IDs. Another strategy we are planning to undertake is the creation of new growth areas, which involves finding new business opportuni- ties from customers in different industries. Acquired companies’ assets NEC’s assets Software Technology (Biometrics/AI) SaaS platform Engineering capability Stabilization by remodeling business foundations, including three recently acquired companies Earnest pursuit of business synergy and creation of new growth areas Phase 1 of our plan for the Global 5G business, which we aim to complete by fiscal 2023, aims to create a series of global firsts in terms of commercial achievements on the back of alliances with NTT Corporation and Rakuten Mobile, Inc. Based on this strategy, we intend to take a leading position in overseas markets as a vendor of Open RAN, taking advantage of differentiated technology and considerable performance in terms of TCO.* For Phase 2, which is to be completed by fiscal 2026, we Revenue CAGR 35% 1 41.7* Adjusted OP ratio FY2021 2 –31%* *1 Netcracker is not included. *2 Excluding strategic expenses; profit ratio above segment (Network Services) level 10% will shift our profit focus from hardware to software licensing by enhancing applications and other end-to-end capabilities. * Total Cost of Ownership FY2026 Phase 1 ~ 2022 Establishment of Open RAN vendor position in overseas markets Phase 2 ~ 2025 Expansion of SW/service business segments and acquisition of profit sources NEC’s Business Model 25 by adopting a consistent approach encompassing consulting to delivery. This strategy relies on a combination of the upstream consulting strength of ABeam Consulting Ltd., which operates on a domestic scale of 5,000 consultants, and the strength of NEC’s delivery capabilities. The second strategy is to improve profitability and price competitiveness through common ICT platform technologies and standardized offerings. Our plan is to create a platform using NEC technology that will effectively facilitate effective DX for both companies and society with the idea that repeated usage will reduce costs. We also aim to improve price competitiveness by standardizing our solution offerings and setting prices based on value provided. Core DX Business Mid-term Targets (Billions of yen) 570.0 Revenue CAGR 32% 13% Adjusted OP ratio 141.0 –3% FY2021 FY2026 Our third strategy is intended to increase competitiveness We are ramping up investments in core digital transformation (DX) to spur transformation in our domestic IT business. Our goal is to improve operating profit ratio from 8% to 13% by moving from an individualized optimization model that is optimized for each industry and customer, to a model that utilizes DX to allow for optimization across the board. To this end, we will build a system more attuned toward providing value to customers by first creating a common platform to utilize NEC’s strengths in R&D and engineering, and then incorporating inbound technology from external sources through M&As and venture capital. We have highlighted four strategies toward transforming the IT business in Japan. The first is to expand value provision by creating a hybrid IT environment through an optimal com- bination of cloud, data center, and on-premises functions. This IT environment will be optimized to meet individual needs through the combination of NEC’s own high-security, multi-cloud and global strategic collaborations with AWS (Amazon) and Azure (Microsoft). As a fourth strategy, we will work to lead the shift in society with DX. To do this, we will coordinate with government policy and utilize our technologies, such as biometrics and AI, as well as our end-to-end implementation to back projects that will transform society. These projects involve the steady promotion of DX in domestic governments spurred on by the establishment of the Digital Agency, the construction of super cities, and infrastructure-collaborative mobility. Customized Vertical Solutions Cross Industry Solutions C C u u s s t t o o m m e e r r I I n n d d u u s s t t r r y y / / C C u u s s t t o o m m e e r r I I n n d d u u s s t t r r y y / / C C u u s s t t o o m m e e r r I I n n d d u u s s t t r r y y / / C C u u s s t t o o m m e e r r I I n n d d u u s s t t r r y y / / C C u u s s t t o o m m e e r r I I n n d d u u s s t t r r y y / / C C u u s s t t o o m m e e r r I I n n d d u u s s t t r r y y / / 4 New business opportunities (social, enterprise transformation) Digital government Smart cities Infrastructure- collaborative mobility • Individual SI • NEC products • Other company products • Technology Transformation Core DX Business 1 From consulting to delivery 2 Common ICT infrastructure technologies and offerings 3 Hybrid IT (Cloud/DC*/On-Premises) * DC: Data center R&D Engineering capability Assets acquired through M&A NPS/KMD/Avaloq Inbound 1 © NEC Corporation 2021 NEC Integrated Report 2021 26 Mid-term Management Plan 2025 Creation of Future Growth Businesses Looking to the future, the Mid-term Management Plan 2025 also calls for the creation of future growth businesses, in addi- tion to digital governments, digital finance, 5G, and core DX. NEC’s disruptive technology stands to upend the mainstream Accelerating commercialization by integrating R&D and business development Disruptive technologies Unique technologies that could disrupt current business models technologies of the current day. It is the basis of our efforts to (privacy-preserving data-analytics) create new businesses, and we will work with forward-looking customers in Japan and overseas and research institutions in Japan and abroad to commercialize the technology, applying the business development know-how we have cultivated in Defense technologies (quantum cryptography, laser communication, etc.) Inbound innovation Overseas business models and industry-specific know-how Collaboration with advanced customers, research institutions, and recent years. Our target business areas align with the layers of venture capitalists the NEC 2030VISION: environment, society, and life. New business development know-how We plan to create growth businesses that will help realize dotData, AI-based drug discovery, and other new business the NEC 2030VISION, using our highly capable technology, development achievements overseas business models abroad, industry know-how, and collaborations with research institutions and venture capital- ists as starting points. Business development methods* utilizing internal and external capital * Carve-out, M&A, spin-in/spin-out, crowdfunding Specific examples of initiatives: 1 1) Healthcare and life-related businesses; FY2031 NEC healthcare business value: 500.0 billion yen* Deliver healthcare tailored to people’s health conditions Electronic medical records and ordering system Support personalized healthcare with science AI-based analysis of endoscopic images; sales launch in Japan and Europe Monitoring and provision of advice based on gait conditions from insoles equipped with gait analysis Start of clinical trials on personalized neoantigen vaccines in 2019 Electronic medical records and ordering system Visualization of health condi- tions and disease risks from minimal blood protein Design of vaccines against the novel coronavirus Living life to the fullest • Overcome diseases • Prevent illness • Lack of want • Mental and physical wellness Healthcare industry 33.0 trillion yen* 2 *1 Calculated using both the comparable company method and the DCF method based on a target for 2030 (sales *2 Source: Future Direction of the Next Generation revenue of 100.0 billion yen) Healthcare Industry Council (published by the Ministry of Economy, Trade and Industry, 2018). Market size is an estimate of the Japanese market in 2025. Specific examples of initiatives: 2) Businesses related to carbon neutrality I For more information on our businesses related to carbon neutrality, please refer to the section “Contributing to Decarbonization through Business.” NEC’s Business Model27 Base Businesses To improve the profitability of our base businesses, we have individual turnaround plans aimed at improving profitability. set a hurdle rate for operating profit ratio and divided the After this, we will monitor the progress of the plan, take businesses into categories, and are using this rate to conduct a resources from businesses that do not achieve their objective, Group analysis, after which we will clarify policies in response allocate them to key areas, and take appropriate action. With to the analysis and formulate individual plans accordingly. For these measures, we expect to reap the benefits of our medium- and high-profit businesses, we will select benchmark improvement plan, complete our review of our business port- companies and strive to overtake them in terms of operating folio, and raise profitability up to our target level by fiscal 2026. profit ratio. As for low-profit businesses, we will formulate Adjusted OP ratio 15.0% 10.0% 5.0% 0 High-, medium- profit business FY2026 High-, medium- profit business FY2021 Low-profit business FY2026 Low-profit business FY2021 1,000 2,000 3,000 Revenue (Billions of yen) Low-profit business monitoring system FY2021 2H ● Setting of hurdle rate Strategy formulation ● Formulation of turnaround plan Implementation, evaluation ● Implementation of investments to carry out plans ● Review of business portfolio ● Exit/resource allocation from underperforming business to key segments Reaping of results ● Achievement of target levels End of FY2026 NEC Integrated Report 202128 Mid-term Management Plan 2025 Financial Strategy Enhancing Cash Generation Capabilities by Building Robust Financial and Non-Financial Measurement Methodologies Under the Mid-term Management Plan 2025, NEC will shift to management that emphasizes capital efficiency and undertake Augment growth strategies capital allocation to secure investment funds, which will underpin Shift from P/L management to management that also its medium- to long-term growth. We will also continue to build emphasizes capital efficiency • Achieve investment returns beyond the market expectations on our robust financial and non-financial measurement (capital cost) methodologies in order to ensure sustainable growth while • Continue activities to improve capital efficiency, such as CCC com- strengthening our ability to respond to changes in our business pression and reduction of cross-shareholdings environment so that we do not miss out on key opportunities. Capital allocation focusing on business growth By means of growth strategies and management founda- tion reforms, we will continue to bolster our ability to create cash while pursuing a business structure conducive to con- stantly generating adjusted operating profit of ¥300.0 billion by fiscal 2026. I Please refer to the CFO Message on page 30 for more details on our financial strategy. Respond to changing business environments without missing out on opportunities Building of robust financial and non-financial measurement methodologies aimed at sustainable growth • Maintain investment capability to respond to global competitors • Reinforce non-financial measurement methodologies to underpin sustainable growth of the company and society Reinforcing Non-Financial Measurement Methodologies to Underpin Sustainable Growth “Materiality” in the Mid-term Management Plan 2025 (from fiscal 2022) Key Themes (Materiality) Main Initiatives FY2026 KPIs Climate change (Decarbonization) Security AI & human rights Diverse human resources Corporate governance Supply chain sustainability Compliance E S G 1. Acceleration of environmental management toward achieve- ment of SBT* 1 1.5 ºC by 2030 2. Contribution to CO2 reduction through customer DX 1. 33.6% reduction* 2 (compared with FY2018) 1. Development of human resources in advanced security to handle social infrastructure 1. Doubling of internationally certified personnel 2. Incorporated initiatives based on the AI and 2. AI provision and utilization prioritizing respect for human rights Human Rights Principles 1. Further improvement of transparency of corporate governance 2. Strengthening of collaboration with suppliers from a human rights/environmental perspective 3. Eradication of serious compliance incidents 2. Suppliers agreeing to procurement guidelines: 3 75%* 3. No. of serious incidents: 0 *1 Science Based Targets (SBT): Corporate CO2 emissions reduction targets that are in scientific agreement with the global target of the Paris Agreement *2 Scope 1, 2 *3 Ratio based on procurement amount Over the course of the Mid-term Management Plan 2025, we Materiality under the Mid-term Management Plan 2025 was will reinforce our efforts in non-financial domains with a par- revised on the basis of material issues uncovered in fiscal 2019 ticular focus on materiality—priority management themes under the Mid-term Management Plan 2020. We reviewed the from an ESG perspective—and disclose information in a highly materiality in light of changes to the demand from the busi- transparent manner with the aim of achieving continuous ness environment and society, through workshops held for inclusion in ESG indices, which are used to determine ESG managers of growth business under the Mid-term investments. We believe that this inclusion in ESG indices will Management Plan 2025 and dialogues with external experts. lead to the fostering of employees’ engagement in the Company and increase their motivation, in addition to earning S the trust of society and capital markets. For more details, please refer to “Priority Management Themes from an ESG Perspective—Materiality” on page 8 of Sustainability Report 2021. NEC’s Business Model Transformation of Culture and How We Work We will aim to become a company that pursues innovation and brings together diverse human resources under the NEC Way as well as a company that is the preferred choice of employees. To realize an engagement score of 50%, we will transform people and culture, establish a business infrastruc- ture, and create a shared vision toward realizing a brighter future with customers. 1. Transformation of People and Culture We will proceed with the transformation of people and culture by emphasizing our key initiatives of accelerating diversity, which serves as an inspiration for innovation, and advancing workstyle reforms in order to provide a better work- place environment to a diverse array of individuals. To accelerate diversity, we will specifically focus on actively recruiting and systematically developing diverse talent, including female and non-Japanese employees. Our offices, which were previously used as our main work space, will now be utilized as a communication hub and setting for the joint creation of innovation through the further refinement of our NEC Digital Workplace and the realization of location-free productivity improvements. Through such measures, we will reform workstyles and mindsets with the aim of improving our engagement score. We will also engage in job-based management, which aims to fill each position with the right person for the job at the right time and place, and human resource development that emphasizes the cultivation of digital talent. 2. Establishment of Business Infrastructure Contrary to our previous structure through which various initiatives were carried out by our respective departments, our new Transformation Office has been established under the direct control of the CEO. The Transformation Office will be tasked with managing business process reforms, financial system reforms, and the Group-wide IT system, while serving as the nucleus for our promotion of reforms in the three domains of business processes, systems, and IT system. In regard to our IT system, we will proceed with cloud transformation of the NEC Group’s core system, redesign business processes and systems in unison with IT, and revamp our data-driven management. 3. Creation of a Shared Vision for a Brighter Future with Customers As a market leader, we believe that it is our responsibility to create a shared vision for a brighter future with customers by actively communicating our future vision to customers and society as a whole. By doing so, we will look to create new value. In addition, our Thought Leadership activities will proceed in full swing from fiscal 2022 toward the realization of an even better future by developing a common outlook toward the NEC 2030VISION based on our social/market insights and an in-depth awareness of our technology. While strengthening our general research capabilities, which constitute the core of our dissemination/communication activities, we will establish an advisory board that draws on the insights of external experts and promote social change. 29 Engagement Score FY2026 Target * 50％ (FY2021 25%) * Based on the Kincentric Survey of a 50% score, which is a Tier 1 level and in the global top 25 percentile Active Participation of Diverse Talent FY2026 Target Women/Non- Japanese Officers Women managers * 20％ * 20％ * Target values are for NEC HQ alone. Initiatives under the new MTP • Cloud transition of Companywide mission- critical systems (HR, procurement, etc.） • Integrated redesign of processes, systems, and IT • Enhancement of data-driven management (AI utilization, data structure optimization) Full-scale launch of Thought Leadership activities • Refine our future vision based on social/ market insights • Dissemination of social system innovations • Strengthen general research capability and collaborate with other thought leaders NEC Integrated Report 2021 30 CFO Message Maximizing Long-Term Profit, Optimizing Short-Term Profit, and Increasing Corporate Value through Social Contribution Osamu Fujikawa Executive Vice President, CFO (Chief Financial Officer) Despite the impact of the COVID-19 pandemic in fiscal 2021, the final year of the Mid-term Management Plan 2020, we were able to limit the year-on-year drop in revenue to 3.3%, thanks to full-scale shipments of 5G base stations and capturing demand under the “new normal.” Turning to operating profit, we were also able to meet the target set in the Mid-term Management Plan 2020 for operating profit ratio, 5.0%. This is a result of reducing unprofitable projects, which improved profitability, and special cost-cutting measures implemented in response to sudden changes in the operating environment. Net profit attributable to owners of the parent amounted to ¥149.6 billion, a record high for the second year in a row, mainly due to an increase in operating profit as well as a decrease in tax expenses. In light of these results, we paid an annual dividend to shareholders totaling ¥90 per share, reflecting a ¥10 increase to the ¥40 per share year-end dividend announced at the beginning of the fiscal year, to ¥50 per share. Free cash flow decreased ¥25.4 billion, to ¥152.4 billion. However, if we take into account a cash outflow of approxi- mately ¥239.0 billion, corresponding to the acquisition of the Swiss-based Avaloq Group AG at the end of December 2020, this result shows an improved ability to generate cash. Financial Strategy The Mid-term Management Plan 2025, announced in May 2021, utilizes a profit cycle that takes advantage of cash gener- ated on a continuous basis through business activities as a resource for growth. With proper allocation, we will maximize long-term profit and optimize short-term profit. These profits are then put toward improving corporate value. We have also positioned EBITDA and ROIC as indicators to measure achievement. For EBITDA, which measures our ability to generate cash, our target is set at an annual average growth rate of 9%, and for ROIC, which measures capital efficiency, we have set a target of 6.5% for fiscal 2026. Moreover, if we are to win against the competition on the global stage, we cannot just retain funds needed for invest- ment—we must also reinforce the non-financial measurement methodologies that will ensure the sustainable growth of both Company and society. As a company that creates social value, NEC bears a certain responsibility to contribute to society, so it is highly important that, while we deliver results from our business activities, we must also make contributions to soci- ety going forward. In the same vein, we will also invest in ESG and other non-financial areas. The effects of reinforcing non- financial measurement methodologies may not become immediately apparent in numerical form, but I believe that fulfilling this responsibility will lead to greater corporate value for NEC in the long run. NEC’s Business ModelCFO Message Generating Cash 31 We are aiming for a cumulative ¥1.3 trillion in cash flow from Improving Asset Efficiency and Awareness of Capital operating activities from fiscal 2022 to fiscal 2026. To avoid Efficiency opportunity loss, we believe that we should have an amount Since the previous mid-term management plan, we have of cash available that will allow us to make optimal invest- been engaged in activities to improve our cash conversion ments at any time. cycle (CCC) with a view toward improving asset efficiency. Here, I will talk about cash generation in terms of growth Thanks to these activities, we reduced our CCC by 12 days businesses, improving profitability of base businesses, over a period of two years, from 72 days as of March 31, 2019 improving capital efficiency, and asset monetization, and will to 60 days as of March 31, 2021. save the bulk of my discussion on growth businesses for Although ROIC has been set as a Companywide indicator in when I talk about our investment strategy. the current mid-term management plan, we believe that ROIC is an indicator well suited to some individual businesses Improving Profitability of Base Businesses while not very well suited to others. Take growth businesses, Over the course of the previous mid-term management plan, for example. If we place too much emphasis on ROIC, we lose we reviewed our business portfolio and set aside generated our ability to invest and miss out on business opportunities cash for NEC’s core businesses. However, there is still work to as a result. We will therefore apply ROIC to businesses that be done regarding low-profit businesses. To determine which emphasize capital efficiency in their operations, starting with businesses should continue, we have set an operating profit those with stable profits, and gradually expand its application ratio target for each business of 7%. When businesses cannot as an indicator throughout the Company from there. reach this target, our first step will be to try to transform them so that they are able to achieve an operating profit ratio of 7% Monetizing Assets or higher. If a business cannot reach this hurdle rate by fiscal In April 2019, we set guidelines for eliminating cross-share- 2026, we might have to make some pertinent decisions that holdings, and in fiscal 2021 we sold shares in 45 stock listings include reorganizing our business portfolio. But first, we will worth ¥96.3 billion. Shares are only held when the Board of set goals and timelines in order to raise overall profitability. Directors accepts the rationale for holding the shares, having clarified their strategic value and considered the returns from a capital cost perspective. In addition to cross-shareholdings, we are also actively monetizing available-for-sale non-assets. Free Cash Flows (Billions of yen) 261.9 274.9 Sales of Investment Securities （Billions of yen） 177.8 152.4 –84.0 FY2020 –122.5 FY2021 220.0 130.0 –90.0 FY2022 (Forecast) Operating Cash Flows　 Investment Cash Flows　 Free Cash Flows Book value 156.7 Fair Fair value value fluctuation, fluctuation, etc.etc. 125.4 Sales amount 96.3 Listed companies 125.2 91.3 Non-listed companies 31.5 34.1 (As of March 31) FY2019 FY2020 Number of stock listings (Listed companies) 118 108 105.4 72.6 32.8 FY2021 63 NEC Integrated Report 202132 CFO Message Capital Allocation　 Ensuring a Sound Financial Structure licensing to software licensing and provide service-based We will invest strategic expenses under the Mid-term solutions to achieve a high level of profitability. To increase Management Plan 2025 to enhance corporate value. In order our global market share, we will invest strategic expenses into to keep investing strategic funds we need financial discipline. enhancing our development and sales structure. Thanks to efforts made to date, our financial structure is fairly For Core DX, we will utilize ABeam Consulting’s resources sound, and we have improved both our ratio of equity attrib- to capture more upstream customer demand, and expand the utable to owners of the parent (owner’s equity ratio) and our value we can provide by taking a consistent approach from net debt-to-equity ratio. We will continue to invest in growth consulting to delivery. We also plan to improve profitability by areas while ensuring financial soundness, using our financial developing platforms that draw from NEC’s technological structure as of the end of March 2021, which received a one- strengths to act as common infrastructures that offer value- notch upgrade by credit rating agencies, as a guideline for providing services. Furthermore, we will bolster strategic maintaining our financial structure over the medium term.　 collaborations with hyperscalers and offer a hybrid environ- Shareholder Returns ment via our own high-security cloud. We will also invest strategic expenses toward the transition of this business We have a policy of providing stable dividends and have had model and for developing ICT common infrastructures. a target payout ratio of about 30% for the past five years. We Turning to the Company’s business infrastructure develop- believe that making investments to achieve growth and ment, we will work toward increasing the level of freedom in increasing profitability will increase corporate value and lead management not only by establishing an IT base but also by to greater returns to shareholders. simplifying business processes across the Group and acceler- ating the shift toward data-driven management. Investing Strategic Expenses for Realizing Growth As for human resources, we will work to ensure diversity, Over the course of the Mid-term Management Plan 2025, we an important source of innovation, and continue making intend to make growth investments within cash flows from workstyle reforms to improve productivity. We will also invest operating activities and thereby expand corporate value. In whatever it takes to foster the next generation of leaders, who addition to investing in growth businesses and improving the will be the ones to drive future growth. These moves will help profitability of existing businesses, we will also actively invest grow the business going forward and lead us to greater returns. in business infrastructure and human resources to support By reaping the benefits of focused cash investments in them. This is akin to investing within the scope of financial areas with higher growth potential, and choosing optimal soundness. investments with optimal timing, we will generate even more With digital government and digital finance, we will com- cash to invest toward our next stage of growth and establish a bine the software and SaaS platforms of three European cycle that will maximize our corporate value. companies acquired during the previous mid-term manage- The basic policy behind capital allocation is to balance ment plan—the UK-based NEC Software Solutions UK (for- growth investments, shareholder returns, and a sound finan- merly Northgate Public Services), the Denmark-based KMD, cial structure in order to execute a business strategy that will and the Swiss-based Avaloq—with NEC’s technology, which meet market expectations and an underlying strategy to includes biometrics and AI, its engineering capabilities, and support the business strategy by maintaining and improving its customer base, and pursue synergies. financial soundness. As for Global 5G, our goal is to achieve a top position, with a 20% market share in the Open RAN market in 2030. This goal includes expanding our scope in the Japanese market from a base station hardware provider to a software solutions provider. By 2025, we will shift our profit focus from hardware NEC’s Business Model33 Profit Cycle and Capital Allocation Sustained EBITDA growth (CAGR ９%) ・Ensure returns from proactive expense management Manage CCC along with growth Operating CF 1.3 trillion yen* Shareholder returns Financial soundness Base investments Optimization of portfolio assets including sale of cross-shareholdings (in principle, to zero) Use of leverage within the scope of maintaining financial soundness * FY2022–FY2026 total Investment CF Financial CF Growth investments Revenues Expenditures Continue stable, long-term dividends (Average payout ratio ca. 30%) Increase rating level Underpin stable growth ・Improve profitability of base business ・ Business infrastructure development / Human resource investment Investment pool that takes capital efficiency into consideration ・Digital government / Digital finance ・Global 5G ・Japan IT business (core DX), etc. To Our Stakeholders I have served on the front lines in the business of providing a people. The Company has a great many talented and highly variety of IT-related services and have helped commercialize skilled people, and these people work closely with the many and launch NEC’s superior technology both in Japan and people who have recently joined NEC, who are also talented overseas. I know from this experience that the roles of a CFO and skilled, to produce outstanding things day after day while are to ascertain the company’s business, manage investments being respectful of one another. These people are a true asset aimed at future growth, understand financial indicators—not to NEC. As a member of management, I will utilize these assets just the numbers, but also the conditions surrounding them— and work with them to create greater value. There are still and provide timely decision-making and operational support. challenges ahead, but now that we have a sound financial base And, in order to maximize the assets of a company and realize and the ability to make new investments, we will create a greater business growth, it is also important to develop virtuous cycle in which the people who work for NEC do so with human resources who can understand both the business side confidence and pride, and produce results. Going forward, we and the finance side, and as CFO, I would like to help foster will leverage this virtuous cycle to increase corporate value. such human resources. Looking at NEC as a whole, I see the potential for great things, made possible by the abilities of the Company’s NEC Integrated Report 202134 R&D and Business Development At NEC, we are aggregating the functions necessary for expediting the commercialization process and upgrading our R&D capabilities, in order to enhance results through co-creation with external business partners, realize faster commercialization, and generate technological synergies through- out the Group. With a focus on human resources, co-creation, synergy, and commercialization, we will continue to develop differentiated technologies and commercialize them in a timely manner, thereby steering the growth of NEC forward. Major Areas of Research Creating Social Value with Cutting-edge AI and ICT Platforms Global R&D Network NEC Laboratories America Development of cutting-edge core technologies NEC Laboratories Europe Creation of solutions and technology through EU projects and implemen- tation activities NEC’s Four Domestic Research Laboratories Data Science Research Laboratories Biometrics Research Laboratories Secure System Research Laboratories System Platform Research Laboratories Take the central role in NEC R&D, focusing on AI (recognition, analysis), security, ICT platforms, and other cutting-edge tech- nologies (quantum computing and devices, etc.) Israel Research Center Rapid creation of solutions that combine NEC’s technology with advances in technology from outside the Group, leveraging the world’s largest source of start-ups NEC Laboratories India Creation of core technologies to address the challenges of emerging countries NEC Laboratories China AI research and standardization NEC Laboratories Singapore Co-creation of innovative solutions with customers and partners, mainly for developed countries NEC’s Business Model35 I Please refer to “AI Utilization with Respect for Human Rights as the Highest Priority” on page 61 for details on our policies regarding AI and human rights. R&D Competitiveness AI Network / Security* Patents* • A number of papers accepted at prestigious academic conferences on cyber security →Awarded CRYPTO 2019 Best Paper Award • A number of papers accepted continuously at prestigious academic conferences on optical communication for over 30 consecu- tive years • Ranked as a “Top 100 Global Innovator” for the 10th consecutive year in a global survey of the impact of corporate patents (2021) • Ranked 5th in the world in terms of the number of AI-related patent applications (2019) • No. 1 in terms of domestic patent capability in facial authentication (2019) * Security: ACM CCS, Eurocrypt, IEEE S&P, etc. * Top 100: https://clarivate.com/top-100-innovators/ Network: OFC/ECOC, etc. Number of AI patents: WIPO/WIPO Technology Trends 2019 - Artificial Intelligence Facial authentication: Patent Result Press Release (2019) (Source) An Example of NEC’s Competitiveness: Biometrics NEC’s biometric solutions are ranked No. 1 in the world.* No. 1 in the World in Biometric Technology Fingerprint Fingerprint Identification Identification No.1No.1 Facial Facial Authentication Authentication No.1No.1 ×8 ×6 Iris Iris Recognition Recognition No.1No.1 ×2 * Latest survey from research company Frost & Sullivan 1 © NEC Corporation 2021 NEC Group Internal Use Only • Ranked 7th in terms of the number of accepted papers at prestigious interna- tional academic conferences on machine 1 ; ranked a strong 2nd after IBM learning* among B2B enterprises; and ranked 1st among Japanese companies • Similarly ranked among the top companies in the world for image- and video-related AI, retaining its position as the No. 1 company in Japan *1 NeurIPS, ICML, KDD, ECML-PKDD, ICDM *2 AI General: IJCAI, AAAI; image recognition systems: ICCV, ECCV, CVPR, etc. Ranking among Companies for Accepted Papers at Prestigious International Conferences on Machine Learning Rank Company No. of Accepted Papers 994 831 830 336 267 205 184 150 132 126 1 2 3 4 5 6 7 8 9 Microsoft IBM Google Yahoo DeepMind Facebook NEC Alibaba Amazon 10 Tencent Source: Internal survey 2000–2020 R&D Results AI-powered Drug Discovery (graph-based relational learning) Began trials of a cancer vaccine developed using AI in collabora- tion with biotech company Transgene Newborn Children Fingerprint Identification Recognized newborn fingerprints two hours after birth with 99.7% accuracy. Verified results in the Republic of Kenya together with Nagasaki University Optical Fiber Sensing Began trials with Verizon. Successfully obtained traffic data using existing optical fiber networks as sensors Invariant Analysis, etc. Analyzed a variety of data from satellites, etc., with AI in partner- ship with Lockheed Martin Space in the satellite/outer space field High Bandwidth Optical Transport Systems Developed technology of transport bandwidth expansion of optical submarine cable system. On average, 25% of bandwidth expansion was verified over the course of 10,000km AI-driven Endoscopic Image Analysis Developed AI technology for endoscopic image analysis to detect neoplasia in patients with Barrett’s esophagus, becoming the first technology of its kind to meet CE mark labeling requirements Intellectual Property (IP) Strategy Selected as a “Top 100 Global Innovator*” for the 10th Consecutive Year Based on IP Building an IP Network That Takes Advantage of Global Business While Ensuring Competitive R&D Build a strong IP network by developing a group of patents necessary to conduct overseas business in line with our business plan, as opposed to relying on our core group of patents Enhancing IP Business and 5G Standard Patents Focus on creating new businesses that utilize intellectual property, accelerate R&D co-creation, and strengthen cooperation with partners, which includes leveraging intellectual property * https://clarivate.com/top-100-innovators/ NEC Integrated Report 202136 R&D and Business Development Genealogy of Strengths Technological strength is born from “the bonds between human talent.” ● The bonds between human talent surpass time and location, creating superior technology. ● The following key players involved in the development of AI over the course of its history form the genealogy of NEC Laboratories’ AI research: Yann LeCun Vladimir Vapnik Leon Bottou Hitoshi Imaoka Photograph of Yann LeCun by Jérémy Barande, “Yann LeCun (41208595340)”; photographs of Geoff Hinton & Yoshua Bengio by Steve Jurvetson, “Deep Thinkers on Deep Learning”; licenses for all three photographs are based on CCBY 2.0. Received ACM Turing Award (2018) “The Godfather of AI” Geoffrey Hinton “The Three AI Giants” Yoshua Bengio Central Research Labs Hitoshi Imaoka World No.1 in Facial Authentication Advising Research Direction Keiji Yamada Introduced machine learning to pattern recognition Atsushi Sato Discovered and utilized generalized l earning vector quantization Pioneers in Pattern Recognition LeCun School Yann LeCun AT&T Bell Lab →NEC Labs America →Facebook AI Lab Director @NEC Labs America Vladimir Vapnik Joint Inventor of Support Vector Machine Received C&C Award (2013) Leon Bottou Won Test of Time Award* for works During his tenure at NEC (ICML 2018) Ronan Collobert & Jason Weston Awarded the Test of Time Award* for works during his tenure at NEC NeurIPS 2018) * Test of Time Award: An award for the most important papers which have pioneered new paradigms in the last decade Yann LeCun氏の写真はJérémy Barande氏による“Yann LeCun (41208595340)” 、Geoff Hinton氏、Yoshua Bengio氏の写真はSteve Jurvetson氏による“Deep Thinkers on Deep Learning” いずれもライセンスはCC BY 2.0に基づく 2 © NEC Corporation 2021 NEC Group Internal Use Only Acquiring & Cultivating Talent to Continuously Strengthen Our Genealogy Continuously investing in our talent via fair evaluations, the creation of an environment where everyone strives for their best In 2019, we introduced the “Selective Compensation Program for Professional Researchers” to attract top young researchers. • Considering the market value of researchers, we did not cap their remuneration. • The program began in 2019 in Japan. We also offered the pro- gram to applicable new graduates during recruitment activities in the U.S. Continuously strengthening our acquisition of excellent talent from overseas, including from India • We have been engaging in recruitment activities at India’s prestigious institute IIT for the last eight years, and have suc- cessfully recruited 39 researchers. • Nine percent of research personnel at our Japanese labs are foreign nationals, and we continue to strengthen our excellent Young researchers participating in the program Masafumi Oyamada Riki Eto Researchers from IIT talent acquisition from around the world. Kanishka Khandelwal Prakash Chaki NEC’s Business Model37 Business Creation Initiative Companywide Technology Synergies to Create Sources of New Strength ● Utilize the unique or best-in-class technology we have offered over many years to specific customers in social infrastructure fields to enhance other business domains ● Horizontal deployment of technology across business domains Examples of Business Development Promoted through Open Innovation NEC X, Inc. dotData AI-driven Drug Discovery CropScope Agricultural Support Solutions Smart Wellness BIRD INITIATIVE Business Incubator That Takes Advantage of Silicon Valley’s Ecosystem Since its establishment in 2018, three out of its 23 projects have become established companies (Inguo, GAZIRU, and Metabob). A Carve-out Company Specializing in Data Analysis Process Automation Established by World-class AI Researchers Highly capable products, peripheral businesses rooted in these products, and strong team creation Cases of Global Innovation in Drug Discovery Investment in, acquisition of, and joint clinical trials with biotechnology companies • Investment in BostonGene (U.S.)　• Start of clinical trials with Transgene (France)　• Joint development with VAXIMM (Switzerland) • Acquisition of OncoImmunity (Norway) Strategic Partnerships in the Food Processing Industry and Support for Producers Utilizing AI Technology and Ecosystems Worked with local manufacturers and producers through a strategic partnership with KAGOME to build a global ecosystem Working with Leading Venture Capital Companies and Utilizing Crowdfunding to Verify Consumer Needs Engaged in open innovation targeting consumers through unique combinations of the capabilities of NEC, FiNC, and Makuake A Joint Venture with Six Participants from Industry, Finance, and Academia for Collaborative R&D An unprecedented collaborative R&D business launched in Japan by six participants from different fields エコシステム型R&Dの推進（昨年度IR Day発表資料より） Promotion of Eco System-type R&D ・ Provide NEC’s technologies externally at an early phase to involve external partners and speed up R&D ・ Open innovation of inbound/outbound integration R&D NEC Cutting-edge Technologies Security AI Network Business Unit / Unit Business Opportunity Case: dotData Established in 2018 New Start-ups Market Needs Business Knowledge Customers Businesspeople 1 © NEC Corporation 2021 NEC Group Internal Use Only Field of R&D for Real-world Uses Technologies Talents Academia External Fund Provide incentives to researchers Partners/ Startups NEC Integrated Report 202138 NEC’s Business Model Roundtable: Creating Social Value through NEC’s R&D Terumi Umematsu Area of responsibility: Modeling human internal states (psychological and neurological) using biological signal analysis Visiting researcher at the Massachusetts Institute of Technology (U.S.) from 2017 to 2019 Masafumi Oyamada Area of responsibility: R&D on data integration and machine learning systems Principal researcher (alumnus of the first iteration of the Selective Compensation Program for Professional Researchers) Yusuke Akamatsu Area of responsibility: R&D related to biomedical signal processing Joined the Company under the Selective Compensation Program for Professional Researchers The Strengths and Merits of R&D at NEC, from a Researcher’s Perspective Judging by your day-to-day R&D activities and your Do you come across any obstacles when you take on experience to date, what would you say are the challenges? characteristics of NEC? Umematsu Even when you try but fail, people encourage you Oyamada Speaking broadly, NEC is quite solid when it comes to try your best next time. I think this is a really positive thing. I am to basic research, and they apply this research to the real world, always taking on challenges, and my hope is that people like Mr. and these are both appealing points. Speaking of research, when Akamatsu will see me try and fall short and realize that this is it comes to my area of databases, machine learning, AI, and other acceptable—and will feel like making an attempt themselves. similar fields, NEC is one of the best in the world. They are very Akamatsu That’s right. When I see someone senior to me with aware of getting the basics right, and this is something that has as much passion as Ms. Umematsu, I feel like I’m in a place that been historically well-nurtured among researchers in Japan, of welcomes those who like taking on a challenge. course, but also in North America and Europe. This has made the level of researchers quite high and has increased the appeal of NEC as a potential workplace for many top-level students. Mr. Akamatsu, you joined the Company in fiscal 2021, but 　NEC has customers in various fields both in Japan and abroad, what drew your attention to NEC as a student? so I think another appealing point is being able to look at a cross- section of data, discover universal issues, and produce research Akamatsu I was drawn in by NEC’s unique social solutions, results to tackle those issues. that is, the way they would work with other companies to identify Umematsu I think one strength is that we get to feel a sense of issues and then apply technology to solve the issues. For me, this responsibility for our research, from the beginning all the way to is what separates NEC’s research laboratory from the rest. My goal the end, when both we and the business divisions send our was to be useful to the world and have people benefit from things research out as business. I would also have to say that another I created, so I chose a company that would allow me to achieve major strength is NEC’s connections to areas outside of Japan, this goal and see the fruits of my efforts in society. universities, and other companies. Also, when I want to embark on 　Another characteristic of NEC that I have noticed since joining is a theme of research, the people at NEC are very sincere with their that there are people working in a variety of fields, and being around inquiries regarding it. If what you propose is logical and shows so many different professionals, being able to ask them for advice promise, you can take charge of your research on your own. This is and conduct research together with them is definitely appealing. a great amount of freedom. I can do the things I really want to do, Oyamada One of the people who laid the foundation for deep and I can work with a dream in mind and see my efforts come to learning belonged to NEC Laboratories America, and I think the fruition in society. This is the driving force that gets me to do my reason that NEC is so well known among students as a research best every day. institution is because of its excellent and long-standing reputation. 39 Is there a divide between your image of NEC before joining reach us in real time. If your research capabilities in a certain and how you see it now? technological field are not up to par with another group, that gap is apparent for all to see. Therefore, if things are opening up, we Akamatsu The biggest gap for me was that I had imagined a are best off taking advantage of the benefits. place where you conduct research focused on creating Umematsu I was stationed abroad about two years ago, and technology—either developing technology or improving existing the most shocking difference for me was that researchers were technology—but in reality, I have had many opportunities to also entrepreneurs, business owners and managers, and they think in terms of business. One example is an approach to took care of people while establishing a vision for research. I was research I learned regarding patents. I learned that, even if the astonished to see these superhuman people who seemed to be patents and technology didn’t exist, we could discuss able to do it all. I felt the difference in power. But with that shock hypotheticals with someone from one of the business divisions out of the way, I feel that with NEC’s lineup of a variety of and begin research from there. professionals, we should all work to create something grand, Oyamada About seven years ago, we started promoting the instead of only trying to do things on our own. idea of thinking in terms of business needs. I think this has Oyamada I had a similar experience about four years ago, become part of the Company’s culture. working with people from top universities abroad, but I felt Umematsu There are more and more opportunities for us to jealous every day. I felt disappointment in myself, seeing them communicate research themes to the entire Company. This is partly organically flow between research, capital, and business. It made due to communication reforms and this can lead to good me want to play a bigger role in society. Speaking to that feeling, discussions at the grassroots level where people can confirm as to over these past three years NEC has figured out a process for whether such-and-such is possible and exchange with each other. researchers to commercialize their research outcomes. Also, the Oyamada Things are not in vertical silos and there is no real Company has created NEC Growth Careers, a horizontal work sense of “territory,” so there are lots of discussions along the line transfer system. While I think there is still a ways to go, the of “why don’t we work together to do this?” or “why don’t we threshold is getting lower, and opportunities are increasing partner up to do that?” I think this sense of research as a holistic across the board. effort is something quite unique. Umematsu There are some examples of spin-out companies coming out of research laboratories, and having the frame of mind to step out of your comfort zone is a huge change There has been mention of in-house collaboration, but is psychologically and in many other ways. there much collaboration with research laboratories abroad? Umematsu My impression is that there is quite a lot. There is What are your goals five to 10 years down the line? no kind of threshold for us to pass through, and because of this, it is getting easier and easier to contact other researchers and have Akamatsu First, I would like to focus on gaining some casual interactions to get information. The only difference is expertise. After that, I would like to propose my research, acquire location, but to me, it only seems like the distance between the a budget, and then work to be able to do something in another head office and the Tamagawa Plant. There has been a recent field, such as marketing, since I hope to build myself into one of emphasis on speed, meaning that if it is faster to do something these multi-faceted people we have been talking about. using assets from outside of the Company, versus sticking to Umematsu I would like to create solutions that are, of course, in-house assets, we should choose the faster way. I feel like this is efficient and safe, but I also want them to be compassionate and a change that has taken place over the last five years. It was not close to the hearts of the people who utilize them in the end. To like that when we joined NEC, right? realize such a lofty goal, I hope to increase my own appeal, not Oyamada You’re right. I feel like there used to be a belief that just in terms of skills and technical capabilities, but also as a everything needed to be made by us. What sparked this change? person, so that people will want to work with me and put their faith in me. Oyamada Now that I am working on a business that I started myself, I would like to get it on track. Customers say that our service is very convenient, but convenience does not necessarily Umematsu I think we have realized that in a time when there guarantee profit. I would like to solve this dilemma and create a are complex problems all across society that need to be system that will keep providing value in a sustainable way, both in resolved—the SDGs are a good example—NEC cannot resolve terms of technology and business. them on its own. The Company mindset has changed to one that is more open and draws from outside sources to commercialize and contribute to society. I think the sense of urgency and a feeling of impending challenge have moved the Company in a more flexible direction. Oyamada There is a sense of urgency, no doubt about it. Academic conferences are held online, software is becoming more open sourced, and the things that happen abroad can NEC Integrated Report 202140 NEC, for Those Who Seek Challenge Viewing people as its greatest management resource, NEC has been investing in its personnel by transforming systems and improving environments in ways that maximize the capabilities of its people and organization. To be an employer of choice that is always the preferred option not only of markets and customers but also of workers, we have been reforming our workplace environment and culture. The aim of these efforts is to ensure that each employee has a range of opportunities to take on challenges and grow and receives fair evaluations. Moreover, we are creating an atmosphere in which proactive employees can shine. The aforemen- tioned reforms are based on our Human Resources (HR) Policy, “NEC, for those who seek challenge,” established in 2019. Initiatives to Train Human Resources Policy for Training Human Resources Business Acumen NEC Way Expertise Foundation NEC Way Internalizing the Code of Values as well as the mindset and conduct necessary for leadership Business Acumen Understanding NEC’s business and movements in the global market and learning about the greater business environment, trends, and strategies in order to apply them to strategies and measures in one’s area of responsibility Foundation Acquiring a common set of capabilities required of a professional Expertise Leading business growth by planning and executing mea- sures that have never been tried before by learning and applying the latest trends and practices in one’s specialized field Measures We are striving to instill a business mindset and foster expertise, as well as the ability to drive transformation in each and every employee. Moreover, we aim to increase employees’ ability to manage and take ownership while enhancing individual and team capabilities. 1 Enhance human and organizational management capabilities to succeed on the global stage 1. Boost the skills of those who manage people 2. Ramp up development of the next generation of leaders 2 Pursue professional development to foster a successful business transformation 1. Make necessary adjust- ments in ways of thinking and behavior to adapt to the digital shift 2. Reskill employees 3 Enhance the mindset and skills that form the basis for stronger teams 1. Reinforce implementation of the Code of Values 2. Instill the ability to leverage diversity (Facilitation, team building, diversity management) Support Learning and Career Autonomy with Digital Methods Provide career opportunities and opportunities for personal development Human Resource Training Platform Industry–Academia Collaboration Human Resource Acquisition Human Resource Training Human Resource Utilization Human Resource Development Repayment to Society • New initiatives in addition to • Position-based and work- hiring new graduates • Experienced worker recruitment • Referral recruitment specific training • Training of the next genera- tion of leaders • Theme-based training • Enhancement of manage- ment capabilities • Utilization of the right person at the right place and the right time • NEC Growth Careers (Autonomous career building) • Job-based human resource management • Measures for further success • Opportunities for all ages (Utilization of retirees) • Reskilling Camp • Self-study opportunities • Clearly defined human • LinkedIn Learning • Cost subsidies for skill development • Work experience • Social issue experiential training program resources Human Resources System HR Policy: NEC, for those who seek challenge NEC’s Business Model41 Cultural Transformation and Inclusion and Diversity Cultural Transformation • Code of Values The Code of Values embodies the values and behaviors that all employees must demonstrate every day. • Employee surveys conducted every quarter Check the progress of measures and use today’s feedback to effect tomorrow Code of Values Look outward. See the future. Think simply. Display clear strategies. Be passionate. Follow through to the end. Move fast. Never miss an opportunity. Encourage openness. Stimulate the growth of all. Active Participation of a Wide Range of Talented People: Diversity and Inclusion We believe that by creating a place where people of all genders, generations, and backgrounds can actively participate—a place where they can share and build upon each other’s strengths— we can create a new world. NEC is working to bring together people with different talents from all over the world to create opportunities to maximize performance and foster creativity. This will ensure that NEC continues its development going forward. FY2020 Target Female/Non- Japanese officers Female managers 　20％* 　20％* * Target values are for NEC HQ alone. S For more details, please refer to the section “Inclusion and Diversity” on page 53 of Sustainability Report 2021. Talent Management: Human Resources Training In order to realize NEC’s aim for a world that embraces DX, we absolutely must enhance the skills and talents of our human resources. We are also working to enhance our mid-level manag- ers, as the human resources who manage people will play a very Purpose Purpose 1 Social Issues and Human-centered Creating the future / Shared intent important role when it comes to increasing the level of Competency communication. Specific Initiatives • Training the next generation of leaders • Training human resources involved with DX Technology Demonstrating value that utilizes capabilities unique to humans (analog intuition) 2 Ways of Thinking and Behaving Customer experience (CX) User experience (UX) mindset 3 Technology Digital technology training Utilizing the Right Person at the Right Place and the Right Time with Job-based Management Specific Initiatives　 • NEC Growth Careers • Active efforts to appoint young people and top-notch human resources from outside the Company through a new system that • Increase in mid-career hiring and referral recruitment provides compensation commensurate with job duties • Establishment of NEC Life Career Examples: Established post for research fellow, with no upper Services that help each and every employee develop their limit on compensation careers while promoting reskilling and updating their knowledge Established Selective Compensation Program for Professional Researchers, with no upper limit on compensation for non-managerial employees in an effort to acquire and develop top-level R&D talent S For more details, please refer to the section “Human Resource Development and Training” on page 58 of Sustainability Report 2021. NEC Integrated Report 202142 NEC, for Those Who Seek Challenge Workstyle and Office Reforms with Smart Work 2.0 Moving Our Focus from Ease of Work to Improving Job Satisfaction We are working to implement a model that focuses on creating job satisfaction. This model loops four elements—trust, challenge, growth, and pride—and provides a motivating work environment where it is possible for employees to design their careers autonomously. Initiatives to Date Office Reforms Office reforms The newly established BASE co-working space System Reforms IT Transformation Working from home/telework Remote and on-site workspaces Super flextime Telework security Teleworking ratio Achieved 85％ Number of online conferences per day 31,000 Implementation rate of smart workstyles 22％ (October 2018) 64％ (January 2021) Percentage improvement of operational efficiency 19％ (October 2018) 41％ (January 2021) Vast improvement in satisfaction with workstyles according to employee survey Initiatives to Date Initiatives Going Forward Ease of Work Establishment of system, office, and IT-based infrastructure Proof of concept and other implementation opportunities for employees Job Satisfaction Establish an environment where work experience can be put into practice Work toward data-driven management Job Satisfaction Creation Model Work experience loop 01 Trust Challenge 02 04 Pride Growth 03 Office Reforms Establish conditions that provide the optimal place and optimal time in order to elicit optimum performance Improve quality and quantity within work experience loop Places where people can concentrate on work more efficiently and effectively Location free Improve productivity Office Communication hubs Places where teams can have more creative discussions Digital workplace Well-being by design Security by design Co-creation space Places to create innovation • Workplaces that allow for seamless execution of duties that overcome time and space restrictions • Provide the experience necessary for employees to facilitate their own growth • Implement office reforms that foster trust and co-creation • Foster a work culture that encourages a diverse range of human resources to provide value Places to generate innovative output that transcends the borders of organization and company NEC’s Business Model43 CHRO Message Hajime Matsukura Executive Vice President, CHRO (Chief Human Resources Officer) and Member of the Board Becoming a Company of Choice That Brings Together Diverse Human Resources Continuing the drive forward to embrace the vision “NEC, for those who seek challenge.” Why have we made such earnest efforts to transform our human words at monthly town hall meetings. In addition, members of resources and corporate culture? Over the past decade, there have management hear the voices of employees through employee been times when we fell short of the goals of our mid-term man- surveys conducted once every three months. These efforts help to agement plan and were unable to achieve growth. One of the bridge the gap between management and employees and lead to major reasons for this shortfall was an emphasis on a defensive a more open, constructive culture. stance and a lack of ability to execute. Recognizing this, we have 　So, the ideal human resources are those who act proactively to been working to “restructure our execution capabilities,” which is uphold the Code of Values embedded in the NEC Way. We are one of the management strategies laid out in the Mid-term trying to improve our day-to-day activities by infusing the Code of Management Plan 2020. The launch of Project RISE—an initiative Values into every aspect of our human resources system, including aimed at transforming human resources and our corporate culture hiring, the fostering of personnel, and evaluation. Ninety percent across the Company—sent a strong message from those at the of employees already take part in regular one-on-one meetings helm, saying simply “the top management team ourselves will with their supervisor, and we would like to challenge ourselves to change.” More importantly, though, as we put this message into enhance the substance of these meetings even further and include action, it is creating a shift in the Company culture, making it honest and frank feedback and serious career consultations. known that these efforts toward change are sincere. 　For NEC to display its potential and reach a level where it can 　However, people tend to return to their old ways. Unless we win on the global stage where people, who are diverse in every keep our foot on the accelerator and keep going forward, we will way—be it by gender, nationality, experience, age, or some other not be able to improve our ability to adapt to the drastically attribute—can exchange ideas, it is from this exchange that inno- changing external landscape, and our organization will be left vation emerges. This energy gets amplified when people acknowl- behind on the global stage. To maintain our momentum, we have edge each other and utilize each other’s skills, as opposed to set a target under the Mid-term Management Plan 2025 to achieve simply gathering in one place. People will naturally converge on a an engagement score of 50%, in line with our goal to “transform company like this. It is important that employees take pride in ourselves into a company that pursues innovation and brings their work, take pride in NEC, and take on challenges that are together diverse people under the NEC Way” and to become an more exciting than the last challenge. When each and every one is “employer of choice.” To achieve this goal, every employee needs fully focused on achieving their dreams, these dreams intertwine to transform their manner of thinking and their behavior, and to and each becomes involved and engaged with the other—this take action that will lead to changes in the workplace as a whole. generates value that has a real impact on the world, which leads To that end, we have established a human resources policy titled us toward a stronger connection with the future. It is this shape “NEC, for those who seek challenge.” To carry out this policy, that I want to achieve. members of top management deliver this message in their own NEC Integrated Report 202144 Messages from Employees We have established an HR policy under the banner “NEC, for those who seek challenge.” Under this policy, we are promoting human- and culture-centric reforms to optimize employee potential. Here, we will share some messages from a few of our employees who are working to create social value. Achieving Disruptive Innovations That Address Human Needs Meaningful innovation addresses human needs through the removal of critical barriers to create entirely new markets and inspire new business opportunities. This kind of disruptive innovation is the core mission of industrial laboratories like NEC Laboratories America. NEC Corporation, with its long history of both broad and deep technological expertise, is uniquely positioned to commercialize these disruptive innovations on a global scale. The new NEC mid-term management plan anticipates the approaching technological revolution and positions NEC to lead in the creation of new technolo- gies, new platforms, and new applications. 　Although NEC is positioned to lead, realizing these goals will require clear communication, strong collaboration, and relentless speed in execution. Communication with customers, with governments, with universities, and with ourselves about the challenges we face and the potential solutions leads to greater understanding, a sharper focus, and clarity of thought. Collaboration leverages NEC’s global workforce to tackle big, hard problems with diverse perspectives to find novel solutions for “impossible” problems. Finally, we need to execute end-to-end with speed and quality across all business and R&D stages, converting difficult challenges into novel solutions, comprehensive plat- forms, innovative products, and ultimately happy customers. 　As a researcher, you always want your research results to make an impact. You want to work for companies like NEC with the perfect combination of great customers, a vision for the future inspired by new technologies, and a willingness to support R&D to tackle hard problems. For all of these reasons, I personally feel lucky to work for NEC and I am excited to see what we can achieve. Chris White President NEC Laboratories America Solving the Issues of Local Governments and Creating Safe and Secure Cities I am involved in a project called “Kurumie for Cities” that uses a combination of dash cam* data and AI to automatically detect surface deterioration on roads owned by local governments. I originally worked on car dash cams as a tool to support safe driving, but I wanted to take up a bigger challenge and try something new. So, when the chance came to work on this new business, which was devel- oped out of an existing one, I transferred to the position I am in now. 　This solution can solve road maintenance issues facing several local governments. In the past, local governments had to budget a lot of time and money toward comprehensive inspections of roads under their management, but with our solution they can take advantage of dash cams on ordinary cars, as opposed to dedicated vehicles, which allows for efficient inspections and preven- tive maintenance. We are taking on challenges every day, and our next challenge for the future is expanding our business into detecting deterioration on airport runways. 　As a beneficiary, as well as someone whose family and friends use the roads and highways, it makes me happy knowing that they are able to enjoy the value of our service. Our goal is to create a safe and secure city, but we also want to grow the area where we provide this value, not just in Japan but all around the world. * Dashboard-mounted CCTV system Kaori Iwafuchi Manager System Platform Business Unit System Devices Division NEC’s Business Model45 A Project to Create Social Value in Developing Countries with NEC’s Biometric Authentication Technology I am working with international organizations to promote a vaccination project that utilizes child fingerprints. The project aims to improve child vaccinations by using fingerprint authentication technology in developing countries that are facing difficulties in vaccination record management. Although child fingerprint authentica- tion is extremely challenging, we have developed the world’s first child fingerprint authentication achieving actual utilization with NEC’s superior biometric technology. When I studied abroad, I saw with my own eyes many children who bore the brunt of undeveloped social infrastructures. I then decided to involve myself in developing projects that would reinforce social infrastruc- tures because I thought it would enable me to create a win-win relationship for both developing countries and companies. Eventually, I joined NEC and am now involved in this project. While developing countries require funds for development, NEC, a for-profit company, needs to generate profit to maintain sustainable operations. We need to consider to work with governments and international organizations to garner the financial support to get these developing countries on the right track. My previous work experience in a financial institution has been useful to my current work. NEC creates social value through technology. We listen to people who are facing real challenges and can co-create solutions together. This is NEC’s strength. Saori Tsubakino Assistant Manager Global Business Unit Global Relations Division Launching a New Business That Provides Safe and Secure Infrastructure I joined NEC as a new employee in 2020, and I am launching a business that involves installing 5G transmitters on traffic lights and other structures in order to determine the situation at traffic intersec- tions, support autonomous driving, and help prevent accidents. The hard part of our day-to-day work is that the path to our goals is not straightforward. As we search for this path, we need to be able to look ahead and reverse engineer our steps. We also need to think how we can monetize our business, as opposed to simply commercializing it. 　Ever since I was a student, I was interested in local revitalization and sustainability, and I joined NEC due to its ability to work with the national government. Before joining, I thought of NEC as a rather conventional company, so when I got there, I didn’t expect to see all the hustle and bustle with so many people actively working around me. I feel, though, that this will help me gain a lot of experience as I face one challenge after another. As a first step, I am working to launch this business to provide safe and secure infrastructure and to use collected data to further reduce traffic congestion. In the future, I will use the experience gained in launching this business and be involved in solving issues in fields such as tourism and agriculture with the aim of revitalizing local areas. Nozomi Matsumoto Cross-Industry Unit Cross-Industry Business Development Division Helping Customers Achieve Their Future Visions through Consulting I joined NEC in March 2020 and have found collaboration within the Company to be much more active than I expected. When you look at NEC’s people and technology, the possibilities seem infinite. NEC continues to develop technology on its own, and for this reason, it is able to have a good grasp on the future, but there is a lot more that NEC could do to contribute to society and to its customers. I believe that the Company needs to be ready to put forth potential “hypotheses” that will help customers achieve success at an earlier stage, so the Company needs to deliver this value with speed, even if its initial proposals are not a 100% match with requirements. In this sense, the existence of consulting services as a part of NEC is greatly significant. 　We believe that our role is to help customers create the value that is part of their future vision and help them realize the fruits of their endeavors. Creating value does not only mean promoting differen- tiation or producing added value—it also means amplifying that created value upon itself. A company can actualize its “reason for being” in a sustainable manner by taking advantage of digital technology, both to update its value and contribute to society. For example, more effective use of investment resources and assets can increase the efficiency of the value chain, which not only lowers costs but also helps reduce the loss of resources and brings us closer to carbon neutrality, all of which contributes toward a sustainable society. In addition, these efforts will lead to the creation and increase of added value for customers and, ultimately, their beneficiaries. NEC will think, together with its customers, on how to resolve the issues that stand in their way from realizing their vision for the future, make efforts to resolve them based on current technology and future possibilities, accumulate results, and then realize growth. Eiki Momotani Managing Executive Digital Business Platform Unit DX Strategic Consulting Division NEC Integrated Report 202146 Living Harmoniously with the Earth to Secure the Future “Living harmoniously with the earth to secure the future,” part of the NEC 2030VISION, includes three elements: decarbonization, preventing global warming, and water and food safety. Under this banner, we intend to utilize our business to solve and improve climate change and a variety of other environmental issues occurring on the earth today, and realize a sustainable society. Since 2018, NEC has highlighted “environmental action with a particular focus on climate change” as one of its materiality themes. Therefore, we are providing value in the form of mitigation-based (decarbonization) and adaptation-based countermeasures to climate change, more specifically, reducing CO2 emissions from customers and society through DX and “preparing for the various impacts of climate change.” By expanding provision of solutions and services that help resolve environmental issues, we will support the conservation of the global environment and the sustainable growth of both companies and society. Environmental Initiatives for Realizing a Sustainable Society As our response to climate change, we have set Science Based Targets (SBTs) for 2030 as part of our goal of reducing our CO2 emissions to effectively zero by 2050, and are working to provide solutions and services to contribute toward resolving environmental issues. 2050 Course of Action for Climate Change Toward 2050 (Announced July 2017) Effectively zero CO2 emissions by 2050 2030 SBT* 1.5℃ (Validated in May 2021) Reduce Scope 1 and Scope 2 CO2 emissions by 55% compared with fiscal 2018 “ M i t i g a t i o n ” o f c l i m a t e c h a n g e Ⅱ. Achieving sustainable society by collaboration Realizing a low carbon society as a goal for the planet (Keeping global average temperature rise between 1.5ºC and 2ºC) Realizing a safe, secure society that is resilient to climate change risks Aiming for zero CO2 Strict countermeasures emissions from against climate change supply chains risks in supply chains Ⅰ. Building sustainable management foundation “ A d a p t a t i o n ” t o c l i m a t e c h a n g e 2020 Create Five Times More Environmental Value through Business (Announced July 2014) Goals of Climate Change Countermeasures up until Fiscal 2021 5.2倍 4.2倍 4.2 times 5.2 times 2.7倍 2.7 times 7.7倍 7.7 times Target: 目標 5 times 5倍 2018 “Response to environmental issues centered on climate change” positioned as materiality 2017年度 FY2018 2018年度 FY2019 2019年度 FY2020 2020年度 FY2021 適応 Adaptation 緩和 Mitigation Contribution 貢献 Social value created by NEC 創出する社会価値 負荷 Impact Impact of NEC’s business 事業が及ぼす影響 * Science Based Targets NEC’s Business Model 47 Aiming to Reduce CO2 Emissions to “Effectively Zero” by 2050 Decarbonization Preventing global warming In July 2017, we formulated our climate change countermeasure guidelines up to 2050 in order to strengthen NEC’s sustainable management base and promote creation of a sustain- able society together with our customers. In accordance with these guidelines, we aim to reduce CO2 emissions associated with NEC’s business activities (Scope 1 and Scope 2) to effectively zero by 2050. In 2021, NEC joined RE100 and is dedicated to procuring 100% of its electricity from renewable sources. CO2 Emissions Reduction Targets Without reduction measures Reduction measures 1. Thorough efforts to improve efficiency 2. Expand introduction of renewable energy 3. Purchase renewable power 55% reduction 2017 2030 Effectively zero 2050 NEC’s Initiatives Toward Achieving the SBTs Decarbonization In 2021, we increased the stringency of our Science Based Targets for climate change countermeasures from the “well below 2℃” goal to an alignment with the “1.5℃” goal, and we are redoubling efforts to reduce environmental footprint and risks throughout our supply chains. Since CO2 emissions from the supply chain account for 95% of NEC’s total emissions, we are making new efforts to reduce emissions from purchased goods and services through engagement with our suppliers. These efforts are in addition to our existing efforts to reduce emissions from the use of sold products. Reducing Scope 3 CO2 Emissions from the Supply Chain Other (excluding Category 13, 14, and 15)　4％ Scope 1, 2 Emissions produced by the Company Upstream Downstream 5％ 6,485 kilotons (FY2021) Scope 3 (95%) Category 1 Category 11 Emissions from purchased goods and services* Emissions from use of sold products Fiscal 2031 Reduction Target of 33% (Compared with Fiscal 2018) NEW Ongoing Reductions through supplier engagement Reductions through improved energy efficiency in products Category 1 Emissions from purchased goods and services Category 11 Emissions from use of sold products In addition to existing efforts to improve the energy efficiency of products, we will promote new emissions reduction measures that leverage supplier engagement. 53％ 37％ * Comprises 35% of all Category 1 emissions NEC Integrated Report 202148 Living Harmoniously with the Earth to Secure the Future Contributing to Decarbonization through Business 企業のCO2排出量によるマッピングから見たNECのポジション Decarbonization Although NEC’s CO2 emissions are small relative to the rest of NEC’s Position When Mapping Corporate CO2 Emissions the industry, with a small impact on society, industries with High high CO2 emissions can take advantage of NEC’s ICT technology to help reduce their emissions. Therefore, we are ramping up efforts to make our business means toward decarbonization to accelerate the decarbonization process across society. S c o p e 1 + 2 2 ＋ 1 e p o c S CO2 emissions (risk) relatively low NEC Note: Materials adapted from those produced by Green Pacific Co., Ltd. All rights reserved. ©株式会社グリーン・パシフィック作成資料にNECが一部加工 禁無断転載 2 © NEC Corporation 2021 Scope3 Scope 3 High Calculation Methods for CO2 Emission Reductions Use CO2 emissions as a metric for evaluating changes from introducing ICT (centered on seven activities concerning CO2 emissions) Ways that introducing ICT can reduce impact 1. Human Movement 2. Use of Paper 3. Use of Object 4. Object Movement 5. Object Storage Use of online conferencing systems Electronic file sharing, e-books Use of network services Streamlining logistics, digitalized items Lower storage space needs from reduction in paper and objects Ways that introducing ICT can increase impact 6. Use of IT Devices 7. Use of Network Services Greater power consumption from increased use of IT devices for new systems Greater power consumption from increased use of network services Reduction effect after one year (calculated with evaluation tool) 1 2 3 4 5 6 7 Before After Contributing to Society with Businesses Related to Carbon Neutrality Resource aggregation business FY2026 business scale: 12.0 billion yen Expansion of business Contribution to a decarbonized society NEC HQ Self-consignment Surplus power supply Aggregation service Price Surplus power supply Power companies （Distributors） Adjusting capacity Price Regulated supply and demand market （To open in FY2022） NEC business locations and NEC Group companies Decarbonization management solutions Circular economy Energy management • Uptake of renewable energy • Improvement of resource productivity of industrial sector CO2 reduction economic effect: 90.0 trillion yen* * Source: Green Growth Strategy for Carbon Neutrality in 2050 (Ministry of Economy, Trade and Industry, published in 2020) Note: Market size is an estimate of the Japanese market in 2030. Other Examples S Please refer to page 42 of Sustainability Report 2021 to learn about our efforts to reduce CO2 emissions in Africa with a Hybrid Energy Storage System. Decarbonization S Please refer to page 41 of Sustainability Report 2021 to learn about our IoT-based River Water Level Monitoring System, which has been installed as a global warming measure and to assist with water safety. Preventing global warming Water and food safety NEC’s Business Model 49 Risks and Opportunities Decarbonization Preventing global warming Water and food safety Recognizing the impact that such environmental risks as climate change and pollution by hazardous substances could have on its businesses, NEC conducts risk reduction and preven- tion activities through assessment, inspection, and education. For climate change in particular, we examine risks and opportunities from both a short-term and a medium- to long-term perspective in line with TCFD recommendations, evaluate future impacts, and identify assets in relation to risk countermeasures and opportunities. Risks and Opportunities at a Glance Climate change Other environmental issues Environmental Targets: NEC Eco Action Plan 2025 Decarbonization Preventing global warming Water and food safety To reduce CO2 emissions to “effectively zero” by 2050, we have set a series of environmental targets to be achieved over the course of five years, based on the NEC 2030VISION and the Mid-term Management Plan 2025. We have selected 11 priority activities based on the three goals. 1. Reduce own risks and footprints 2. Increase contributions through businesses 3. Build foundations to promote environmental management S 2.3 For more details on the NEC Eco Action Plan 2025, please refer to pages 31 and 32 of Sustainability Report 2021. 1. Reduce own risks and footprints (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3) (cid:38)(cid:50)(cid:21) (cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86) (cid:44)(cid:81)(cid:16)(cid:75)(cid:82)(cid:88)(cid:86)(cid:72) (cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:76)(cid:81) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:90)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:88)(cid:86)(cid:68)(cid:74)(cid:72) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86) (cid:55)(cid:75)(cid:72)(cid:80)(cid:72)(cid:86) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86) (cid:11)(cid:68)(cid:69)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:12)(cid:3)(cid:11)(cid:54)(cid:37)(cid:55)(cid:12) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:16)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:38)(cid:50)(cid:21) (cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:68)(cid:69)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:12)(cid:3) (cid:11)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:60)(cid:21)(cid:19)(cid:20)(cid:27)(cid:12) (cid:44)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85) (cid:40)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:81)(cid:72)(cid:90)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92) (cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:85)(cid:76)(cid:70)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:85)(cid:72)(cid:81)(cid:72)(cid:90)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:38)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)(cid:3)(cid:20)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:54)(cid:37)(cid:55)(cid:12) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:16)(cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:38)(cid:50)(cid:21) (cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:11)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:60)(cid:21)(cid:19)(cid:20)(cid:27)(cid:12) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:38)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)(cid:3)(cid:20)(cid:20)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:54)(cid:37)(cid:55)(cid:12) (cid:44)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:3)(cid:72)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92) (cid:11)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:60)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:12) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:60)(cid:21)(cid:19)(cid:20)(cid:28)(cid:12) (cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:41)(cid:60)(cid:21)(cid:19)(cid:20)(cid:28)(cid:12) (cid:41)(cid:60)(cid:21)(cid:19)(cid:21)(cid:25)(cid:3)(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86) －(cid:22)(cid:22)(cid:17)(cid:25)(cid:8) (cid:26)(cid:27)(cid:15)(cid:19)(cid:19)(cid:19) (cid:48)(cid:58)(cid:75) －(cid:25)(cid:17)(cid:19)(cid:8) (cid:28)(cid:19)(cid:17)(cid:19)(cid:8) －(cid:22)(cid:17)(cid:24)(cid:8) －(cid:23)(cid:17)(cid:27)(cid:8) External Evaluation Regarding the Environment Decarbonization Preventing global warming Water and food safety NEC was included in the “A List” for both climate change and water security in 2019 and 2020 consecutively. NEC was also listed on the CDP’s supplier engagement “Leaderboard,” the highest recognition the CDP offers for supplier engagement. NEC Integrated Report 202150 At a Glance NEC Corporation and Consolidated Subsidiaries Revenue, adjusted operating profit, adjusted net income, free cash flow, and composition of revenue are financial results for the fiscal year ended March 31, 2021 (IFRS). Revenue Adjusted operating profit 2,994.0 billion yen Adjusted net profit 178.2 billion yen Free cash flows 165.4 billion yen 152.4 billion yen Public Solutions Business Public Infrastructure Business Enterprise Business Revenue Revenue Revenue 425.1 billion yen 692.9 billion yen 503.1 billion yen Adjusted operating profit Adjusted operating profit Adjusted operating profit 39.4 billion yen 59.4 billion yen 48.2 billion yen Major Products and Services Major Products and Services Major Products and Services •• Systems Integration •• Systems Integration •• Systems Integration (Systems Implementation, Consulting) (Systems Implementation, Consulting) (Systems Implementation, Consulting) •• Maintenance and Support •• Maintenance and Support •• Maintenance and Support •• Outsourcing/Cloud Services •• Outsourcing/Cloud Services •• Outsourcing/Cloud Services •• System Equipment •• System Equipment •• System Equipment Examples of Major Customers and Main Solutions Public: Firefighting Command, Firefighting Emergency Radio Systems, Disaster Prevention, Traffic Control, Railroad Communication, Local Government, Energy Management Systems Healthcare: Electronic Medical Records, 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 Media: TV Program Production/ News Production/Transmission, Digital TV Transmitters Examples of Major Customers and Main Solutions Manufacturing: Global SCM, Product Life Cycle 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 Major Consolidated Subsidiaries Major Consolidated Subsidiaries NEC Nexsolutions, Ltd. NEC Network and Sensor Systems, Ltd. NEC Facilities, Ltd. NEC Space Technologies, Ltd. Japan Aviation Electronics Industry, Limited NEC’s Business Model51 Note: Figures for revenue, adjusted operating profit, and composition of revenue for the fiscal year ended March 31, 2021 are restated to conform with the new segments, which have not been audited by the accounting auditors. Composition of Revenue Revenue by Region ●Public Solutions Business .......... 14％ ●Public Infrastructure Business ... 23％ ●Enterprise Business ..................... 17％ ●Network Services Business ......... 18％ ●Global Business ............................ 15％ ●Others ............................................ 13％ ●Japan ....................................76.6％ ● North America and Latin America ..................4.4％ ● Europe, Middle East, and Africa .................................7.6％ ● China, East Asia, and Asia Pacific ....................11.4％ Network Services Business Global Business Revenue Revenue Others Revenue 538.8 billion yen 450.0 billion yen 384.2 billion yen Adjusted operating profit Adjusted operating profit Adjusted operating profit 41.2 billion yen 7.5 billion yen 7.7 billion yen Major Products and Services Major Products and Services Major Products and Services •• Network Infrastructure: •• Digital Government, Digital Finance •• Business Consulting Core Network, Mobile Phone Base •• Software Services for Service •• Package Solution Services Stations, Optical Transmission Providers (OSS/BSS) Systems, Routers/Switches •• Network Infrastructure: •• Systems Integration: Submarine Systems (Submarine (Systems Implementation, Consulting) Cable Systems, Ocean Observation •• Services & Management: 2 , Services/Solutions 1 OSS* /BSS* Systems), Wireless Backhaul *1 OSS: Operation Support System *2 BSS: Business Support System Major Consolidated Subsidiaries Major Consolidated Subsidiaries Major Consolidated Subsidiaries NEC Networks & System Integration OCC Corporation ABeam Consulting Ltd. Corporation Netcracker Technology Corporation NEC Platforms, Ltd. NEC Software Solutions UK Limited NEC Fielding, Ltd. KMD Holding ApS Avaloq Group AG NEC Embedded Products, Ltd. NEC Integrated Report 202152 Business Overview Public Solutions Business Social Value Goals under the Mid-term Management Plan 2025 Expand the value we provide to help realize prosperous local societies • Achieve continued growth while transforming our business model • Help resolve social issues by providing value beyond existing frameworks 9.3% (39.4 billion yen) About 10% FY2021 FY2026 Estimated adjusted OP ratio target Achievements and Issues to be Addressed under the Mid-term Management Plan 2020 Achievements Issues • Improved operating profit ratio with measures that included • Increase profitability of business through business profitability reducing unprofitable projects analysis, followed by improvement measures • Reviewed and implemented strategies in response to sudden • Help resolve social issues by taking on challenges that create new changes in the external environment (COVID-19, etc.) social value Business Opportunities and Key Measures for the Medium to Long Term Business Opportunities perspective. In addition, we will utilize our extensive track record work to create services with true value from the consumer’s • Accelerated digitalization due to lifestyle and workstyle changes • Increased expectations for ICT to resolve social issues ● Expanding Business Domains to Resolve Social Issues The COVID-19 pandemic has caused significant changes in the way we conduct business and live our lives. This applies to NEC as well, and we are taking steps to go beyond the conventional boundaries of an ICT vendor and promote co-creation and and society’s trust in us, as well as our advanced technologies to tackle environmental problems and natural disasters, the latter of which are increasing in intensity and frequency, and help resolve customer and social issues. ● Transforming Our Business Model We aim to transform our business model to provide new value to customers and society while also spurring our own business growth. More specifically, we will utilize the know-how gained from promoting our existing packaging business to provide new offerings. As we develop assets in digital government, digital connection building with customers and business partners. This healthcare, city management, public safety and transportation, is part of a move to transform and create further social value. we are developing mechanisms and systems for these assets. On 　To that end, we will stand at the forefront of the various issues top of ensuring high quality in a stable manner, we plan to gripping Japan, such as rising social security costs and a increase speed of delivery, which will increase the value we pro- shrinking labor force, and muster a firm response, leveraging the vide to customers and help raise business profitability. trust and track record we have built up to date delivering the latest systems in public, medical and local industry fields, as well as our cutting-edge technology. At the same time, we will also NEC’s Business Model53 Public Infrastructure Business Social Value Goals under the Mid-term Management Plan 2025 Transform social systems • Contribute to a social system that allows all people to enjoy prosperity and convenience • Create public infrastructure that allows for safe and secure living 8.6% (59.4 billion yen) About 10% FY2021 FY2026 Estimated adjusted OP ratio target Achievements and Issues to be Addressed under the Mid-term Management Plan 2020 Achievements Issues • Exceeded targets put forth for each fiscal year of the Mid-term • Increase efforts to reduce unprofitable projects despite such projects Management Plan 2020 being on a downward trend • Achieved horizontal expansion of technological assets and launched • Improve capital efficiency despite maintaining high profitability new value creation endeavors in the fields of government, education, broadcasting, and security Business Opportunities and Key Measures for the Medium to Long Term Business Opportunities time. By taking on this challenge, we will transform the structure infrastructure, we will also work to create new value at the same • Expanding role of ICT in the transformation of social systems • Expansion of new business areas due to the promotion of digital governments ● Expanding Business in New ICT Fields “Toward a proud society. Toward a proud future.” This is the vision that the Public Infrastructure Business Unit put forth during the formulation of the Mid-term Management Plan 2025. Our goal is to realize a society in which all people can enjoy prosperity. To this end, we will combine NEC’s technologies, products, and solutions and work with partner companies to create new social value. Over the past year, we have embarked on new initiatives. These include promoting OPE,* NEC’s education cloud service, and digital education that provides one terminal for each person. It also includes the development of cloud-based offerings for government offices to accelerate government digitalization. We are also looking into creating new value in the aviation industry utilizing data linkage. As we continue to build and operate public of public systems themselves, creating a society that both we and our customers can take pride in. * OPE: Open Platform for Education ● Introducing of ROIC-based Management The Public Infrastructure Business Unit supports customer opera- tions in sectors such as government offices, broadcast stations, and security by facilitating the stable operation of super mission- critical ICT systems. We are maintaining stable revenue levels and stable operating profit ratios amid high technical demand and several large-scale projects. In a move to increase “quality of management” even further, the Public Infrastructure Business Unit, with its various characteristics, will adopt a pioneering role, taking on ROIC-based management from fiscal 2022. This initia- tive will involve measures tailored to the characteristics of each business that, instead of only maintaining high profitability, are also intended to increase capital efficiency, and thereby improve corporate and business value in a sustainable manner. NEC Integrated Report 202154 Business Overview Enterprise Business Social Value Goals under the Mid-term Management Plan 2025 Provide value and create new business opportunities that will meet customer and market demand • Enhance efforts toward DX that will go beyond the boundaries of companies and industries to resolve social issues • Leverage NEC’s strengths and its partnerships with customers to promote the co-creation of growth businesses 9.6% (48.2 billion yen) About 13% FY2021 FY2026 Estimated adjusted OP ratio target Achievements and Issues to be Addressed under the Mid-term Management Plan 2020 • Developed solutions and services aimed to accelerate DX, and • Shift to a business structure that is not affected by changes in the Achievements Issues promoted the creation of DX-related offerings macro environment • Established a solid business foundation that can maintain a stable • Continue to increase profitability operating profit ratio of 10% Business Opportunities and Key Measures for the Medium to Long Term ● Increasing Profitability of the SI Services Business Business Opportunities The system integration services business is at the heart of the • Greater expectations for ICT as a means to solve a variety of social issues, such as environmental problems, decarbonization, and labor shortages Enterprise Business, and we will go forward with plans to imple- ment modeling and create new offerings for it. These measures will improve productivity, quality, and delivery speed; at the same • More new business opportunities and acceleration of ICT time, we will shift toward the type of business that creates value, use in markets as a result of COVID-19 boosting profitability as a result. Along with these measures, we ● Ramping Up Initiatives in Growth Fields To respond to market needs in light of the rapid changes taking place in society, we have taken steps to develop solutions and services for customers in the manufacturing, retail/service, and financial industries. Taking this further, we plan to ramp up and expand efforts toward DX that will go beyond the boundaries of companies and industries to resolve social issues. 　Looking even further into the future, we are also promoting efforts to help realize a sustainable society. These efforts will not be done on our own. Instead, we will work with our customers and business partners and devise a medium- to long- term plan that utilizes all of our strengths and, when imple- mented, will result in the co-creation of value. will also enhance our efforts to cultivate human resources who specialize in consulting necessary for business and those with a high level of expertise in DX. ● Improving Management Efficiency To establish a sustainable profit growth cycle, we will set up and reinforce a system for monitoring business profitability while working to improve the asset efficiency of our business invest- ments by reducing the number of days in our cash conversion cycle along with other efforts. Also, we will continue to invest resources generated through this process in growth businesses to further refine our strengths and raise our competitiveness. NEC’s Business Model55 Network Services Business Social Value Goals under the Mid-term Management Plan 2025 Contribute to the digital transformation of society as a whole by maximizing the communications-related value rooted in 5G • Promote open systems as a way to expand 5G as a form of social infrastructure • Maximize value for customers by modernizing carrier operators and providing DX support 7.6% (41.2 billion yen) About 10% • Contribute to the development of DX among industries by integrating FY2021 FY2026 networks and IT Estimated adjusted OP ratio target Achievements and Issues to be Addressed under the Mid-term Management Plan 2020 Achievements Issues • Expanded 5G businesses via a full-scale launch of commercial 5G • Expand footprint and portfolio in software domains (core, RIC, etc.) networks with domestic carriers in order to expand 5G business globally • Maintained profitability by retaining the top position in telecom- • Establish a customer profit model using end-to-end solutions in the related business NEC Smart Connectivity business • Developed NEC Smart Connectivity and established a co-creation system Business Opportunities and Key Measures for the Medium to Long Term Business Opportunities tions and assume a leading role in the Open RAN market, setting • Expansion of global opportunities from the full-scale launch of the 5G market and development of open systems • Optimization of overall management for domestic carri- up a system for operations that will allow the Company to lever- age mobile telecommunications infrastructure to provide value globally. We will also expand our Global 5G Business, backed by ers and expansion of business in value-added fields two of NEC’s strengths, wireless technology and system integration. in the wake of 5G. NEC will take advantage of these market condi- • Expansion of business opportunities to support DX in industrial and public sectors ● Optimizing Overall Management for Domestic Carriers and Expanding Business in Value-added Fields In addition to our efforts to make solid business contributions The rise of 5G and the IoT has sped up the digital shift. DX is also that meet customer expectations, we are also working to opti- accelerating on a new level as the industrial world harnesses it to mize overall management and expand business in value-added acquire new business and promote effective management utiliz- fields. The former is rooted in our track record of supporting ing AI, the IoT, the cloud, and other tools. In consideration of commercial networks and takes advantage of our customer these conditions, we aim to expand business based on the follow- engagement, whereas the latter takes advantage of modernized ing three pillars. information platforms and other forms of innovation. ● Leading the Shift to Open Systems and Promoting the ● Expanding Business to Support DX in Industrial and Global 5G Business Public Sectors The current telecom carrier market demands a flexible response To expand business, we will integrate telecommunications with IT to a variety of needs, and open and virtual systems are expanding to get a grasp on social changes, and use NEC’s comprehensive into network domains, driven by IT. Telecom operators are turn- capabilities to provide industries with end-to-end solutions cen- ing toward investing in next-generation communications and DX tered on local networks and data distribution. NEC Integrated Report 202156 Business Overview Global Business Social Value Goals under the Mid-term Management Plan 2025 Become a true global company through profitable growth • Become a thought leader through active investments in the growth areas of digital government (DG)/digital finance (DF) and submarine systems • Transform the Company’s organization, systems, and culture to become one that is truly global 1.7% (7.5 billion yen) About 11% FY2021 FY2026 Estimated adjusted OP ratio target Achievements and Issues to be Addressed under the Mid-term Management Plan 2020 Achievements Issues • Completed portfolio switch, setting the foundation for profitable growth • Expand DG/DF globally and ramp up optimization of synergies • Accelerate transformation to a services- and SaaS-based business • Improved profitability of the Global Business and brought adjusted model operating profit into positive figures Business Opportunities and Key Measures for the Medium to Long Term Business Opportunities major Hawaiian airports and the touchless boarding platform we • Digitalization in government and finance areas • Greater demand for submarine cables due to increased global communications traffic have implemented at Rome Fiumicino Leonardo da Vinci Airport in collaboration with SITA. We also intend to accelerate the shift toward a SaaS-based business model in other public safety fields. are the infection control solutions we have implemented at five ● Submarine Systems—Strengthening Business Execution Capabilities to Respond to Market Expansion ● Digital Governments/Digital Finance—Utilizing Synergies There is an urgent need to increase transmission capacity stem- to Accelerate Global Expansion We plan to capture the trend toward DX in Nordic and Commonwealth nations, Asia, and Japan and expand into gov- ernment services, law enforcement, healthcare, aviation, trans- ming from the increase in video content, remote work, and online learning. As a result, there has been a noticeable rise in direct investments in submarine cables, particularly among over-the- top (OTT) service providers. NEC will develop and enhance the port, education, and financial fields. To accelerate this expansion, functionality of new products that contribute to the expansion of we will leverage NEC’s superior biometrics technology as well as its sales network in each country. We will also utilize synergies— product synergies that involve sharing software assets between three acquired companies to create a shared platform, and cost synergies that take advantage of NEC procurement capabilities and centralized software development resources. transmission capacity and quality improvement ahead of other companies, aiming to increase its share not only in the Pacific Ocean, where NEC has a high market share, but also in the Indian Ocean and Atlantic Ocean. We will also continue to increase our business execution capabilities, which include production, cable installation, and quality control, in line with the expansion of 　The demand for solutions at airports is gradually recovering business scale. after stagnating due to COVID-19. Some examples of this recovery NEC’s Business Model57 Relationship of Targets and Growth Businesses in FY2021 by Segment CAGR from FY2021 to FY2026 About 0%~1% Flat About 1%~5% About 3%~8% About 4%~6% — Public Solutions Public Infrastructure Enterprise Network Services Global Business Others FY2026 Targets: Estimated Adjusted OP Ratio About 10% About 10% About 13% About 10% About 11% — Digital Government/Digital Finance ● ● ● ● Global 5G IT Business Transformation in Japan ● ● ● ● ● s s e n i s u B h t w o r G Future Growth Business Creation ● 1 Accomplishments and Future Direction M&A* M&A accomplishments before FY2011 (≥10B JPY) Recent M&A accomplishments (≥10B JPY) 2 Year / Amount* 3 IRR* 2 Year / Amount* EBITDA Margin Currently NEC Software Solutions UK FY2006 30.0B JPY 2 Year / Amount* FY2009 430M USD* 4 20% 10% 0% 20% 10% 0% FY2018 475M GBP (a) (b) 3 IRR* 2 Year / Amount* FY2019 8.0B DKK (a) (b) 30% 20% 10% 0% 30% 20% 10% 0% FY2018 FY2021 EBITDA Margin FY2019 FY2021 *1 Other than the above 4 companies, 3 M&As were implemented from FY2005 (CSG, 2012, 227.5M AUD; A123, 2014, 100M USD; Avaloq, 2020, 2.05B CHF). *2 Year refers to first FY; amount refers to total. *3 Reference value (a) excludes corporate value; reference value (b) includes corporate value (computed from time of acquisition to present). *4 430M USD for Netcracker is only for its stock acquisition cost. IRR is computed by including a loan from NEC to NC. NEC Integrated Report 2021 58 Risks and Opportunities In addition to financial risks, NEC works to gain a proper understanding of non-financial (ESG) risks, that if realized, may cause the Company to negatively impact the environment or society. In addition to effective and efficient measures to mitigate these risks, NEC is taking steps to turn these risks into business opportunities. As part of this effort, we intend to direct our efforts according to materiality, which is a set of priority management themes from an ESG perspective. These efforts will maximize the value provided while minimizing risk, which in turn will improve future financial performance and contribute to achieving the SDGs. Risk Management Framework The Risk Control and Compliance Committee, chaired by the entities, which are attended by the CEO. Chief Legal & Compliance Officer (CLCO) and comprising offi- The Priority Risks are selected as those with a particularly cers, is responsible for overseeing Companywide risk manage- large impact from among a pool of important risks, which are ment. Every year, the committee selects Priority Risks, and identified in terms of the need for countermeasures and the regularly receives reports from the divisions in charge of delib- magnitude of impact on corporate business and society. erations regarding specific measures and the progress of these Moreover, NEC minimizes emerging risks—namely, risks measures, after which the committee undertakes efforts to that could arise in the near future and have a long-term effect improve or enhance these measures if necessary. The CLCO on corporate management—by predicting their potential reports matters of particular importance to the Executive impact on businesses and taking countermeasures accordingly. Committee and the Business Progress Committee and other Major Risks & Opportunities and Related Initiatives The following are major risks and opportunities that NEC is aware of and key initiatives aimed at addressing them. We will review these risks as necessary to facilitate a flexible response to sudden changes. Financial Risks (●) and Opportunities (○) Trends in Economic Environment and Financial Markets ● Impacts from economic trends and market fluctuations ● Fluctuations in exchange rates and interest rates ● Adverse effects of infectious diseases, man-made disasters, and natural disasters 〇 Greater expectations for ICT as a solution to social issues The NEC Group’s Management Policies ● Financial instability and fluctuations in revenue ● Company acquisitions and withdrawal from businesses ● Difficulty in maintaining relationships with strategic partners ● Inability to participate in certain markets and country-related risks 〇 New growth from implementing the Mid-term Management Plan 2025 The NEC Group’s ● Dependence on the NEC Group’s primary customer base Business Activities ● Difficulties with respect to new businesses, intensifying competition 〇 Increase in business opportunities Initiatives (Corresponding page in this report) ▲ I P.46 Living Harmoniously with the Earth to Secure the Future P.52 Business Overview ▲ I P.22 Mid-term Management Plan 2025 P.30 CFO Message P.34 R&D and Business Development P.40 NEC, for Those Who Seek Challenge P.46 Living Harmoniously with the Earth to Secure the Future ▲ I P.52 Business Overview Management That Supports Corporate Value Creation 59 Non-Financial Materiality Risks (●) and Opportunities (○) Initiatives ● System failure from natural disasters Contribute to reducing CO2 emissions, not only from our own ● Increased costs related to CO2 emissions business but also from customers’ businesses 〇 Provision of ICT solutions Environmental Action with a Particular Focus on Climate Change Promote thorough energy conservation and increased use of renewable energy based on the NEC Eco Action Plan 2025, to achieve SBT 1.5℃ ▲ ▲ I P.46 Living Harmoniously with the Earth to Secure the Future S Response to Climate Change Security to Maximize ICT Possibilities AI and Human Rights ● Information leaks, unauthorized access, system failure Promote information security measures in a sound manner 〇 Development of security professionals Provide products and services that incorporate security measures 〇 Provision and operation of robust information systems Develop information security professionals ▲ ▲ I P.34 R&D and Business Development S Information Security and Cyber Security ● Invasion of privacy-related risks accompanying new technologies Promote appropriate utilization of AI, develop advanced tech- (designated as a Priority Risk and an emerging risk in fiscal 2021) nology and talent, and engage with a range of stakeholders to 〇 Strengthening competitiveness build partnerships and collaborate with closely in accordance with the NEC Group AI and Human Rights Principles ▲ ▲ I P.34 R&D and Business Development P.60 Respecting Human Rights S Respecting Human Rights, AI and Human Rights, Personal Information Protection and Privacy, Innovation Management Diverse ● Difficulty in securing and developing human resources workstyle reforms supporting diverse talent ● Harassment (designated as a Priority Risk in fiscal 2021) Bolster diversity as a source of innovation, and implement Human Resource 〇 Greater organizational strength through improved employee Development and Cultural Transformation engagement ▲ ▲ I P.40 NEC, for Those Who Seek Challenge S Human Resource Development and Training, Inclusion and Diversity, Creating a Diverse Workstyle Environment ● Inadequate accounting processes (designated as a Priority Risk in fiscal 2021) ● Management of confidential information (designated as a Priority Risk and an emerging risk in fiscal 2021) Corporate Governance ● Group governance 〇 Acquisition of trust from society Further improvement of transparency of corporate governance ▲ I P.6 Message from the President P.22 Mid-term Management Plan 2025 P.30 CFO Message ▲ P.64 Corporate Governance S Corporate Governance ● Environmental and human rights risks Promote activities to ensure that all suppliers are aware of the 〇 Collaboration and co-creation with suppliers Guidelines for Responsible Business Conduct in Supply Chains Supply Chain Sustainability and agree to uphold its contents ▲ ▲ I P.62 Supply Chain Sustainability S Supply Chain Management ● Compliance breaches (illegal acts, fraudulent acts) Ensure all NEC Group members, from employees to officers, ● Reputation risks conduct themselves according to the NEC Group Code of ● Quality of products and services, defects Conduct every day Compliance 〇 Acquisition of trust from society ▲ ▲ I P.58 Risks and Opportunities S Corporate Governance, Compliance and Risk Management, Respecting Human Rights, AI and Human Rights, Personal Information Protection and Privacy, Supply Chain Management, Ensuring Quality and Safety Note: The SDGs that are particularly impacted are listed. I ：NEC Integrated Report 2021 S ：NEC Sustainability Report 2021 NEC Integrated Report 202160 Respecting Human Rights As a company that operates its business globally, NEC is committed to mitigating and preventing any negative impacts its corporate activities may have on the rights of its stakeholders. In particular, by making use of ICT, including social implementation of AI and utilization of biometrics and other data, each and every member of the Group, from executives to employees, shall maintain respect for human rights and view this issue as a top priority, making it a central theme to the Group’s conduct and business practices. Policy Embedded in NEC’s Principles is a promise for “Uncompromising supply products and services that are responsive to the differ- Integrity and Respect for Human Rights.” Likewise, our Code of ent privacy needs of various countries and regions due to Conduct clearly requires that human rights be respected in all cultural perspectives and that are sensitive to human rights situations. issues, such as discrimination. Through these means, NEC will In addition, NEC has specified “AI utilization with respect for strive not only to minimize adverse impacts on society but human rights as the highest priority (AI and Human Rights)” as also to maximize social value. a theme in its “materiality”—priority management themes Furthermore, we consider appropriate protection of per- from an ESG perspective. As such, in addition to compliance sonal information to be our social responsibility, and have with laws and regulations, NEC also plans to develop and established the NEC Privacy Policy. NEC Group Human Rights Policy NEC Group AI and Human Rights Principles NEC Privacy Policy Promoting Human Rights Due Diligence in Accordance with the UN’s Guiding Principles on Business (UNGPs) NEC reports its efforts regarding human rights due diligence to the Board of Directors in a List of NEC’s human rights issues timely manner. In fiscal 2021, we utilized the human rights risk data produced by the international NPO Business for Social Responsibility (BSR) to compile a list of human rights issues and identified the three issues on the right as the most prominent. BSR also confirmed the specific content of business activities, management systems, and • New technology and human rights (AI and human rights) • Labor in supply chains • Employee safety and health issues directly applicable to 22 divisions at NEC, focusing on the business units in particular and doing so from a third-party per- spective. NEC then used the results to update its list of human rights issues to reflect truer conditions. Dialogue with Experts: Strengthening Human Rights Due Diligence in Supply Chains In fiscal 2020, we invited Mr. Daisuke Takahashi from Shinwa Sohgoh Law Offices, Mr. Ryusuke Tanaka from the ILO Office for Japan, and Ms. Asako Nagai from BSR to talk with officers and field-level employees about “labor in supply chains,” which is one of the themes on our list of human rights issues. 　These experts commended NEC for its speed, both in implementing its initiatives over the course of the year and in building a system to protect business partners and Company staff from COVID-19. They were also complimentary about the Sustainability Award, which shows appreciation to our business partners for their active efforts.　　　 　On the other hand, they also commented that they would like us to create a positive impact by going forward with efforts to find potential human rights risks, focusing on the ones that have the biggest impacts on the rights holders and working with business partners to take remedial measures. They also stressed the importance of dialogue between labor and management, as well as dialogue between the Company and society during times of crisis, such as what we have seen with the COVID-19 pandemic. 　Going forward, we will continue to engage in dialogue with various stakeholders, share our vision with our business partners, and disclose the process of our efforts to ensure transparency. For more information, please refer to the section “Working toward Robust and Resilient Human Rights Due Diligence throughout Supply Chains” on page 96 of Sustainability Report 2021 Management That Supports Corporate Value Creation 61 AI Utilization with Respect for Human Rights as the Highest Priority (AI and Human Rights) We are also responding to growing concerns about adverse impacts on human rights, including violations of privacy and discrimi- nation that have accompanied the use of AI and the IoT to enrich human life. In 2019, we announced the “NEC Group AI and Human Rights Principles.” These principles stipulate that all individuals, from officers to employees, are to recognize respect for human rights as the high- est priority in each and every stage of the NEC Group’s business operations in relation to AI utilization, such as social implementa- tion of AI and utilization of biometrics, and to take appropriate action accordingly. In accordance with the NEC Group Human Rights Policy, we are committed to the following three initiatives: 1 Ensure that all products and 2 Continue to develop advanced 3 Engage with a range of services are implemented and technology and talent to stakeholders to build utilized by NEC employees, further promote AI utilization partnerships and collaborate customers, and partners with respect for human rights with closely appropriately as the highest priority Responding to the global spread of COVID-19, in fiscal 2021 we In addition, in fiscal 2021 we continued to hold the Digital have conducted timely identification and analysis of trends Trust Advisory Council, established in fiscal 2020, to enhance related to the identification and tracking of infected individu- our ability to deal with new issues arising in AI utilization. The als and its impact on human rights and privacy. We reflected council provides valuable input from external experts with the balance between public health and human rights and specialized knowledge on legal systems, human rights, pri- privacy in the specifications, and provided airports and stadi- vacy, and ethics on how to use technology in a way that bal- ums with infection control solutions at an early stage. ances public health, human rights, and privacy (as in the NEC-led team to provide Hawaii’s airports with passenger screening technology example on the left), as well as on issues to be aware of when using cutting-edge technology researched and developed by the Company. “Thinking About AI Utilization in Harmony with Human Rights” Symposium NEC engages in dialogues with various stakeholders on issues to be kept in mind when devel- oping and utilizing AI, and reflects the feedback from these dialogues in its corporate activities. In March 2021, we held a symposium titled “Thinking About AI Utilization in Harmony with Human Rights” in conjunction with the Keio University Global Research Institute (KGRI). As part of the symposium, a panel discussion was held on the status of setting global AI principles and approaches toward actualizing these principles featuring industry, government, and academic experts. S For more details, please refer to the section “Respecting Human Rights” on page 17 of Sustainability Report 2021. NEC Integrated Report 2021 62 Supply Chain Sustainability NEC endeavors to work not only within itself but also through collaboration and co-creation with suppliers to conduct business while giving full attention to its impacts on the environment and society as a whole. Based on this belief, we will continuously engage in initiatives toward building a better supply chain, as we learn together with our suppliers about critical social issues and the impact of business on society. In May 2021, we newly designated “supply chain sustainability” as a material issue. With this new material issue, we are working to further reinforce initiatives, such as those relating to human rights and environmental due diligence. Promoting Initiatives in Collaboration with Our Suppliers Sustainable procurement activities of the entire NEC Group are under the responsibility of the Chief Supply Chain Officer Six Priority Risks at Our Suppliers (CSCO). Decisions are made by the Procurement Steering Committee chaired by the general manager of the Purchasing Human rights Division. International subsidiaries conduct activities under Occupational health and safety the Global SCM Leaders Session, which meets annually, as Fair trade Environment the decision-making body. Guided by the Global SCM Leaders Session, we promote sustainable procurement in accordance Information security Product quality and safety with the culture and business practices of each country. In addition, we request that our suppliers engage in responsible business conduct, including for transactions with in Supply Chains” and began to acquire signed agreement of upstream business partners. “Declarations of Responsible Business Conduct in Supply Specifically, at each stage of basic contracts, dissemina- Chains” from our suppliers. As of March 31, 2021, we have tion, document check, and on-site assessment, we imple- obtained declarations from over 7,000 suppliers in Japan and ment various measures to counter six priority risks, together abroad, including existing suppliers, accounting for 68% of with our suppliers. the total procurement amount. Furthermore, we have made it In July 2020, we revised the CSR Procurement Guidelines mandatory to acquire declarations at the start of new under the title “Guidelines for Responsible Business Conduct transactions. Procurement Amount and Ratio by Region The graph on the right illustrates the procurement amount and percentage composition by region. Japan accounts for 73% of the total procurement amount; Asia accounts for 12%; North America 12%; EMEA (Europe, the Middle East, and Africa) 2%; and Central and South America 1%. NEC designates critical suppliers as suppliers that account for a large procurement amount, suppliers of rare products, and suppliers that cannot be easily replaced and engages in sustain- able procurement measures, centered on these suppliers. 中南米 Central and South America 1% EMEA EMEA 2% 北米 North America 12% アジア Asia 12% 2019年度 Fiscal 2020 調達額 Procurement Amount 1.49兆円 1,490.0 billion yen 日本 Japan 73% 1 © NEC Corporation 2021 NEC Group Internal Use Only Scope: NEC Corporation and consolidated subsidiaries Note: Based on location of suppliers’ headquarters ※調達取引先本社所在地基準 Management That Supports Corporate Value Creation 63 Document Checks and Feedback on Evaluation Results To date, we have conducted document checks using the sus- We issued a feedback sheet to all of the suppliers that tainable procurement self-check sheets for our efforts toward responded, indicating their score for each inspection theme the priority risks of “human rights” and the “environment.” In and a comparison with the average score for each product fiscal 2021, we expanded the inspection themes of our docu- type, and shared the evaluation results with them. In addition, ment checks to include occupational health and safety and fair regarding the 36 suppliers for which we deemed to have trade and increased the number of questions from 69 to 151. potential risks, we created opportunities to communicate with We received responses from 696 companies, mainly critical such suppliers on an individual basis and completed efforts to suppliers, and evaluated the status of each supplier’s efforts on ascertain the conditions of these suppliers and provide a five-point scale of A, B, C, D, and Z for each theme in light of improvement guidance in the first half of fiscal 2022. the following evaluation criteria: score rate and critical points.* * Critical points are questions that NEC has identified as potential risks in light of the Guidelines for Responsible Business Conduct in Supply Chains, issued by NEC in July 2020, and other regulations, if initiatives remain unaddressed. Evaluation Categories A B C D Z Criteria Description Score rate between 80% and 100% Implemented outstanding initiatives Score rate between 60% and 80% Implemented standard initiatives Score rate between 50% and 60% Implemented initiatives but only for some issues Score rate below 50% Initiatives themselves are insufficient Unable to clear critical points Risks expected NEC Awarded the Highest Rating for Supplier Engagement by the CDP NEC has been acknowledged on the Supplier Engagement Leaderboard, the highest rating in the Supplier Engagement Rating* conducted by the CDP, an environmental NGO. NEC has received an A List rating for Climate Change and Water Security, which makes a total of three categories in which NEC achieved a top rating in 2020. We recognize that our various efforts to aim for zero CO2 emissions from supply chains under NEC’s long-term environmental goal, Course of Action for Climate Change Toward 2050, have been highly evaluated. Going forward, we will promote climate change action throughout the entire supply chain through cooperation and co-creation with suppliers. * The Supplier Engagement Rating examines a company’s initiatives for climate change and reduction of greenhouse gas emissions across the entire supply chain and gives a rating based on these efforts. Responding to the Modern Slavery Acts With approval from the Board of Directors, since fiscal 2019 NEC Corporation and NEC Europe have published a declarative state- ment to the effect that they will report on measures in relation to the United Kingdom’s Modern Slavery Act 2015, which is aimed at preventing slave labour and human trafficking. Further, in fiscal 2021, based on the approval of the Board of Directors, NEC Australia Pty Ltd also published a declarative state- ment of its intention to comply with Australia’s Modern Slavery Act 2018. NEC Group Statement on Modern Slavery Acts S For more details on our supply chain management, please see page 92 of Sustainability Report 2021. NEC Integrated Report 202164 Corporate Governance Reliable corporate governance is essential to the continuous creation of social value and the maximization of corporate value. Therefore, NEC Corporation (the “Company”) 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. Overview of Corporate Governance System NEC Corporation has adopted the Company with the Audit & Supervisory Board Members (KANSAYAKU) (“A&SBMs”) corporate structure to provide a double-check process: the Board of Directors supervises business execution and the Audit & Supervisory Board (KANSAYAKU-KAI) (“A&SB”) audits the legitimacy and appropriateness of the Company’s decision-making and activities. Furthermore, we have established a hybrid structure by utilizing a corporate officer system and Nomination and Compensation Committee, which we established voluntarily and comprises a majority of Outside Directors. In this way, we separate business execution from the supervision of management while striving to ensure management transparency, soundness, and timely decision-making. 　In the future, we will continue to focus our efforts on enhancements and improvements of this system in order to realize more effective corporate governance in response to changes in the business environment. GENERAL MEETING OF SHAREHOLDERS Elect and Dismiss Elect and Dismiss Elect and Dismiss Accounting Auditors Cooperate Audit Cooperate Management / Supervision AUDIT & SUPERVISORY BOARD Audit BOARD OF DIRECTORS NOMINATION AND COMPENSATION COMMITTEE Report Cooperate Supervise CORPORATE AUDITING BUREAU EXECUTIVE COMMITTEE BUSINESS PROGRESS COMMITTEE Discuss and report on imp- ortant management issues Report on the status of business execution Business Execution CORPORATE OFFICERS Supervise CHIEF OFFICERS Internal audits Supervise BUSINESS UNITS/CORPORATE STAFF/AFFILIATED COMPANIES Business Execution Purpose, Activities, and Number of Meetings Members Executive Committee The Executive Committee discusses important NEC Group manage- ment 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. Number of Meetings in Fiscal 2021: 16 Around 20 corporate officers Business Progress Committee The Business Progress Committee deliberates and reports on matters related to the status of the NEC Group’s business execution, such as monitoring progress with respect to budgets adopted by the Board of Directors, with the aim of sharing management information and pro- moting business execution efficiency. Number of Meetings in Fiscal 2021: 12 Corporate officers and general managers of business units, and others Management That Supports Corporate Value Creation65 Management and Supervision Purpose, Activities, and Number of Meetings Members Board of Directors The Board of Directors holds regular meetings once a month as a general rule 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 2021 (Number of Meetings: 15) Items Related to Governance • Report on internal auditing • Report on the status of implementation of the internal control system (including Priority Risks) • Evaluation of the effectiveness of the Board of Directors • Candidate selection for Directors and A&SBMs • Sale of cross-shareholdings Items Related to Management Policies and Management Strategy • Proposals for the Mid-term Management Plan 2025 • Capital and business alliances • Technology and intellectual property strategy for business expansion • Acquisition-based business expansion strategy • Global 5G strategy • DX strategy for the “new normal” • Measures for cyber security • Marketing strategy • Activities to promote sustainability (materiality, the environment, human rights initiatives, etc.) • Human resources strategy 12 Directors Chairman of the Board (Chair of the Board of Directors) ● 7 non-executive ● 5 corporate officers Outside Directors (6, including 5 independent) Inside Directors (6) Female Directors Nomination and Compensation Committee The Nomination and Compensation Committee deliberates on the nomination of Directors, A&SBMs, the Chairman of the Board and Vice Chairman of the Board, and the President (including succession planning for the President), and on the structure and level of compensation for Directors and corporate officers from an objective, transparent, and fair perspective, reporting the results of its deliberations to the Board of Directors. Main Matters Discussed in Fiscal 2021 (Number of Meetings: 9) Nomination-related • Nomination of Directors, A&SBMs, and important Focus Discussion Items • Succession planning for the President: Succession 4 Directors All non-executive Inside Director (1) Nobuhiro Endo Outside Directors (3) Kaoru Seto (Chairperson) Kuniharu Nakamura Masatoshi Ito according to succession selection flow • Strengthening of the Board structure and succes- sion planning for Outside Directors: Discussions about the strengthening of the Board structure and role; creation of rules for succession planning for Outside Directors corporate officers • Succession planning for the President • Strengthening of the Board structure Compensation-related • Decision on bonus payment for Directors • Decision on additional trust, and monitoring of operations (payment status) in the stock compen- sation system • Monitoring of payment amounts to Directors based on remuneration system Overview of NEC’s Succession Plan The Chairperson is appointed among Outside Directors. Succession Plan for the President Next candidates/Future candidates Succession Plans for Group Key Position Corporate officers/ General managers of business units/ Presidents of major affiliates Personnel ranked lower than general managers Companywide Pool of Human Resources (approx. 1,000 personnel) We secure human resources with high potential to form a Companywide pool of human resources, giving consider- ation to diversity, including people from all social strata, women, foreign nationals, and young people. We select and train suitable human resources to be future presidents and executives. Audit & Supervisory Board (KANSAYAKU-KAI) (“A&SB”) The Audit & Supervisory Board holds regular meetings once a month as a general rule and extraordinary meetings as necessary, and decides on audit policies, standards, the annual auditing plan, and other matters and receives status reports on audits and on other matters from each A&SBM. 5 A&SBMs Inside A&SBMs (2) Main Activities in Fiscal 2021 (Number of Meetings: 17) • Creation of audit policy and plan • Discussion and drafting of audit report • Matters related to the selection and dismissal of • Receipt of oral reports on audits from the account- ing auditor and the Corporate Auditing Bureau • Evaluation of the effectiveness of the A&SB accounting auditor • Confirmation of establishment and implementa- tion of internal control system • Exchange of opinions with the President regarding priority management issues Outside A&SBMs (3, all independent A&SBMs) Female A&SBM In appointing Directors and A&SBMs, when an appointee serves as a Director or A&SBM of other public companies, it is desirable that the number of concurrent positions does not exceed the numbers specified as follows: • When an appointee serves as an executive of NEC Corporation or another company: Only one company in addition to the company where the appointee serves as an executive • In cases other than the above: Up to four companies in addition to NEC Corporation However, if a Director or A&SBM serves in multiple roles concurrently at group companies of NEC Corporation or another listed company, the concurrent roles within the group companies shall be deemed as roles in one company. NEC Integrated Report 202166 Corporate Governance Main Initiatives for Strengthening Corporate Governance Strengthen Management and Supervisory Functions 2001 2010 2012 2019 2021 Established Compensation Committee Ratio of Outside Directors: 45.5% Established Nomination and Compensation Committee Added one independent director to the Board of Directors ❶ Majority of Directors are non-executive To ensure independence and objectivity in the Nomination and Compensation Committee, changed to a four-member structure consisting of three Outside Directors (including chairperson) and one non-executive Inside Director ❶ Enhancements to the Board of Directors System In fiscal 2021, the Nomination and Compensation Committee independent directors among the Board and promoting deeper engaged in heavy deliberations focusing on measures aimed at discussion during Board meetings. This increases the proportion enhancing the structure and role of the Board of Directors in of independent directors, women, and foreign nationals on NEC’s order to improve corporate value further. After defining the career Board of Directors, raising its overall independence and diversity. skills of the Board of Directors needed as a whole and evaluating the Board’s current composition, it became clear that it was nec- essary to strengthen corporate governance and deepen multifac- eted discussions on Companywide strategies at Board meetings. In response, we have added one independent outside director from fiscal 2022. This increase in the number of independent outside directors, who possess specialized experience and knowl- edge in risk management, sustainability, and global management, is aimed at increasing the diversity and the proportion of Evaluation of Career Skills of the Board of Directors Independent Non-executive Female Foreign national 36％ 55％ 9％ 0％ After strengthening 42％ 58％ 17％ 8％ Years served as Director Corporate management Technology Global business Financial accounting M&A Risk management Sustainability ESG Marketing Chairman of the Board Nobuhiro Endo Vice Chairman of the Board (Representative Director) Takashi Niino President and CEO (Chief Executive Officer) (Representative Director) Takayuki Morita Senior Executive Vice President and Member of the Board Norihiko Ishiguro Executive Vice President, CHRO (Chief Human Resources Officer) and Member of the Board Executive Vice President, CTO (Chief Technology Officer) and Member of the Board Hajime Matsukura Motoo Nishihara Member of the Board Kaoru Seto Member of the Board Noriko Iki Member of the Board Masatoshi Ito Member of the Board Kuniharu Nakamura Member of the Board Jun Ohta 12 10 5 3 4 2 3 3 2 2 1 Member of the Board Christina Ahmadjian — ● ● ● 〇 ● ● ● ● ● 〇 ● ● 〇 〇 〇 ● ● ● 〇 ● ● 〇 ● 〇 ● ● ● ● ● 〇 〇 ● 〇 ● 〇 〇 〇 〇 ● 〇 ● ● ● 〇 ● 〇 ● ● ● ● ● ● ● ● ● ● ● 〇 ● ● ● ● ● ● ● ● ● 〇 〇 〇 ● ● ● ● 〇 〇 Areas in which Director has deep insight　● Areas in which Director has extensive experience in addition to deep insight Management That Supports Corporate Value Creation67 Strengthen Execution Structure and Revise Remuneration for Directors and A&SBMs 2011 2017 2019 Instituted Chief Officer position and strengthened Companywide strategies Increased the ratio of performance-based remuneration for executive directors Ratio of basic remuneration: bonuses: stock compensation = 5:3:2 Corporate officers appointed with one-year mandate contracts to clarify responsibilities and authority ❷ Introduced stock compensation system Extended the authority delegated to the Chief Officers to strengthen corporate functions and accelerate the speed of decision-making ❷ Revisions to Remuneration for Directors and A&SBMs For the purpose of continuously improving corporate value and remuneration levels of other companies whose business contents strengthening its competitiveness, NEC Corporation’s basic policy and scale are similar to those of the Company. on the remuneration for Directors and A&SBMs is to set a level 　In 2017, we introduced the stock compensation system, and in and structure appropriate for a global company, which enables us 2019, we increased the ratio of performance-based remuneration to secure excellent human resources and serves as an incentive for executive directors. The ratio of bonuses and performance- to improve performance of the NEC Group. In order to ensure based stock compensation is calculated based on a standard objectiveness and properness of the remuneration for Directors amount before reflecting the degree of achievement of the and A&SBMs, the level of the remuneration is determined upon performance targets. the results of a third-party’s investigation regarding the Basic Remuneration Bonuses Stock Compensation • Basic Remuneration • Bonuses • Performance-based Stock Compensation Medium- to long-term incentive Stock compensation is performance based and the payment rate is from 0% to 100%. Indicators: NEC Group’s consolidated revenue, adjusted operating profit, and adjusted net profit attributable to owners of the parent in the applicable fiscal year • Fixed Stock Compensation Fixed remuneration paid monthly Short-term incentive For some executive directors, basic remu- neration increases or decreases based on performance (performance indicators include non-financial indicators such as practical implementation of the NEC Way and our “materiality”—priority manage- ment themes from an ESG perspective). Bonuses are performance based and the payment rate is from 0% to 200%. Bonuses consist of a Group-wide performance- based component and a business-unit perfor- mance-based component. The ratio between these two components is determined for each job title. Indicators for Group-wide performance-based component: NEC Group’s consolidated revenue, operating income, and free cash flows Budget indicators for business-unit perfor- mance-based component: Consolidated revenue, operating income, and free cash flows, etc., for the business units overseen by each Director Mid-term plan indicators for business-unit performance-based component: Set for individual Directors • Non-executive Inside Directors do not receive bonuses. • Outside Directors and inside and outside A&SBMs are only entitled to basic remuneration. • Shares from stock compensation are granted after three years from the beginning of the applicable period. • Under the stock compensation system, provisions have been included that allow NEC Corporation to take action in cases where compliance breaches or inappropriate accounting treatment have been confirmed. In such cases, NEC Corporation may withhold all or part of the rights to receive a grant of NEC Corporation’s shares prior to the granting of NEC Corporation’s shares; or after the granting of NEC Corporation’s shares, NEC Corporation may demand the return of all or part of the granted shares of NEC Corporation. For more details on remuneration for Directors and A&SBMs, please refer to NEC’s Corporate Governance Report. NEC Integrated Report 202168 Corporate Governance Amounts of Remuneration for Fiscal 2021 Basic Remuneration Bonuses Performance-Based Stock Compensation Fixed Stock Compensation Headcount Total amount (in millions of yen) Headcount Total amount (in millions of yen) Headcount Cost posting relating to stock compensation (in millions of yen) Headcount Cost posting relating to stock compensation (in millions of yen) Directors (of which Outside Directors) A&SBMs (of which Outside A&SBMs) 12 （6） 6 （4） 400 （60） 96 （36） 5 － － － 184 － － － 6 － － － 126 － － － 6 － － － 42 － － － Among the above recipients, the following has a total remuneration amount of 100 million yen or higher. Takashi Niino: Total remuneration amount: 134 million yen (basic remuneration: 78 million yen; bonus: 57 million yen) Guidelines on Officer Ownership of NEC Corporation Shares NEC Corporation has established “Guidelines on Ownership of Company Shares” for Directors (excluding Outside Directors) and corporate officers regarding the holding of more than a certain number of shares. Continuing to Increase and Improve Effectiveness NEC Corporation conducts an analysis and evaluation of the effectiveness of the Board of Directors once a year to improve effectiveness further. 　The following is a summary of the evaluation of the effectiveness of the Board of Directors for fiscal 2021. Procedure of the analysis and evaluation To further increase effectiveness of the Board of Directors, the Company conducted a questionnaire and individual interviews target- ing all members of the Board of Directors and the A&SBMs in order to elicit opinions on the items listed below. After identifying issues and points of improvement through this process, plans for improvement going forward were deliberated at an ordinary Board of Directors held in February 2021. 1) Regarding the role and functions of the Board of Directors 2) Regarding more effective use of Outside Directors’ insights and opinions 3) Regarding the NEC Group’s corporate governance system 1) Regarding the roles and functions of the Board of Directors The Board of Directors fulfills its role appropriately and performs its functions sufficiently, which include deliberations regarding broad, Companywide management strategies and corporate governance. The Company needs to consider improvements in line with such points as the use of Outside Directors’ insights and opinions and selection of themes for deliberation based on changes in the external environment and their impacts and risks. Summary of the evaluation results 2) Regarding more effective use of Outside Directors’ insights and opinions While it has been useful to clarify the expected role of Outside Directors in fiscal 2020, the Company needs to consider improve- ments such as further enhancement of information provision for Outside Directors and investigation of more effective deliberation formats according to themes (off-site meetings, etc.). 3) Regarding the NEC Group’s corporate governance system The current corporate governance system was deemed appropriate overall; however, it is important for the Company to continue looking into optimal systems based on the ideal direction of the NEC Group. The evaluation also reflected a desire for the Company to consider further strengthening the Board of Directors’ supervisory functions over the medium to long term. Initiatives going forward 1) Review the management methods of the Board of Directors to better obtain the diverse opinions and advice of Outside Directors, which include measures involving the content and delivery method of information provided to Outside Directors. 2) Select themes for deliberation based on the changes in the external environment and their impacts and risks related to the NEC Group. 3) Clarify the role of the Board of Directors in building an ideal corporate governance system for the NEC Group, and strengthen the supervisory functions required to fulfill that role. In addition, the Company also conducts evaluations of the effectiveness of the Nomination and Compensation Committee and the A&SB. For more details on evaluations of the effectiveness, please refer to NEC’s Corporate Governance Report. Management That Supports Corporate Value CreationMessages from Outside Directors 69 Kuniharu Nakamura Outside Director Christina Ahmadjian Outside Director Pursuing the Ideal Way for Companies to Foster Human Resources from a Long-term Perspective Emphasizing Diversity and Working to Maximize Corporate Value as a Common Goal This past year has been one of great change in the business I have spent a lot of time researching corporate governance, environment. As digital transformation gains traction and business administration, and organizational theory. Looking businesses abroad develop further, I feel that the way a specifically at organizational reforms for companies, I have also company handles human resources needs to be reframed. conducted training regarding organizational reforms at To build a connection between a company and its human Japanese and Western companies. From this experience, I have resources, the company needs to make its direction clear and learned that for a board of directors to be effective, it needs to create the sense of a common mission. It also needs to ensure focus on diversity while making sure its members are working that its business contributes toward a sustainable society and to maximize corporate value as a common goal. To make this that the employees who carry out this business can attach their possible, the board needs to think from a long-term perspec- own goals and dreams to their efforts. What we need to keep in tive, utilizing the individual characteristics of each member, mind when thinking about fostering human resources is what thinking of what actions to take going forward, and what issues we want NEC to achieve and become in 10 to 15 years’ time, may arise. The board also needs to ensure mutual respect and and what qualities and capabilities its human resources need shared values to achieve sustainability. to realize these goals. This is something we are always discussing, As for the directors that make up the board, just having from both the viewpoint of the Company’s strategy and its human some kind of managerial experience is not enough. When you resources. When fostering human resources, it is important to look at global tech companies you find examples of women, clarify what kind of work a person needs to do and what kind of people of different nationalities, entrepreneurs in their 30s, experience a person needs to have in order to acquire these young tech experts, and other kinds of people flourishing as capabilities. It is also important that candidates for leadership directors, which goes to show that companies need a set of are taken from a diverse pool of human resources and are human resources with a wide range of attributes. In Japan, chosen based on whether they have the necessary qualifications, there are many companies that conduct businesses globally regardless of age, gender, or nationality, whether their but whose boards of directors are fully composed of Japanese qualifications were developed inside or outside the Company, nationals. With this common scenario, it is necessary to or what field they come from. By securing a breadth of increase the number of members with different backgrounds, experience, the Company can develop a good set of human not only Japanese with overseas experience. resources and build itself into a place where everyone can What is more, although there are cases where women and support each other. There are many excellent people at NEC, foreign nationals are truly included, in many more cases, the but NEC’s business could be even bigger if these people could old ways of working do not really change and the only people step outside of their own areas of responsibility and who are truly accepted are those who fit that traditional mold. understand what is going on in other divisions, and then It will be difficult to bring in diverse human resources unless prompt the various fields involved to compound upon companies review this approach and make drastic changes. elements of each other. This is no easy task, but you need to Japanese companies need to put in the effort in order to work with this sort of plan. achieve this goal of true diversity and inclusion. This requires NEC’s businesses are changing and will continue to change. the proper amount of time to develop people from younger I expect that in combining NEC’s superior technologies more of generations and expand the future pipeline of talent. its human resources will share in a common vision, and that As a new director, I intend to direct my efforts toward dis- they will reach across borders to play an active role in achieving cussing methods to this end during meetings of the Board, this vision. All of this will allow NEC to grow even more. providing useful information and training Board members. NEC Integrated Report 202170 Directors and Audit & Supervisory Board Members (As of July 1, 2021) Directors Nobuhiro Endo Chairman of the Board Takashi Niino Vice Chairman of the Board (Representative Director) Takayuki Morita President and CEO (Chief Executive Officer) (Representative Director) Mr. Endo served NEC as President (Representative Director) from 2010 and as Chairman of the Board (Representative Director) from April 2016. Since June 2019, he has served as Chairman of the Board (Non-executive Director). After being engaged in the management of the financial solutions business and the NEC Group’s management strategies, Mr. Niino was appointed as President (Representative Director) in 2016, and appointed as Vice Chairman of the Board (Representative Director) in April 2021, where he continues to be engaged in the management of NEC. After being engaged in the management of NEC Group’s global business, accounting and finan- cial strategies, management strategies and M&A as Senior Executive Vice President and CFO (Representative Director), Mr. Morita was appointed as President and CEO (Representative Director) in April 2021. Kaoru Seto Member of the Board Special Adviser, Noriko Iki Member of the Board Masatoshi Ito Member of the Board President, Japan Institute for Women’s Executive Officer & Chairman of Company, YAMATO HOLDINGS CO., LTD. Empowerment & Diversity Management Ajinomoto Co., Inc. Mr. Seto has extensive experience and deep insight as a manager of a logistics service company. Ms. Iki has abundant experience and deep insight in the fields of administration and diplomacy. Mr. Ito has extensive experience as the manager of a manufacturing business and deep insight into marketing and corporate strategy. Attendance at meetings of the Board of Directors: 15 out of 15 At meetings of the Nomination and Compensation Committee: 9 out of 9 (Appointed in June 2018) Attendance at meetings of the Board of Directors: 14 out of 15 (Appointed in June 2018) Attendance at meetings of the Board of Directors: 14 out of 15 At meetings of the Nomination and Compensation Committee: 5 out of 6 (Appointed in June 2019) Directors and Audit & Supervisory Board Members Isamu Kawashima Nobuhiro Odake Taeko Ishii Audit & Supervisory Board Member Audit & Supervisory Board Member (full-time) Audit & Supervisory Board Member (full-time) Attorney at Law Mr. Kawashima has experience as the person responsible for accounting and financial affairs of the Company for many years. After many years of handling NEC’s supply chain strategy, Mr. Odake, as a Member of the Board of a Group company, has been supervis- ing its business units and he has a wealth of experience and an extensive track record related to the Group’s business. Ms. Ishii has a great deal of experience and deep insight as an attorney at law in the fields of personnel affairs, labor, and other areas. Attendance at meetings of the Board of Directors: 15 out of 15 At meetings of the Audit & Supervisory Board: 17 out of 17 (Appointed in June 2018) Management That Supports Corporate Value Creation Directors Directors and Audit & Supervisory Board Members 71 Norihiko Ishiguro Senior Executive Vice President and Member of the Board Hajime Matsukura Executive Vice President, CHRO (Chief Human Motoo Nishihara Executive Vice President, CTO (Chief Technology Resources Officer) and Member of the Board Officer) and Member of the Board Mr. Ishiguro has extensive experience and a track record relating to industrial policy and trade policy through his work 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. After being engaged in the management of corporate strategies at corporate departments and in the NEC Group’s operational reforms, Mr. Matsukura is now in charge of transforming the NEC Group’s culture and human resources strategy. After being in charge of R&D as a corporate officer, Mr. Nishihara is now responsible for the NEC Group’s R&D, business development, and technology strategies. Kuniharu Nakamura Member of the Board Jun Ohta Member of the Board Christina Ahmadjian Member of the Board Chairman of the Board of Directors, Director President and Group CEO, Professor, Graduate School of Business SUMITOMO CORPORATION Sumitomo Mitsui Financial Group, Inc. Administration, Hitotsubashi University Mr. Nakamura has extensive experience and deep insight, including in global business as the manager of a general trading company. Mr. Ohta has extensive experience and deep insight from his years of service in bank management. Ms. Ahmadjian has extensive experience and deep insight relating to global corporate strategies, corporate governance, and diversity. Attendance at meetings of the Board of Directors: 15 out of 15 At meetings of the Nomination and Compensation Committee: 9 out of 9 (Appointed in June 2019) Attendance at meetings of the Board of Directors: 12 out of 12 (Appointed in June 2020) (Appointed in June 2021) Excepting special circumstances, each Director and A&SBM aims to have at least 75% attendance at meetings of the Board of Directors in a single fiscal year, and each A&SBM aims to have at least 75% attendance at meetings of the A&SB in a single fiscal year. “Attendance” refers to the number of meetings held by the Board of Directors, A&SB, and the Nomination and Compensation Committee that were attended for the fiscal year ended March 31, 2021. Inside Directors, whose attendance is not listed, attended all of the meetings of the Board of Directors; Inside A&SBMs, whose attendance is not listed, attended all of the meetings of the Board of Directors and all of the meetings of the A&SB; and Inside Directors on the Nomination and Compensation Committee, whose attendance is not listed, attended all committee meetings. NEC has notified the Tokyo Stock Exchange of its five independent Directors and three independent Audit & Supervisory Board Members (“A&SBMs”). Independent Directors: Mr. Kaoru Seto, Ms. Noriko Iki, Mr. Masatoshi Ito, Mr. Kuniharu Nakamura, and Ms. Christina Ahmadjian; Independent A&SBMs: Ms. Taeko Ishii, Mr. Nobuo Nakata, and Mr. Masami Nitta 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 Nobuo Nakata Audit & Supervisory Board Member Attorney at Law Masami Nitta Audit & Supervisory Board Member Certified Public Accountant Mr. Nakata has extensive experience and deep insight as an attorney at law in the field of corporate law, including M&A. Mr. Nitta has experience in corporate manage- ment and professional insight as a Certified Public Accountant. Attendance at meetings of the Board of Directors: 14 out of 15 At meetings of the Audit & Supervisory Board: 17 out of 17 (Appointed in June 2019) Attendance at meetings of the Board of Directors: 12 out of 12 At meetings of the Audit & Supervisory Board: 13 out of 13 (Appointed in June 2020) NEC Integrated Report 202172 Cross-Company Corporate Strategy Promotion Framework (As of July 1, 2021) NEC Corporation has introduced a chief officer system and is working to solve challenges from a Companywide perspective. Since 2019, the term of office for corporate officers has been set at one year and we have been reforming our management system, seeking to establish mission clarity and greater responsibility for results. By having corporate officers work with a sense of urgency to complete their respective missions, we aim to increase NEC’s execution capability. Norihiko Ishiguro Senior Executive Vice President Akihiko Kumagai Senior Executive Vice President Atsuo Kawamura Executive Vice President Chikara Nakamata Executive Vice President President of Network Services Business Unit Chief of Domestic Sales Noritaka Taguma Executive Vice President Fumiaki Matsubara Executive Vice President President of Public Infrastructure Business Unit President of Enterprise Business Unit Kunikazu Amemiya Executive Vice President Yutaka Ukegawa Senior Vice President President of Public Solutions Business Unit President of Cross-Industry Unit Management That Supports Corporate Value Creation73 Kazuhiro Sakai Senior Executive Vice President, CDO (Chief Digital Officer) Chikara Ishii Executive Vice President Hajime Matsukura Executive Vice President, President of Digital Services and Engineering Unit CHRO (Chief Human Resources Officer) Chairman of the Board, ABeam Consulting Ltd. Masakazu Yamashina Executive Vice President Hiroshi Kodama Executive Vice President, CIO (Chief Information Officer) Motoo Nishihara Executive Vice President, CTO (Chief Technology Officer) and CISO (Chief Information Security Officer) President of Global Innovation Unit Osamu Fujikawa Executive Vice President, CFO (Chief Financial Officer) Toshifumi Yoshizaki Executive Vice President Kazunori Sudo Executive Vice President President of Digital Business Platform Unit President of System Platform Business Unit Makoto Enomoto Senior Vice President, CMO（Chief Marketing Officer) Shinobu Obata Senior Vice President, Shigeki Shimizu Senior Vice President, CLCO（Chief Legal and Compliance Officer） CSCO（Chief Supply Chain Officer) NEC Integrated Report 202174 Financial and Non-Financial Highlights Revenue International revenue International revenue ratio (%) Operating profit Adjusted operating profit Adjusted operating profit ratio (%) Net profit (loss) attributable to owners of the parent Adjusted net profit Cash flows from operating activities Cash flows from investing activities Free cash flows R&D expenses Number of patents Capital expenditures (property, plant and equipment) Depreciation (property, plant and equipment) Per share data (in yen): Net profit (loss) attributable to owners of the parent Cash dividends Dividend payout ratio Total assets Owner’s equity Return on equity (%) Owner’s equity ratio (%) Interest-bearing debt Debt-equity ratio (times) Number of employees Ratio of female managers（%） Ratio of female managers（non-consolidated, %） Employee engagement index (%) Improvement in energy efficiency of products (%) (Reduction of total CO2 emissions when products are used (compared with FY2014)) Greenhouse gas emissions（Scope 1 + Scope 2）(thousand tons） 2 ）(thousand tons） Greenhouse gas emissions（Scope 3* FY2011 FY2012 FY2013 JGAAP FY2014 ¥3,115.4 479.3 15.4 57.8 — — (12.5) — 33.7 (146.2) (112.6) ¥3,036.8 481.5 15.9 73.7 — — (110.3) — 83.9 (49.7) 34.2 ¥3,071.6 483.1 15.7 114.6 — — 30.4 — 143.7 (101.7) 42.0 ¥3,043.1 569.2 18.7 106.2 — — 33.7 — 94.1 (38.9) 55.2 176.5 Approx. 68,000 52.9 62.1 162.0 Approx. 64,000 42.0 53.3 151.7 Approx. 65,000 45.6 51.2 142.7 Approx. 68,000 98.7 45.2 (4.82) 0.00 — 2,628.9 757.1 (1.6) 28.8 675.8 0.89 115,840 － 4.7 — — － － (42.44) 0.00 — 2,557.6 657.0 (15.6) 25.7 692.7 1.05 109,102 － 4.9 — — － － 11.71 4.00 34.2 2,581.0 710.7 4.5 27.5 603.5 0.85 102,375 － 4.9 — — － － 12.99 4.00 30.8 2,505.3 695.9 4.8 27.8 575.2 0.83 100,914 － 5.1 — — － － 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. Revenue Billions of yen Adjusted Operating Profit / Adjusted Operating Profit Ratio % Billions of yen 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2017 2018 2019 2020 2021 (FY) 200 150 100 50 0 10 7.5 5 2.5 2017 2018 2019 2020 2021 (FY) 0 Revenue Adjusted operating profit Adjusted operating profit ratio Approx. 65,000 Approx. 53,000 Approx. 53,000 Approx. 51,000 Approx. 49,000 Approx. 47,000 Approx. 46,000 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 ¥2,935.5 ¥2,824.8 ¥2,665.0 ¥3,095.2 ¥2,994.0 IFRS ¥2,844.4 740.2 ¥2,913.4 689.1 586.8 20.0 128.1 — — — 57.3 87.9 (47.5) 40.4 134.2 37.4 48.5 22.05 4.00 18.1 2,620.7 823.7 7.5 31.4 520.8 0.63 － 5.2 — — － － 603.1 21.4 91.4 — — — 75.9 97.8 (32.2) 65.6 123.6 36.3 50.5 29.22 6.00 20.5 2,528.9 769.8 9.5 30.4 479.5 0.62 － 5.4 — － － － 571.0 21.4 41.8 — — — 27.3 92.5 6.4 99.0 109.3 31.5 49.9 10.51 6.00 57.1 2,684.0 854.3 3.4 31.8 466.9 0.55 － 5.5 — 17 350 7,410 26.0 63.9 72.5 2.5 45.9 50.4 130.0 (14.2) 115.8 108.1 45.4 63.8 176.54* 1 1 60* 34.0 2,821.4 880.8 5.3 31.2 520.7 0.59 － 5.8 — 35 338 7,606 23.7 57.8 69.9 2.4 39.7 47.0 64.2 (76.7) (12.4) 108.1 62.7 64.4 152.75* 1 1 40* 25.8 2,963.2 858.9 4.6 29.0 552.5 0.64 7.8 5.9 14 74 329 7,585 752.0 24.3 127.6 145.8 4.7 100.0 111.2 261.9 (84.0) 177.8 109.8 67.4 123.4 385.02* 1 1 70* 18.2 3,123.3 910.7 11.3 29.2 675.4 0.74 7.8 6.4 20 71 373 6,996 703.2 23.5 153.8 178.2 6.0 149.6 165.4 274.9 (122.5) 152.4 114.6 57.6 122.8 557.18* 1 1 90* 16.2 3,668.6 1,308.2 13.5 35.7 702.9 0.54 9.2 7.2 25 65 327 6,158 98,882 98,726 107,729 109,390 110,595 112,638 114,714 Corporate Data ¥3,115.4 ¥3,036.8 ¥3,071.6 ¥3,043.1 JGAAP FY2014 Approx. 68,000 Approx. 64,000 Approx. 65,000 Approx. 68,000 Net profit (loss) attributable to owners of the parent (12.5) (110.3) Revenue International revenue International revenue ratio (%) Operating profit Adjusted operating profit Adjusted operating profit ratio (%) Adjusted net profit Cash flows from operating activities Cash flows from investing activities Free cash flows R&D expenses Number of patents Capital expenditures (property, plant and equipment) Depreciation (property, plant and equipment) Per share data (in yen): Net profit (loss) attributable to owners of the parent Cash dividends Dividend payout ratio Total assets Owner’s equity Return on equity (%) Owner’s equity ratio (%) Interest-bearing debt Debt-equity ratio (times) Number of employees Ratio of female managers（%） Ratio of female managers（non-consolidated, %） Employee engagement index (%) Improvement in energy efficiency of products (%) (Reduction of total CO2 emissions when products are used (compared with FY2014)) Greenhouse gas emissions（Scope 1 + Scope 2）(thousand tons） Greenhouse gas emissions（Scope 3* ）(thousand tons） 2 479.3 15.4 57.8 — — — 33.7 (146.2) (112.6) 176.5 52.9 62.1 (4.82) 0.00 — 2,628.9 757.1 (1.6) 28.8 675.8 0.89 － 4.7 — — － － 481.5 15.9 73.7 — — — 83.9 (49.7) 34.2 162.0 42.0 53.3 (42.44) 0.00 — 2,557.6 657.0 (15.6) 25.7 692.7 1.05 － 4.9 — — － － 483.1 15.7 114.6 — — — 30.4 143.7 (101.7) 42.0 151.7 45.6 51.2 11.71 4.00 34.2 2,581.0 710.7 4.5 27.5 603.5 0.85 － 4.9 — — － － 569.2 18.7 106.2 — — — 33.7 94.1 (38.9) 55.2 142.7 98.7 45.2 12.99 4.00 30.8 2,505.3 695.9 4.8 27.8 575.2 0.83 － 5.1 — — － － 115,840 109,102 102,375 100,914 FY2011 FY2012 FY2013 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 IFRS (Billions of yen) 75 ¥2,935.5 586.8 20.0 128.1 — — 57.3 — 87.9 (47.5) 40.4 ¥2,824.8 603.1 21.4 91.4 — — 75.9 — 97.8 (32.2) 65.6 ¥2,665.0 571.0 21.4 41.8 — — 27.3 — 92.5 6.4 99.0 ¥2,844.4 740.2 26.0 63.9 72.5 2.5 45.9 50.4 130.0 (14.2) 115.8 ¥2,913.4 689.1 23.7 57.8 69.9 2.4 39.7 47.0 64.2 (76.7) (12.4) ¥3,095.2 752.0 24.3 127.6 145.8 4.7 100.0 111.2 261.9 (84.0) 177.8 ¥2,994.0 703.2 23.5 153.8 178.2 6.0 149.6 165.4 274.9 (122.5) 152.4 134.2 Approx. 65,000 37.4 48.5 123.6 Approx. 53,000 36.3 50.5 109.3 Approx. 53,000 31.5 49.9 108.1 Approx. 51,000 45.4 63.8 108.1 Approx. 49,000 62.7 64.4 109.8 Approx. 47,000 67.4 123.4 114.6 Approx. 46,000 57.6 122.8 22.05 4.00 18.1 2,620.7 823.7 7.5 31.4 520.8 0.63 98,882 － 5.2 — — － － 29.22 6.00 20.5 2,528.9 769.8 9.5 30.4 479.5 0.62 98,726 － 5.4 — － － － 10.51 6.00 57.1 2,684.0 854.3 3.4 31.8 466.9 0.55 107,729 － 5.5 — 17 350 7,410 1 1 176.54* 60* 34.0 2,821.4 880.8 5.3 31.2 520.7 0.59 109,390 － 5.8 — 35 338 7,606 *1 The amounts reflect a share consolidation (with a ratio of 10 shares to 1 share) that took effect on October 1, 2017. *2 Scope 3 emissions from fiscal 2018 to fiscal 2020 have been adjusted to reflect a revision of the coefficient for Scope 3 Category 1 emissions. 1 152.75* 1 40* 25.8 2,963.2 858.9 4.6 29.0 552.5 0.64 110,595 7.8 5.9 14 74 329 7,585 S 1 385.02* 1 70* 18.2 1 557.18* 1 90* 16.2 3,123.3 910.7 11.3 29.2 675.4 0.74 112,638 7.8 6.4 20 71 373 6,996 3,668.6 1,308.2 13.5 35.7 702.9 0.54 114,714 9.2 7.2 25 65 327 6,158 For more detailed non-financial data, please refer to the section “Data Collection” in Sustainability Report 2021. Employee Engagement Index % Ratio of Female Managers（Non-Consolidated） % 30 25 20 15 10 5 0 2019 2020 2021 (FY) 10 8 6 4 2 0 2019 2020 2021 (FY) NEC Integrated Report 202176 Corporate Overview Company Name NEC Corporation Organization Chart Address 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan President Board Established July 17, 1899 Number of Employees 114,714 (NEC Corporation (As of March 31, 2021) and consolidated subsidiaries) Total Number of Shares Issued (As of March 31, 2021) 272,849,863 shares Stock Exchange Listing Tokyo (Securities Code: 6701) Shareholder Register Sumitomo Mitsui Trust Bank, Limited Administrator 1-4-1, Marunouchi, Chiyoda-ku, Tokyo Classification of Shareholders (Shareholding Ratio) (As of March 31, 2021) Number of Shareholders: 153,072 ● Japanese Government and Local Governments .......... 0.00% ●Financial Institutions .............31.57% ●Securities Companies .............. 2.44% ●Other Corporations .................. 7.01％ ●Foreign Investors ....................39.57％ ● Japanese Individuals and Others ...............................19.41% Major Shareholders (Top 10) (As of March 31, 2021) Name of Shareholders The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) NIPPON TELEGRAPH AND TELEPHONE CORPORATION STATE STREET BANK WEST CLIENT – TREATY 505234 Sumitomo Life Insurance Company Custody Bank of Japan, Ltd. (Trust Account No. 7) NEC Employee Shareholding Association GOVERNMENT OF NORWAY Custody Bank of Japan, Ltd. (Trust Account No. 5) Custody Bank of Japan, Ltd. (Trust Account No. 4) Cross-Industry Unit Global Business Unit Regional Headquarters (RHQs) Public Solutions Business Unit Branch Offices Public Infrastructure Business Unit Enterprise Business Unit Network Services Business Unit Digital Services and Engineering Unit Digital Business Platform Unit System Platform Business Unit Global Innovation Unit Corporate Staff Number of Shares Held (Thousands of shares) Shareholding Ratio (%) 24,945 16,606 13,023 5,649 5,600 5,381 4,231 4,158 3,895 3,604 9.14 6.09 4.77 2.07 2.05 1.97 1.55 1.52 1.43 1.32 Corporate Data 77 Investor Relations Sustainability https://www.nec.com/en/global/ir https://www.nec.com/en/global/csr/ 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 its disclosure on this website. Division in Charge Investor Relations Office, Corporate Finance & Global Treasury Division The above link offers further details of NEC’s approach to management for sustainability based on ESG, Sustainability Report 2021, and related information. Division in Charge Sustainability Promotion Division Evaluation by External Parties (As of July 2021) NEC is included in world-renowned ESG indices. Internet IR 最優秀賞 2020 Internet IR 最優秀賞 2020 Dow Jones Sustainability Indices（DJSI） FTSE4Good Index Series MSCI ESG Leaders Indexes Daiwa Investor Relations Internet IR 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. Euronext Vigeo World 120 STOXX Global ESG Leaders Index ISS ESG Corporate Rating Grand Prize 2020 Internet IR Grand Prize 2020 Internet IR Grand Prize 2020 Nikko Investor Relations 2020 Overall Ranking of Corporate Websites for Listed Japanese Companies Internet IR 最優秀賞 2020 Internet IR Grand Prize 2020 CDP (Climate Change, Water Security, EcoVadis and Supplier Engagement) Cautionary 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 the Company 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: ・ adverse economic conditions in Japan or internationally; ・ foreign currency exchange and interest rate risks; ・ changes in the markets in which the NEC Group operates; ・ the recent outbreak of the novel coronavirus; ・ potential inability to achieve the goals in the NEC Group’s medium-term management plan; ・ fluctuations in the NEC Group’s revenue and profitability from period to period; ・ difficulty achieving the benefits expected from acquisitions, business combinations and reorganizations and business withdrawals; ・ potential deterioration in the NEC Group’s relationships with strategic partners or problems relating to their products or services; ・ difficulty achieving the NEC Group’s growth strategies outside Japan; ・ potential inability to keep pace with rapid technological advancements in the NEC Group’s industry and to commercialize new technologies; ・ intense competition in the markets in which the NEC Group operates; ・ risks relating to the NEC Group’s concentrated customer base; ・ difficulties with respect to new businesses; ・ potential failures in the products and services the NEC Group provides; ・ potential failure to procure components, equipment or other supplies; ・ difficulties protecting the NEC Group’s intellectual property rights; ・ potential inability to obtain certain intellectual property licenses; ・ the NEC Group’s customers may encounter financial difficulties; ・ difficulty attracting, hiring and retaining skilled personnel; ・ difficulty obtaining additional financing to meet the NEC Group’s funding needs; ・ potential failure of internal controls; ・ potentially costly and time-consuming legal proceedings; ・ risks related to regulatory change and uncertainty; ・ risks related to environmental laws and regulations; ・ information security and data protection concerns and restrictions; ・ potential changes in effective tax rates or deferred tax assets, or adverse tax examinations; ・ risks related to corporate governance and social responsibility requirements; ・ risks related to natural disasters, public health issues, armed hostilities and terrorism; ・ risks related to the NEC Group’s pension assets and defined benefit obligations; and ・ risks related to impairment losses with regard to goodwill. 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. Note: In this presentation, the accounting periods of the fiscal years for March 31, 2021 and 2022 were referred as FY21/3 and FY22/3 respectively. Any other fiscal years would be referred similarly. 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 Integrated Report 2021NEC Corporation 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan Phone: +81-3-3454-1111 ISSN 1345-8655 ©NEC Corporation 2021 Printed in Japan 

Continue reading text version or see original annual report in PDF format above