NEC Corp.
Annual Report 2023

Plain-text annual report

Cover Story NEC’s Corporate Value 1 1 Contents and Editorial Policy 01 Cover Story 03 Strategies and Progress 04 Initiatives and Frameworks 18 Mid-term Management Plan 2025 36 NEC, for Those Who Seek Challenge 19 Business Strategy 42 Living Harmoniously with the Earth to 2 NEC’s Management for Sustainability 19 IT Services 20 IT Services in Japan 21 Digital Government and Digital Secure the Future 48 Respecting Human Rights 50 Supply Chain Sustainability 02 NEC’s Corporate Value Finance 52 Corporate Governance Dialogue 22 Social Infrastructure 54 Corporate Governance 23 Telecom Services 60 Messages from Newly Appointed 3 Message from the President 24 Aerospace and National Security 8 NEC’s Value Creation Journey 25 Future Growth Businesses 9 NEC’s Strengths 11 NEC’s Businesses 12 CFO Message 25 Green / Carbon Neutrality Businesses 26 Healthcare and Life Science Businesses 27 Employee Roundtable 16 NEC’s Value Creation Process 30 Innovation: 17 NEC’s Approach to Materiality for Increasing Corporate Value R&D and Business Development Outside Directors 63 Directors 65 Risks and Opportunities 05 Corporate Data 67 Financial and Non-financial Highlights 68 Corporate Overview Editorial Policy NEC has published annual reports containing both financial and non-financial information since 2013. Starting in 2018, upon having defined its “materiality,” NEC changed the name of its annual report to “Integrated Report.” NEC Integrated Report 2023 comprises initiatives for achiev- ing the NEC 2030VISION and the Mid-term Management Plan 2025, which are based on NEC’s “Purpose.” The “Message from the President” explains the philosophy behind the NEC Way and the NEC 2030VISION, and the Mid- term Management Plan 2025 explains NEC’s strategic and cul- tural aspects. Furthermore, this report focuses on people, who are the driving force behind management’s implementation of NEC’s “Purpose,” and features a roundtable discussion with employees from DXAS Agricultural Technology, a joint venture between Kagome Co., Ltd. and NEC. The report also summa- rizes 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 transpar- ent and continuous information while incorporating feedback from various stakeholders. Reporting Period April 1, 2022 to March 31, 2023 (hereinafter referred to as “fiscal 2023”; 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 Financial Reporting Standards (IFRS) Foundation’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 • ESG Databook • Information Security Report Contents and Editorial PolicyNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress 2 NEC’s Management for Sustainability 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 Way Our Stance as a Company Purpose NEC creates the social values of safety, security, fairness and efficiency to promote a more sustain- able 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 Our Stance as Good Businesspeople Code of Values Code of Conduct The NEC Way is a common set of values that form the basis for how the entire NEC Group conducts itself. NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress NEC’s Corporate Value Cover Story3 Let’s maximize NEC’s power to be ever-changing and create value for society by delivering on our promises Takayuki Morita President and CEO Message from the PresidentNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value Message from the President 4 Aiming to Be an Indispensable Presence in the World NEC has been transforming society for more than infrastructure, along with its technologies and Making Steady Progress Toward Achieving the Goals Set Forth in the Mid-term Management Plan 2025 120 years with the innovative and superior tech- track record in supporting mission-critical sys- I was appointed president and CEO of NEC in which exceeded our initial expectations. In terms nologies it has amassed during this time. NEC’s tems, into new social value to ensure that NEC 2021. In the same year, we formulated the Mid- of laying the foundation for achieving the Mid- Purpose, which is to create the social value of becomes indispensable throughout the world. term Management Plan 2025, which clearly term Management Plan 2025, we have been dili- safety, security, fairness and efficiency to ensure The NEC 2030VISION, which is based on our outlined how far we would progress over the fol- gently working on establishing a global business a more sustainable world where everyone has Purpose, concretely outlines NEC’s vision of a lowing five years in our efforts to realize the NEC structure and centralizing digital transformation the chance to reach their full potential, serves logically achievable society of the future. We aim 2030VISION. Naturally, achieving the goals set (DX) products and services since I became CEO, as the basis for all of the Company’s corporate to realize the NEC 2030VISION by leveraging our forth in the Mid-term Management Plan 2025 and and these efforts are also progressing as planned. activities. With a view to achieving this Purpose, strengths and using the society envisioned living up to the trust of all of our stakeholders is a We have also made progress in monetizing our I would like to translate NEC’s strengths, which across its three layers of Environment, Society, commitment that I must fulfill as the person intellectual property over the past few years, help form the foundation of Japan’s and Life as a compass to guide us forward. entrusted with the management of NEC. which has included the development of a global NEC 2030VISION Life City Bringing people together and filling each day with inspiration Realizing exciting lifestyles in real and virtual worlds that meet the diverse values of consumers Nurturing prosperous cities with inclusive and harmonious societies Achieving efficient operation of cities that support consumers and services optimized for individuals Sharing hopes that transcend time, space, and generational boundaries Fostering shared wisdom and empathy through rich communication that transcends time, space, language and generational barriers Communication Creating sustainable societies by shaping new industries and workstyles Realization of a resilient environment that allows for creative self-realization through diverse workstyles and work objective Living harmoniously with the earth to secure the future Realizing a sustainable global environment by taking a holistic approach to tackle society’s issues and challenges that promotes greater transparency and real behavioral change Business Environment For more details on the NEC 2030VISION, please follow the link below. https://www.nec.com/en/global/onlinetv/en/2030VISION.html Starting in fiscal 2024, NEC reorganized its patent portfolio. business segments into IT Services and Social In June 2023, NEC transitioned to a Company Infrastructure with the objective of building the with a Nominating Committee, etc., structure with optimal organizational structure for achieving the the aim of increasing the speed of management goals of the Mid-term Management Plan 2025. We decision-making and strengthening corporate also thought that the disclosure of information governance. After engaging in spirited discussions that makes it possible to track our progress was with the management team for more than a year, necessary. Shareholders and investors had also we are convinced that this is the best possible raised concerns that NEC’s organization was diffi- organizational structure that can be conceived cult to fully understand, so these measures also at this point in time. address feedback from the capital markets. We have made steady progress over the past Two years have passed since we announced two years. In the Olympics, there is an event the Mid-term Management Plan 2025. Regarding called the triple jump, which is made up of three global 5G business, although there have been phases, a hop, a step, and a jump. Using this as developments in the business environment such an analogy for illustrating our progress, we have as delays in international 5G markets getting off completed “the hop and the step,” and I am the ground, I believe that the Company as a growing increasingly confident in the current whole is making solid progress from a financial direction of the Mid-term Management Plan 2025 standpoint at this midway juncture of the plan, as I engage in dialogue with our stakeholders. with the domestic IT services business perform- Fiscal 2024 to 2026 will be our “jump” stage, ing well by steadily capturing strong demand where we will focus on achieving solid results. LifeSocietyEnviron-mentNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value Message from the President 5 IT Services Business Software Solutions UK, KMD Holding A/S, and technologies in the future to coincide with the growth businesses, it is taking longer than initially In Japan, there is strong demand for so-called Avaloq Group AG), which are software as a service rising concern for security. expected for international carriers to fully imple- DX investments, such as IT-based corporate (SaaS)-based business models. Although there For example, in the area of national security, ment Open RAN; however, the shift to open sys- management reforms and the digitalization of are concerns about the deterioration of business initiatives have been launched in outer space, tems and virtualization is progressing steadily. government services. It is important that we confidence in Europe, we believe that any impact and the Japanese government has begun studies There remain many opportunities on a global approach such customer initiatives as a partner on our business will be relatively minor given on the concept of satellite constellations that level, particularly in software, from a medium- to that can provide end-to-end support, from anal- that the business of these three companies is utilize optical communications. NEC will provide long-term perspective, including in the form of ysis and discovery of customer issues to systems aimed primarily at governments, municipalities, solutions for national security that help to ensure Netcracker Technology Corporation, an NEC implementation and operation. To this end, we and financial institutions. We are working to safety and security by maximizing and bringing company which has a strong global presence in are working with ABeam Consulting Ltd., an NEC create synergies through both cross-selling and together the strengths of NEC’s existing initiatives OSS/BSS (operation support system/business Group company that boasts some of the best con- the sharing of offshore resources, from which we in optical communications technology, wireless support system software). We will control upfront sulting resources in Japan, to further strengthen hope to see results that will contribute to realiz- technology, and defense encryption and security costs, for the time being, while assessing the our approach. We have also sharpened our com- ing the goals of the Mid-term Management Plan technology. In the global 5G business, one of our timeline for market expansion. petitive edge by forming global alliances with 2025. In June 2023, Avaloq formed a strategic companies including Microsoft, AWS, Oracle, SAP, business partnership with BlackRock, Inc., a U.S.- and ServiceNow. By using the Company as a test- based investment management company, to ing ground, or “client zero,” so to speak, NEC has provide integrated solutions for wealth managers Increasing NEC’s Corporate Value with an Eye to 2030 been able to show use cases for implementing and private banks by combining the strengths of To create greater social value with a view to real- sustainable agriculture that uses AI to produce cutting-edge technologies and develop propos- both companies. By strengthening our market izing the NEC 2030VISION, NEC is also working greater crop yields with less fertilizer and irriga- als that have greater persuasive power. In addi- competitiveness in these ways and approaching on generating new growth businesses that stem tion. In addition, NEC has been developing car- tion, a range of NEC’s technological strengths and a broad range of customers, I believe we can from solutions to social issues. bonneutral solutions for many years, and we know-how, including digital IDs centered on expand the DGDF business. The AI drug development business, one of hope to firmly establish disaster prevention and facial recognition and data-driven cybersecurity NEC’s healthcare and life science-related busi- mitigation solutions as well as environmental services, will be consolidated into a common Social Infrastructure Business nesses, is working on drug discovery, including solutions such as the visualization of CO2 emis- platform called NEC Digital Platform (NDP) to The Social Infrastructure business operates in an personalized cancer immunotherapy, using a sions as our future pillars of growth. further expedite the deployment of such services area in which market growth is expected from wide range of IT technologies, including AI, to In the development of these new businesses, to customers. the standpoint of economic security and the meet the growing demand for personalized we will seek potential in various forms of capital, Internationally, we are promoting the Digital growing concern for security driven by geopoliti- medicine that provides optimal medical care tai- including partnerships, without regard to owner- Government/Digital Finance (DGDF) business. cal factors. In addition, the areas of telecommu- lored to individual needs. In the field of agricul- ship, to more quickly link technology to the cre- NEC’s DGDF business is centered on three nications, aerospace, and national security ture, NEC has established a joint venture with ation of social value. Rather than commercializing European companies we have acquired (NEC are expected to see greater integration of Kagome Co., Ltd. and is working to realize a business through the efforts of NEC alone, we NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value Message from the President 6 believe that open innovation will increase the operational reforms that involve the use of gen- diverse people who identify with the NEC Way In addition to raising the execution capabili- establishment of innovative businesses by tran- erative AI such as ChatGPT, which is attracting a can come together to maximize their individual ties of our personnel, I&D is indispensable in scending the boundaries of conventional think- great deal of attention. NEC has also begun offer- abilities as part of a team that aims to realize realizing our strategies. To adapt to market con- ing and rising to the challenge of creating new ing NEC Generative AI Service, a generative AI NEC’s Purpose, and where like-minded people ditions and generate innovation, it is essential businesses through novel combinations of that can be tailored to the needs of individual inspire each other. that we review and think about matters from dif- diverse knowledge. customers, to help Japanese companies rise to The NEC Group’s engagement score was ferent perspectives and make decisions without The relationship between AI and society has the challenge of creating new corporate value in 36% in fiscal 2023, a significant increase from missing out on any opportunities. We will build a strengthened with the evolution of technology, response to changes in the industrial landscape. fiscal 2021’s score of 25%. That said, there work environment where everyone, regardless of which has in turn broadened the areas in which By linking NEC’s knowledge with that of its cus- remains a large gap between the current score nationality, age, religion, gender, sexual orienta- NEC can provide value to society. For example, tomer partners, we will create new value together and achieving our target of 50% by fiscal 2026. tion, gender identity, or physical ability can max- many companies and universities are considering using generative AI. As we work to achieve our target engage- imize their potential for business growth. We People Are the Key to Realizing Our Strategies ment score, we are involved in ongoing efforts believe that such a work environment will serve to increase employee satisfaction with the as a catalyst for attracting a diverse and appeal- Company’s strategy and direction through dia- ing workforce, and that by becoming a company logue with more than 10,000 employees at that is chosen from a larger pool of talent around When innovating to create social value, increas- approaches. It is said that it takes a large com- monthly town hall meetings. In addition, the the world, by people who strongly identify with ing people’s execution capabilities and promot- pany with an established history 10 years to Company has introduced a remuneration system the NEC Way, our organization and culture, ing inclusion and diversity (I&D) are two essential change its corporate culture, and that results that compensates employees according to their backed by diversity, will be a source of innova- elements. cannot be achieved in a short period of time. market value, as well as NEC Growth Careers, tion in unpredictable times. Around 2000, NEC’s business performance However, during the period of the previous mid- an internal job posting system that supports declined due to changes in the business environ- term management plan, which ran from fiscal employees in finding positions that will lead to ment and other factors, and the Company’s abil- 2019 to 2021, NEC’s management worked as one, their ideal careers by enabling them to fully uti- ity to execute its strategies weakened as a result with the resolve to never give up on reforming lize their experience and skills. We are taking var- of a lack of defined business strategies and a the Company—a task for which I have taken ious measures, such as enabling employees to decline in employees’ trust in the Company. overall responsibility since fiscal 2022. As an indi- design their own workstyles on an individual Therefore, we worked on reforming our execu- cator to measure the progress of the reforms, we or team basis and achieve growth within the tion capabilities in order to secure our future. set a target employee engagement score of 50% Company, by developing systems and mecha- The first step in our initiative to reform our exe- by fiscal 2026, which is among the highest in the nisms that allow employees to choose a work- cution capabilities was to transform NEC’s cor- world. This is not, however, merely a numerical style that suits each individual so that they can porate culture to one where all employees could target. It is about becoming an employer of approach their work with enthusiasm. think independently and constantly try out new choice by building a workplace in which NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value Message from the President 7 The Ability to Initiate Change and the Willingness to Keep Changing Are Necessary for Ensuring a Company’s Future The 10 Principles of Management, compiled by complying or following rules. It is about sincerely Dr. Koji Kobayashi, who advocated NEC’s C&C doing the right thing for society, business part- (Computers and Communications) vision and ners, peers, and ourselves. We believe it is led the Company’s “second founding,” contains extremely important to create social value as an the phrase “remember that stable companies honest company through the actions of every are unstable and that unstable companies are one of our employees. The just reward for such stable.” I interpret this to mean that if a company sincere and proper actions is profit, which is then stops changing and seeks stability in an ever- used as a resource to create new innovation and changing world, the company will be left behind greater value. This cycle is how we will realize and fall into decline. The ability to initiate change our Purpose. and the willingness to keep changing are neces- The life span of a company is generally said sary to ensure a company’s future. There are to be around 30 years. I believe that the reason both risks and opportunities inherent in making NEC still exists today, despite having faced such changes and transformations. For NEC to numerous crises, is not only because of its tech- continue to be a company that is indispensable nological strength, but also because of the to the world, I believe it is crucial that we thor- strength of its people. And I believe that this oughly implement the NEC Way, which is a strength is NEC’s power to be ever-changing. common set of values that form the basis of how Since assuming the position of president and we conduct ourselves. CEO, I have come to feel even more strongly As we put the NEC Way into practice, I think that my most important role is to maximize the it is important to be conscious of maintaining power to drive ongoing change. In order to ful- our integrity and creating a virtuous cycle of fill this role, I am firmly committed to being profit and innovation. Integrity carries the mean- an example of integrity that guides us toward ing of honesty and sincerity and is not just about greater value. NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value In keeping with its founding spirit of “Better Products, Better Services,” Nippon Electric Company, Ltd. (NEC) has continued to provide services using its distinctive technologies in addition to ICT equipment such as telecommunications equipment and computers. NEC will continue to provide value to society, equipped with the strengths it has cultivated through such efforts while striving to sustainably enhance corporate value. 8 Market Conditions NEC’s History Social Infrastructure 1899 1928 1964 1970 1987 2007 2010 2016 2018 2019 Nippon Electric Company, Ltd. established Transmitted scenes of Imperial Accession Ceremony of Emperor Hirohito International satellite TV broadcasts of the Tokyo Olympics Japan’s first satellite, Osumi, launched Started manufac- turing optical submarine relay equipment Ultra-compact radio communi- cations system PASOLINK secured top global market share Asteroid explorer HAYABUSA successfully returned to Earth Submarine cable installation reached over 250,000km, enough to encircle the Earth six times Asteroid explorer HAYABUSA 2 reached the asteroid Ryugu Began shipping base stations for 5G networks Founder: Kunihiko Iwadare IT Services 1954 1958 1960 1971 1974 1982 1984 2002 2004 2009 2015 2016 2018 2019 2020 Began research into computers Developed the first domesti- cally produced fully transis- torized NEAC-2201 computer Fully automated postal sorting system deployed The PC-9801 personal computer announced Received an order in the U.S. for fingerprint matching services No. 1 in fingerprint 1 authentication Contributed to implementation of the Individual Number System Ranked No. 1 in facial 2 authentication Established the bio- metric authentication brand “Bio-IDiom” Started quantum computing application services Entered the drug discovery business, specializing in advanced immunotherapy using “NEC the WISE” Started development of optical character recognition (OCR) The ACOS Series 77 mainframe computer family announced 1 Ranked 1st eight times in task assessment, sponsored by the U.S. National Institute of Standards and Technology (NIST) 2 Ranked 1st multiple times in facial authentication benchmark testing held by the U.S. NIST https://www.nec.com/en/global/solutions/biometrics/index.html Note: NIST testing results do not constitute an endorsement by the U.S. government of any particular system, product, service, or company. The Earth Simulator, the world’s fastest supercomputer system for resolving global environmental problems, completed Biometrics solutions adopted in 70 countries Formulated the AI technology brand “NEC the WISE” NEC’s Value Creation JourneyOur First Establishment： 1899“Better Products, Better Services”Our Second Establishment： 1977C&C AnnouncedIntegration of Computers and CommunicationsOur Third Establishment： 2013Transformation into a Social Value InnovatorIn the 1910s, electricity became available to ordinary households, and the years following the 1923 Great Kanto Earthquake saw advance-ments in radio, television, and other forms of telecommunications. As the country worked to rebuild after World War II, Japan’s economy entered an unprecedented period of rapid growth in the 1950s, with the expansion of secondary industries bringing about major changes in people’s lifestyles.The 1970s saw Japan’s core industries shift to automobiles, electrical equipment, and electronics, and changes in the industrial structure gained pace during this decade. In the 1990s, as internet use became more widespread, the establishment of security infrastructures became a matter of critical importance while accelerated globaliza-tion led to intensified international competition.In the 2000s, a global recession—including the burst of the dotcom bubble in the wake of interest rate hikes by the Federal Reserve Board and the financial crisis triggered by the bankruptcy of Lehman Brothers—led to full-scale deflation in the Japanese economy. Meanwhile, the growing popularity of mobile phones, personal com-puters, and the internet gave rise to dramatic shifts in the way people lived their lives.NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value Strengths that are the source of our value creation NEC has long contributed to the develop- ment of its customers and society, for whom it resolves issues as they arise by supporting social infrastructure and mission-critical sys- tems with information and communications technology (ICT). The technologies, human resources, and relationships of trust with our customer base that we have cultivated over our long history serve as our unique strengths and competitive edge. our talented human resources to guide cus- tomers and society in finding resolutions to issues they face, and by building a track record of achievements in this way, we have forged relationships of trust with our cus- tomer base. We have continued to reinforce our strengths through this cycle, enabling us to create value for society in any era, which in turn contributes to realizing a sustainable society. We will strive to realize NEC’s Purpose by continuing to provide value to society led by these three strengths. People, our greatest management resource, form the foundation of our opera- tions. We apply the technologies created by Relationship between NEC’s strengths Creating value for society Technologies Customer base Trust Human resources 9 Technologies NEC is highly competitive on the world stage in the AI, telecommunications, and security domains. Building on these technological capa- bilities will enable us to swiftly adapt to rapidly changing social issues and diverse needs; increase creativity and productivity in society as a whole; and provide high-value-added products and services. We will continue to provide social value centered on these three domains. I For more details, please refer to “Innovation: R&D and Business Development” on page 30. AI Specific technologies / services • Biometric authentication (such as facial recognition, iris recognition, fingerprint recognition) • Video recognition • AI-driven analysis and prescription Creating value for society Communications Specific technologies / services • Mobile networks (5G) • Submarine cables • Deep space optical communications Security Specific technologies / services • Cybersecurity • Consulting and risk assessment • Implementation and monitoring NEC’s StrengthsNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 10 Human resources Viewing people as its greatest management resource, NEC has been investing in its personnel by transforming systems and environments that maximize the capabilities of its human resources. By nurturing our human resources and fostering an organizational culture in which employees have the passion and ambition to generate new business, take on challenges outside of their comfort zones, and see tasks through to the very end, we will promote the development of tech- nologies that contribute to resolving social issues, building relationships of trust between the Company and its customers, and realizing NEC’s Purpose. AI Specialists Global Specialists NEC aims to develop useful AI that has practical applications. Indispensable to achieving this goal are human resources that can make full use of our vari- ous technologies and knowledge and support the implementation and operation of AI that is useful to our customers around the world. NEC’s highly experi- enced AI experts have formed a specialized team to help customers create value. NEC’s research laboratories are responsible for research and development that is geared toward strengthening the technological competence of the NEC Group. These laboratories adopt a global per- spective, working with locations and other research laboratories around the world to conduct R&D that can create new social value and open up possibilities for the future. More than 500 specialized team members I For more details, please refer to “Developing People and Environments to Drive Innovation” on page 35. Consulting Specialists DX Talent NEC provides one-stop support for all processes, from upstream to downstream, and uses its knowl- edge and expertise to drive forward projects in tandem with its customers. Additionally, the Company has established a system for supporting customers with ongoing updates after implementation. Abeam Consulting Ltd. consultants: Approx. 6,900 DX strategy consultants: Approx. 300 In a VUCA* world, the promotion of DX in companies and greater society is becoming ever more crucial. To date, NEC has provided DX services to a broad range of customers. NEC has 8,000 DX specialists working to promote true digital management transformation for its customers through aggressive, data-driven business. * VUCA: Volatile, Uncertain, Complex, Ambiguous 8,000 in total (fiscal 2023) Relationships of trust with our customer base NEC’s raison d’être lies in continuing to provide value for society through its business activities. By listening to the opinions of customers and society at large, we have established a diverse customer base that trusts NEC to deliver for them, time and time again. We will continue striving to be a company that is chosen and trusted by customers and greater society alike. Example 1 Digitalizing the Public Sector (IT Services Business) To realize sustainable economic growth and improve productiv- ity in society as a whole, systems and mechanisms throughout society must be dramatically overhauled and digitalized. In order to realize the safe and flexible establishment and opera- tion of government services in a short period of time using cutting-edge digital technology, NEC provides a full range of services from consulting through to design, building, operation, and maintenance, to support efficient and systematic operation through digitalization and the creation of new services via pub- licprivate partnerships. In doing so, NEC will contribute to the realization of a comfortable society and future for all people. Example 2 NEC’s 5G Technologies for Supporting Telecommunications Networks as a Social Infrastructure For more than 120 years since its founding, NEC has been pro- viding fixed-line and wireless communications technologies to telecom carriers while developing its expertise in these areas. Currently, we are working to make base stations smaller, more lightweight, and more energy-efficient to facilitate ease of installation and reduce operating costs, as well as to support efficient and effective 5G deployment through the use of open and virtualized cloud technologies. We will continue to work with industry-leading partners to contribute to the construction of communications networks that form the foundation of peo- ple’s lives and society. 5G via Rakuten Mobile, Inc. NEC Integrated Report 2023 NEC’s StrengthsCorporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value To realize its Purpose, NEC promotes its businesses in the three areas of “IT services,” “social infrastructure,” and “others,” the latter of which includes the healthcare and life science businesses that will serve as the pillars of the Company’s future growth. 11 Others 15% IT Services 53% Composition of Revenue ¥3,313.0 billion IT Services Revenue: ¥1,755.0 billion Adjusted operating profit (%): ¥168.0 billion (9.6%) Business Outline Systems Integration (Systems Implementation, Consulting) Maintenance and Support System Equipment Outsourcing/Cloud Services Software Services Major Customers Japan: Central and Local Governments, Financial and Industrial Sectors, Fire and Disaster Prevention, Broadcasting, and Electric Power Domains Overseas: National and Local Governments, Financial Sector, Others Social Infrastructure 32% Social Infrastructure Business Outline Revenue ¥3,313.0 billion Adjusted operating profit ¥205.5 billion Adjusted net profit ¥138.6 billion Free cash flows ¥102.5 billion Revenue: ¥1,062.2 billion Adjusted operating profit (%): Telecommunications Services: Network Infrastructure (Core Network, Mobile Phone Base Stations, Optical Transmission Systems, Submarine Systems), 1 Software and Services for Telecom Operators (OSS /BSS Aerospace and Defense: System Equipment, Systems Integration (Systems Implementation, Consulting), and Support (Maintenance) 2 ) ¥73.8 billion (6.9%) 1 OSS: Operation Support System 2 BSS: Business Support System Major Customers Telecommunications Services: Domestic and Overseas Telecom Carriers Aerospace and Defense: Central Government, Aerospace Businesses Business Outline Healthcare and Life-related Businesses Consolidated Domestic Subsidiaries Others Revenue: ¥495.8 billion Adjusted operating profit: ¥23.8 billion Note: The figures for revenue, adjusted operating profit, adjusted net profit, free cash flows, and composition of revenue are results for the fiscal year ended March 31, 2023 (IFRS). NEC’s BusinessesNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 12 Completion of the Second Year of the Mid-term Management Plan 2025 The Mid-term Management Plan 2025, which covers the period from fiscal 2022 to fiscal 2026, is driven by a fundamental policy in which we continuously improve our ability to generate cash from our business activities by maximizing long-term profit and optimizing short-term profit, and enhance corporate value through active investment. We have also set indicators to measure achievement. For one of these indica- tors, EBITDA, we have set a target annual growth rate of 9%. To raise capital efficiency, we have adopted ROIC as an indicator and set our fiscal 2026 target at 6.5%. We have completed two years of the Mid- term Management Plan 2025 and are currently at the halfway point, the third year. Although we faced changes in the external economic envi- ronment, such as component shortages that emerged in the second quarter of fiscal 2022, and volatile exchange rates and price increases in fiscal 2023, we were able to minimize the impact of such issues by promptly formulating and implementing Company-wide policies and measures. In the global 5G business, one of our growth businesses, we incurred temporary cost increases due to delayed market rise of Open RAN when compared to our initial expectations. Despite these issues, we were able to deliver results over the past two years that exceeded the revenue and adjusted operating profit forecasts set at the beginning of each year. This was accomplished by achieving a Company-wide balance through efforts such as turning strong domestic DX demand into business opportuni- ties and steadily improving the profitability of low-profit businesses. In parallel with these business activities, we implemented two initiatives to strengthen the management systems that support our efforts to achieve the Mid-term Management Plan 2025. The first initiative was the building of logic trees aimed at improving Company-wide corporate value. Through this process, we established optimal indicators not only for revenue and adjusted operating profit but also for capital effi- ciency in line with the characteristics and stages of individual businesses, and began applying these indicators in fiscal 2024. The second initia- tive was organizational reforms. In fiscal 2023, we introduced a flatter organizational structure by reducing hierarchy and transferring authority to facilitate dynamic and flexible resource alloca- tion and faster decision-making. In fiscal 2024, we have established a business structure based on the strategic elements of the Mid-term Management Plan 2025, including the integra- tion of related divisions to accelerate the core DX business and the ramping up of our efforts toward the digitalization of government and in the national security domain. Through these measures, I believe that the Company has produced solid results in the first two years of the Mid-term Management Plan 2025 while steadily establishing a management foun- dation for achieving the goals set forth in the plan. We will continue to work toward achieving these goals while promptly and flexibly respond- ing to changes in the business environment. Maximizing Long-term Profit, Optimizing Short-term Profit, and Increasing Corporate Value through Achieving the Mid-term Management Plan 2025 Osamu Fujikawa Corporate Executive Vice President and CFO (Representative Executive Officer), Member of the Board CFO MessageNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 　　　　 13 Generating Cash In fiscal 2023, free cash flow was ¥102.5 billion, a year-on-year increase of ¥18.4 billion. While we are still feeling the impact of the component shortages, inventories have been reduced to appropriate levels following the strategic buildup of stock in response to said shortages in fiscal 2023. Meanwhile, the improvement in operating cash flow was modest due to a tempo- rary increase in working capital as sales were more heavily weighted toward the end of the fourth quarter than previously due to an imbal- ance in the timing of 5G investments made by domestic telecommunications carriers and other factors. In fiscal 2024, we plan to generate ¥150.0 bil- lion in free cash flow by leveling out our strategic inventories and temporary increases in accounts receivable and returning working capital to normal operating levels. Over the past two years, the expansion of free cash flow has stagnated slightly due to the decision to respond to the macroeconomic envi- ronment as a priority. However, in accordance with the basic policy set forth in the Mid-term Management Plan 2025, we will continue to promote cash generation by increasing profits through boosting business profitability as well as improving asset efficiency and converting assets held to cash. Generating Cash by Improving Business Profitability In order to expand Company-wide business profits, I believe that it is important to expand growth Free Cash Flows (Billions of yen) 150.0 84.1 147.5 –63.4 102.5 152.1 –49.6 FY2022 FY2023 FY2024 (Forecast) Cash flows from operating activities Cash flows from investing activities Free cash flows businesses outlined in our business strategy and to increase the profit margins of low-profit busi- nesses. As CFO, I am hands-on in monitoring the improvement of our low-profit businesses. We have set an operating profit ratio of 7% as a hurdle rate to determine whether a business should continue operating. For businesses that do not meet the hurdle rate, I will sit down with the relevant business unit and hammer out a plan to increase the operating profit ratio to 7% or higher and implement measures for improve- ment. Thanks to the work we have completed to date, we have steadily raised the profitability of those businesses as a whole; and in fiscal 2023, we improved the adjusted operating profit ratio of low-profit businesses by 2.4%, to just over 6%. In addition, four of the 16 businesses that we have been monitoring since fiscal 2022 have transformed their business structures, enabling them to generate stable profits, while four other businesses are also making steady improve- ments. Meanwhile, for those businesses that are deemed unlikely to achieve the hurdle rate by fiscal 2026, we will consider significant structural reforms, including partnering and carve-outs, as options to remove them from the portfolio. Generating Cash by Improving Capital Efficiency Since the previous mid-term management plan, we have been engaging in activities to shorten our cash conversion cycle (CCC), which is ulti- mately an effort to improve capital efficiency. As a result, we reduced our CCC by 12 days over the course of two years, from 72 days as of March 31, 2019 to 60 days as of March 31, 2021. However, from fiscal 2022 onward, due to the strategic increase of inventories to cope with component shortages and sales leaning heavily toward year- end, our CCC rebounded to 70 days at the end of March 2023. Even excluding these special factors, the number currently stands somewhat higher than desired at 64 days. In fiscal 2024, we will first ensure that levels of these temporarily accu- mulated assets are normalized while simultane- ously promoting further improvements by once again encouraging the leaders of each business unit to take action autonomously. Under the Mid-term Management Plan 2025, we are transitioning from profit and loss-centered management to management that emphasizes capital efficiency. ROIC is generally the go-to indicator for measuring capital efficiency, but in addition to ROIC, we will emphasize various other efficiencies relevant to business activities such as the efficiency of human capital and operation. However, placing too much emphasis on efficiency in new and growth businesses could curtail growth-oriented investments. As such, it is important to set targets for indicators that are in line with the characteristics and stages of each business, rather than aiming for Company-wide uniformity. In the process of con- structing the logic trees mentioned at the begin- ning of this message, appropriate indicators and numerical targets were selected for each busi- ness, for which PDCA implementation has begun in earnest in fiscal 2024. To enhance the effec- tiveness of this approach, we promote a shared understanding throughout the Company that we have an obligation to capital markets to generate profit that exceeds capital cost for our continued existence as a company, and we intend to further improve capital efficiency. NEC Integrated Report 2023 CFO MessageCorporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 　　　　 14 and are waiting for the right time to sell. As such, we have reached a point where we have, in prin- ciple, eliminated cross-shareholdings in listed companies. As for unlisted stocks, there are some that will take time to eliminate due to the circumstances that surrounded them from the time of investment, but we will continue to put forth our utmost efforts to do so. In addition to cross-shareholdings, the Board also assesses the significance of continuing to hold real estate and other assets and actively pro- motes the conversion of such holdings into cash. Capital Allocation Through the measures I have mentioned, we aim to generate ¥1.3 trillion in operating cash flow over the five-year period from fiscal 2022 to fiscal 2026. Our policy is to retain the cash generated as surplus funds for investments in areas that will become growth drivers in the future, as opportunities arise aimed at increasing corpo- rate value while prioritizing stable dividends and maintaining financial soundness. We will use the level of financial soundness currently evaluated by credit rating agencies as a guideline to be maintained over the medium term. Our basic dividend policy is to maintain a stable dividend payout ratio of approximately 30% on average over the five-year period. In the dynamic ICT market, there is an abun- dance of investment opportunities for business expansion. Our basic approach to capital alloca- tion is to translate these investment opportuni- ties into the expansion of revenue and the enhancement of corporate value, thereby realizing capital gains and maximizing returns to share- holders while maintaining the stable dividends mentioned above. Profit Cycle and Capital Allocation Sustained EBITDA growth (CAGR: ９%) • Ensure returns from proactive expense management Manage CCC along with growth 1 Operating CF ¥1.3 2 trillion Cumulative sales: ¥135.4 billion Shareholder returns Continue stable, long-term dividends (Average payout ratio: Approx. 30%) Financial soundness Maintain our current credit rating 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 1 CF = Cash flow　2 FY2022–FY2026 total Investment CF Financial CF Growth investments Revenues Expenditures Underpin stable growth • Improve profitability of base businesses • 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. Generating Cash by Converting Our Assets In April 2020, we set guidelines for eliminating cross-shareholdings. All cross-shareholdings possessed by NEC are subject to comprehensive annual review by the Board of Directors, in which the Board clarifies the strategic value of each holding and considers returns in terms of capital costs and other perspectives. If the Board accepts the rationale for a holding, it is kept; if not, it is sold. Compared with the end of March 2020, over the course of three years, we have reduced our cross-shareholdings in listed companies from 108 to 33. We have already agreed upon the sale of many of the remaining 33 cross-shareholdings Sales of Investment Securities (Billions of yen) Book value 115.8 Fair value Fair value fluctuation, etc. fluctuation, etc. Listed companies 91.3 96.7 72.6 77.4 54.5 62.7 40.2 Non-listed companies* 24.5 20/3 末 FY2020 24.1 21/3 末 FY2021 22.9 22/3 末 FY2022 22.5 23/3 末 FY2023 Number of stock listings (Listed companies) * Excluding alliance companies 108 63 52 33 NEC Integrated Report 2023 CFO MessageCorporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 　　　　 15 Non-financial Strategies for Enhancing Corporate Value Year after year, as social issues become increas- ingly complex and the demand for disclosure becomes increasingly strong, management based on integrated thinking is becoming increasingly important. Positioning non-financial strategies as an important foundation for sustain- able growth, we not only disclose non-financial information in response to requests from external parties but also aim to utilize non-financial infor- mation for the sustainable enhancement of corporate value by further clarifying the link between non-financial strategies and financial aspects of the Company. In addition to working to reduce capital costs over the medium to long term from a risk management perspective, we will leverage the know-how we have developed through our in-house efforts to address issues such as climate change and information security to propose solutions to our customers, leading to expanded business opportunities and increased free cash flow. We are also conducting a causal analysis between indicators of corpo- rate value and non-financial data and initiatives. I would like to incorporate non-financial indica- tors into data-driven management while we continue to accumulate data. In July 2023, NEC issued a Sustainability- Linked Bond via a public offering in the domestic corporate bond market, the second issuance following that of last year’s. The issuance of the bond is an example of NEC using financing to show its strong commitment to one of its mate- rial issues (materiality), “environmental action with a particular focus on climate change (decarbonization).” These SDGs-based financing initiatives are the NEC Group’s Purpose put into practice, and they provide a way for us to engage in dialogue and co-creation with a variety of stakeholders related to our management of sustainability initiatives. Final Remarks In fiscal 2024, we intend to increase revenue by 2.0% and increase adjusted operating profit by approximately ¥15.0 billion, to ¥220.0 billion, through increased sales and efforts to improve profitability. Although the business environment remains uncertain due to concerns over eco- nomic recession caused by soaring global prices and geopolitical risks, we will strive to ensure steady business execution by capturing strong DX demand and fully leveraging our ability to respond to situational changes. Also, from fiscal 2024, we will start to disclose non-GAAP profits and losses in addition to con- ventional adjusted profits and losses. This is to show more intrinsic profitability by removing one-time gains and losses such as expenses related to restructuring, impairment losses, and gains and losses on sales of real estate and busi- nesses, as well as purchase price allocation amortization and other expenses recorded as a result of M&As, which are accounted for in con- ventional adjusted profits and losses. The prac- tice of adjusting for these nonrecurring items is common in capital markets worldwide, and by reporting profits and losses in such a way, NEC intends to increase its comparability with global competitors. We are in a time marked by instability and an inability to predict future business conditions. It is becoming less tenable for companies to survive based on what worked in the past. It could also be said, however, that such dramatic changes in market conditions make it easier for new opportunities to arise. With the digitaliza- tion of the world around us and the accumula- tion of data, NEC is seeing a major expansion in the areas in which it can generate social value by making full use of its AI and security technolo- gies, as well as its engineering capabilities that leverage these technologies. The drug develop- ment business, which was once far remote from the world of NEC’s businesses, has now emerged because the digitalization of genetic information, starting with the sequencing of the human genome, and the development of immunology have advanced in sync with the evolution of AI technology. Looking ahead to the NEC 2030VISION, we will combine NEC’s strengths and provide value to society. By doing so, we hope to achieve the goals of the Mid-term Management Plan 2025 and generate sustainable growth in cor- porate value. NEC Integrated Report 2023 CFO MessageCorporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 　　　　 　　　　 16 Under the Mid-term Management Plan 2025, NEC aims to connect its Purpose with strategy and culture based on the Company’s unique tangible and intangible assets, and to realize value creation through corporate action by putting its materiality into practice. By prioritizing material issues that contribute to the sustainable growth of the Company and greater society, NEC will provide value to various stakeholders and realize the NEC 2030VISION while contributing to the achievement of the Sustainable Development Goals (SDGs). For more details on the NEC 2030VISION, please follow the link below. https://www.nec.com/en/global/about/vision/index.html Capital Strategy and Culture Materiality Value Creation Financial Operating cash flow: ¥1.3 trillion* * For the fiscal years ended/ending March 31, 2022 to 2026 Manufacturing Business process / IT establishment Intellectual R&D expenditure: Approximately 3.7% of revenue Human Consolidated number of employees: 118,527 (as of March 31, 2023) Social and relationship Maintain and develop deep domain knowledge based on long-term customer relationships Generate global synergies through M&As Natural Expand renewable energy installations Purchase renewable power Strategy Growth Materiality NEC’s Growth Model “Maximizing long-term profit” and “Optimizing short-term profit” Non-financial measurement methodologies to underpin sustainable growth Culture Transformation of people and culture Establishment of business infrastructure A Society That Enables Well-being through the Digitalization of Government and Financial Institutions Stress-free Communication with Low Environmental Impact Transforming Society and Industry with the Power of Digital Technology Living Freely in Our New Era of Healthcare and Life Science Driving Carbon Neutrality for Our Customers and Society Fundamental Materiality Creation of shared vision for a brighter future with customers Environmental Action with a Particular Focus on Climate Change (Decarbonization) Security to Maximize ICT Possibilities Provision and Utilization of AI with Respect for Human Rights as the Highest Priority (AI and Human Rights) Diverse Human Resource Development and Cultural Transformation Corporate Governance Supply Chain Sustainability Compliance Investors Balance business growth and improve 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 Transform into a company that pursues innovation and brings together diverse human resources: “Employer of Choice” Society / Environment Contribute to climate change measures (Decarbonization) 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 NEC’s Value Creation ProcessNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 17 A part of our financial strategies in the Mid-term Management Plan 2025 involves identifying and implementing initiatives to address seven priority management themes to strengthen the non-financial foundation that encompasses ESG and underpins the sustainable growth of companies and society. In fiscal 2024, we have further clarified our approach to increasing corporate value by addressing ESG issues in an integrated manner to both reduce risks and generate growth and opportunities. We positioned our seven priority management themes as our “Fundamental Materiality” with the objective of reducing risk and increasing our growth rate. We have also organized them into five social and environmental themes as our “Growth Materiality” under which we aim to create growth businesses during the Mid-term Management Plan 2025 to generate growth and opportunities while increasing our growth rate. NEC will promote businesses with significant social, environmental, and economic value by addressing our Fundamental and Growth Materiality while aiming for continuous inclusion in major ESG indices. Growth Materiality A Society That Enables Well-being through the Digitalization of Government and Financial Institutions ⇒ Please refer to page 21. Stress-free Communication with Low Environmental Impact ⇒ Please refer to page 23. Corporate Value Opportunities Transforming Society and Industry with the Power of Digital Technology ⇒ Please refer to page 19. Free Cash Flows Driving Carbon Neutrality for Our Customers and Society ⇒ Please refer to page 25. Living Freely in Our New Era of Healthcare and Life Science ⇒ Please refer to page 26. I Pages 19 to 26: Business Strategy and Future Growth Businesses Capital Cost Growth Rate Risk Reduction and Opportunities E Environmental Action with a Particular Focus on Climate Change (Decarbonization) ⇒ Please refer to pages 42 to 47. Security to Maximize ICT Possibilities S Provision and Utilization of AI with Respect for Human Rights as the Highest Priority (AI and Human Rights) ⇒ Please refer to pages 48 to 49. Diverse Human Resource Development and Cultural Transformation ⇒ Please refer to pages 36 to 41. G Corporate Governance ⇒ Please refer to pages 54 to 59. Supply Chain Sustainability ⇒ Please refer to pages 50 to 51. Compliance I Pages 42 to 47: Living Harmoniously with the Earth to Secure the Future I Pages 36 to 41: NEC, for Those Who Seek Challenge I Pages 50 to 51: Supply Chain Sustainability I Pages 48 to 49: Respecting Human Rights I Pages 54 to 59: Corporate Governance Fundamental Materiality Sustainability Advisory Committee—Providing an Opportunity for Dialogue with Stakeholders NEC’s materiality was determined with reference to ISO 26000, the GRI Standards, the principles of the UN Global Compact, the SDGs and the SASB Materiality Map, among others, and through dialogue with experts in various fields and with representative stakeholders. The Sustainability Advisory Committee, in which the CFO and officers in charge of sustainability promotion consult with external experts on sustainability, holds high-level discussions on the theme of materiality that contribute to improving both corporate and social value and identifies the Company’s direction in times of high uncertainty and rapid change, leading to improvements in sustainability-related initiatives. For more details on the Sustainability Advisory Committee, please follow the link below. https://www.nec.com/en/global/sustainability/management/advisory_committee.html Peter David Pedersen (Chair) Co-Founder, Next Leaders’ Initiative for Sustainability (NELIS) Masaru Arai Chair, Japan Sustainable Investment Forum (JSIF) Asako Nagai Managing Director, Business for Social Responsibility (BSR) Osamu Fujikawa Chief Financial Officer, NEC NEC’s Approach to Materiality for Increasing Corporate ValueNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks Strategies and Progress Cover Story NEC’s Corporate Value 18 Achievement of NEC’s Purpose—A Combination of Strategy and Culture financial terms, our financial strategy is inte- The NEC Group has formulated the Mid-term grated with our business strategy, with the first Management Plan 2025, which concludes in priority being to maximize long-term profit, fol- fiscal 2026, with the aim of realizing the NEC lowed by optimizing short-term profit. 2030VISION and NEC’s Purpose set within the Culture: We believe that our cultural strength NEC Way. This Purpose calls for a combination is the strength of people to implement our strat- of strategy and culture, and therefore the Mid- egies and realize our Purpose. We aim to trans- term Management Plan 2025 promotes Purpose- form ourselves into a company that pursues driven Management with indicators set for innovation and brings together diverse people strategy- and culture-based targets. under the NEC Way—the NEC Group’s common set of values that form the basis for how the Group conducts itself. Strategy: We will achieve growth through acceleration of global growth and transforma- tion of domestic businesses by providing cus- tomer value through NEC technology. In Purpose Strategy Culture EBITDA Growth Rate: 9% Annual Average (FY2021–FY2026) 50% Engagement Score (FY2026) Mid-term Management Targets (Billions of yen) FY2021 Results FY2022 Results FY2023 Results FY2026 Targets Revenue 2,994.0 3,014.1 3,313.0 3,500.0 (Growth rate from FY2021) Adjusted operating profit Adjusted net profit 1 EBITDA 2 ROIC (Percentage of revenue) (Percentage of revenue) (Percentage of revenue) － 178.2 6.0% 165.4 5.5％ 295.8 9.9% 4.7% 0.7% 171.0 5.7% 167.2 5.5% 304.0 10.1% 3.9% 5.2% 205.5 6.2% 138.6 4.2% 347.8 10.5% 4.7% 3.2% 300.0 8.6% 185.0 5.3% 450.0 12.9% 6.5% 1 EBITDA = Gross profit – SG&A 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]) Achieving 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 base businesses, given the cautious busi- ness environment, the focus will be on improv- ing profitability and aiming to steadily increase profits. In growth businesses, the NEC Group will pri- oritize the allocation of resources in order to acquire and strengthen its competitive advan- tage, with the aim of driving growth in revenue and profits. Business Strategy Digital Government / Digital Finance • Transform into a top-class vertical SaaS vendor in the global DG/DF market Global 5G business • Aim for 20% market share in the Open RAN market in 2030, includ- ing expansion in the Japanese market from primarily a base station hardware provider to a full software and hardware solutions provider • Expand our value proposition through a comprehensive approach encompassing consulting to delivery • Implement price strategy and improve gross profit through common ICT platform technologies and offerings Core DX business • Strengthen competitiveness through hybrid IT (Cloud/DC/ On-Premises) alliances and in-house optimization • Create new business opportunities (social, enterprise transforma- tion). Expand the DX domain by leveraging the implementation capabilities of technology/policy linkage/end to end 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 Strategy Maximizing long-term profit and Optimizing short-term profit • 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 culture and how we work • Transform our people and culture • Establish business infrastructure • Create a shared vision for a brighter future y g e t a r t S e r u t l u C Mid-term Management Plan 2025NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress IT Services 19 Revenue (Billions of yen) Adjusted OP* Ratio (Billions of yen) (%) 1,800.0 1,755.0 290.1 1,617.9 252.7 1,365.2 1,464.9 9.6% 168.0 18.4 (6.3%) 9.8% 177.0 8.5% 137.2 16.0 (6.3%) 121.2 (8.9%) 149.6 (10.2%) FY2022 (Results) FY2023 (Results) FY2024 (Forecast) FY2022 (Results) FY2023 (Results) FY2024 (Forecast) Japan International (DGDF) International (DGDF) Japan Adjusted OP ratio * OP＝Operating profit Organizations and Business Segments / Domains Public sector Private sector Central govern- ment & local government Postal services and schools / Other educational institutions Fire and disaster prevention, transport, lifeline services, and media Finance Retail and services, Manufacturing Public Solutions Business Unit Cross-Industry Business Unit Enterprise Business Unit Digital Business Platform Unit DGDF Business Unit Japanese market International market Business StrategyNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress  IT Services in Japan Business Overview and Vision Today’s society and business environment are said to be in the era of VUCA,* and digital trans- formation (DX) is required to make social and corporate activities sustainable. DX is defined as the transformation of products, services, and business models in parallel with the transforma- tion of operations, organizations, processes, and corporate culture and environment, to establish a competitive advantage in responding to rapid Market Conditions and Social Issues The IT market in Japan continues to experience demand for IT due to the digitalization of society and businesses, backed by changes in the busi- ness environment such as accelerated cross- industry collaboration, active reorganization across industries, and technological advance- ments including AI, the Internet of Things (IoT), and 5G networks. In the enterprise domain, IT investments are shifting from traditional IT ser- vices to cloud-based versions of existing systems Issues in Implementing DX Issues in the promotion of DX Human resources Organizational initiatives Labour short- ages associated with DX Difficulties in formulating DX vision road maps Lack of progress in implementing DX in businesses ��% ��% ��% � �� Only 14% of Japanese companies stated that they have successfully implemented DX (compared with 30% worldwide) Sources: Japan Management Association, Boston Consulting Group changes in the business environment by utilizing data and digital technologies based on the needs of customers and society. NEC strives to not only underpin the activities of its customers and greater society through the provision of IT services but also to realize digital reforms in both society and industry, by leveraging its expertise and resources to their maximum potential. * VUCA: Volatility, Uncertainty, Complexity, Ambiguity and support for digitalization of operations. In the future, increasing the introduction of cloud- based services utilizing digital technologies is expected to be seen as a way to expand busi- ness. In addition, with the digitalization of gov- ernment, and vision for a Digital Garden City Nation, the digitalization of society as a whole has become imperative. Compared to their global counterparts, however, few Japanese companies have successfully implemented DX, Quantitative short- ages in DX talent Qualitative short- ３ ages in DX talent Implementing reskilling 1 Japan ��% 2 United States ��% ��% ��% ��% ��% There is a Company-wide DX strategy in place. There is cooperation between management, IT divisions, and business departments. ３ Japan ��% 2 United States ��% ��% ��% Agile initiatives Management IT divisions 4 Japan ��% 2 United States ��% ��% ��% Business departments ��% ��% 1 N=533 2 N=369 3 N=534 4 N=527 Source: DX White Paper 2021, Information-technology Promotion Agency (IPA) Individual initiatives Engaging in self-study Degree of desire for growth Degree of aware- ness of growth 5 Japan ��% 5 Vietnam ��% ��% ��% ��% ��% 5 Many countries N=1,000　Source: APAC Labor Market Status Survey 2019: “Growth Through Work,” Persol Research and Consulting 20 and there are some issues that need to be addressed in the promotion of DX. Examples of such issues include a shortage of human resources with DX expertise (in terms of quantity, quality, and re-skilling), difficulties in formulating concrete road maps, and the lack of progress in NEC’s Strengths Expertise and customer base developed over many years: We have experience in mission- critical system operations in the public domain and an average of more than 25 years of busi- ness with major customers in the enterprise domain. Execution capability to strongly promote cus- tomers’ DX from upstream to downstream: We have the systems and resources to provide agile solutions from upstream consulting to downstream processes such as delivery, opera- tion, and maintenance. Business Growth Strategies Expansion of value creation that is consistent from consultation to delivery: We take an upstream consulting approach to the manage- ment challenges faced by our customers and work in tandem with them as a partner in resolv- ing the issues concerning their management agendas. We provide consistent value not only in our overall planning process for resolving issues but also in the implementation of specific plans and proposals based on our expertise in each industry, our strong delivery capabilities, and post-implementation operation and sup- port. NEC’s partnerships with leading compa- nies in each industry are positioned as strategic partner programs to create the required model cases in each industry, which will be incorpo- rated into our menu of services and widely deployed. Business model reform via common platforms: Products, services, and assets that were previ- ously developed in an individually optimized manner for each industry and customer are now being developed as a common platform in the form of a menu of services based on NEC’s own implementing DX in actual business operations. This situation has led to an increase in demand for DX adoption support that integrates upstream consulting and downstream implementation and operation. Powerful DX use cases: NEC uses itself as a test- ing ground for DX to drive transformation and improve its competitiveness by independently conducting cutting-edge demonstrations while accumulating powerful use cases that can be provided to customers. Abundance of DX talent: We have approximately 8,000 employees with DX expertise, as well as a development program to secure 10,000 employ- ees with DX expertise by 2025. (As of March 31, 2023) technologies and expertise. This will not only enable the rapid delivery of value to customers but also facilitate a business model shift from the traditional piecework pricing method to a value-pricing method, which will increase the potential for repeat business, thereby improving profitability. Ongoing strengthening of alliances geared toward improving competitiveness: In response to diversifying demands for public cloud, private cloud and on-site systems, NEC not only has these various environments in-house but is also strengthening its competitiveness through global IT partnerships. Specifically, NEC is col- laborating with Amazon Web Services (AWS), Microsoft, Oracle, and Red Hat to provide IT environments tailored to customer needs. Contributions toward the digitalization of gov- ernment: NEC will leverage its years of experi- ence and know-how to standardize and streamline public administration services, improve convenience for the public, provide a digital infrastructure, and expand the use of the Individual Number Card (My Number Card). In NEC Integrated Report 2023 Business StrategyCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 21 the digitalization of government, a high level of security and quality is required, as well as speed, flexibility and productivity for the imple- mentation of systems, and we will ensure an optimum balance of such factors in compliance with government guidelines. In Denmark, a country at the forefront of government digitali- zation, NEC is working with KMD, a company that has supported such efforts, and is actively proposing solutions based on its expertise in breaking down the digital divide and resolving digitalization issues. Seizing of new business opportunities: In addi- tion to expanding existing businesses, NEC is Digital Government and Digital Finance Business Overview and Vision The use of IT in all areas of administration and finance will reduce administrative burden, increase convenience, simplify and streamline administrative tasks, and enable efficient and effective operations. Digitalization promotes collaboration and integration between various industries, but collaboration between govern- ment and finance, in particular, is expected to lead the way in this regard. NEC is developing its Digital Government Digital Finance (DGDF) working to seize business opportunities in new domains. Specifically, we aim to achieve busi- ness growth through the Digital ID business for airports, buildings, and hotels using biometric authentication technology; the Smart City busi- ness to realize the Digital Garden City Nation concept; the Mobility business that coordinates transportation infrastructure and mobility to realize a safe and secure transportation society; and the Digital Process Innovation business that provides advanced business process outsourc- ing services by digitizing business processes. business through three European companies it has acquired: NEC Software Solutions UK (SWS) of the United Kingdom, KMD of Denmark, and Avaloq of Switzerland. Leveraging our highly reliable digital technologies, we will build a gov- ernment and finance infrastructure that is trans- parent and fair to use and promote well-being in society through consumer-centered government and financial services tailored to individual needs. Our Three Acquisitions NEC Software Solutions UK Limited (SWS) (formerly Northgate Public Services Limited) SWS is an IT services company based in the United Kingdom. The company features a strong cus- tomer base and a shared business platform that can be used for a variety of sectors, including polic- ing, tax collection, social security benefits, and public housing management. KMD Holding A/S (KMD) Avaloq Group AG KMD is Denmark’s largest IT com- pany with a strong customer base, wide-ranging platforms, solutions for both financial and insurance sectors, and a proven track record in user experience and analytics, all of which it has leveraged to support digitalization of the government. The growth of Swiss company Avaloq is partially driven by recurring business from the provision of software via a SaaS- based business model. The com- pany holds the top market share in wealth management software in Europe and ranks second in Asia Pacific. Market Conditions and Social Issues In several European countries, digital IDs are already being used for authentication, identity verification, and as a link between government and financial institutions for assessing eligibility for various services. In addition, the area of digi- tal finance is expected to experience long-term market growth due in part to the use of digital technology in the provision of sophisticated asset management advice services and the expansion of the base of users of asset transac- tions. Despite the prospect of such business opportunities, there are also issues to be addressed, such as Japan’s aging population, widening regional differences in administrative NEC’s Strengths Global customer base and proven track record: NEC provides tax collection and social security benefit systems to 45% of local governments in the United Kingdom; has over a 50% market share in administrative solutions for local gov- ernments in Denmark, a leading country in e-government; and boasts the No. 1 market Business Growth Strategies Geographical expansion of business areas: UK-based SWS will expand its business to Commonwealth countries other than Australia and New Zealand, where it already operates. Denmark-based KMD is not only expanding its business within Europe, primarily in Scandinavia, but also further afield to Asia- Pacific regions and Japan, where NEC has a strong presence. Swiss company Avaloq will expand the value it provides to the Japanese market by not only proposing solutions inde- pendently but also by providing innovative solu- tions in the wealth management sector through a strategic partnership with BlackRock, Inc. Business portfolio transformation: The SaaS ratio of the three European companies exceeds 70%, and we intend to further improve this services due to the digital divide, increasing wealth polarization and disparity, and the need to reduce CO2 emissions to mitigate global warming. In particular, the mitigation of global warming requires managing electricity supply and demand and the shifting away from fossil fuels, while at the same time creating new social mechanisms that make full use of IT. The transi- tion to a green society based on digital technol- ogy is one of NEC’s key areas of focus. Given that administrative and financial systems operate for a long time, social responsibility and reliability are necessary to fulfill their roles. share in Europe and No. 2 market share in the Asia-Pacific region in core banking systems for wealth management. Superior technologies: AI, biometrics, security, advanced system architecture, and an extensive menu of government-oriented DX services level. At the same time, we will accelerate our shift to the software business to improve profit- ability. We will also transform our business port- folio through carve-outs of low-profit businesses and bolt-on M&As to expand our business domains and customer base for business growth. Improvements in development and operational efficiency: We will strengthen our competitive- ness through the pursuit of cost synergies, including procurement throughout the NEC Group; selection and concentration; and mutual utilization of assets. In particular, we will improve profitability by increasing the rate of offshore and nearshore software development, which is approximately at 40%, to 55% during the Mid- term Management Plan 2025 period. NEC Integrated Report 2023 Business StrategyCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Social Infrastructure 22 (%) 8.8% 95.0 Revenue (Billions of yen) Adjusted OP* Ratio (Billions of yen) 1,085.0 929.3 209.5 719.8 1,062.2 245.2 817.0 7.5% 69.4 18.1 （8.6%） 51.3 （7.1%） 6.9% 73.8 25.6 （10.4%） 48.2 （5.9%） FY2022 (Results) FY2023 (Results) FY2024 (Forecast) FY2022 (Results) FY2023 (Results) FY2024 (Forecast) Telecom services Aerospace and national security (ANS) Telecom services Aerospace and national security (ANS) Adjusted OP ratio *OP = Operating profit Organizations and Business Segments / Domains Public institutions Central government agencies and government-related institutions Private institutions Space Aviation Telecom carriers, Others Aerospace and National Security Business Unit Telecom Services Business Unit Domestic market International market NEC Integrated Report 2023 Business StrategyCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress  Telecom Services Business Overview and Vision NEC has been engaged in the telecommunica- tions business since its founding, including the provision of fixed-wired and wireless telecom- munications equipment for telecom carriers, operation support system (OSS) software for equipment management, and business support system (BSS) software for customer support. We also provide service platforms for end-users and submarine cables for international communica- tions, underpinning the networks that are the foundation of the digital society. The provision of a high-speed, high-capacity, low-latency Market Conditions and Social Issues In recent years, network connections have gone beyond the scope of smartphones and computers to include a variety of sensors, smart meters, home appliances, automobiles, medical devices, and other items, leading to a continued increase in data traffic throughout society. Along with the increase in data traffic, the increase in electricity consumed by telecommunications devices has given rise to a need for countermeasures to address the resulting environmental burden. Against this backdrop, telecom carriers are required to operate in an efficient and flexible telecommunications environment enables a wide range of entities—from individuals to busi- nesses and government agencies—to make extensive use of information and contributes to a society that connects people with their commu- nity without stress. By facilitating deep connec- tions between people and their tangible and intangible surroundings, we contribute to richer and brighter lives for everyone, anywhere, at all times, through enhanced access to information, new DX services, and disaster prevention. manner, and demand is increasing for solutions that enable efficient accommodation of data traffic and network construction, flexible network opera- tion, and carbon neutrality. In addition, due to the sluggish growth in telecom revenues, carriers are moving to expand revenues in non-telecom areas. Networks are the infrastructure that sup- ports society, and the importance of secure communications is increasing from the perspec- tive of economic security. As such, policy coordi- nation and utilization are becoming increasingly important. Trend in the Global Base Station Market (%) 100 Status of Open RAN Development In operation commercially 4% Will not introduce Open RAN 15% 80 60 40 20 0 2021 2022 2023 2024 2025 Traditional RAN Open RAN Developing Open RAN strategy 38% 86% planning implementation with 48% taking specific actions In procurement stage 9% Possess an Open RAN lab 11% Undergoing trials 24% Source: NEC estimates based on various Source: Mobile World Live, industry survey on market reports Open RAN adoption Drivers Obstacles Open RAN to accelerate innovation Expected flexibility in vendor selection Interest in potential cost reductions More compli- cated systems due to multi- vendor environment Potential inability of new systems to reduce total cost of owner- ship (TCO) 23 NEC’s Strengths Track record and deep knowledge gained through many years of building network infra- structures: NEC has a proven track record of building and operating mission-critical infra- structure; assets and know-how cultivated over many years in businesses aimed at telecom Strategies for Business Growth Growth of 5G business in global markets and busi- ness model shift: Expectations for efficient and flex- ible network operation are growing in a time of heightened total cost of ownership (TCO) aware- ness, including with regard to power consumption. To meet these expectations, we will expand our demonstration and commercial projects with a focus on Europe. In terms of network operations, carriers; and the world’s leading market share in submarine cables. Wide range of technologies and proposal capabili- ties: Fixed and mobile networks, advanced optical communications technologies in submarine cables, IT services such as OSS/BSS, and security there is a trend toward automation, efficiency, and optimization of network resources, and we will expand our high-value-added solutions to meet the needs associated with this trend. At the same time, we will improve and stabilize profitability by increas- ing the rate of recurring software transactions, as opposed to our conventional model, which was based on the selling of hardware outright. NEC’s 5G Portfolio Measures to Expand and Develop Portfolio s m e t s y S n e p O o t t f i h S SMO (Service Management and Orchestration) 5GC (5th Generation Core network) RAN SI (Radio Access Network System Integration) CU/DU (Central Unit/Distributed Unit) O-RU (Open Radio Unit) SW SW SW SW HW Revenue expansion in non-telecom domains: Telecom carriers are facing an increasing need to expand revenues in non-telecom areas due to rising TCO and sluggish growth in telecom revenues due to price competition. NEC will co-create new services and expand businesses through DX in non-telecom domains through the synergy of client business knowledge and strategic consulting. Seizing business opportunities in the area of submarine cables: The submarine cable market is expected to grow at a compound average growth rate of +3% from 2018 to 2025, due in part to strong capital expenditures by over-the- top (OTT) service providers. The Company will seize business opportunities by differentiating o i l o f t r o P d n a p x E • Establish operational support systems for mobile networks • Streamline and automate operations • Create open, virtualized mobile core software to enable flexible services • Create Open RAN ecosystems assembled with NEC and partners’ products • Ensure safe and secure mission-critical systems • Create open, virtualized radio intelligent control software • Support a wide range of radio units (RUs) through the combination of NEC and partner products • Establish Open RAN radio units (O-RUs) for Massive Multiple Input Multiple Output (M-MIMO) in order to utilize features of 5G • Utilize partners to expand portfolio itself from competitors through advanced optical communications technology and its strong pres- ence, especially in the Asia-Pacific region. Initiatives to realize future networks: Toward the realization of our Beyond 5G vision and the Innovative Optical and Wireless Network (IOWN) concept, we aim to expand our business on a global scale by advancing our business alli- ance with Nippon Telegraph and Telephone Corporation (NTT) and gain international com- petitiveness through joint development and research of products and technologies that will create new value. At the same time, we will con- tribute to the realization of carbon neutrality in the telecom industry as a whole through power efficiency and renewable energy solutions. NEC Integrated Report 2023 Business StrategyCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 24 Aerospace and National Security Business Overview and Vision The Aerospace and National Security (ANS) busi- ness provides ICT solutions, primarily to govern- ment agencies, in the ANS domains. Specifically, we provide satellites, radar equipment, secure telecommunications, large-scale mission critical systems, and ground systems for controlling satellites and processing satellite data. NEC’s space-related business has developed and man- ufactured approximately 80 satellites in its 70-year Market Conditions and Social Issues As global political and economic conditions con- tinue to change dramatically, there is growing awareness of national security, and the impor- tance of security-related domains, including communications and disaster monitoring for disaster prevention, is increasing. Under these circumstances, in the field of telecommunica- tions, the amount of data that can be acquired in orbit is increasing due to the higher resolution of sensors on observation satellites, and there are high expectations for deep space optical com- munications technology as a means of improv- ing the speed of real-time communication between outer space and Earth. In addition, understanding the circumstances surrounding earthquakes, tsunamis, flooding, landslides, forest fires, and other disasters is indispensable in the monitoring of such disasters, as well as for NEC’s Strengths Track record in operating mission-critical sys- tems: Track record of operating mission-critical systems for ANS over many years High technological capabilities cultivated over many years: Advanced communications tech- nologies covering all areas, from the ocean floor to outer space; world-leading biometric, AI, and cybersecurity technologies history and has delivered around 8,000 units of equipment to approximately 300 satellites worldwide. We contribute to solving social issues by utilizing data obtained by satellites for disas- ter prevention and infrastructure management. Leveraging our advanced technological capabili- ties cultivated over many years, we contribute to creating a safe, secure, fair and efficient society while protecting people’s prosperity. rapid recovery and damage limitation. Satellites orbiting the Earth at an altitude of several hun- dred kilometers have the advantage of being less susceptible to disasters. Satellites are required to grasp the disaster situation over a wide area, col- lect, analyze, and evaluate various information through data communications in space and between space and the ground, and quickly transmit this information to those who need it. In the field of aviation, the ever-increasing demand for transportation has led to overcrowd- ing at major airports and on major air routes, reinforcing the need for efficient and safe naviga- tion. The failure or shutdown of any of the afore- mentioned systems would have an immense social impact, making it essential for such sys- tems to have the highest level of reliability. Consistent business structure from develop- ment through to manufacturing and operation: Business structure capable of providing inte- grated services that range from in-house development and design to manufacturing, implementation, operation, and maintenance Strategies for Business Growth Realizing a safe and secure society by making extensive use of AI from outer space to the seabed: As national and economic security becomes increasingly important, NEC will make broad use of the potential of all areas between the seabed and outer space, to realize a safe and secure society. Specifically, we will build next-generation communications infrastructure in space utilizing satellite communications, satellite operations, and space situational monitoring. We will also advance air defense systems by applying technologies such as mission-critical SI and radio wave sensing, a field in which we have more than 50 years of experience, and undersea resource survey, sur- veillance, and disaster detection by utilizing technologies such as sound wave sensing and covert communications. Outer space Terrestrial Underwater Examples of Our Main Technological Achievements Realization of next-generation telecommunications infrastructure construction utilizing outer space Satellite communica- tions Satellite- operated space status monitoring Required technologies Optical communica- tions AI Realization of advanced air defense systems Mission- critical SI Radio wave sensing Sophistication of data gathering capabilities (resource surveying, underwater monitoring, disaster detection) Sound wave sensing Covert communica- tions Underwater communica- tions Contribution to transformation in the aviation industry: NEC will utilize its assets such as air traffic control and radar technologies, airport airline systems, and its menu of DX services to accelerate policy proposals and measures, strengthen partnerships, and contribute to enhancing the international competitiveness of the aviation industry as a whole. Improvements to profitability through a reduc- tion in the number of unprofitable projects: We will continue to strengthen project management through a special task force, regularly check and analyze the status of projects via a third party, promote learning opportunities to improve engineering capabilities, and refine processes. Furthermore, we will commercialize the R&D elements of projects that involve R&D, give advice to customers on business practices, and strengthen risk analysis at the proposal phase for world-first and industry-first projects. Through these measures, we will reduce the number of unprofitable projects and improve profitability by thoroughly managing risks according to the characteristics of each project. NEC Integrated Report 2023 Business StrategyCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 25 AI Farm Management (Agriculture) Amid harsh global environmental conditions such as global warming, climate change, soil contamination, and soaring water and fertilizer prices, it is essential that safe food is delivered to consumers. To address agricultural issues such as demanding farm work and its associated heavy risks, stable food procurement and redis- tribution in response to climate change and extreme weather, and the creation of new busi- ness models that meet diversifying food needs, we visualize field conditions necessary for farm- ing using soil moisture data and satellite image data, provide AI-based farming advice and har- vest control, and optimize the entire value chain in food and agriculture. NEC is working to create new businesses that can contribute to realizing its vision for the envi- ronment, society, and life set forth in the NEC 2030VISION from a medium- to long-term per- spective. Based on our disruptive technologies that have the potential to break the mold of the current mainstream, we are working on commercialization through collaboration with leading- edge customers and research institutions, including those overseas, and by using the new busi- ness development expertise and methods that NEC has developed in recent years. Green / Carbon Neutrality Businesses Businesses Related to Carbon Neutrality With the aim of helping to build a decarbonized society, NEC operates businesses related to carbon neutrality among its growth businesses as part of its social contribution efforts. With the increased popularity of electric vehicles (EVs) and all-electric housing and other factors increasing power demand, resource aggregation businesses facilitate optimal and efficient energy use by matching companies with surplus elec- tricity generated from renewable energy sources. Through our business, we will promote efficient and optimal use of surplus electricity in society and contribute to the carbon neutrality of society as a whole. Over the medium to long term, we will also promote greening in growth businesses such as digital government, core DX, and global 5G, while strengthening resource aggregation and other carbon-neutral-related businesses to expand their scale. Social issues Social value created Food supply- demand problem caused by population increase Agricultural Aging and shrinking farming population service CropScope Increasing production volume per unit area Achieving the same level of farming as expert farmers, using AI Responding to surging fertilizer prices and reduction of environmental impact AgriTech market in 2027: ¥5.16 trillion Annual growth rate: 12–13% Crop simulation Agricultural digital twin Portugal demonstration experiment in 2020: Nitrogen fertilizer reduced by 20% (Compared to general farmers’ average) Portugal demonstration experiment in 2022: Yield amount increased by 20% while reducing irrigation by 15% NEC’s resource aggregation business Fiscal 2026 business scale: ¥12.0 billion Expansion of business NEC Headquarters Power companies (distributors) Self- consignment Surplus power supply Adjusted power Price Aggregation service Price Regulated supply and demand market Surplus power supply NEC business locations and NEC Group companies Decarbonization management solutions Circular economies Energy management Contribution toward a decarbonized society • Increased uptake of renewable energy • Improved resource productivity in industrial sectors Economic effect of CO2 emissions reduction: ¥90.0 trillion 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. Examples of initiatives: 1) DXAS Agricultural Technology: Kagome Co., Ltd. and NEC establish a joint venture in Portugal to provide farming support for processed tomatoes using AI By automating fertilization and irrigation using AI, crop model growth simulation has succeeded in reducing nitrogen fertil- izer by 20% and increasing yields by 20% while reducing irri- gation by 15%. We will proactively develop the service for provision on a global basis through verification trials. Examples of initiatives: 2) Applying the know-how from tomato cultivation to other crops Applying the AI farm management know-how developed through tomato cultivation to other crops, we have already provided services in 11 countries for 14 different crops and are expanding our efforts worldwide through cooperation with various companies and research institutes. We aim to contribute to the resolution of global environmental issues by significantly reducing the amount of water used for agriculture, which accounts for approximately 70% of the water consumed worldwide, through AI farm management. Future Growth BusinessesNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Future Growth Businesses 26 Healthcare and Life Science Businesses NEC will expand businesses centered on the medical care, lifestyle support, and life science domains using AI and other technologies that serve as its strengths. Based on the concept that we want every patient, family member, and healthcare provider to live as they would like to live, we are developing our businesses with the goal of “live as you: know yourself and make the right choices for you,” and are targeting a busi- ness value of ¥500 billion science businesses in fiscal 2031. 1 for healthcare and life Deliver healthcare tailored to people’s health conditions Leverage electronic medical records and ordering system Support personalized healthcare with science AI-based analysis of endoscopic images Monitoring and provision of advice based on gait conditions from insoles equipped with gait analysis Start of clinical trials on personal- ized Neoantigen vaccines in 2019 Electronic medical records and ordering system Visualization of health conditions 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 • Physical and mental wellness Healthcare industry: 2 ¥33.0 trillion AI Drug Discovery The number of new cancer patients worldwide 1 was approximately 18 million in 2018, while 2 cancer is the leading cause of death in Japan, prompting the need for improvements in effec- tive cancer treatment. NEC is applying cutting- edge AI to the field of drug discovery to develop safer and more effective advanced immuno- therapies. We were the first Japanese company to be selected by the Coalition for Epidemic Preparedness Innovations (CEPI), an interna- tional fund that finances pharmaceutical companies and research institutes engaged in vaccine development, to begin development of next-generation vaccines effective against all betacoronavirus genera, including SARS-CoV-2 and its close relatives, with the aim of contribut- ing to next-generation medicine in the drug dis- covery and genome fields as well as other areas. 1 “Global Cancer Statistics 2018”: GLOBOCAN estimates of inci- dence and mortality worldwide for 36 cancers in 185 countries URL: https://doi.org/10.3322/caac.21492 2 Ministry of Health, Labour and Welfare of Japan: “Vital Statistics of Japan 2017” Making innovations in vaccine development for infectious diseases with a view to achieving the 100 days mission NEC’s AI technologies adopted Development of vaccines that widely prevent betacoronaviruses All coronaviruses that are classified as a betacoronavirus, including SARS-CoV-2 (COVID-19) Target 1 Calculated using both the comparable company method and the DCF method based on a target for 2030 (revenue of ¥100.0 billion) 2 Source: Future Direction of the Next Generation Healthcare Industry Council (published by the Ministry of Economy, Trade and Industry, 2018). Market size is an estimate of the Japanese market in 2025. 1 Application of the world’s leading AI technologies to drug discovery 2 Design of universal vaccines against a wide range of viruses using both antibody and T-cell approaches FonesVisuas: A Health Promotion and Medical Test Service Japan is known as a “super-aging society,” and social security costs, particularly medical costs, are increasing, driven in part by the state of med- ical care and welfare. In addition, the aging soci- ety is an even deeper issue in rural areas of Japan. To establish a sustainable social security system and build a society in which each of its citizens can flourish for longer, it is imperative to realize a society where people can enjoy good health and longevity. NEC provides testing ser- vices to predict future diseases and determine the body’s current condition by utilizing technol- ogy that analyzes approximately 7,000 types of proteins. In addition, we also offer lifestyle improvement services tailored to various needs such as nutritional, mental health, and dental care. Medical test service FonesVisuas test First technology in Japan that analyzes approx. 7,000* types of proteins Stroke, cerebral Stroke, cerebral infarction, etc. infarction, etc. Dementia Dementia Future disease risk Current health state Current health state Heart attack, heart Heart attack, heart failure, etc. failure, etc. Lung cancer Lung cancer Health state Health state * FonesVisuas is the first and only test in Japan using SomaLogic’s analytics. Resilient to mutations (Antibodies & T-cells) Immunity lasting for a long time (T-cells) 3 4 5 Coverage of the global population by recognizing a wide range of leukocyte types Promotion of Personalized Treatment for Cancer Patients NEC promotes personalized treatment through a strategic global partnership with BostonGene Corporation, a company that provides genomic testing for physicians in support of personalized treatment for cancer patients. In October 2020, we collaborated on genetic analysis of ovarian and head and neck cancer patients in clinical trials, and in December 2021, we expanded our collaboration globally. BostonGene’s analytical technology allows us to present recommended treatments, possible mutations, and biomarker responses to treatment. This will promote preci- sion medicine in clinical practice in order to pro- vide personalized treatment to cancer patients, most notably cancer immunotherapy. NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 27 Realizing Sustainable Agriculture through DXAS Agricultural Technology In June 2022, NEC and Kagome Co., Ltd. established a joint venture, DXAS Agricultural Q. Could you tell us how you came to work for DXAS and what the experience Technology (DXAS), in Portugal. We interviewed three employees of DXAS who are using the has been like? CropScope ICT platform to work together with tomato farmers to solve the difficult issue of how to improve cultivation efficiency and ensure a stable harvest and supply of crops while facing numerous challenges such as climate change, labour shortages, and environmental concerns. For more details on CropScope, please follow the link below. https://www.kagome.co.jp/english/smartagri/#page1 Ana Duarte Business Developer Tiago Caetano Agricultural Technician Takashi Irie Chief Operating Officer Ana Tiago Irie Ana I’m an engineer at NEC. Gardening was a hobby of mine, and I had an interest in agriculture, so I happily stepped forward when the joint project with Kagome began in 2015. Agritech is technol- ogy that is developed based on the prerequisites necessary for agriculture, so it is an area in which I can make good use of my knowledge. From a technological standpoint, agriculture is one of the most difficult business fields as it is greatly affected by factors such as unpredictable weather. Tiago I joined Kagome’s Agri-business Research and Development Center in 2019, despite being in the middle of my master’s program in agriculture, to participate in the ongoing CropScope project. I came from a farming background and grew up watching my grandparents and parents farm, so agriculture is in my DNA. I also have an interest in the use of technology and am very proud to be able to contribute to agriculture by combining these two interests. Irie I started out at NEC in Japan in domestic sales and then moved to the European market as an overseas sales representative. I then moved to Kenya for five years, where I was senior sales coordinator of NEC Africa, before returning to Japan to engage in new business development. I joined the Agritech team in 2021 and have been in Portugal since May of 2023 to promote DXAS. Q. What are some of the thoughts driving your efforts to transform agriculture? Ana Agriculture is, and always has been, one of the most difficult professions. It involves working long hours, managing vast plots of land, and having to make countless decisions every day. Something unexpected always happens. The more I learn about farmers’ work, the more I can’t help but have respect for them. With CropScope, the AI learns the knowledge of experienced farmers, meaning that decision- making and response to known events can be left to AI. This allows farmers to devote their time to tackling unknown issues and improving culti- vation efficiency, thereby contributing to the expansion of farmers’ businesses. Agritech has incredible potential, and if technology can help farmers in any way, I would be immensely happy. Employee RoundtableNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Employee Roundtable Tiago For farmers, agriculture is their livelihood. They make investments and run the company with an eye to the future. With the future of whole fami- lies, including families of employees, at stake, it is no wonder that bringing in changes to conven- tional methods carries a risk. As such, we some- times tend to be tenacious in our negotiations for proposals to increase crop yields. Our job is not to simply create and sell a product or service. We sincerely worry and think together with the farmers about their challenges, anxieties, and struggles as if they were our own. It’s a very emo- tional job that takes a great deal of energy. But I believe that it is through this sharing of concerns and building of relationships of trust that we have been able to work together with the farm- ers toward the same goal and make the progress that we have seen. Irie Stable food supply is a very important issue in light of external factors such as global popula- tion growth and the abnormal weather events of recent years. Since 2015, we have collaborated with Kagome in various ways to address this issue and commercialize our efforts. I have only been involved in these efforts for one and a half years, but I feel that it is an appealing and chal- lenging business area from the standpoint of building a better future. I have learned a lot and been inspired by the use of ICT—one of NEC’s assets—in the seemingly unrelated field of agriculture. 28 Q. How did you overcome any difficulties in your journey so far? Also, what do you feel will be the key factors in DXAS’s business growth? Ana When the project started out, we were following our own ideals. After two or three years, however, the project underwent a drastic overhaul that wound up inconveniencing our customers. With every new challenge comes a change in trajec- tory, but making that decision to change course can be extremely difficult. We used the project’s overhaul as an opportunity to come together, broaden our horizons, and make improvements by sincerely taking on board users’ opinions. This gradually led to CropScope receiving high ratings from customers. Shortly after that, we were unable to meet with farmers face-to-face for two years due to the COVID-19 pandemic. In the meantime, however, farmers started using Zoom, and we expanded our business by incorpo- rating ideas from young people like Mr. Caetano and conducting sales promotion activities via webinars. Tiago Among Portugal’s aging farming population, a large number of farmers have difficulty getting used to modern technology such as smart- phones. Also, as Ms. Duarte said, farmers work long hours and have almost no time to become familiar with those kinds of devices. Meanwhile, technology is evolving by the day, and if things continue as they are, farmers will be left behind without being able to reap the benefits of such technological developments. To overcome this issue, we needed to create something that was intuitive and easy to use. We are constantly focused on ways to incorporate ever-evolving, complex technologies into the simplest possible form. CropScope is popular because it is easy to understand and simple to use. While there is still room for improvement, I believe that the product we have developed is great as a foundation. Ana I also think a large factor in CropScope’s popular- ity is that positive reviews have spread by word of mouth among the farming community. Firsthand user experience can be very persuasive. Irie I believe the joint venture with Kagome was a key element in our business expansion so far. Had NEC approached this project alone, its lack of agricultural knowledge would have lengthened the business development process and gaining the trust of the farming community would have been difficult. DXAS exists because NEC and Kagome have made full use of the knowledge they have in their respective fields of ICT and agriculture, and this will also be the key to further business expansion in the future. NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Employee Roundtable 29 Q. DXAS is developing its business globally. What do you think will be important as you expand into new regions? Q. In today’s society, food crises and environmental problems are pressing global issues. As a member of the DXAS team, which is tackling these issues head-on, do you have anything you would like to say to NEC’s stakeholders? Irie It is important to strike a balance between stan- dardization and individual optimization. The platform CropScope is a system that is as stan- dardized as possible to efficiently support farm- ers. On the other hand, methods of producing the same crop may differ greatly from region to region, giving rise to a risk in using standardized systems. I believe that incorporating services that are individually optimized for each region while striving for standardization is the key to expanding into new regions. Ana The key to business development will be how well we can build relationships of trust and work together with local farmers in each region. There will be issues that arise in other regions that we have not faced in Portugal. Developing technol- ogy that can address these issues together with local farmers will continue to be a major chal- lenge going forward. This, however, is what makes agritech so exciting. Tiago Also, the circumstances of each region and the mentality of the farmers there will differ. For example, in Senegal, where we installed sensors last year, we had to start by searching for the necessary tools to complete the task. No matter what the circumstances, it is important that we never give up. I feel that this approach also leads to personal growth. Irie This is a very challenging business that aims to be successful while tackling issues that are diffi- cult to commercialize, such as food crises and environmental problems. However, farmers have very high expectations of DXAS, and they highly commend our commitment to innovation in agriculture and to solving problems with a focus on the front line. We will do our best to contrib- ute to Kagome and NEC from a business per- spective through the growth of DXAS. We look forward to your continued support. Ana There is strong worldwide demand for the solu- tions that DXAS has to offer, and business expan- sion is inevitable. I’d like stakeholders to think of their support for DXAS as give-and-take, like watering or fertilizing plants. In return, we are committed to delivering results and ensuring that our efforts bear fruit. Tiago Optimizing invested resources is a major issue for achieving sustainable agriculture, and every- one at DXAS is open-minded and shares the ambition to wholeheartedly tackle such issues with the aim of realizing a better world. We hope that, by giving us their support, stakeholders feel that they are working together with us to resolve such social issues. Related Articles: Kagome and NEC establish a joint venture in Portugal to provide farming support for processed tomatoes using AI https://www.nec.com/en/press/202206/global_20220615_01.html Kagome and NEC’s joint venture DXAS provides AI farming advice and an automatic irrigation control service for low-volume, high-frequency irrigation (in Japanese only) https://jpn.nec.com/press/202210/20221020_01.html NEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Since its founding, NEC has developed a variety of proprietary technologies in the area of ICT to support social infrastructure and mission-critical systems. We believe that a key component to realizing the NEC 2030VISION in a so-called VUCA* world is working toward R&D co-creation, expanding open innovation, and venturing into new domains to create businesses that can impact society. * VUCA: Volatile, Uncertain, Complex, and Ambiguous NEC’s Technological Capabilities Technological Fields NEC possesses many of the world’s leading tech- nologies in the fields of AI (biometrics, image recognition, and analysis/prescription AI), tele- communications, and security. These technolo- gies are NEC’s greatest differentiating factor. As proof of this, we boast one of the world’s highest numbers of patents held and papers accepted by leading international academic conferences. In particular, in the field of facial authentication, we have been ranked No.1 in benchmark testing held by the U.S. National Institute of Standards and Technology (NIST) five consecutive times, and our brand is the most recognizable in the world when it comes to in biometric authentication. These advanced technological capabilities are key assets that will lead to NEC’s future growth. A crucial factor in transforming these long- cultivated technologies into social value is how quickly we can implement them in greater soci- ety. As an example, NEC is working to generate business by offering a menu of solutions based on its many technologies in the form of the NEC Digital Platform, which not only enables us to promptly provide value to customers but also leads to improved profitability by encouraging repeat use of this common platform. Note: NIST testing results do not constitute an endorsement by the U.S. government of any particular system, product, service, or company. 30 AI (including biometrics) Communication 4 Security Patents • Machine learning: Number of papers accepted by leading international academic conferences¹: 8th in the world • Video and image processing: Number of papers accepted by leading international academic conferences²: No. 1 in Japan • Facial recognition: No. 1 in the world • Iris recognition: No. 1 in the world • Fingerprint recognition: No. 1 in the world • NEC’s biometric solutions (out of 62 global companies): No. 1 • Biometric authentication: The world’s most recognizable 3 • Optical communication: Acceptance of papers by leading international academic conferences for 45 consecutive years • Receipt of IPSJ Yamashita SIG Research Award for Cyber Security, CSS2021, and numerous other awards for research papers • Top 100 Global Innovators global survey 5 : Selected for 11 consecu- of patent activities tive years • Biometric authentication, video analytics, and analysis/prescription AI: Number of 6 : No. 1 international patent applications in the world 1 NeurIPS, ICML, KDD, ECML-PKDD, ICDM 2 CVPR, ICCV, ECCV, ACCV, ICPR 3 Communication: OFC/ECOC 4 Security: ACM, CCS, Eurocrypt, IEEE S&P, etc. 5 Top 100 Global Innovators: https://clarivate.com/top-100-innovators/ 6 Number of international patent applications: Cumulative number of applications as of November 2022 (NEC Corporation) m a n a g e m e n t a n d O p e r a t i o n S e c u r i t y A P f r a m e O p e r a t i o n S e c u r i t y A p p F r a m e w o r k SaaS Service–Shared API Gateway / Service Composition ID Management / Authentication / Identification Data Processing DataStore Platform Data Analytics Platform (PaaS) Infrastructure (laas) Cloud Messaging / Actuation NEC Cloud IaaS AWS Azure Oracle Cloud … Network Edge Connectivity Wi-Fi LPWA 5G … Edge AI Edge MEC IoT Dedicated devices (such as POS devices, ATMs, etc.) … Innovation: R&D and Business DevelopmentNEC Integrated Report 2023 Corporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress  Approach to R&D Investment We allocate approximately 4% of revenue to R&D in order to maintain and improve our R&D capa- bilities over the medium to long term, indepen- dent of any external trends. Ratio of R&D Expenses to Revenue (Billions of yen) 126.3 4.2% 121.4 3.7% 132.0 3.9% FY2022 FY2023 FY2024 (Forecast) our IP resources on growth areas such as core DX, Digital Government Digital Finance, and global 5G, as well as on technological fields that will generate future growth businesses. We are also working to increase the market presence of our IP by strategically engaging in activities related to standardization, ecosystems, and thought leadership. Specific Plan of Action • Increase the percentage of patent applications and patents held in growth business areas and continue to strengthen the patent portfolio • Strengthen and utilize not only patent rights and know-how but also design and trademark rights that support global brands • Support the commercialization of businesses through external collaborations that make use of 31 R&D expenses Ratio of R&D expenses to revenue proprietary technologies • Establish a new IP division to promote comprehensive use of IP, while strengthening execution frameworks and utilization strategies NEC’s R&D Management A key aspect of R&D is how to translate its results into the creation of products, services, and busi- nesses in a timely, appropriate, and efficient manner. NEC has introduced agile development, whereby it creates value by accurately identifying market issues and quickly providing products and services that meet associated needs. Given that time is a source of competitive advantage, implementing technology at the right time can be a major differentiating factor. NEC takes two approaches to technological development: needs oriented and seeds oriented. The needs- oriented approach is based on requests from business units and aims for more reliable contri- butions to earnings and agile commercialization of products. In some cases, we base our devel- opment on external technologies. In such cases, Intellectual Property Strategy Intellectual Property Policy we respond to needs by utilizing the advanced technological testing of our researchers, rather than limiting ourselves to proprietary technolo- gies. The seeds-oriented approach, on the other hand, aims to achieve commercialization based on technological proposals from top researchers and seeks early commercialization through a two-way approach. The research budget is divided between basic research and applied research. Basic research is left to the discretion of researchers, with challenging papers and pat- ents used as KPIs, as has been the case to date. Applied research is conducted in a way that allows us to make necessary improvements as needed by monitoring the results of contribu- tions based on ROI/ROIC. NEC regards intellectual property (IP) as an important management resource that promotes business competitiveness and stability, as well as co-creation with business partners. To realize the NEC 2030VISION, we are building and widely utilizing an effective IP network by concentrating Promotion Framework To build and utilize our patent portfolio on a global scale, we have appointed IP managers in business units and at Group companies and have established IP centers in North America, Europe, and China. In addition, we are devel- oping an IP support system geared toward the execution of R&D businesses engaged in value co-creation with external business partners and the creation of new businesses. Furthermore, we are cooperating with relevant divisions to ensure that NEC’s brand, product design, and other pro- prietary rights are protected. In fiscal 2023, we established a new organiza- tion to handle high-level IP-related legal work and formulated an overall policy to strengthen the Company-wide utilization and monetization of IP as well as enhance the mitigation of associ- ated risks. We are adding to our diverse talent pool with human resources such as qualified lawyers and non-Japanese personnel to help drive forward these activities. Intellectual Property (IP) Management Division: Strengthening NEC’s IP Capability IP Strategy Implementation Framework Intellectual Property Management Division • Collaboration system with IP managers in business units, non-business units, and Group companies • Intellectual property centers (North America, Europe, and China) NEC Patent Service, Ltd. Business units / Non-business units NEC Group companies in Japan and abroad Building an effective global patent portfolio and Promoting new co-creation NEC Integrated Report 2023 Innovation: R&D and Business DevelopmentCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Accelerating Commercialization through Various Management Systems Processes Aimed at Commercialization To resolve social issues and realize the NEC 2030VISION, it is important that we transform the technologies—our strength—into value, and link said value to the expansion of existing businesses and the creation of new ones. To this end, it is essential that we establish a scheme for market intelligence, development of technology, Process Management with BRL / TRL To enable prompt and effective commercializa- tion of its technologies, NEC has introduced a two-pronged management system centered on business readiness level (BRL), which indicates the maturity of a business, and technology readi- ness level (TRL), which indicates the maturity of a technology. Since the system was introduced, the time taken from research phase to practical application has been shortened by 15%, the number of technologies brought to practical application has increased by 20%, and the total number of commercialized technologies has increased approximately 1.5-fold. By closely tracking TRL and BRL and aligning research results with businesses, we have been able to development of business, and acceptance within society. NEC is taking on the challenge of R&D co-creation, expanding open innovation, and venturing into new domains to create businesses that can impact society, while working to imple- ment the technologies that are its strength in greater society. shorten the time taken to commercialize tech- nologies and improve the efficiency of research and development. We use ROIC as a KPI in pro- cess management for commercialization in exist- ing business areas and are working to increase the speed of research and expand the scope of our businesses by increasing the number of technologies brought to practical application. In new business areas, we will introduce gate screening given the progress of commercializa- tion, restrictions on the Generate and Ideate stages, and process management based on the degree of growth according to external evalua- tions to examine the viability of establishing a business. Process Management for Commercialization Based on TRL / BRL TRL Technology Readiness Levels Commercialization Development / Commercialization Applied research Search–Basic research Speed of research = 15%↑ Practical applications = 20%↑ Commercialization BRL Business Readiness Levels Generate Ideate Develop Launch Operate Note: Comparison between TRL/BRL progress evaluation in FY2020 and FY2021 32 Business Incubation Progress (BRL) By monitoring the progress of business develop- ment and utilizing BRL, NEC divides the progress of business development through to commer- cialization into five stages: Generate, Ideate, Develop, Launch, and Operate. In the Generate stage, we carry out market research and lay out business ideas, visions, and strategies. In Ideate, we examine the viability of a business and for- mulate a business model along with an outline of a business plan. In Develop, we develop prod- ucts and make preparations to launch a busi- ness, as well as formulating an ROI/financing plan. In the Launch stage, we bring the business Business Development Process to market and aim for expansion while accelerat- ing monetization. Finally, the Operate stage is where we carry out the ongoing operation of the business. To enhance the effectiveness of the business development process, we make invest- ment decisions by setting milestones for each stage, and third parties evaluate the maturity and business value of business plans that have undergone a certain level of market validation as leading indicators of a business. We are also working to improve effectiveness through vari- ous programs aimed at strengthening human resources for business development. Generate Market research Business vision Ideate Business validation Develop Product development Business model Business launch Business strategy Rough business plan Business idea Formulation of ROI / financing plan Launch Market introduction Business expansion / Accelerate monetization O p e r a t e Process Adopt “lean start-up,” define overall process from generating business idea to commercialization Investment decision Investment decision at each milestone of the stage gates, set focus areas, exit & pivot through portfolio management Project evaluation For business plan after certain market validation, as leading indicator, evaluate maturity and business value periodically by a third party HR development With cycle of training/execution/reflection, provide abundant menu to promote growth of business development personnel and operate a community of 1,600 members for mutual learning & information sharing NEC Integrated Report 2023 Innovation: R&D and Business DevelopmentCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 33 New Business Development Aiming to Create Business Value Since its founding, NEC has developed new busi- nesses in a variety of ways to spur innovation and provide value to society through the imple- mentation of technology. The birth of new busi- nesses stems from the resolution of social issues, to which end we are currently aiming to create value in new areas linked to the NEC 2030VISION, including healthcare, carbon neutrality, agricul- ture, and data-driven DX. We have set a target of ¥300 billion in value creation through new busi- nesses in fiscal 2026 and are taking on the chal- lenge of creating business value through a variety of co-creation methods. Management Policy for New Business Development Development of new businesses begins not only in-house but also from gathering ideas from around the world via proposals that focus on both essential technologies and the market. We incorporate these ideas into a systemized pro- cess for creating new businesses to expand the entry and exit points for business creation through global collaboration and ecosystems, and consider a variety of outcomes, such as whether to commercialize the idea internally, establish a start-up company, or create a joint venture with an external partner. In addition, we are working to create further synergies by deploying the expertise we have gained through the creation of new businesses outside the Company in the form of consulting services. Outcomes Outcomes are separated into two types: new domain-type businesses and start-up collabora- tion-type businesses. New domain-type busi- nesses are developed in the form of a joint venture or business alliance in a market where other companies are developing their businesses, but where NEC also possesses the technological capabilities as well as the necessary knowledge and expertise of its customers’ domain cultivated through its existing businesses. In the case of new domain-based businesses, we aim to con- tribute to earnings through business expansion. With start-up collaboration-type businesses, on the other hand, NEC aims to create new busi- nesses by providing technology and establishing start-ups in areas where other companies have an advantage, but the market is highly promising. In the case of start-up partnerships, the know- how, capital gains, and other benefits gained from such partnerships will be returned to NEC. Open innovation Spin-in Start-up Start-ups • NEC X • BIRD INITIATIVE • NEC Orchestrating Future Fund • dotData Forming expertise from wisdom around the globe Internal propositions Partner enterprises Silicon Valley entrepreneurs Discovering start-ups NEC Orchestrating Future Fund NEC Group Systemized business creation processes Offering of know-how Business synergies Propositions from general companies / research institutes Consulting business (BIRD INITIATIVE) Diverse outcomes from synergies with NEC Establishment of new business within NEC Forming joint ventures / business alignments Start-ups Spin-ins Commercialization within the company that makes a proposal Forming joint ventures Commercialization of start-ups NEC influences the market Other companies influence the market New business creation divisions • Data-driven DX division • Healthcare organization NEC Forming JV*/ business alignment In-house innovation Establish new businesses with joint ventures / business alignments • Healthcare / Life science • Agriculture • Carbon neutrality * JV = Joint venture 1 New domain in-house innovation-type businesses New domain-type businesses are focused on the healthcare/life science, agriculture, and carbon neutrality fields. The accumulation of ICT and domain-related technologies, which NEC pos- sesses in these areas of focus, is essential to new domain-based businesses. We have been involved in the life sciences since 1998 and agriculture since 2013 and have exceptional technologies in these areas. Equally necessary is the domain knowledge and data possessed by our trusted partners. By combining these essen- tial elements, we will construct a business model that will give us the edge over our competitors. External I For more details on NEC’s green, carbon-neutral, healthcare, and life science initiatives, please refer to “Future Growth Businesses” on pages 25 and 26. NEC Integrated Report 2023 Innovation: R&D and Business DevelopmentCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 2 Collaboration with start-up-type businesses In start-up collaboration-type businesses, NEC and external partners co-create a start-up com- pany to launch a business in a promising area with high future potential. Characteristics include open innovation involving external enti- ties, external funding, and the use of external technologies, enabling rapid commercialization through collaboration not only within NEC but 1. dotData, Inc. also externally. Major initiatives currently under- way include the creation of the new businesses dotData, BIRD INITIATIVE, and NEC X. We are working to expand co-creation by providing the business development expertise gained from these initiatives to external entities as consulting services. Expansion of New Businesses through Collaboration between dotData and NEC’s Data-driven DX Business • dotData was founded and promoted by a leading NEC researcher. • Using AI technology, the company automates data analysis processes that would otherwise take an extremely long time to complete manually, thereby shortening the time required and helping to achieve DX promotion as quickly as possible. In total, dotData has provided products to approximately 100 companies. • The company completed Series B financing in spring 2022 ($74.6 million in total). 2. BIRD INITIATIVE, Inc. A First-of-Its-Kind R&D Business in Japan Centered on Co-Creation • BIRD INITIATIVE was established by six operating companies including NEC, financial companies, and academia. The company accelerates new business creation through R&D co-creation. • The company conducts R&D, contract research, consulting, and investment related to digital technology. To address social and organizational issues that are becoming increasingly complex due to the advance- ment of digitalization, the company works to resolve issues and create new businesses. Established by six companies from different industries, incorporating business, finance, and academia, September 2020 34 3. NEC X New Business Development with U.S. Investors and Entrepreneurs • NEC X was established in California to acceler- ate new business development based on the strengths of its laboratory’s technology, in col- laboration with the Silicon Valley start-up ecosystem. • To expedite commercialization, the company actively collaborates with external personnel and publicly discloses the technologies it pos- sesses to solicit commercialization ideas from entrepreneurs. • A total of 12 projects have been launched since 2021. NEC X Business creation leveraging Silicon Valley resources Business creation leveraging Silicon Valley resources Customer / Market EIR (Entrepreneur) Seed stage Start-up Matching Matching Researcher NEC Technology seed Market feedback Customer issues / Market needs Incubation Incubation project project Acceleration Acceleration project project Business creation NEC X New biz (Start-up) Scale Program sourcing support Accelerator Acceleration project Investment Investor Metabob Code review and debug support services for software developers eCommerceInsights.ai Product review comment analysis service for e-commerce sellers NavigateIO Real Quali Infrastructure-free, real-time location-based solution for first responders Platform matching service for real estate brokerage agents and buyers/sellers Beagle technology Automated pruning/bud picking solution for farmers peace of mind Platform and application offering mental health improvement and resilience programs for employees Flyhound Search and rescue support solution using drones to locate missing persons NEC Integrated Report 2023 Innovation: R&D and Business DevelopmentCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress 35 NEC’s Six Domestic Research Laboratories Centers of command for NEC’s worldwide R&D, primarily focused on AI (analysis and recognition), security, ICT platform development, and cutting- edge technologies such as quantum computing BIRD INITIATIVE First-of-its-kind R&D business in Japan centered on co-creation NEC Laboratories China AI and network-related R&D NEC Laboratories Singapore Co-creation of innovative solutions with local government and customers, mainly for developed countries Human Resources—The Source of Innovation Developing People and Environments to Drive Innovation NEC believes that the power of human resources is essential to creating innovation. We attract excellent human resources from all over the world, and approximately 40% of our R&D department belongs to research institutes abroad, where they are assigned purely on merit. We also focus on developing high-potential human resources who will be responsible for creating innovation, and we provide a high-return benefits system based on market value to highly skilled professionals with outstanding skills. Specifically, we aim to develop a group of profes- sionals with a fresh set of skills and values by introducing the Selective Compensation Program for Professional Researchers to attract top young researchers. NEC Laboratories Europe Creation of solutions and technology through EU projects and implementation activities AI Drug Discovery Business Personalized therapy using cutting-edge AI technology NEC X (North America) Support for establishing start-up company and contributions toward achieving success In addition, NEC’s laboratories are responsible for strengthening the core competencies of its technologies through R&D, as well as promoting innovation that co-creates new social value and opens up the future while collaborating with its bases and laboratories around the world. Furthermore, by owning the largest super- computer for AI research among Japanese com- panies, NEC is working to build environments to generate innovation. I Pages 36 to 41: NEC, for Those Who Seek Challenge NEC Laboratories America Development of cutting-edge core technologies, taking locational advantage of the latest technology- leading region Israel Research Center Rapid creation of solutions that combine NEC’s technology with advanced technology from outside the Group, leveraging the world’s largest source of start-ups NEC Laboratories India Creation of core technologies and solutions to address the challenges of emerging countries Human Resource Acquisition and Cultivation to Boost Innovation Introduction of the Selective Compensation Program for Professional Researchers to attract top young researchers • Provides researchers with compensation according to their market value, with no upper limit • Launched program in fiscal 2020 in Japan and extended it to applicable new graduates during recruitment activities in the U.S. • Total number of researchers acquired: 22 Internal side business system (within Global Innovation Unit) • Implemented system to accelerate integration of R&D and Business Development divisions • Aimed at developing human resources who are highly skilled in both technology and business Continued enhancement of our acquisition of excellent talent from India and other countries • Have engaged in recruitment activities at India’s prestigious Indian Institutes of Technology (IIT) since 2012 • Part of our continued efforts to keep acquiring top talent from around the world System for highly skilled business development professionals • High-risk, high-return system providing highly skilled busi- ness development professionals with benefits based on their market value • Established the new position of Executive Analytics Consultant Lead for data-driven DX-related business in fiscal 2022, in addition to AI drug professionals NEC Integrated Report 2023 Innovation: R&D and Business DevelopmentCorporate Data Initiatives and Frameworks NEC’s Corporate Value Cover Story Strategies and Progress Viewing people as its greatest management resource, NEC has been promoting investment in people in order to maximize the capabilities of our people and organization through system and environmental transformation. 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 transforming 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 as well as receive fair and honest recognition. Moreover, we are working to change our environment and culture so that employees who are up to the challenge can do their best. The aforementioned transformations are based on our Human Resources (HR) Policy, “NEC, for those who challenge,” 36 established in 2019. Transformation of Culture and How We Work Enhance Employee Engagement—People and Culture Transformation We aim to be a company that pursues innovation and brings together diverse people under the NEC Way and become the company of choice for potential employees. Therefore, we are hard at work toward our fiscal 2026 goal of an employee engagement score of 50%. As a pillar of this transformation, we are engaged in efforts to bolster diversity as a source of innovation and implement workstyles that support diverse talent. To accelerate our diver- sity efforts,we will specifically focus on actively recruiting and systematically developing diverse talent, including female and non-Japanese employees. In addition, Smart Work 2.0 and other initiatives are aimed at further upgrading our NEC Digital Workplace with a view to chang- ing the mindset of employees toward workstyles; enhancing engagement; and transforming the role of our offices, which were previously used as our primary workspace. We will also accelerate job-based human resource management, which aims to strategi- cally fill each position with the “Right Person at the Right Place and the Right Time,” and also further enhance talent management including DX talent and skills. HR Policy Engagement Score Fiscal 2026 target: Engagement score of 50％ Note: Roughly within the global top 25 percentile Current score 20％ 36％ 50％ 2020 2022 2025 Four Pillars of NEC’s Mid-term Plan for Human Resource Management 2025 The Mid-term Plan for Human Resource Management 2025 sets forth four key initiatives and KPIs for accelerating diversity, which serves as a source of innovation, and advancing work- styles in order to provide a better workplace for a diverse array of individuals. Four Key Initiatives and KPIs Active Participation of Diverse Talent Reform of Workstyle Mindset 20％* Female and non-Japanese corporate officers 20％* Female managers Fiscal 2026 target * For NEC Corporation on a non-consolidated basis Transforming the role of our offices from a primary workspace to a space for communication and innovation Location free For improving productivity Office Communication hub NEC Digital Workplace Co-creation space A place for generating innovation Utilizing the Right Person at the Right Place and the Right Time Talent Management Job-based human resource management Training leaders and DX talent Active participation of diverse talent • Ratio of female or non-Japanese to directors, corporate officers, 1 corporate SEVPs, corporate EVPs, and corporate SVPs: 20% (15.3% as of July 1, 2023) 1 (8.9% as of April 1, 2023) • Ratio of female to all managers: 20% Utilization of the right person at the right place and the right time ・ Job-based human resource management • Percentage of key positions filled Talent management ・ Training leaders ・ Training DX talent 2 (8,163 as of March 31, 2023) • DX talent: 10,000 3 : Training coverage ratio • Talent pool Reform of workstyle mindset • Employee survey scores on work fulfillment, productivity, and physical and mental well-being 1 Goal for March 31, 2026 (including transfers decided on April 1, 2026) (for NEC Corporation on a non-consolidated basis) 2 Goal for fiscal 2026 3 High-potential human resources, including young people and female and non-Japanese employees, working at all levels and hired with consideration for diversity NEC, for Those Who Seek ChallengeNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Promoting Active Participation of Diverse Talent While Embracing Inclusion and Diversity NEC’s goal is to become an organization that can overcome challenges by making inclusion and diversity an integral part of its culture and con- tinuing to foster innovation. Code of Values Employees Organization • Every employee is professional and shows respect for the diverse talents of others. • A diverse group of people work in a way that suits them to carry out their responsibilities. • The organization respects and utilizes diverse perspectives as something truly vital. • The organization has an even playing field, is resilient to change, and can win on the global stage. 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. Three Key Concepts and Numerical Targets for Inclusion and Diversity The Inclusion & Diversity Group, led by a corpo- rate executive, works with related departments within NEC to promote a variety of measures, which include providing support for and promot- ing the understanding of women’s career advancement and active participation, and the employment of people with disabilities and sexual minorities (LGBTQ). This group is also engaged in measures related to smooth onboarding of non-Japanese employees work- ing in Japan and mid-career hires. In this way, we are fostering our in-house culture by propos- ing and implementing measures to enable these kinds of diverse internal employees to make full use of their individuality and uniqueness in order to work and participate at their full potential. Diversity among Executives Appoint diverse officers in terms of gender, nation- ality, age, and experience Increase the ratio of women in all manage- ment positions Giving Everyone a Voice Ensure psychological safety by enabling the expression of opinions regardless of gender, age, career path, or job title All-inclusive Community 2 Total Utilize Employee Resource Groups 37 Specific Initiatives Related to Inclusion and Diversity Promotion of female empowerment and success Employment of people with disabilities Diverse workstyles for seniors LGBTQ initiatives Evolution in Hiring Ratio (NEC HQ only) 11% 47% Inclusion of mid-career hires Fiscal 2019 Fiscal 2023 Initiatives in local communities worldwide 89% 53% New graduate hires　 Mid-career hires Promoting Diversity among Executives NEC is promoting diversity in terms of gender and nationality among its executives. In 2023, we are making steady progress toward greater diver- sity through such measures as increasing the number of female executives to seven in total and appointing two top-level managers at over- seas regional headquarters to strengthen global management. Directors Audit & Supervisory Board Members Executives at corporate SVP level or above 1 2021 2/12 2022 2/10 2023 2/12 Two female directors (of whom, one is non-Japanese) Two female directors (of whom, one is non-Japanese) Two female directors (of whom, one is non-Japanese) 1/5 1/5 One female member One female member 0/45 2/42 — 7/50 Two female members Five female members and two non-Japanese members 3/57 Female and non-Japanese members: 5.3% 5/53 Female and non-Japanese members: 9.4% 9/59 Female and non-Japanese members: 15.3% Note: Figures for 2023 are as of July 30, 2023. Figures for 2021 and 2022 are as of June 30 of the corresponding year. 1 Number of corporate officers, corporate SEVPs, corporate EVPs, and corporate SVPs. Figures for 2021 and 2022 represent the number of corporate officers. 2 Calculated excluding executives who also serve as directors NEC Integrated Report 2023 NEC, for Those Who Seek ChallengeCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 38 Talent Management: Human Resource Training Policy for Training DX Personnel and Framework for Initiatives Policy for People Development People Development Platform Industry– Academia Collaboration Talent Acquisition People Development Best Use of People People Development Return to Society • New initiatives in • Position-based and • Utilization of the right • Measures for further NEC Way Internalizing the Code of Values as well as the mindset and conduct necessary for leadership Business Acumen NEC Way Expertise Foundation Business Acumen Understanding NEC’s business and move- ments 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 measures that have never been tried before by learning and applying the latest trends and practices in one’s special- ized field Measures We are striving to instill a business mindset and foster expertise, as well as the ability to drive transforma- tion in each and every employee. Moreover, we aim to increase employees’ ability to manage and take ownership while enhancing individual and team capabilities. 1 2 3 Enhance people and organizational management capabilities to win in the global market Pursue professional development to foster a successful business transformation 1. Boost the skills of people managers 2. Ramp up development of the next generation of leaders 1. Make necessary changes in ways of thinking and behavior to adapt to the digital shift 2. Reskill employees 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 addition to new grad- uate hiring • Mid-career hiring • Employee referral work-specific training • Training of the next generation of leaders • Theme-based training hiring • Enhancement of management capabilities • Self-study opportunities • LinkedIn Learning • Cost subsidies for skill development • Work experience • Social issue experien- tial training program person at the right place and the right time • NEC Growth Careers (Autonomous career building) • Job-based human resource management • Job Definition success • Opportunities for all ages (Utilization of retirees) • Reskilling Camp DX Talent Training Program / s e u s s i l a i c o S d e r e t n e c - n a m u H / e r u t u f e h t g n i t a e r C t n e t n i d e r a h S r o i v a h e B / t e s d n M i l y g o o n h c e T 1 X U / X C t e s d n m i l y g o o n h c e t l a t i g D i DX Organizer Program 2 Project-based Learning by STARS Have talent learn the mindsets and behav- iors adopted by strategic consultants to identify issues by learning and experiencing DX conceptual planning and formulation processes Develop talent that continues to create and implement social value, by having them learn new ways to show their merits based on their own passions and motivations Cloud • Training • Self-learning (sandbox) environment Container platform • On-the-job training Cloud SE development program AI (NEC Academy for AI) • Training • Self-learning (sand- box) environment • On-the-job training • Contest: NEC Analytics Challenge Cup • Ideathon • Community Security • Training • Self-learning (sandbox) environment Practice at the NEC Cybersecurity Training Site • On-the-job training • Contest NEC Cybersecurity Competition Biometrics / Video Analysis • Training Biometrics and video analysis technology: Basics and applications • Self-learning (sand- box) environment • On-the-job training SI/Service Framework • Training Agile development and other approaches • Self-learning (sand- box) environment DevOps, etc. • On-the-job training (support) • Practice lab OSS （Open Source Software） Design Mindset (NEC 3 Academy for FCD ) • Training Linux, Kubernetes, etc. • Self-learning (sandbox) environment • Training Service design training using NEC’s design mindset framework • On-the-job training (support) Number of Trainees in Fiscal 2023 30,157 (NEC Group) 1 Customer Experience/User Experience 2 Self Transformation And Reform based on System design and management 3 Future Creation Design NEC Integrated Report 2023 NEC, for Those Who Seek ChallengeCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 39 Develop Next Generation of Leaders Career Ownership: Workshops to Support Employees in Shaping Their Own Careers We have developed a next-generation leadership development program to systematically and purpose- fully provide growth opportunities through challenging assignments and training to around 140 particu- larly promising participants from a group of approximately 1,300 promising employees. The aim of this program is to strengthen leadership development and management capabilities to ensure continued success in the global marketplace and transcend boundaries within the Group. Senior leaders Middle management Supervisors Top of Top Next-generation leadership development program Around 140 particularly promising employees Top Talent Selected from each layer of management Approximately 1,300 promising employees • The top-performing 3–5% of each layer of management is selected (around 1,000 employees) • Diversity (in terms of different genders and nationalities as well as mid-career hires) is considered when setting target ratios For a company and its employees to be on equal footing, it is essential that employees not only listen to opinions from management but also shift their mindsets to proactively think and act with regard to their own individual careers. Initially, we offered an extensive range of work- shops for employees in their 50s and older, but we have now expanded the target age range, with approximately 5,000 people attending our career design workshops each year. If partici- pants wish to discuss their careers further, career consultants are on hand to meet with them on a one-on-one basis, where they can discuss their individual career with a third party whose per- spectives differ from those of their supervisors. This process enables employees to take greater ownership of their careers. Career Design Cycle Age 39 and under Exploration of self-understanding and self-direction Job crafting (reconceptualizing work) Career Design Workshop Early to mid-40s Enhancement of self-understanding and self-direction Clarification of career direction Road Map Small steps Assessment Expansion of self-potential 2019–2021 (Introduction period) 2022–2024 (Expansion period) 2025 onward (Integration period) • Enhancement of individual development plans and stepping up of challenging, cross-divisional assignments • Clarification of talent development issues through assessment and thorough feedback • Joint planning for clarification and development of talent pools, including group and global talent pools • Introduction and implemen- tation of globally unified talent management pool • Strategic formulation of key global positions and diversity-focused succession planning • Clarification of the vision for, and potential requirements of, next-generation leaders and the drafting of a list of 1,000 promis- ing employees • Development of mechanisms for annual personnel and organizational reviews (Talent Talk/People & Organization Discussion) • Strengthening of leadership programs • Increase of talent engagement through active involvement of CEO and management-level employees 2019 2020 2021 2022 2023 2024 2025 Individual consulting Member workshops Mid- to late 40s Broadening of horizons relating to life and work and creating a direction for one’s medium- to long-term career Early to mid-50s Realization of individual potential developed through experience Expansion of career potential from both life- and work-related perspectives Mid- to late 50s Reaffirmation of personal roots and life-values Concretization and promotion of life and career activities beyond the age of 60 NEC Integrated Report 2023 NEC, for Those Who Seek ChallengeCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Job-based Human Resource Management: The Right Person at the Right Place and the Right Time In order to achieve the goals of the Mid-term Management Plan 2025, NEC is focusing its efforts on ensuring its diverse people can play an active role throughout the Group. A part of these efforts involves job-based human resource man- agement that puts the right person in the right place at the right time, and decides on a recruitment plan that will bolster diversity as a source of innovation. By focusing on such mea- sures to invest in people, NEC aims to be a com- pany that continues to be chosen not only by the market and its customers but also by those who wish to work for the NEC Group. Job-based Human Resource Management 2018 2020 2021 Performance development that maximizes personal growth and achievement • Goals and expectations in line with role • Consistency as a team • Evaluation and compensation that is fair and transparent Organization and position design based on business strategy • Workforce planning (Position x Numbers) • Defining of human resources and the requirements for each position Human resource information system (HRIS) and operations that reflect NEC’s philosophy • Simple and highly productive operations • HRIS that works in tandem with measures 2023 onward Compensation based on market and organizational logic • Compensation that corresponds with job • Contracts between companies and individuals Job-based Human Resource Management Structure Business strategies Design and definition of roles necessary to achieve strategies Jobs Jobs Jobs Assignment of right person The right time Allocate the most suitable people to the most optimal place in a timely manner in line with business strategies The right place Design the best organiza- tions and positions for business growth Internal human resources External human resources The right people Assign, develop, and utilize the best people in the most suitable places Remuneration commensurate with market value of job / Remuneration commensurate with results (Pay for Job program) / Pay for Performance program 40 Expansion of Mid-career Recruitment In its pursuit of utilizing the right person in the right place at the right time, NEC will expand mid-career recruitment (approximately 600 hired in fiscal 2023) to promote the immediate imple- mentation of its business strategies, including the use of external talent, as part of efforts to review the way it uses human resources. Through such initiatives, the ratio of new gradu- ates to mid-career hires will be roughly 1:1, and efforts to implement job-based human resource management will continue to gain pace. (Mid-career hires) 619 596 382 268 72 69 51 56 52 92 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (Fiscal year) NEC Growth Careers, NEC’s Internal Job Posting System NEC has introduced NEC Growth Careers, a career matching system in which employees’ work profile and open positions are posted on an internal platform in an aim to support employees in finding the ideal career by fully uti- lizing their own experience and skills. The system is in use year-round, and successful matches resulting in transfers are made every month. Previously, career opportunities (open positions) were disclosed twice a year. By implementing the system year-round, we have succeeded in accelerating growth for both individual employ- ees and the organization. Organization Employees Open positions Approximately 1,300 open positions registered (Total for April 2022 to March 2023) Job offers AI-based analysis Job resumes Approximately 3,400 resumes registered (As of March 2023) Applications NEC Integrated Report 2023 NEC, for Those Who Seek ChallengeCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 41 Efforts to Improve Engagement—Getting Senior Management and Frontline Workers Moving in the Same Direction The first issue addressed in NEC’s “transforma- tion of people and culture” initiative was com- munication between top-level management and employees. Based on previous management’s concern regarding the distance between man- agement and the front lines, NEC has been working to bridge this gap through extensive communication, which it considers to be of utmost importance in the aforementioned trans- formation of people and culture. We have also made full use of digital technology, holding monthly dialogue sessions with the president through town hall meetings and NEC Way Days. In addition, we are actively promoting mass media exposure as one of our communication strategies. We believe that these efforts are criti- cally important in aligning the vectors of man- agement and the front lines. The president discusses both positive and negative information with employees in a frank and direct manner, and such dialogues have helped employees in understanding the changes that NEC is undergo- ing, which is a factor in the increase in our engagement score. CEO Town Hall Meeting A dialogue session between President Morita and employees Fiscal 2023 Domestic: Overseas: 11 town hall meetings held monthly, with 120,000 participants in total 9 town hall meetings held in different regions and time zones, with 11,000 participants in total Employee satisfaction rate: Over 95% NEC Way Day An opportunity for all NEC Group employees to renew their understanding of the NEC Way and accelerate its implementation in each of their respective organizations and teams Number of participants on the day: 22,300 (40,800 including global participants) Feedback: 98% of employees’ responses were positive, stating that they had gained a better understanding of the NEC Way through the event Transformation of Workstyle Mindset: A Workplace Where Employees Can Demonstrate Their Creativity The NEC Group launched Smart Work in 2018 and has developed a comfortable work environ- ment through its offices, systems, and IT facilities. We will continue to step up activities to increase job satisfaction by ensuring that each employee practices the Code of Values. Smart Work 2.0, a workstyle that brings together these three concepts, embodies the “Code of Values” that expresses the shared values of NEC Group employees. We believe that through the spread of Smart Work 2.0, employ- ees will put the Code of Values into practice and draw motivation from experiences that make them proud to be part of the NEC Group. Smart Work: Creating Comfortable Working Environments That Increase Job Satisfaction through Tools, Systems, and Spaces Smart Work 2.0 is a concept based on the princi- ple of being “location free.” As such, employees are encouraged to design their own workstyle, with locations, work hours, and other variables that best suit them. We have redefined the office as a place where people gather, making the office a “communication hub,” a home base where employees combine their forces, and an “innovation hub” where customers, partners, and other people from inside and outside NEC can come together. We intend to help employees stay motivated as they perform their duties by providing them with working systems based on the idea of com- bining cutting-edge technology with hybrid workstyles that take elements from “location free,” “communication hub,” and “innovation hub” concepts. In addition, as a company that pursues inno- vation fueled by a diverse pool of talent, coupled with the ability to respond flexibly in the face of social change, NEC will be able to leverage the power of digital technology to help society and leverage the power of co-creation to promote a more sustainable society where everyone has the chance to reach their full potential. Smart Work 2.0 Promote further employee growth and autonomy Practice Code of Values Utilize the NEC Group’s 120,000 people Acknowledge that society is always changing Achieve the Mid-term Management Plan 2025 by creating a highly engaged workplace and company where employees feel motivated and demonstrate high performance Utilize benefits toward expanding business Employees NEC What it will take Design and develop workstyles for individuals and teams that will put the Code of Values into practice Fully commit to encouraging employees to regularly practice the Code of Values and provide the environment and opportunities to do so NEC Integrated Report 2023 NEC, for Those Who Seek ChallengeCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 42 NEC engages in environmental management in order to realize a sustainable society as put forth in the NEC Way. As part of its corporate responsibility, NEC seeks to reduce the environmental burden of its activities not only in terms of climate change but also with regard to water, resource recycling, chemical substances, biodiversity, and other matters. In particular, we have strengthened our efforts concerning climate change by setting an ambitious target in September 2022 to reduce CO2 emissions from our entire supply chain to zero by 2040. We also help reduce the environmental burden of our customers and society on the planet by providing environmentally friendly products and services that utilize ICT and our own unique technologies. In addition, we have established the NEC Environmental Policy and ensure that all actions of employees and corporate officers comply with this policy and engage in activities with consideration for the environment. NEC: A Futuristic Glimpse into the Ideal 2030 In the NEC 2030VISION, we have positioned the environment as the basis of all our activities. To realize the vision for society we have set forth, we will continue to provide value as we strive to improve and resolve environmental issues. NEC Environmental Policy NEC views the operation of business in harmony with the environment as one of its top priority issues and is committed to reducing the environmental impact of the entire global supply chain and contributing to a sustainable society. 1. We will create social value focused on delivering ICT solutions and services leveraging advanced technologies to contribute to their adaptation, and we will contribute to the reduction of the environmental burden on customers and the global environment and to the mitigation of the impacts of climate change. 2. We will assess the environmental impact throughout the entire life cycle of ICT solutions and service development with considerations for reducing environmental burden. 3. We will comply with environmental laws and regulations associated with our business activities, honor agreements with stakeholders, and strive to conserve energy, save resources, and prevent environmental pollution caused by chemical substances and waste along the entire supply chain. 4. We will prioritize the procurement of environmentally friendly hardware, software, and services. 5. We will disclose environmental information regarding our business activities, ICT solutions, and services to our stakeholders. 6. We will raise the environmental awareness of each and every one of our employees worldwide and contribute to the conservation of the global environment through the promotion of climate change action, resource circulation, and biodiversity. 7. We will strive to improve an environmental management system with environmental targets and conduct periodic reviews to realize continual improvement. Environmental Initiatives for Realizing a Sustainable Society 2010 2020 2021 2025 2030 2040 2050 • Mid-term Management Plan 2025 • Business related to carbon neutral- ity as the next pillar of business growth Achieved in 2009 Achieved in 2019 V i s i o n 2 0 1 0 ( 2 0 0 0 o n w a r d ) N E C E n v i r o n m e n t a l M a n a g e m e n t 2 0 2 0 / 2 0 3 0 ( 2 0 1 6 / 2 0 1 7 o n w a r d ) M a n a g e m e n t A c t i o n P l a n N E C G r o u p E n v i r o n m e n t a l N E C E c o A c t i o n P l a n 2 0 2 5 ( 2 0 2 1 t o 2 0 2 5 ) N E C E n v i r o n m e n t a l T a r g e t s 2 0 3 0 ( 2 0 2 1 t o 2 0 3 0 ) Zero CO2 emissions N e t Z e r o b y 2 0 4 0 C o u r s e o f A c t i o n f o r C l i m a t e C h a n g e T o w a r d 2 0 5 0 ( 2 0 1 7 t o 2 0 5 0 ) Climate change Water Resource circulation Biodiversity Living Harmoniously with the Earth to Secure the FutureNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Climate Change: Reducing NEC’s CO2 Emissions to “Effectively Zero” by 2040 Climate Transition Plan NEC has formulated a climate transition plan that combines existing guidelines and initiatives to transition to a business model aimed at carbon neutrality by 2040 in line with the goals of the Paris Agreement. The process involves a PDCA cycle that includes future forecasting via scenario analysis, clarification of business risks and opportunities, formulation of a medium- to long-term plan, and implementation and evalua- tion of measures. In addition, we report on the progress of these initiatives to the Board of Directors and disclose information in line with TCFD recommendations. E For more details, please refer to “Outline of Initiatives Based on TCFD Recommendations” on page 20 of the NEC ESG Databook 2023. Long-term CO2 Emissions Reduction Targets In 2017, NEC formulated its Course of Action for Climate Change Toward 2050. In September 2021, NEC became a signatory to Business Ambition for 1.5°C and declared that it will aim for net zero CO2 emissions for Scope 1, 2, and 3 by 2050. This means that, in addition to its previ- ous target for the Company’s business activities (Scope 1 and 2), NEC is aiming for net zero emissions for Scope 3, which includes its entire supply chain. In September 2022, NEC became a signatory to The Climate Pledge, which is a com- mitment to achieving net zero carbon emissions by 2040, 10 years earlier than the target set forth in the Paris Agreement. “Effectively Zero” CO2 Emissions from Entire Supply Chain Suppliers Partners NEC Customers SBT 1.5℃ Recertified in May 2021 Scope 3 Scope 1, 2 Scope 3 Effectively zero CO2 emissions by 2040 Scope 1: Direct emissions of greenhouse gases generated from emission sources owned or Scope 2: Indirect emissions of greenhouse gases from the use of electricity, steam, and heat Scope 3: All indirect emissions (other than Scope 1 and 2) that occur throughout a company’s controlled by businesses supply chain 0 RE100 Joined in May 2021 BA 1.5°C Became a signatory in September 2021 THE CLIMATE PLEDGE Became a signatory in September 2022 43 NEC’s Climate Transition Plan Scenario Analysis (Future predictions, customer dialogue) Evaluation (Maximize business opportunities and minimize risks) Policy Collaboration Targets 2040 Net zero CO2 emissions throughout the supply chain NEC Eco Action Plan 2025 Mid-term Management Plan 2030 SBT 1.5°C Financial Plan (CAPEX / OPEX, Revenue) Implementation of Measures Progress Evaluation Governance (Supervision by the Board of Directors) Execution Supervision Scope 1 and 2: 55% reduction (compared with fiscal 2018) by 2030 Scope 3: Reduce Category 1 (purchased goods and services), reduce Category 3 (fuel- and energy-related activities not included in Scope 1 or Scope 2), and reduce Category 11 (use of sold prod- ucts) by 33% (compared with fiscal 2018) by 2030. Scope 3 coverage: 35% of Category 1, 100% of Category 3, and 100% of Category 11 Switch to renewable energy for 100% of the electricity consumed at locations inside and outside Japan by 2050 Net zero greenhouse gas emissions from the entire supply chain by 2050 Net zero greenhouse gas emissions from the entire supply chain by 2040 E For more details, please refer to “Participation in Initiatives Related to Climate Change” on page 19 of the NEC ESG Databook 2023. NEC Integrated Report 2023 Living Harmoniously with the Earth to Secure the FutureCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks  Scenario Analysis NEC believes that a company cannot continue to exist and grow without analyzing scenarios for climate change. Among recent global risks, cli- mate change risks are numerous and could have an extremely large impact on not only corporate business activities and earnings but also our lives. No matter what future is in store for us, based on multiple scenarios, NEC will examine steps that should be taken to realize a safe and secure society while ensuring NEC’s survival and growth. In 2019, we conducted a Company-wide scenario analysis, and in two different scenarios, we analyzed potential changes in risks and opportunities for NEC. NEC engages in a variety of businesses glob- ally, from the floor of the ocean to the far reaches of outer space. The risks and opportunities related to climate change differ by business field, so talking about future risks and opportunities related to climate change for the NEC Group as a whole is not necessarily the best approach. Therefore, NEC has been conducting scenario analyses for each of its businesses since fiscal 2022. In fiscal 2023, NEC used scenarios to analyze the digital transformation (DX) of domestic public administration and the transition to a decarbon- ized society in 2030 (the 1.5°C and 4°C scenarios) in the context of digital government, which is a strategic area of the Mid-term Management Plan 2025. The Company then analyzed the business opportunities presented therein. E For more details, please refer to “Scenario Analysis” on page 21 of the NEC ESG Databook 2023. Examples of Implications Presented by the Scenario Analysis • Opportunities will arise in regional energy management in the 1.5°C scenario, in regional disaster prevention and infra- structure development in the 4°C scenario, and in healthcare in both scenarios. • To meet these needs, it is highly likely that the NEC Group will be able to provide value by developing and combining its existing services. • In both scenarios, the building of data platforms (standardization and unification) will continue, requiring a shift from traditional business models. 44 Evaluating the Scenario Analysis: Risks and Opportunities Risks Description Risk Management and Countermeasures Risks from carbon pricing • Assuming all of NEC’s Scope 1 and Scope 2 emissions (about 164,000 t-CO2) upon achieve- ment of new targets in fiscal 2031 toward net zero CO2 emissions by 2040 are subject to carbon pricing (US$130/t-CO2), costs will increase by ¥2.8 billion (assuming ¥130/US$1) • Assuming impact from higher costs in upstream and downstream supply chains Possible disruption of the supply chain due to weather-related disasters (floods, land- slides, water shortages, etc.), long-term outages of lifelines such as electricity, gas, and water Transition risk Physical risk Increase use of renewable energy and achieve thorough gains in efficiency to achieve net zero CO2 emissions target by 2040 (ongoing efforts in supplier engagement and to improve energy-saving performance of products) Risk assessment of the entire supply chain, BCP measures (installing flood gates and moving power supply equipment) with provisions for weather- related disasters, such as river flooding, and strength- ening of power generation in data centers Opportunities Description Creation and expansion of opportunities Development of low-emission transport infrastructure Logistics visualization and route optimization driven by AI and IoT; EV/PHV charging cloud Value provided in transition risk countermea- sures (Mitigation) Support for expanding renewable energy use Support for reducing energy use Preparation for increase in weather-related disasters Preparation for increase in forest fires Value provided in physical risk countermea- sures (Adaptation) Virtual power plants, management of power supply and demand, commercialized resource aggregation (RA) for the supply and demand adjustment market, energy management systems (xEMS), provision of data center services that use renewable energy, etc. Process reforms using DX initiatives (work automation, smart factories, supply and demand optimization), products, and technologies that help data centers save energy (phase change cooling, new refrigerants, etc.) • Pre-disaster detection using AI, IoT, image analysis, flood simulation, evacuation support, etc. • Visualization of the amount of future CO2 reduction through disaster preparedness and mitigation, and consideration of mechanisms that promote invest- ment in disaster preparedness and mitigation by transforming them into financial products Forest fire monitoring and quick response systems, disaster monitoring by satellite, etc. Preparation for changes in areas suitable for agricultural production Simulations that forecast effects and changes in agriculture, agriculture-oriented ICT solutions, etc. Preparation for the spread of infection Infectious disease countermeasure solutions, prepara- tion of a logistics information management platform in the event of the emergence of a global infectious disease, remote work, telemedicine support, educa- tion clouds, etc. E For more details, please refer to “Risks and Opportunities Presented by Scenario Analysis” on page 22 of the NEC ESG Databook 2023. NEC Integrated Report 2023 Living Harmoniously with the Earth to Secure the FutureCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Progress and Review of NEC Eco Action Plan 2025 We have compiled the NEC Eco Action Plan 2025, a medium-term action plan for promoting Group-wide initiatives to achieve the goals set within our long-term environmental policy, and we are expanding this plan to each business unit and Group company. We determined priority initiatives from the following three perspectives. footprint businesses 2. Increase contributions through 3. Build foundations to promote environmental management 1. Reduce own risks and environmental 1. Reduce own risks and environmental footprint Themes Indicators Fiscal 2023 targets Fiscal 2023 results Evaluation Fiscal 2024 targets Fiscal 2026 targets 45 2. Increase contributions through businesses Themes Fiscal 2023 targets Evaluation Fiscal 2024 targets Fiscal 2026 targets (8) Manage environmental assets and encourage eco appeal • Update environmental assets (as needed, with an annual review) Achieved Ongoing targets • Encourage eco appeal (manage outcomes) (9) Create new environmental solutions and create new themes for R&D Conduct at least one workshop for evaluating environmental businesses Achieved Ongoing targets Reduce total emissions (absolute value) (Science Based Target [SBT]) Reduction rate of energy- derived CO2 emissions (absolute value) (compared with fiscal 2018) –21.9% –45% Achieved Expand use of renewable energy Amount of electric power used from renewable energy (MWh) 74,000 180,072 Achieved –15% –25% Note: New higher targets based on The Climate Pledge membership with FY2021 as the baseline 213,000 220,500 Higher targets based on the results of full-scale introduction by Group companies and The Climate Pledge membership. 3. Build foundations to promote environmental management Themes Indicators Fiscal 2023 targets Fiscal 2023 results Evaluation Fiscal 2024 targets Fiscal 2026 targets (10) Increase environmental awareness among all employees Attendance rate Japan International 95% or more 90% or more 96.6% Achieved At least 95% 95.3% Achieved At least 95% Reduce Category 1 emissions (SBT) Reduction rate (compared with fiscal 2018) –3% +5% Not achieved –4% –6% Management Items Reduce Category 11 emissions (SBT) Improvement rate of product energy efficiency (compared with fiscal 2014 products) 75% 61% Not achieved (5) Reduce water usage Reduction rate (compared with fiscal 2019) –2.0% –25% Achieved To advance environmental management, NEC has defined “priority items” in addition to “management items,” which are geared toward improving the level of activities that do not necessarily require targets and plans. For further details, please refer to the link below. E For more details, please refer to “Medium-term Environmental Plan Progress: Management Items” on page 15 of the NEC ESG Databook 2023. 70% 80% Note: Revised targets based on changes in product mix –9.5% –10.5% Note: Revised targets based on usage reductions due to COVID-19 and other factors (1) (2) (3) (4) s n o i s s i m e 2 O C e c u d e R 2 , 1 e p o c S 3 e p o c S (6） Reduce waste emissions Reduction rate (compared with fiscal 2019) –2.7% –9.9% Achieved –3.4% –4.8% (7) Encourage recycling of plastic resources (newly itemized targets from fiscal 2024) Reduce plastic waste output Reduction target (compared with FY2020) Information disclosure ー ー –2.8% –4.2% Disclosure For details on the main KPIs of the “Environmental Targets of the NEC Eco Action Plan 2025,” please follow the link below. https://www.nec.com/en/global/sustainability/eco/target.html NEC Integrated Report 2023 Living Harmoniously with the Earth to Secure the FutureCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Products and Services That Help to Mitigate Climate Change ESG Consulting Services Aimed at Realizing Carbon Neutrality ESG Consulting Approach: Steps to Achieve Decarbonization 46 Leveraging the knowledge we have gained from our own initiatives, we help customers work toward carbon neutrality by providing consulting services for defining overall ESG issues, formu- lating overall strategies, and implementing measures. In addition, we provide solutions that underpin the implementation of these mea- sures, thus providing total support for resolving various customer issues. t n e m e g a n a m G S E s ’ C E N s e c i v r e s g n i t l u s n o c Define overall ESG issues Formulate overall strategic plan Implement measures Share information Analyze and evaluate ESG and management strategy issues and identify specific options Overall strategic plan for carbon neutrality and its impact and transformational vision Purpose-driven design mindset DX strategy and decarbonized business model transformation support New business start-up and scale-up consulting Carbon neutral action for branding Data centers that use 100% renewable energy NEC Cloud IaaS and Hybrid Cloud Industry-specific solutions g n i r u t c a f u n a M s e i r o t c a f t r a m S s t n e m n r e v o g l a c o L s n o i t u o s l t n e m e r u c o r p n e e r G s c i t s i g o L s c i t s i g o l e z i l a u s i V y c n e i c i f f e s c i t s i g o l e s i a R y g r e n E t n e m e g a n a m S M E × s u o i r a V n o i t a t r o p s n a r T i g n g r a h c V E e c i v r e s d u o l c y t e f a s y t i n u m m o C s t h g i l t e e r t s t r a m S i n o i t u c e x e n p r e d n u t a h t s n o i t u o s n o b r a C l Use of renewable energy Resource aggregation NEC Cloud Service for Energy Resource Aggregation Visualization of CO2 emissions throughout the supply chains GreenGlobeX Data monitoring, analysis, and roadmap review GX Management Cycle (ABeam) Visualization Business transformation E For more details, please refer to “Examples of NEC Group Environmental Solutions” on page 23 of the NEC ESG Databook 2023. s e u s s i r e m o t s u c g n i v l o s e r r o f s s e c o r P u n e m e c i v r e s C E N n o i t p i r c s e D g n i t l u s n o c c i g e t a r t S - n e m e l p m i r o f t r o p p u S s e r u s a e m f o n o i t a t Full support for customers throughout the issue resolution process, including steps to achieve decarbonization i e v e h c a o t s p e t S n o i t a z i n o b r a c e d Define overall ESG issues Formulate overall strategic plan for carbon neutrality Promote carbon neutrality Implement measures Plan Do Check Act Define company issues • Visualize greenhouse gases • Analyze issues in promoting decarboniza- tion • Environmental and scenario analyses (identify risks and opportunities) Formulate a Company-wide decarboniza- tion strategy • Formulate overall measures for net zero emissions • Formulate roadmap • Create frame- work and carry out system design • Participate in initiatives, etc. Confirm cur- rent situation • Formulate GHG reduction measures • Prioritize measures • Transition risks and opportu- nities Risk: Transfor- mation of existing businesses Opportunity: New business proposals Evaluate GHG reduction measures • Monitor • Analyze and simulate • Evaluate Implement GHG reduction measures • Specify requirements • Compare and select from options • Install and launch Review GHG reduction plan and measures • Suggest policy improve- ments • Update roadmap • Consider emissions and credit trading Disclose information Share information • Integrated report • ESG Databook • CDP and other ESG surveys Formulation of overall strategies DX strategy consulting and decarbonization simulation Examination of prioritization of measures Analysis of outcomes of measures Examination of improvements to measures Definition of ESG management issues Assessment of carbon neutrality and calculation of implementation outcomes Creation of decarbonized businesses Introduction of measures Verification of outcomes of measures Examination of new measures and formulation of implementa- tion plan Information disclosure and reporting support Carbon neutral action for branding Case studies for various solutions Fixed menus and packages for each issue Visualization tool (GreenGlobeX) Resource circulation solutions Funding Quick start menus Decarbonized energy solutions Supply and demand forecasting solutions NEC Integrated Report 2023 Living Harmoniously with the Earth to Secure the FutureCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 47 Water Risk Management and Effective Use of Water Resources NEC complies with environmental laws and reg- ulations and promotes reduction efforts in its water usage and environmental impact. We are also employing water risk management practices, which include addressing the issues of water shortages, water pollution, and flooding. Risk / Opportunity Description Risk reduction measures / Specific opportunities Risk Droughts and disaster-related water out- ages may affect business continuity and cause delay or tie-ups in production. Business continuity plan (BCP) measures have been implemented at each site to prepare for water outages. Opportunity (economic value) There is growing market demand for disas- ter preparedness-related businesses to min- imize damage from typhoons and other storms. Expanded introduction of river water level prediction and other flood control support systems has begun. Resource Circulation and Pollution Prevention NEC is working on consistent resource recycling from production to use and recycling, and reduc- ing environmental impacts such as the amount of waste generated during each process. In particular, hardware products that our customers have used consume a lot of resources, so we carry out initiatives to make effective use of limited resources by collecting and recycling them. Natural Capital and Biodiversity NEC strives to minimize the impact of business activities and employees’ lives on living organ- isms, and to actively encourage activities that contribute to biodiversity and the provision of ICT solutions. In recent years, a variety of initia- tives related to nature and biodiversity have been launched around the world amid climate change, and such initiatives are likely to be rolled out further and gain momentum over the next few years. In fiscal 2022, NEC participated in two international initiatives that are expected to have an impact in the business world, namely, 1 Science Based Targets (SBTs) for Nature and the Taskforce on Nature-related Financial Disclosures 2 (TNFD), as a corporate member at the initial framework consideration stage. On July 10, 2023, we released a report disclos- ing business risks and opportunities related to natural capital, including biodiversity, in reference to the TNFD Risk & Opportunity Management and Disclosure Framework (v0.4 3 Beta Release) issued by the TNFD. This report is the first in Japan to disclose information based on the v0.4 Beta Release. 1 SBTs for Nature: Company participation program Science- based goals designed to ensure that companies and munici- palities act within the limits of the planet. A nature-based version of the SBT that promotes a 1.5°C target for climate change. SBTs for Nature plans to release its target-setting method step by step from 2023 onward. 2 Taskforce on Nature-related Financial Disclosures: TNFD Forum Established as a framework for corporate disclosure of nature-related financial information in order to direct the flow of global funds to activities that conserve and restore nature. The framework is scheduled for launch in 2023. 3 https://framework.tnfd.global/wp-content/ uploads/2023/03/23-24287-TNFD_v0.4_Short_Summary-JA_ FINAL.pdf Risk / Opportunity Description Risk reduction measures / Specific opportunities Risk / Opportunity Description Risk reduction measures / Specific opportunities Risk Tighter relevant regulations in Japan and abroad require time and resources to appropriately address. A delay in respond- ing may affect NEC’s competitiveness and reputation. Collect information before the enactment of relevant laws and regulations to facilitate an early response. Risk Alterations to the land at production sites, as well as underground and surface water usage, wastewater, and gas emissions and waste at production sites, may affect biodi- versity in their respective areas. Since NEC’s business sites use organic solvents and acidic/alkaline materials, we carry out measures and training to prevent leakage into wastewater, the atmosphere, and soil. Opportunity (economic value) Market expansion of circular economy- related businesses continues to progress and new markets continue to open up. Demand is growing for NEC bioplastic products, and for AI tools for food loss countermeasures. Opportunity (social value) Efforts to protect biodiversity around bases and neighboring areas will lead to coopera- tion with a variety of stakeholders and improve brand value, which may create business opportunities. Engage in activities to conserve biodiversity such as the protection of endangered spe- cies, and paddy field development through exchange activities with the local community. E For more details, please refer to “Biodiversity” on page 30 of the NEC ESG Databook 2023. External Evaluations Regarding the Environment NEC was named to the CDP “A List” 2022 for its efforts to address climate change and protect water security, marking four consecu- tive years of inclusion. For the third consecutive year, NEC was also listed on the CDP’s Supplier Engagement Leaderboard, the highest rating conducted by the CDP for supplier engagement. NEC Integrated Report 2023 Living Harmoniously with the Earth to Secure the FutureCorporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 48 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. NEC Group Human Rights Policy In 2015, NEC formulated the NEC Group Human Rights Policy, declaring its intention to advance initiatives to promote respect for human rights across its entire value chain through dialogue and consultation with stakeholders and by implementing human rights due diligence. In June 2022, this policy was revised to clearly show senior management’s commitment to respecting human rights as well as its gover- nance system, as required by the United Nations Guiding Principles on Business and Human Rights (UNGPs). The policy’s revisions were reported to the Board of Directors in fiscal 2023. The NEC Group Human Rights Policy applies to all officers and employees of NEC and its con- solidated subsidiaries, including fixed-term con- tract employees, temporary employees, and part-time employees. We also encourage our suppliers, business partners, and customers to understand this policy and share our commit- ment to respecting human rights. Furthermore, the initiatives of this policy, as well as those based on its contents, are reviewed on an ongo- ing basis and updated and revised as necessary. New Technology and Human Rights (AI and Human Rights) In accordance with the NEC Group AI and Human Rights Principles, we are committed to the following three initiatives: 1. Ensure that all products and services are implemented and utilized by NEC employees, customers, and partners appropriately 2. Continue to develop advanced technology and talent to further promote AI utilization with respect for human rights as the highest priority 3. Engage with a range of stakeholders to build partnerships and collaborate with closely We are actively collaborating with various stakeholders in Japan and overseas in industry, government agencies, international organizations, and academia, with a view to building a framework for an AI society. We also participate in symposiums with regard to these efforts. For the NEC Group Human Rights Policy, please follow the link below. https://www.nec.com/en/global/sustainability/pdf/human_rights_en.pdf Digital Trust Advisory Council Promoting Human Rights Due Diligence Centered on Salient Human Rights Issues NEC has utilized the human rights risk data of the international NPO Business for Social Responsibility (BSR) to compile a list of its human rights issues, from which three salient human rights issues have been identified. In fiscal 2023, the Risk Control and which was then reported to the Board of Directors and made as part of an effort to improve NEC’s system for preventing and mitigating human rights violations in the value chain. NEC’s Human Rights Issues Compliance Committee furthered discussions with the Sustainability Advisory Committee regarding human rights associated with geo- political risks and the newly identified “human rights risks related to geopolitical situations and conflicts” as a salient human rights issue. From these discussions a resolution was reached, • New technology and human rights (AI and human rights) • Human rights risks related to geopolitical situations and conflicts • Labour in supply chains • Employee safety and health The Digital Trust Advisory Council, a panel of experts established in 2020, incorporates on an ongoing basis the diverse opinions of outside experts in human rights, privacy, and ethics, as well as the legal system, to strengthen our response to new issues that arise in relation to the use of AI. At the council’s fiscal 2023 meeting, we exchanged opinions on our policies for strengthening AI governance based on trends in domestic and international laws and regulations and society’s expectations and demands, as well as how to appropriately disseminate information, and our approach to our responsibilities in deal- ing with stakeholders in the value chain. The points raised in these discussions were used as a guide in establishing systems and processes to strengthen risk mitigation measures. Fiscal 2023 Members Composed of five members including jurists, lawyers, consumer organization representatives, and NPO offi- cials in such areas as sustainability and human rights Respecting Human RightsNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Respecting Human Rights Recommendations on the Use of Human-centered AI Made at the DX Summit, the Official Public-Private Event of the G7 Digital and Tech Ministers’ Meeting One of NEC’s corporate SEVPs, Shigehiro Tanaka, participated in a panel discussion titled “AI and Governance” at the Digital Transformation (DX) Summit, held in Shibukawa City, Gunma Prefecture in April 2023. The event was hosted by the World Economic Forum’s Centre for the Fourth Industrial Revolution Japan and co- hosted by the Ministry of Economy, Trade and Industry. One of the themes of the discussion was “Generative AI will be a broadly transforma- tive technology, but what are its potential bene- fits and impacts, and how can we design and use AI in a human-centered way?” to which Mr. Tanaka offered the following thoughts and observations. The contents of this panel discus- sion are also included in the Ministerial Declaration of the G7 Digital and Tech Ministers’ Meeting. For information on the Ministerial Declaration of the G7 Digital and Tech Ministers’ Meeting, please follow the link below. https://www.soumu.go.jp/joho_kokusai/g7digi- tal-tech-2023/topics/pdf/pdf_20230430/minis- terial_declaration_dtmm.pdf ・ NEC believes that the use of AI is important in resolving social issues and creating social value as it works toward realizing its Purpose. As one example of such efforts, NEC has contributed to resolving global issues through its expedi- tious AI-assisted development of vaccines for infectious diseases in partnership with the Coalition for Epidemic Preparedness Innovations (CEPI). ・ NEC has introduced AI principles based on a human-centered approach and guidelines to assure quality in AI development. NEC’s approach to generative AI remains unchanged, including on matters such as the required transparency, privacy, and protection of intel- lectual property rights. We believe it is essential that everyone, from employees to customers, understands the principles and risks of AI before engaging in its use. As such, we have established guidelines for providing AI to cus- tomers as well as rules for using AI within the Company. ・ To realize safe, reliable, human-centered AI from a technological standpoint, we must establish globally compatible rules. NEC has been actively involved in multilateral discus- sions with the OECD, Business at OECD (BIAC), and the World Economic Forum. We must also ensure compatibility through international standards, and NEC has made efforts to con- tribute to timely rule making through its activi- ties with various standardization bodies. ・ To ensure that AI does not become a technol- ogy that unfairly benefits certain countries or organizations, we have introduced a program to develop AI specialists through international collaboration. The social implementation of AI will be promoted by AI specialists who are well- balanced from a diversity and inclusion stand- point, which we anticipate will lead to creative and innovative solutions to social issues and the creation of social value. Moderators (from left to right): Ugo Pagallo, University of Turin; Shigehiro Tanaka, Corporate SEVP, NEC; Michaela Browning, Google; Mia Garlick, Meta; Mike Yeh, Microsoft Source: The World Economic Forum’s Centre for the Fourth Industrial Revolution Japan 49 Human Rights Risks in Light of the Changing Geopolitical Landscape and the Impact of Conflicts When controlling exports, we confirm the intended use of products or services prior to transactions, as well as confirming whether con- sumers are on the sanctions lists of the United Nations and relevant countries. Each country’s sanctions list includes organizations and individ- uals that are subject to human rights sanctions, such as those on the Office of Foreign Assets Control sanctions list. In addition, we have iden- tified high-risk countries and regions based on the OECD’s States of Fragility 2022* report and examined human rights information relating to customers in relevant regions prior to transac- tions. We work to prevent and mitigate any risks that are confirmed through contracts and other means, and report said risks to the Risk Control and Compliance Committee. response capabilities from the six standpoints of the econ- omy, the environment, government, security, society, and people * Indicators for evaluating each country’s risk status and Labour in Supply Chains NEC has designated “supply chain sustainability” as a material issue (materiality) and is enhancing cooperative ties with its suppliers through col- laboration and co-creation. To address “labour in supply chains,” posi- tioned as a salient human rights issue, we are moving forward with efforts such as inspections, audits, and corrective measures using a risk- based approach. In response to the Guidelines on Respecting Human Rights in Responsible Supply Chains, published by the Japanese government in 2022, as well as the development of legal frameworks for preventing human rights abuses in supply chains overseas, and the designation of “labour in supply chains” as one of NEC’s salient human rights issues, we have strengthened our human rights due diligence efforts, including in our ongoing initiatives. I For more details, please refer to “Supply Chain Sustainability” on page 50. Employee Safety and Health The Company identifies and addresses risks in accordance with the NEC Group Occupational Health and Safety Management System. In fiscal 2024, we began conducting self-assessment checks geared toward improving occupational health and safety (OH&S) management. E For more details, please refer to “Promotion of Human Rights Due Diligence Focused on Salient Human Rights Issues” on page 56 of the NEC ESG Databook 2023. NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 50 NEC endeavors to work not only internally 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, with the intention of gaining the trust of society and helping to create sustainable social value. Supply Chain Management Policy Sustainable procurement activities of the entire NEC Group are under the responsibility of the Chief Supply Chain Officer (CSCO). Decisions are made by the Procurement Steering Committee chaired by the Senior Director of the Sourcing and Purchasing Department. For international subsidiaries, we promote sustainable procurement in accordance with the culture and business practices of each country by conducting quarterly operational reviews Six Priority Risks at Our Suppliers with the procurement managers of major local subsidiaries after aligning annual action policies and plans. In addition, the NEC Group Procurement Policy and the Guidelines for Responsible Business Conduct in Supply Chains require our suppliers, including upstream business partners, to ensure responsible business conduct and identify the six Priority Risks. Human Rights and Labour Practices Health and Safety Fair Trading and Ethics Environmental Requirements Information Security Product Quality and Safety With regard to human rights, the NEC Group Procurement Policy clearly rejects slavery and human trafficking, and the Guidelines for Responsible Business Conduct in Supply Chains prohibit forced labour and child labour while respecting workers’ right to organize. The policy and guidelines also require appropriate wages and proper management of work hours. Moreover, we perform due diligence on human rights in accordance with the guidance from the OECD, identify and evaluate risks, and take steps to mitigate risks. Supply Chain Risk Assessment Results and Corrective Actions Document Checks NEC conducts self-assessments in order to assess the status of supplier compliance with requirements and initiatives relating to the fields of human rights, occupational health and safety, the environment, fair trading and ethics, and information security. In the sustainable procurement check sheets, in addition to the inspection themes for human rights, occupational health and safety, the envi- ronment, fair trading, and others, we newly added important inspection themes for foreign national technical intern programs and human rights measures of suppliers at Tier 2 and further upstream suppliers. We received responses from 1,009 companies out of the 1,081 companies we queried, and evaluated the status of each sup- plier, ranking them on a five-point scale of A, B, C, D, and Z for each theme in light of the follow- ing evaluation criteria: “score rate” and “critical points.*” Through supplier engagement, such as pro- moting an understanding of the conditions and providing correctional guidance, we will support suppliers that received the Z rating, with the aim of correcting identified issues during the first half of fiscal 2024. * Critical points are questions that NEC has identified as poten- tial 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 Criteria Description A B C D Z 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 of 50% or below Initiatives themselves are insufficient Unable to clear critical points Risks expected E For more details, please refer to “Supply Chain Management” on page 86 of the NEC ESG Databook 2023. Supply Chain SustainabilityNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Supply Chain Sustainability Respecting Human Rights In September 2022, the Japanese government formulated and published the Guidelines on Respecting Human Rights in Responsible Supply Chains, and legal frameworks for preventing human rights abuses in supply chains have been updated abroad. With labour in supply chains being identified as a salient human rights issue, NEC improved its efforts at due diligence in human rights, in addition to its ongoing initiatives. NEC is taking the following steps in accor- dance with OECD Due Diligence Guidance for Responsible Business Conduct. Step 1 Step 2 Step 3 Gather and evaluate information about risks specific to the ICT sector, regions, and NEC compa- nies based on the ICT Sector Guide on Implementing the UN Guiding Principles on Business and Human Rights, the International Trade Union Confederation (ITUC)’s 2020 ITUC GLOBAL RIGHTS INDEX, other external research reports, and internal analysis of our procurement structure Identify high-priority business domains while referencing results of international NPO Business for Social Responsibility (BSR)’s evaluations of human rights impact (human rights risks to workers in manufacturing processes at overseas plants of suppliers, including outsourced production, human rights risks to foreign national apprentice interns in technical trainee programs in manu- facturing processes at domestic plants of suppliers, and overtime work risks in software development) Conduct third-party audits by an external auditing firm that specializes in human rights and occu- pational health and safety. We have selected five suppliers based on evaluation of scope and nature of potential impacts while mapping the aforementioned risks across suppliers. Nonconformance incidents identified in these audits (for example, the absence of a human rights policy; the lack of emergency exit signs; and the failure to use proper protective equipment such as safety glasses) will be evaluated and ranked according to the following four categories from the viewpoints of human rights and occupational health and safety under Japanese law and global standards to provide feedback to suppliers and request corrective action. Minor Major 1. Response not required 2. Items for improvement 3. Items for improvement (high priority) 4. Items for correction Stakeholder Engagement Supplier Education and Awareness Training Activities NEC provides training opportunities and infor- mation to help suppliers promote sustainability. In fiscal 2023, NEC invited external lecturers to conduct a seminar for the members of senior management of suppliers on the theme of “Business and Human Rights,” as well as a lec- ture for our key software suppliers on the topic of “Business and Human Rights: Responses Required of ICT/Software Companies.” With regard to the environment, NEC holds briefing sessions and provides information on its coun- termeasures against climate change on an ongo- ing basis. 51 Internal Education and Awareness Training Activities In accordance with internal procurement regula- tions, NEC Corporation and its subsidiaries con- duct regular training for procurement personnel, as well as timely training on individual topics to address new laws and regulations and emerging risks, in order to maintain appropriate business operations. Strategic Supply Chain Partners Exchange Meeting NEC holds exchange meetings with its main stra- tegically important supply chain partners each year to promote their understanding and coop- eration in the NEC Group’s sustainable procure- ment activities, centered mainly on human rights, labour, occupational health and safety, the environment, and information security. Moreover, during the meetings, NEC presents Sustainability Awards to suppliers that make sig- nificant contributions to advancing sustainability initiatives. The meeting in June 2022 was held online, and 418 members of the management at 204 suppliers from around the world participated. Update to Grievance Mechanism NEC has given access to its Compliance Hotline, a means of reporting incidents and seeking con- sultation, to suppliers since 2003. In August 2021, NEC changed the hotline to include consulta- tions about responsible procurement, including human rights, labour, occupational health and safety, and other topics. In fiscal 2023, a total of seven reports were issued via the Compliance Hotline about procurement issues. After verifying the relevant facts, all seven reports were dealt with appropriately. From fiscal 2023, NEC is participating in an industry-wide initiative for a collective grievance mechanism (JaCER) and is improving the effec- tiveness of the system in accordance with UNGP requirements. NEC Awarded the Highest Rating for Supplier Engagement by the CDP Through the CDP Supply Chain Program run by the CDP, an environmental NGO that NEC partnered with in 2019, NEC surveyed the climate change initiatives of 68 companies, mainly hardware suppliers, in fiscal 2023, and provided feedback on the results of the survey. NEC has been recognized on the CDP’s Supplier Engagement Leaderboard, the highest Supplier Engagement Rating,* for the third consecutive year. * The Supplier Engagement Rating is given by the CDP based on an examination of a company’s initiatives for climate change and reduction of greenhouse gas emissions across the entire supply chain. NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 52 Corporate Governance Reforms Aimed at Enhancing Corporate Value Hajime Matsukura Corporate Secretary (Executive Officer), Member of the Board Masashi Oka Member of the Board (Chairman of the Compensation Committee and Member of the Nominating Committee) NEC is currently implementing corporate governance reforms, including the transition to a Company with a Nominating Committee, etc., structure. Two key individuals—the cor porate officers driving the reforms, Hajime Matsukura, Corporate Secretary and Member of the Board, and Masashi Oka, Member of the Board, Chairman of the Compensation Committee, and Member of the Nominating Committee—sat down for a candid exchange of opinions on the background and objectives of the transformation and discussed key measures to be taken in the future. A key role of outside directors is to provide an external perspective. Matsukura Since 2000, NEC has been navigating a very diffi- cult period and has been working to ensure its survival by reorganizing its financial structure, transforming its portfolio, renewing the NEC Way, and reforming its internal culture. From a corporate governance standpoint, we increased the number of outside directors and reviewed our compensation system, but the reality is that we took those steps out of necessity. The full-scale transformation we are currently undertaking is an initiative to establish corporate governance as a platform for management decision-making that will propel the Company into its next stage of growth. I also believe that the transformation is unavoidable if we are to demonstrate our competitiveness on the global stage. Oka I have leadership experience at both Japanese and U.S. companies, and my management key- word has been “self-transformation.” I accepted the position of outside director last year as I could relate to President Morita’s strong desire to transform NEC and was convinced of his seriousness in this regard. As a member of the Board of Directors, I hope to support this trans- formation and help maximize NEC’s potential. Based on my experience, I believe an external perspective is vital for management. I have always taken ‘inconvenient truths’ seriously without being swayed by logic driven by institu- tional legacy or past successes. I have instead favored dialogue with investors and outside experts to make levelheaded decisions based on facts, deploying insights from external parties as a driving force for change. The Board of Directors in particular represents the closest external per- spective available to management, and in con- trast to the tendency of those tasked with Corporate Governance DialogueNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 　　　　 Corporate Governance Dialogue 53 business execution to give priority to short-term periodic or divisional profit and loss, the Board is required to promote profitable and sustainable growth and enhance the Company’s overall management quality from the perspective of increasing corporate value over the medium to long term. I believe that as virtual investors- so to speak- the Board of Directors must be the guardians of corporate value. Building trust between the Company’s execution and oversight functions will enhance the effectiveness of the Board of Directors. Matsukura I believe that raising the effectiveness of the Board of Directors will be a matter of key impor- tance in driving the transformation of NEC’s corporate governance. When electing outside directors, we engaged in extensive discussions from the perspective of whether the candidates were in tune with NEC’s reforms and were capa- ble of building relationships of trust with corpo- rate officers. As a result, we have been joined by some very promising members. In addition, the director remuneration system has been changed to provide incentives so that all officers share the ultimate goal of increasing corporate value and strive to achieve the goals put forth in the mid- term management plan to that end. Mr. Oka, who was appointed outside director in June 2022, and I have been discussing these reforms together, and we will continue our efforts to fur- ther enhance the effectiveness of the Board from the perspective of becoming a company that can succeed on the global stage. Oka Raising the effectiveness of the Board of Directors is a top priority. In fiscal 2023, as chair- man of the Compensation Committee, I led a review of the director remuneration system, including its structure, compensation levels, and KPIs. Our perspective was to assess if the system was (a) appropriate for a technology company with global operations, and (b) sufficiently linked to shareholder value. I believe the appropriate structure and systems are now in place, including the transition to a Company with a Nominating Committee, etc., effective June 2023. To further enhance the effectiveness of the Board of Directors, we will continuously monitor the structure and systems to ensure they are func- tioning as intended. We will also focus on enhancing the quality of discussions at Board meetings and ensure that management from a corporate value perspective permeates the front lines of business execution. To connect corporate governance reforms to the enhancement of corporate value, I believe that two-way trust between the management team, which is responsible for the execution of business, and the Board of Directors, which is responsible for oversight, is of the utmost impor- tance. Directors need to communicate matters that are difficult for those on the execution side of the Company to hear, but there must be mutual understanding and trust in order for the management team to take seriously what they hear from the Board and apply it to the manage- ment of the Company. Those responsible for business execution and who have been given significant delegation of authority under the new institutional design are expected to always be aware that the primary management goal is to increase corporate value. They also need to be able to explain quantitatively at any time how their respective businesses and roles are contrib- uting to that goal. At the same time, the Board of Directors is required to have a deep understand- ing of the Company, represent its diverse stake- holders, and fulfill its oversight function through constructive and frank discussions with members of management charged with execution respon- sibilities. I believe it is important for the manage- ment team to fully leverage the Board of Directors as virtual investors. Matsukura Although healthy friction is an essential element of a successful relationship between execution and oversight functions, I believe that Mr. Oka is correct in saying that trust is an important foun- dation, without which meaningful discussion is impossible. I believe that both tough and cordial feedback leads to setting higher goals, creating new perspectives, and refining policies, which in turn drives management forward. Realizing the Transformation Matsukura I believe that the change in institutional design will significantly change the positioning of the Board of Directors and the contents of its discus- sions. Since a significant portion of authority will be transferred to management, discussions at Board meetings will focus on more overarching themes, such as medium- to long-term strategies and how to increase corporate value. That being the case, it is inherently preferable to gather people with diverse perspectives and experi- ences for discussion, so I believe it is a natural progression for outside directors to become the majority. NEC’s corporate governance transformation has only just begun. I would like to work with the outside directors to build a relationship of trust with stakeholders and transform NEC into a company that steadily executes decisions by fol- lowing through on its word while growing step by step. Oka The Board of Directors is expected to enhance NEC’s corporate value over the medium to long term. To this end, we believe it is important for directors to constantly strive to maintain and elevate the freshness of their external perspec- tive and ensure an environment of open and constructive discussions with management. In addition to sustainable profit growth on the financial side, it is also very important to strengthen the non-financial aspects of our oper- ations in order to enhance corporate value over the medium to long term. Within the framework of ESG, we will fulfill our responsibility as guard- ians of corporate value by catalyzing discussions at Board meetings and helping maximize corpo- rate value, starting from the governance (G) reforms we have implemented to date and set- ting our sights even higher in terms of the envi- ronment (E) and society (S). NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 　　　　 　　　　 54 For the continuous creation of social value and the maximization of corporate value, NEC Corporation (the “Company”) is strengthening its corporate governance practices in terms of both oversight and execution through the following basic policies: 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. Key Points of NEC’s Corporate Governance Reforms Strengthening of Oversight and Execution Functions In June 2023, the Company transitioned from a Company with Audit & Supervisory Board to a Company with a Nominating Committee, etc. The Company takes the opportunity of this transition to clearly separate the oversight function from execution by management, aiming to strengthen the oversight function of the Board of Directors by having Independent Outside Directors make up its majority. By delegating substantial authority from the Board of Directors to Executive Officers with respect to business execution, the Company accelerates timely decision-making and imple- mentation. In addition, the Company also pro- motes the strengthening of governance on the execution side by establishing a company-wide risk management system and enhancing the qual- ity of decision-making in meetings on the execu- tion side, centering on the Executive Committee. The newly established Corporate Secretary is responsible for driving and ensuring the imple- mentation of corporate governance reforms for the proper operation and advancement of the Board of Directors and the Executive Committee by forg- ing a link between the Board of Directors and Executive Officers and facilitating effective commu- nication, thereby fostering a relationship of trust. Revisions to Remuneration System for Directors and Executive Officers In conjunction with the corporate governance reforms triggered by the transition to a Company with a Nominating Committee, etc., the Company has revised its remuneration system for Directors and Executive Officers to make it more conducive to the sustainable growth of corporate value and the realization of share- holder value management. With a view to realizing the Mid-term Management Plan 2025, the Company has established an evaluation system whereby bonuses reflect the degree of achievement of EBITDA and engagement score, key indicators of the plan, and stock compensa- tion reflects the Company’s Total Shareholder Return (TSR) relative to indices and competitors. Main Initiatives for Strengthening Corporate Governance Strengthening of Oversight and Execution Functions • Instituted the chief officer position and strengthened Group-wide strategies • Established • Established Compensation Committee Nomination and Compensation Committee • Ratio of Outside Directors: 45.5% • Extended the authority delegated to the Chief Officers to strengthen corporate functions and accelerate prompt decision-making • 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 • Majority of Directors are non-executive • Corporate Officers entered with one-year mandate contracts to clarify responsibilities and authority • Ratio of Independent Outside Directors: 41.7% • Ratio of Independent Outside Directors: 50.0% • Transitioned from a Company with Audit & Supervisory Board to a Company with a Nominating Committee, etc. • Separated the former • Ratio of Independent Outside Nomination and Compensation Committee into the Nominating Committee and the Compensation Committee Directors: 58.3% • Established the Nominating, Compensation, and Audit committees to each include three Independent Outside Directors (including chairper- son) and one Inside Director 2001 2010 2011 2012 2017 2019 2021 2022 2023 Revisions to Remuneration System for Directors and Executive Officers • Introduced stock compensation system • Increased the ratio of performance-based remuneration for executive directors. Ratio of basic remuneration : bonuses : stock compensation = 5 : 3 : 2 • Set the achievement of EBITDA and engagement score, which are Mid-term Management Plan indicators, as the formula for calculating bonuses for corporate officers on the execution side, and TSR comparisons as the for- mula for calculating stock compensation • Increased the ratio of performance-based compensa- tion to total compensation Corporate GovernanceNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Corporate Governance 55 Overview of Corporate Governance System The Board of Directors is responsible for oversee- ing the execution of duties by Directors and Executive Officers as well as guiding the direction of management through deliberation of impor- tant matters related to the Company’s basic management policy. From the perspective of ensuring independence, the majority of the Board of Directors comprises Independent Outside Directors, and the Nominating, Compensation, and Audit committees are each chaired by an Independent Outside Director. The primary role of the Chairman of the Board, along with chairing Board meetings, is to oversee the management of the Company. The Chairman does not serve concurrently as an Executive Officer and is not involved in the day-to-day exe- cution of the Company’s business operations. Executive Officers are responsible for the exe- cution of the Company’s business operations as delegated by the Board of Directors. Substantial authority is delegated to Executive Officers to accelerate business execution and business execution-related decision-making. In line with this, the Company is working to strengthen cor- porate governance on the execution side through such measures as reinforcing the company-wide risk management system overseen by the Chief Risk Officer (CRO), improving the quality of decision-making by reorganizing the executive meeting bodies centered on the Executive Committee, and enhancing the internal audit function led by the Chief Audit Officer (CAO). Note: The CRO and CAO were newly established in fiscal 2024. General Meeting of Shareholders Election and dismissal of Directors Board of Directors Appointment and removal of committee members Election and dismissal Nominating Committee Compensation Committee Audit Committee Cooperate Election and dismissal of Executive Officers Oversight Cooperate Executive Committee (Executive Officer Committee) Budget Progress Committee / Financial Strategy Committee / Business Strategy Committee / Investment Committee / Critical Contract Risk Assessment Council Supervise Risk Control and Compliance Committee Group Internal Audit Department Cooperate Accounting Auditors Audit Business Units / Corporate Staff / Affiliated Companies Internal audits t h g i s r e v O n o i t c n u F n o i t c n u F n o i t u c e x E s s e n i s u B For information on NEC’s organizational structure and the main topics of discussion and deliberations at the Board of Directors and committee meetings, please refer to NEC’s Corporate Governance Report. https://www.nec.com/en/global/about/pdf/nec_governance.pdf Board of Directors (12 Directors) Chairman of the Board (Chairperson of the Board of Directors) 9 Non-executives 3 Executive Officers Nominating Committee (4 members) It deliberates, from the perspective of objectivity, fairness, and transparency, on matters concern- ing nomination of the Company’s officers (including the succession plan for the President), as well as on the contents of proposals to be submitted to the General Meeting of Shareholders concerning the election or dismissal of Directors. Compensation Committee (4 members) It deliberates, from the perspective of objectivity, fairness, and transparency, on matters concern- ing the remuneration of the Company’s Directors and Executive Officers, including the formulation of policies on remuneration, etc., for Directors and Executive Officers and the determination of the details of remuneration, etc., for each indi- vidual Director and Executive Officer. Audit Committee (4 members) It audits the execution of duties by Executive Officers and Directors. The Audit Committee periodically reports the audit plan and audit results to the Board of Directors and makes rec- ommendations based on the audit results to the President. An “Audit Committee Hotline” has been established within the Audit Committee, which is operated independently from the Company’s officers, and which allows the report- ing of misconduct, etc., related to said officers. 7 Independent Outside Directors 5 Inside Directors : Female 3 Independent Outside Directors Harufumi Mochizuki (Chairperson) Kuniharu Nakamura Masashi Oka 1 Inside Director Takashi Niino 3 Independent Outside Directors Masashi Oka (Chairperson) Christina 　Ahmadjian Yoshihito Yamada 1 Inside Director Takayuki Morita 3 Independent Outside Directors Joji Okada (Chairperson) Kyoko Okada Harufumi Mochizuki 1 Inside Director Shinobu Obata NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Corporate Governance Strengthening of Oversight Function Enhancing the Board of Directors System The Company’s Nominating Committee deliber- ates on measures aimed at enhancing the struc- ture and role of the Board of Directors to help to ensure the sustainable growth of corporate value. In fiscal 2021, the Company formulated the career skill matrix, defining the career background and skills required of the Board and identifying key points to be strengthened. Based on these key points, the composition of the Board of Directors was reviewed in fiscal 2022 to strengthen corpo- rate governance and deepen multifaceted discus- sions on company-wide strategies at Board meetings. As a result, the ratio of Independent Outside Directors, female Directors, and Career Skill Matrix indicates that the respective Director has extensive experience and deep insight Takashi Niino Takayuki Morita Osamu Fujikawa Hajime Matsukura Shinobu Obata Kuniharu Nakamura Christina Ahmadjian Masashi Oka Kyoko Okada Harufumi Mochizuki Joji Okada Yoshihito Yamada Details Chairman of the Board President and CEO (Representative Executive Officer), Member of the Board Corporate Executive Vice President and CFO (Representative Executive Officer), Member of the Board Corporate Secretary (Executive Officer), Member of the Board Member of the Board Outside Directors Career background and skills particularly expected of Directors Corporate management Global business Technology / Innovation Sustainability / ESG Marketing Financial accounting / Investment Audit / Legal / Risk management Corporate governance 56 non-Japanese Directors was increased, leading to a more independent and diverse composition. Furthermore, in fiscal 2023, in view of the chang- ing role to be played by the Board of Directors following the transition to a Company with a Nominating Committee, etc., the Nominating Committee reviewed the career background and skills expected of Directors from the ground up. As a result, eight career background and skill cate- gories were defined and Directors with expertise in the categories of “corporate governance” and “global business” were appointed, which were identified as key points to be strengthened. Independent Outside Directors comprise a majority of the Board of Directors, with the percentage of Independent Outside Directors increasing to 58.3% in fiscal 2024. The Company will regularly confirm the suffi- ciency level of the Board of Directors as a whole for the career background and skills particularly expected of Directors based on the career skill matrix and will select candidates by taking into consideration which career backgrounds and skills are lacking, as well as the diversity of the Directors. Independent Non-executive Female Non-Japanese Total number of Directors 2021 41.7% (5) 58.3% (7) 16.7% (2) 8.3% (1) 12 2022 50.0% (5) 60.0% (6) 20.0% (2) 10.0% (1) 10 2023 58.3% (7) 75.0% (9) 16.7% (2) 8.3% (1) 12 As of June 30 of each year Years served (as of June 30, 2023) 12 7 1 6 1 4 2 1 1 – – – Corporate management Global business Technology / Innovation Sustainability / ESG Marketing Financial accounting / Investment Audit / Legal / Risk management Corporate governance Nominating Committee Compensation Committee Audit Committee Eight newly reviewed career background and skill categories ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Chairperson Chairperson ● ● ● Chairperson ● Practical knowledge on company management based on experience as chief executive officer of operating companies Experience as chief executive officer or department head in multinational companies or specialized knowledge on global markets Business experience or specialized knowledge on technology related mainly to ICT and digital transformation, or experience or specialized knowledge on new business creation and market innovation Knowledge about diverse values on female, foreign nationality, disabilities, etc., leadership experience in ESG activities or specialized knowledge on ESG management Experience as head in the marketing or brand strategy department or the sales department in operating companies, or specialized knowledge on business-to-business transactions and marketing Experience as chief financial officer of operating companies, professional work experience in major accounting firms, investment companies, etc., or specialized knowledge on investments, finance and accounting, etc. Risk management experience in accounting, legal affairs, technology, cybersecurity, etc., in operating companies, or experience as an audit committee member, audit & supervisory board member, or department head of auditing division, or specialized knowledge on international and domestic legal affairs or geopolitics Specialized knowledge on recent global corporate governance practices, or experience and practical knowledge of implementing governance reforms at operating companies NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 57 Corporate Governance Status of Board Deliberations The Board of Directors held 14 meetings in fiscal 2023. The main agenda items discussed were as follows. • Progress report for the Mid-term Management Plan 2025 and • Report on auditing activities discussion of strategies for achieving targets • Report on the progress of the establishment and implementation of the internal • Discussions related to the Company’s corporate governance system control system (including Priority Risks) (transition to a Company with a Nominating Committee, etc.) • Cybersecurity initiatives • Repurchase of shares of common stock • Initiatives to promote sustainability (materiality, the environment, human rights, inclusion and diversity, etc.) • Evaluation of the effectiveness of the Board of Directors Clarification of Key Agenda Items The Board of Directors is responsible for oversee- ing the execution of duties by Directors and Executive Officers as well as guiding the direction of management. To this end, the Company has clarified the key agenda items to be deliberated at the Board of Directors meetings and will focus its discussions on the following six important topics. Medium- to long-term strategies / Mid-term management plan • Formulation of next mid-term management plan • Policies to implement the NEC Way (including Purpose) and the NEC 2030VISION • Management objectives (including KPIs) set forth in management strategies, etc. • Global strategies Governance structure / Development of policies on decision-making process • Significant changes in organizational structure to achieve management strategies, etc. • Policies for strengthening Group governance • Affiliate policies Capital policies / Balance sheet • Policies and approaches regarding the balance between investment in growth and shareholder returns Development of policies on business portfolio • Policies and approaches for selecting which businesses to focus on and which to exit Large-scale M&As / Major investments • Specific use of mergers and acquisitions (M&As) based on business portfolio policies Measures to increase corporate value by practicing the NEC Way • Selection of materiality that incorporates an ESG perspective Enhancement of Effectiveness The Company conducts an analysis and evalua- tion of the effectiveness of the Board of Directors once a year and improves the function of the Board of Directors and discloses a summary of the results of such analysis and evaluation. In fiscal 2023, a third-party organization was appointed to evaluate the effectiveness of the Board of Directors. The effectiveness of the Nominating Committee and the Compensation Committee (the Nomination and Compensation Committee until June 2022) was also evaluated and verified through the same process. Excepting special circumstances, each Director aims to have at least 75% attendance at meetings of the Board of Directors in a single fiscal year. In fiscal 2023, the Company was a Company with Audit & Supervisory Board, and Audit & Supervisory Board Members (KANSAYAKU) similarly aimed to have at least 75% attendance at meetings of the Board of Directors and the Audit & Supervisory Board in a single fiscal year. In fiscal 2023, the attendance rate of Directors and Audit & Supervisory Board Members (KANSAYAKU) at meetings of the Board of Directors, the Nominating Committee, the Compensation Committee (the Nomination and Compensation Committee until June 2022), and the Audit & Supervisory Board was 100%. For the results of the effectiveness evaluation for fiscal 2023 and the attendance of each Director and Audit & Supervisory Board Member at the Board of Directors and other meetings, please refer to NEC’s Corporate Governance Report. https://www.nec.com/en/global/about/pdf/nec_governance.pdf NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Corporate Governance 58 Governance Structure on the Execution Side The Company has established the Executive Committee, that is the highest-level deliberative body on the execution side, as well as other committees which work in tandem with the Executive Committee in order to ensure high- quality decision-making in terms of both oppor- tunities and risks. The Executive Committee, consisting of Executive Officers, deliberates on important matters related to the management of NEC, such as management policies and strate- gies, and examines important business execu- tion matters. The Budget Progress Committee, Financial Strategy Committee, Business Strategy Committee, Investment Committee, and Critical Contract Risk Assessment Council conduct deliberations in advance on their respective responsibilities in accordance with their roles and authorities and work in tandem with the Executive Committee in order to ensure that appropriate decisions can be made. Additionally, the Company has established the company-wide risk management system centered on the Risk Control and Compliance Committee, in order to accurately recognize and respond to internal and external risks related to NEC’s businesses. The Risk Control and Compliance Committee deliberates fully on such matters of importance from a perspective of risk management, such as the strategy to control significant management risk, and matters of particular importance are reported to the Executive Committee and the Board of Directors. In addition, the risk map developed by the Risk Control and Compliance Committee is used for internal audits, and the results of such audits are shared with the Risk Control and Compliance Committee secretariat and policy planning departments to ensure mutual collaboration. Furthermore, the Risk Control and Compliance Committee shares the most up-to-date knowl- edge of risks with the policy planning depart- ments so that they can provide appropriate guidance and support to business divisions, and provides direction for improving and strengthen- ing measures as necessary. Board of Directors Deliberation and reports Oversight Business execution Decision-making Company-wide risk management Executive Committee Report Approved projects Risk Control and Compliance Committee CFO: Chief Financial Officer CLCO: Chief Legal & Compliance Officer CHRO: Chief Human Resources Officer ・・・ Deliberative bodies Finance Committee, Business Strategy Council, Financial Strategy Committee, etc. CRO: Chief Risk Officer (New) Deliberation Oversight and direction Cooperate First line Business Units Second line Policy Planning Departments Guidance and support Third line Group Internal Audit Department CAO: Chief Audit Officer (New) NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks The ratio of basic remuneration, bonuses, and stock compensation are determined individually for each position, and the ratio is set at one-third of each for the President. Basic remuneration Corporate Governance Revisions to Remuneration for Directors and Executive Officers In conjunction with the corporate governance reforms triggered by the transition to a Company with a Nominating Committee, etc., the Company has reviewed its remuneration system for Directors and Executive Officers based on the Basic Policy on the Remuneration of Directors and Executive Officers to make it more conducive to the sustainable growth of corpo- rate value and the realization of shareholder value management. The remuneration plan applies to Directors, Executive Officers, and Corporate SEVPs, Corporate EVPs, and Corporate SVPs, who are corporate officers, respectively, on the execution side. Summary of Remuneration System for Directors and Executive Officers Basic remuneration Basic remuneration is fixed remuneration with the amount paid determined based on market competitiveness in accordance with the role, authority, and responsibility of each job title. For Executive Officers and corporate officers on the execution side, basic remuneration increases or decreases based on performance (performance indicators include non-financial indicators such as practical implementation of the NEC Way and our “materiality”—priority management themes from an ESG perspective). Bonuses Bonuses have two components: a component linked to the degree of achieving targets of key performance indicators in the Mid-term Management Plan of the NEC Group for each fiscal year (the Group-wide performance-based component), and a component linked to the degree of achieving targets of the responsible departments for each fiscal year (the department performance-based component). The amount of each bonus is set between 0% and 200% of the standard amount determined based on the achievement level of performance targets. Three indicators were established for the Group-wide performance-based component, including the engagement score, a non-financial indicator that is a key indicator in the Mid-term Management Plan 2025. The three indicators and related per- centages are shown on the right. Stock compensation The number of shares to be granted will be determined in a range from 0% to 150% of the number of shares granted, in accordance with the results of a comparison of the Company’s TSR (total shareholder return) with indices such as the Tokyo Stock Price Index (TOPIX) and others in order to further clarify the linkage with sus- tainable growth of corporate value and increase in shareholder value. Stock compensation covers a period of three fiscal years, and the delivery of shares will be made after three years from the beginning of the three fiscal years covered by the stock compensation. TSR comparisons and per- centages are shown on the right. 59 Basic Policy on the Remuneration of Directors and Executive Officers 1) The remuneration system is highly objective and transparent, with content which leads to sustainable growth with the aim of maximizing corporate value, and which allows share- holders to confirm that management is linked to shareholder value. 2) The remuneration system is linked to the Mid-term Management Plan target indicators and provides incentives for Executive Officers to achieve the management targets indicated in the Mid-term Management Plan. 3) As a technology company with global operations, the remuneration system is competitive in the human resources market in terms of both remuneration structure and level. Fixed remuneration Variable remuneration (performance-linked) Short-term incentive (Bonuses) Linked to Mid-term Management Plan indicators Payment rate: between 0% and 200% of the standard amount Medium- to long-term incentive (Stock compensation) TSR comparison Payment rate: from 0% to 150% of the number of shares granted Note: Remuneration for non-executive Directors shall, in principle, be basic remuneration. However, from the viewpoint of increasing shareholder value, inside Directors will be paid a medium- to long-term incentive (stock compensation) up to a maximum of approximately 30% of their total remuneration. Bonuses Stock compensation Evaluation period 1 YEAR Incentive program linked to medium-term goals Distribution ratio 50％ EBITDA (Amount) 30％ EBITDA (% to revenue) 20％ Engagement score Evaluation period 3 YEARS Distribution ratio Highly objective and transparent compensation system linked to shareholder value 100％ TSR Shareholder value Profitability / Growth Profitability ESG Finance Non-financial 50％ Index comparison Breakdown 50％ Peer group (Competitors) comparison Fixed remuneration Compensation structure and level competitive in the human resources market The Company has established certain restrictions that allow for forfeiture (malus) or return (claw- back) of beneficial interests in remuneration in the event of the discovery of compliance viola- tions or improper accounting treatment by offi- cers, or damage to the value of the Company due to retroactive restatement of financial statements. Such restrictions are set for bonuses and stock compensation, which are performance- based remuneration. In order to promote man- agement that creates shareholder value, Inside Directors and Executive Officers are encouraged to own shares of the Company. For the amounts of remuneration for fiscal 2023, please refer to NEC’s Corporate Governance Report. https://www.nec.com/en/global/about/pdf/nec_governance.pdf NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 60 Realizing Genuine Change After more than 30 years as a public servant, I worked as a corporate outside director for over 10 years, during which time I had the opportunity to serve as chairman of the board of directors of a Company with a Nominating Committee, etc. When exchanging views with President Morita based on these and other experiences, I sensed the earnestness of NEC’s efforts to reform its cor- porate governance. Believing that my experience could help realize this goal, I accepted a position on NEC’s Board of Directors. NEC has transitioned to a Company with a Nominating Committee, etc., and is currently working to enhance corpo- rate value under its new structure. I hope to meet the expectations by supporting NEC’s corporate governance reform efforts and helping to drive its success. Outside Director’s Role: Pursuing the Next Move I believe that the role of an outside director is to pursue strategies to achieve a company’s goals from an outside perspective until they are satis- fied with said strategies. In a company where I previously served as an outside director, the board members responsible for business execu- tion provided a detailed explanation of the back- ground and causes of matters on the agenda, to which the outside directors responded that they should report not only on the causes and status of the matters in question but also on the progress of contingency plans. This strict but accurate observation has led to meaningful discussions at meetings of the Executive Committee, which are no longer limited to reports on current issues, but instead focus on how to address such issues going forward. This is precisely the oversight function that the Board of Directors must fulfill. In a rapidly changing business environment, it is essential to review progress in a timely manner and implement measures in line with the situation at hand to ensure results. I will take responsibility and give candid opinions to ensure that the transition to a Company with a Nominating Committee, etc., is not a mere formality. Creating Winning Scenarios In general, Japan’s leading companies have an impressive ability to pursue technologies, and I believe they have the potential to extend this ability to compete in the global marketplace. However, looking back on Japan’s history, there have been major political and economic shifts, with periods of high growth followed by periods of stagnation. NEC itself has also been through difficult times, but after reading various literature on the Company, I got the sense that in its 120- year history, there has not been a single moment when NEC was outdone in technology. It could have, on the other hand, been on the losing side when it comes to business. I rate NEC’s technolo- gies highly, and I firmly believe that the Company’s ability to link its technologies with social value will lead to future growth. To this end, I am exploring scenarios in which NEC can win in business—my main concern. I share with President Morita the belief that winning in busi- ness means making profits, not expanding the top line. While the sales force is responsible for the top line—the source of those profits—the Company should have “profit managers” on the front lines, rather than sales managers. Consistent strategies are needed to determine how to pursue profits and which markets to target. First, there should be a coherent strategy. Next, plans for investments, facilities, human resources, and R&D should be made and incor- porated into management, with investment effi- ciency also taken into consideration. I would like to contribute to building winning scenarios by emphasizing this approach while also engaging in extensive discussion with other experienced outside directors. I would like to say to all of NEC’s stakehold- ers, including employees, that the key to the Company’s growth lies in its own history. We must achieve growth by sharing our passion and ideas for change as we look toward the future. Through various means, we will deepen commu- nication with stakeholders and promote change together. I will share my passion to promote change for the future. Harufumi Mochizuki Member of the Board (Chairman of the Nominating Committee and Member of the Audit Committee) Messages from Newly Appointed Outside DirectorsNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Messages from Newly Appointed Outside Directors 61 Strengthening NEC’s Corporate Governance Structure to Ensure Prompt Decision-Making Listening to and Embracing the Opinions of Stakeholders I worked for Mitsui & Co. for many years in the finance and accounting department, after which I became CFO. I also served as a member of the audit & supervisory board of the same company, during which time I was appointed chairperson of the Japan Audit & Supervisory Board Members Association. I assumed the position of independent outside director and chairman of the Audit Committee at the time of NEC’s transition to a Company with a Nominating Committee, etc. The aim of this transition was to separate execution and oversight functions and ensure prompt management decision-making. The Company with a Nominating Committee, etc., structure is known as a “monitoring model,” in which direc- tors are in a position to monitor the execution of business. The major advantage of this model is that those charged with execution of duties are able to make prompt decisions with greater authority without having to first seek the approval of the Board of Directors, as was the case prior to the transition. However, the prerequisites for the success of this model are the establishment of in-house sys- tems for internal control and risk management, the effective function of an internal auditing body which confirms that the systems are being oper- ated in accordance with regulations, and the proper understanding and independent observa- tion of the ethical codes proclaimed in the NEC Way by officers and employees. The role of the Board of Directors is to monitor whether these management structures and systems are being properly implemented, and whether manage- ment systems and the Company’s philosophy, such as its Purpose and Principles, are compati- ble with changes in society and the business environment and, if not, to urge those with exe- cution responsibilities to take immediate action. While monitoring the execution function as a director, one of my roles as chairman of the Audit Committee is to act as a gatekeeper, so to speak, by refusing to overlook misconduct and other such issues. In order to fulfill this role, it is neces- sary for the Audit Committee members to proac- tively gather information. As such, we conduct audits in cooperation with the Internal Auditing Division and External Auditor, as well as by listen- ing to internal feedback through channels such as the public interest whistleblowing system, and we are determined to never overlook any mis- deeds or inappropriate behavior. The Internal Auditing Division not only conducts audits inde- pendently but also at the request of the CEO or the Audit Committee, so we constantly receive information from them. Also, if there is a matter regarding the Company that cannot be reported to the execution side and shared with those charged with execution responsibilities, I would like employees to feel safe to notify the Audit Committee members via the public interest whistleblowing system. The word “audit” is derived from the Latin word audire, which means “to hear.” We must listen and embrace the opinions of shareholders, customers, and other stakeholders. Being on the receiving end of a wide variety of views and opinions, Audit Committee members carry a lot of responsibility and have to face any issues that arise head on— something that I am prepared to do. One of the important elements of internal control is communication. It is important to have an environment in which free and open discus- sion can take place. In such an environment, employees and those charged with execution responsibilities will be able to work more freely than ever before, not by simply following instruc- tions from their superiors, but by engaging in discussion until they are satisfied with the outcome, and then taking action based on the insights gained through said discussions. I believe that by enabling employees and officers to speak out more freely, we will be able to fur- ther enhance discussions on how to make the current situation even better. Although I have only been with NEC for a short time, my interactions with everyone at the Company have given me a strong sense of a cor- porate culture that encourages people to express their opinions on any topic. In addition, I believe that NEC is actively promoting diversity and humbly listens to and accepts different opinions and varied ideas—an approach that has spurred further innovation. Meeting Expectations for Change NEC has undergone a major transformation of its organizational and corporate governance struc- ture. As well as being one of fewer than 100 com- panies in Japan to transition to a Company with a Nominating Committee, etc., NEC is taking on major challenges, such as increasing the number of independent directors to comprise a majority of the Board of Directors. I feel that stakeholders are also expecting change from NEC. We, the outside directors, have a responsibility to respond to those expectations with results. The best way to show results is through tangible evi- dence, namely, business performance. But it is also important that this transformation in corpo- rate governance leads to even greater trust from stakeholders and increases the Company’s value in the capital markets. I will strive to fulfill my responsibilities as an outside director by closely monitoring whether NEC is making changes that will lead to the enhancement of corporate value. I hope that NEC’s employees will not think of the corporate governance reforms as someone else’s business. Rather, I hope that they will monitor and share their views on whether we, the outside directors, are fulfilling our responsibilities. As a representative of stakeholders, I will listen to a wide range of opinions and build a corporate governance structure that leads to enhanced corporate value. Joji Okada Member of the Board (Chairman of the Audit Committee) NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Messages from Newly Appointed Outside Directors 62 Delaying Decisions—The Biggest Risk Asking Fundamental Questions to Catalyze Awareness on the Execution Side of the Board The Value That Only NEC Can Provide I don’t consider execution to function as an accelerator and oversight a brake. I would like the officers with execution responsibility to accelerate as fast as they can, and I believe that oversight creates the mechanisms to enable these officers to forge ahead at full speed. In such cases, it is the responsibility of these offi- cers to take risks and drive businesses forward. The role of the Board of Directors is to take a bird’s-eye view and provide supervision as to whether the risks are taken in a judicious manner or if they are taken recklessly. Conversely, it is also the role of the Board of Directors to urge the president to take action if the speed of execution is insufficient for any reason. Through my many years of experience as an executive officer, I am very familiar with the struggle, the joy, and the real thrill of being involved in a company’s business execution. As president of OMRON Corporation, I experienced the clarity and deep insight that can be gained by sincerely answering challenging and funda- mental questions from outside directors. I hope to broaden the horizons of those with execution responsibility by asking fundamental questions from my perspective as an indepen- dent outside director. In today’s VUCA era, there are many risks associ- ated with running a business. Risks must be taken, however, to get returns. It is important that companies create value by taking the right risks in areas in which they excel and that this process is sufficiently expedited. Of course, losing is out of the question, so we must think carefully about the areas in which NEC excels, NEC’s unique strengths, and the value that only NEC can provide, in order to win the battle. I believe that NEC’s direction of supporting social infrastructure with the power of technology and IT solutions is the right way forward. These are areas in which NEC excels, and areas in which I believe NEC simply must operate. After over- coming a period of hardship, NEC is moving for- ward under a new strategy and vision. I have accepted the position of outside director in the hope that I can be of some assistance in these efforts. This is my first time accepting the role of outside director. Whether or not I can suffi- ciently fulfill this role will be a major challenge for me. I will strive to contribute to the enhance- ment of NEC’s corporate value by asking funda- mental questions. NEC’s transition to a Company with a Nominating Committee, etc., has resulted in a corporate gov- ernance system that delegates authority to offi- cers with execution responsibility. For example, these officers can make decisions on invest- ments such as mergers and acquisitions of up to ¥100 billion, significantly raising their level of responsibility and authority. As a result, a mech- anism has been established for those charged with executive responsibilities to make prompt decisions. However, such a mechanism is mean- ingless if it is not accompanied by action. Year by year, corporate management is becoming increasingly difficult due to interna- tional affairs and the economic climate, among other matters. Since we cannot predict what the future holds, we have no choice but to quickly and flexibly adapt to changes, respond to new situations that emerge, and make the right deci- sions at the right time. While it would not be fatal to postpone some decisions if the changes faced were not so extreme, delaying a decision in the current climate is the worst decision to make. I was president of OMRON Corporation for 12 years, so I know that making decisions can be intimidating. But decisions must be made, no matter how difficult. In such difficult times, a company’s philosophy serves as the basis of management’s decisions. And the key is to never delay such decisions, and to bear in mind that the biggest risk is to not make a decision. For example, those responsible for execution are expected to be willing to overturn a decision made the day before if they realize that it was a mistake. I will encourage the execution side of the Board to take appropriate risks and forge ahead at full speed. Yoshihito Yamada Member of the Board (Member of the Compensation Committee) NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Takashi Niino Chairman of the Board Apr. 1977 Joined the Company Apr. 2004 Executive General Manager, 2nd Solutions Sales Operations Unit Apr. 2005 Senior General Manager, 3rd Solutions Operations Unit Apr. 2006 Executive General Manager, Financial Solutions Operations Unit Apr. 2008 Senior Vice President and Executive General Manager, Financial Solutions Operations Unit Aug. 2008 Senior Vice President Apr. 2010 Executive Vice President Jun. 2011 Executive Vice President and Member of the Board Jul. 2011 Executive Vice President, CSO (Chief Strategy Officer) and Member of the Board Apr. 2012 Senior Executive Vice President, CSO (Chief Strategy Officer), CIO (Chief Information Officer) and Member of the Board (Representative Director) Apr. 2016 President (Representative Director) and CEO (Chief Executive Officer) Apr. 2021 Vice Chairman of the Board (Representative Director) Jun. 2022 Chairman of the Board (to present) Hajime Matsukura Corporate Secretary (Executive Officer), Member of the Board Apr. 1985 Joined the Company Apr. 2005 General Manager, Marketing Planning Division Apr. 2006 Assistant Executive General Manager, Business Development Unit Apr. 2008 General Manager, Corporate Strategy Division Apr. 2014 Senior Vice President and President (Representative Director) of NEC Management Partner, Ltd. Apr. 2017 Executive Vice President and CSO (Chief Strategy Officer) Jun. 2017 Executive Vice President, CSO and Member of the Board Apr. 2018 Executive Vice President, CSO, CHRO and Member of the Board Apr. 2019 Executive Vice President, CHRO and Member of the Board Apr. 2022 Executive Vice President, CHRO, CLCO (Chief Legal & Compliance Officer) and Member of the Board Apr. 2023 Corporate Secretary and Member of the Board (to present) ● Number of the Company’s shares held 6,000 ● Attendance at meetings of the Board of Directors 14 out of 14 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 7 years ● Number of the Company’s shares held 3,600 ● Attendance at meetings of the Board of Directors 11 out of 11 meetings ● Attendance rate 100% ● Years served as an Audit & Supervisory Board Member (KANSAYAKU) 1 year ● Number of the Company’s shares held 14,400 ● Attendance at meetings of the Board of Directors 14 out of 14 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 12 years ● Number of the Company’s shares held 7,200 ● Attendance at meetings of the Board of Directors 14 out of 14 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 6 years Takayuki Morita President and CEO (Representative Executive Officer), Member of the Board Apr. 1983 Joined the Company Apr. 2002 General Manager, Business Development Division Apr. 2006 Senior Vice President and Executive General Manager, Corporate Business Development Unit Apr. 2008 Senior Vice President Jul. 2011 Executive Vice President Apr. 2016 Executive Vice President and CGO (Chief Global Officer) Jun. 2016 Executive Vice President, CGO (Chief Global Officer) and Member of the Board Apr. 2018 Senior Executive Vice President and Member of the Board (Representative Director) Jun. 2018 Senior Executive Vice President, CFO (Chief Financial Officer) and Member of the Board (Representative Director) Apr. 2021 President (Representative Director) and CEO (Member of the Board) (to present) Shinobu Obata Member of the Board Apr. 1985 Joined the Company Apr. 2013 General Manager, Legal Division Apr. 2017 Senior Vice President and CCO (Chief Compliance Officer) May 2018 Senior Vice President, CCO (Chief Compliance Officer) and General Manager, Internal Control Division Apr. 2019 Senior Vice President and CLCO (Chief Legal and Compliance Officer) Apr. 2022 Advisor to the President Jun. 2022 Audit & Supervisory Board Member (KANSAYAKU) (to present) Jun. 2023 Member of the Board (to present) ● Number of the Company’s shares held 4,300 ● Attendance at meetings of the Board of Directors 11 out of 11 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 1 year ● Number of the Company’s shares held 0 ● Attendance at meetings of the Board of Directors 14 out of 14 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 4 years 63 Osamu Fujikawa Corporate Executive Vice President and CFO (Representative Executive Officer), Member of the Board Apr. 1988 Joined the Company Apr. 2014 Department Manager, Corporate Business Development Division Apr. 2017 Senior Vice President Apr. 2021 Executive Vice President and CFO Jun. 2022 Executive Vice President, CFO and Member of the Board (Representative Director) Apr. 2023 Corporate Executive Vice President, CFO and Member of the Board (Representative Director) (to present) Kuniharu Nakamura Member of the Board Apr. 1974 Joined SUMITOMO CORPORATION Jun. 2009 Representative Director, Senior Managing Executive Officer and General Manager, Mineral Resources, Energy, Chemical & Electronics Business Unit, SUMITOMO CORPORATION Apr. 2012 Representative Director, Executive Vice President and General Manager, Mineral Resources, Energy, Chemical & Electronics Business Unit, SUMITOMO CORPORATION Jun. 2012 Representative Director, President and Chief Executive Officer, SUMITOMO CORPORATION Apr. 2018 Representative Director, Chairman of the Board of Directors, SUMITOMO CORPORATION Jun. 2018 Chairman of the Board of Directors, SUMITOMO CORPORATION (to present) Jun. 2019 Member of the Board of the Company (to present) Directors (As of July 1, 2023)NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Directors (As of July 1, 2023) ● Number of the Company’s shares held 300 ● Attendance at meetings of the Board of Directors 14 out of 14 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 2 years ● Number of the Company’s shares held 2,000 Christina Ahmadjian Member of the Board Jan. 1995 Assistant Professor, Graduate School of Business, Columbia University (until October 2001) Oct. 2001 Assistant Professor, Graduate School of International Corporate Strategy, Hitotsubashi University Oct. 2004 Professor, Graduate School of International Corporate Strategy, Hitotsubashi University Apr. 2010 Dean, Graduate School of International Corporate Strategy, Hitotsubashi University Apr. 2012 Professor, Graduate School, Division of Commerce, Hitotsubashi University Apr. 2018 Professor, Graduate School of Business Administration, Hitotsubashi University (until April 2022) Jun. 2021 Member of the Board of the Company (to present) Apr. 2022 Specially Appointed Professor, College of Business Department of Global Business, Rikkyo University (until March 2023) ● Number of the Company’s shares held 2,000 ● Attendance at meetings of the Board of Directors 11 out of 11 meetings ● Attendance rate 100% ● Years served as a Director (Upon the close of the meeting) 1 year Masashi Oka Member of the Board Apr. 1979 Jun. 2004 Jun. 2005 Apr. 2008 Oct. 2009 Jul. 2010 May 2012 May 2013 Jul. 2014 Oct. 2015 Joined The Mitsubishi Bank, Ltd. (currently, MUFG Bank, Ltd. [“MUFG”]) General Manager and Global Head, Syndicated Finance Division, The Bank of Tokyo-Mitsubishi, Ltd. (currently, MUFG) Executive Officer, The Bank of Tokyo-Mitsubishi, Ltd. Executive Officer and General Manager, Corporate & Investment Banking Strategy Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (currently, MUFG) Managing Executive Officer, The Bank of Tokyo-Mitsubishi UFJ, Ltd. Managing Executive Officer, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and President & CEO, Union Bank, N.A. (currently, MUFG Union Bank, N.A.) Managing Executive Officer and CEO for Americas, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and President & CEO, Union Bank, N.A. Senior Managing Executive Officer and CEO for Americas, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and President & CEO, Union Bank, N.A. Special Advisor to the President & CEO, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Director & Executive Chairman, MUFG Americas Holdings Corporation and Director & Executive Chairman, MUFG Union Bank, N.A. Special Advisor to the President & CEO, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (until June 2016) May 2016 Counselor, NIKON CORPORATION Jun. 2016 Senior Executive Vice President, CFO and Representative Director, NIKON CORPORATION Director, NIKON CORPORATION (until May 2020) President & CEO, Representative Director, Sony Financial Holdings Inc. (currently, Sony Financial Group Inc.) and President, Representative Director, Sony Financial Ventures Inc. (to present) Member of the Board of the Company (to present) Senior Advisor, Sony Financial Group Inc. (to present) Apr. 2020 Jun. 2020 Jun. 2022 Jun. 2023 64 Kyoko Okada Member of the Board Apr. 1982 Joined Shiseido Company, Limited Oct. 2011 General Manager, Corporate Culture Department, Shiseido Company, Limited Oct. 2012 General Manager, Corporate Culture Department and Group Leader for the 150-Year History Compilation Project, Shiseido Company, Limited Apr. 2015 General Manager, Executive Section, General Affairs Department, Shiseido Company, Limited Jun. 2015 Audit & Supervisory Board Member (Full-time), Shiseido Company, Limited (until March 2019) Jun. 2022 Audit & Supervisory Board Member (KANSAYAKU) of the Company (to present) Jun. 2023 Member of the Board of the Company (to present) ● Number of the Company’s shares held 0 ● Attendance at meetings of the Board of Directors 11 out of 11 meetings ● Attendance rate 100% ● Years served as an Audit & Supervisory Board Member (KANSAYAKU) 1 year Harufumi Mochizuki Member of the Board Apr. 1973 Joined the Ministry of International Trade and Industry of Japan Jul. 2002 Director-General for Commerce and Distribution Policy, Minister’s Secretariat, Ministry of Economy, Trade and Industry of Japan (“METI”) Jul. 2003 Commissioner, Small and Medium Enterprise Agency, METI Jul. 2006 Commissioner, Agency for Natural Resources and Energy, METI Jul. 2008 Vice-Minister of Economy, Trade and Industry of Japan Jul. 2010 Retired from METI Aug. 2010 Special Advisor to the Cabinet of Japan (until November 2011) Oct. 2010 Senior Advisor to the Board, Nippon Life Insurance Company (until April 2013) Jun. 2013 President and CEO, Representative Director, Tokyo Small and Medium Business Investment & Consultation Co., Ltd. (until June 2023) Jun. 2023 Member of the Board of the Company (to present) Joji Okada Member of the Board Apr. 1974 Joined Mitsui & Co., Ltd. Jun. 2011 Representative Director, Executive Managing Officer and CFO, Mitsui & Co., Ltd. Apr. 2012 Representative Director, Senior Executive Managing Officer and CFO, Mitsui & Co., Ltd. Apr. 2014 Representative Director, Executive Vice President and CFO, Mitsui & Co., Ltd. Apr. 2015 Director, Mitsui & Co., Ltd. Jun. 2015 Audit & Supervisory Board Member (Full-time), Mitsui & Co., Ltd. (until June 2019) Nov. 2017 Chairperson of the Japan Audit & Supervisory Board Members Association (until November 2019) Jun. 2023 Member of the Board of the Company (to present) ● Number of the Company’s shares held 0 Yoshihito Yamada Member of the Board Apr. 1984 Joined OMRON Tateisi Electronics Co. (currently, OMRON Corporation) Jun. 2008 Executive Officer, OMRON Corporation and President and CEO, OMRON HEALTHCARE Co., Ltd. Mar. 2010 Senior General Manager of Corporate Strategic Planning H.Q., OMRON Corporation Jun. 2010 Managing Executive Officer, OMRON Corporation Jun. 2011 Representative Director, President and CEO, OMRON Corporation Apr. 2023 Representative Director, OMRON Corporation Jun. 2023 Chairman of the Board, OMRON Corporation (to present) Member of the Board of the Company (to present) ● Number of the Company’s shares held 0 NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks NEC properly identifies financial risks and non-financial risks that could have an impact not only on itself but also on the environment and greater society and takes effective and efficient counter- measures against such risks. At the same time, NEC is taking steps to turn environmental and social themes into business opportunities. For example, among its areas of “materiality,” which is a set of priority management themes from an ESG perspective, NEC has identified and implemented “Growth Materiality” as a theme that helps create opportunities and improve the growth rate, and “Fundamental Materiality” as a theme that focuses on mitigating risk and improving the growth rate. 65 Response to Priority Risks NEC has prepared a risk map based on the find- ings of risk assessments conducted for business units and corporate staff, and each year selects Priority Risks that are deemed to have a particu- larly major influence on corporate management based on their degree of impact and level of urgency. Priority Risks are reported to the Board of Directors and action is taken to implement countermeasures. The Risk Control and Compliance Committee, chaired by NEC’s Chief Risk Officer (CRO), detects changes in internal and external factors and dis- cusses and periodically reviews the severity of the impact of risks. I For more details, please refer to “Corporate Governance” on page 54. In fiscal 2023, NEC selected “risks of human rights violations in the value chain (especially in regions with high geopolitical risk)” as Priority Risks. In order to promote initiatives, it revised the NEC Group Human Rights Policy, formulated in 2015, to clearly show the commitment of the NEC Group’s management to respecting human rights across the NEC Group’s entire value chain as well as the Group’s governance system. In addition, NEC considers “human rights risks related to geopolitical situations and con- flicts” a salient human rights issue and has con- ducted a human rights impact assessment and implemented risk mitigation measures in its operations in high-risk countries and regions, reporting the results of these to the Board of Directors. I For more details, please refer to “Respecting Human Rights” on page 48. Materiality-related Initiatives That Contribute to the Creation of Opportunities and Increase Growth Rate NEC has identified ESG themes that have the potential to negatively impact itself and society but which, if properly managed, could also help to accelerate growth as “Fundamental Materiality,” with reference to ISO 26000, the GRI Standards, the principles of the UN Global Compact, the Sustainable Development Goals (SDGs), the SASB Materiality Map, and other relevant stan- dards. The preamble of Transforming our world: the 2030 Agenda for Sustainable Development (in which the SDGs are set forth), adopted at the UN General Assembly in 2015, states that “The spread of information and communications technology and global interconnectedness has great potential to accelerate human progress, to bridge the digital divide and to develop knowl- edge societies.” NEC believes that it can create opportunities and increase its growth rate by solving social issues through co-creation with diverse stakeholders, leveraging its strengths in R&D and implementing cutting-edge technolo- gies such as biometrics, AI, and 5G. In order to clarify the social and environmental themes that growth businesses and future growth businesses aim to create under the Mid-term Management Plan 2025, NEC has organized them into five social and environmental themes as its “Growth Materiality,” which contribute to generate growth and opportunities while increasing its growth rate for realizing its Purpose that are in line with the SDGs. In promoting these growth businesses, it is also essential to address “Funda- mental Materiality.” To address the technological risks that may be associated with the themes of “security to maximize ICT possibilities” and “AI and human rights” as well as to promote “environ- mental action with a particular focus on climate change (decarbonization)” and thorough “com- pliance,” sustainability initiatives must be imple- mented together with our business partners. Through these activities, NEC hopes to achieve not only sustainable growth for itself but also for more sustainable world where everyone has the chance to reach their full potential. I For more details, please refer to “NEC’s Approach to Materiality for Increasing Corporate Value” on page 17. Risks and OpportunitiesNEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks Risks and Opportunities Risks and Opportunities from an ESG Perspective and Related Initiatives NEC will work to manage the following risks and link them to opportunities in order to facilitate a flexible response to unexpected changes that may occur. Materiality Risks Opportunities Initiatives A Society That Enables Well-being through the Digitalization of Government and Financial Institutions (DG/DF) • Widening regional differences in govern- ment services due to the aging population and the so-called “digital divide,” as well as increasing wealth polarization and disparity • Collaboration and integration with govern- ment, finance, and various other industries • Expansion of user base for advanced asset management advice and asset transactions Build an infrastructure that enables highly transparent and fair use of government and financial services and ensures that said services are customer-centered and tailored to the needs of each individual through the use of extremely reliable digital technology I P.21 Digital Government and Digital Finance 66 Stress-free Communication with Low Environmental Impact (Global 5G) Transforming Society and Industry with the Power of Digital Technology (Core DX) • Environmental burden due to increased energy consumption by telecommunica- tions equipment • Increased demand for solutions that enable efficient traffic accommodation, network construction, flexible network operation, and carbon neutrality • Increased emphasis on secure communications Enable a wide range of entities—from individuals to businesses and gov- ernment agencies—to make extensive use of information, leading to richer and brighter lives for everyone, anywhere, at all times by imple- menting high-speed, high-capacity, low-latency telecommunications environments that support enhanced access to information, new DX services, and disaster prevention I P.23 Telecom Services • Delays in implementation in actual business due to a lack of human resources with DX expertise and difficulty in creating road maps • Continued IT demand due to digitalization of both society and enterprises • Increased adoption of cloud-based services that use digital technologies Promote digital transformation in both society and industry by leverag- ing our technological strengths in AI, biometrics, and security, as well as our abundant expertise in human resources in areas such as cloud ser- vices, agile development, and data science I P.20 IT Services in Japan Living Freely in Our New Era of Healthcare and Life Science Driving Carbon Neutrality for Our Customers and Society Environmental Action with a Particular Focus on Climate Change (Decarbonization) • Delays in collaborations and market growth • Increasing demand for healthcare that uses cutting-edge technologies such as AI • Increased costs due to the introduction of carbon pricing and CO2 emission levels • System failure from natural disasters • Increasing demand for ICT solutions to realize carbon neutrality Achieve advanced personalized treatment, comprehensive medical ser- vices, and lifestyle support, promoting new business development with AI and image recognition technology Contribute to carbon neutrality throughout society by supporting our customers’ decarbonization efforts, including initiatives within man- ufacturing supply chains, with digital technologies such as IT networks and AI Contribute to reducing CO2 emissions, not only from NEC but also from customers’ businesses and the entire supply chain Sign The Climate Pledge, and 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.26 Healthcare and Life Science Businesses I P.25 Green / Carbon Neutrality Businesses The Securities Report for Fiscal 2023 (Japanese only), P.23 “The NEC Group’s Climate Change Strategy, Indicators, and Targets” I P.42 Living Harmoniously with the Earth to Secure the Future E P.18 Initiatives to Reduce Environmental Impact Security to Maximize ICT Possibilities • Information leaks, unauthorized access, system failure • Development of security professionals • Provision and operation of robust informa- tion systems Promote information security measures in a sound manner Provide products and services that incorporate security measures Develop information security professionals I P.30 Innovation: R&D and Business Development E P.94 Information Security and Cyber Security Provision and Utilization of AI with Respect for Human Rights as the Highest Priority (AI and Human Rights) • Invasion of privacy-related risks accompa- • Strengthening competitiveness nying new technologies • Risks of human rights violations in the value chain (designated as a Priority Risk in fiscal 2023) Promote appropriate utilization of AI, develop advanced technology and talent, and engage with a range of stakeholders to build partnerships and collaborate with closely in accordance with the NEC Group AI and Human Rights Principles Revise and disseminate the NEC Group Human Rights Policy I P.30 Innovation: R&D and Business Development P.48 Respecting Human Rights E P.54 Respecting Human Rights  P.58 AI and Human Rights P.62 Personal Information Protection and Privacy P.92 Innovation Management Diverse Human Resource Development and Cultural Transformation Corporate Governance • Harassment • Risks of human rights violations in the • Greater organizational strength through improved employee engagement Accelerate diversity as a source of innovation and implement workstyle reforms supporting diverse talent value chain (designated as a Priority Risk in fiscal 2023) • Difficulty in securing and developing human resources • Inadequate accounting processes • Mismanagement of confidential information • Acquisition of trust from society Increase the sophistication of corporate governance and further improve transparency Supply Chain Sustainability • Environmental and human rights risks • Collaboration and co-creation with • Risks of human rights violations in the value suppliers chain (designated as a Priority Risk in fiscal 2023) Promote activities to ensure that all suppliers are aware of the Guidelines for Responsible Business Conduct in Supply Chains and agree to uphold its contents Compliance • Compliance breaches (illegal acts, fraudulent acts) • Reputation risks • Poor quality of products and services, defects • Acquisition of trust from society Ensure all NEC Group members, from officers to employees, conduct themselves in accordance with the NEC Group Code of Conduct every day I P.36 NEC, for Those Who Seek Challenge E P.34 Inclusion and Diversity P.40 Securing and Retaining Employees and Labour Practices P.46 Human Resource Development I P.3 Message from the President  P.12 CFO Message P.19 Business Strategy P.54 Corporate Governance E P.74 Corporate Governance I P.50 Supply Chain Sustainability E P.86 Supply Chain Management I P.65 Risks and Opportunities E P.54 Respecting Human Rights  P.58 AI and Human Rights P.62 Personal Information Protection and Privacy P.68 Quality and Safety  P.74 Corporate Governance P.76 Risk Management  P.80 Compliance P.86 Supply Chain Management I : NEC Integrated Report 2023 E : NEC ESG Databook 2023 y t i l a i r e t a M h t w o r G y t i l a i r e t a M l a t n e m a d n u F NEC Integrated Report 2023 Corporate Data Strategies and Progress NEC’s Corporate Value Cover Story Initiatives and Frameworks 67 JGAAP IFRS (Billions of yen) FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 ¥3,071.6 ¥3,043.1 ¥2,935.5 ¥2,824.8 ¥2,665.0 ¥2,844.4 ¥2,913.4 ¥3,095.2 ¥2,994.0 ¥3,014.1 ¥3,313.0 483.1 15.7 114.6 — — 30.4 — 143.7 (101.7) 42.0 569.2 18.7 106.2 — — 33.7 — 94.1 (38.9) 55.2 586.8 20.0 128.1 — — 57.3 — 87.9 (47.5) 40.4 603.1 21.4 91.4 — — 75.9 — 97.8 (32.2) 65.6 571.0 21.4 41.8 — — 27.3 — 92.5 6.4 99.0 740.2 689.1 26.0 63.9 72.5 2.5 45.9 50.4 130.0 (14.2) 115.8 23.7 57.8 69.9 2.4 39.7 47.0 64.2 (76.7) (12.4) 752.0 24.3 127.6 145.8 4.7 100.0 111.2 261.9 (84.0) 177.8 703.2 23.5 153.8 178.2 6.0 149.6 165.4 274.9 (122.5) 152.4 754.5 25.0 132.5 171.0 5.7 141.3 167.2 147.5 (63.4) 84.1 895.6 27.0 170.4 205.5 6.2 114.5 138.6 152.1 (49.6) 102.5 151.7 Approx. 65,000 142.7 Approx. 68,000 134.2 Approx. 65,000 123.6 Approx. 53,000 109.3 Approx. 53,000 108.1 Approx. 51,000 108.1 Approx. 49,000 109.8 Approx. 47,000 114.6 121.4 Approx. 46,000 Approx. 45,000 Approx. 42,000 126.3 Revenue International revenue International revenue ratio (%) Operating profit Adjusted operating profit Adjusted operating profit ratio (%) Net profit 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) 45.6 51.2 98.7 45.2 37.4 48.5 36.3 50.5 31.5 49.9 45.4 63.8 62.7 64.4 67.4 123.4 57.6 122.8 59.3 123.1 67.6 130.2 Per share data (in yen): Net profit attributable to owners of the parent 1 Cash dividends Dividend payout ratio (%) Total assets 3 Owners’ equity Return on equity (%) Owners’ equity ratio (%) Interest-bearing debt Debt-equity ratio (times) 4 Number of employees 10.51 176.54 11.71 4.00 34.2 2,581.0 710.7 4.5 27.5 603.5 0.85 12.99 4.00 30.8 2,505.3 695.9 4.8 27.8 575.2 0.83 22.05 4.00 18.1 2,620.7 823.7 7.5 31.4 520.8 0.63 29.22 6.00 20.5 2,528.9 769.8 9.5 30.4 479.5 0.62 6.00 57.1 2,684.0 854.3 3.4 31.8 466.9 0.55 2 2 60 34.0 2,821.4 880.8 5.3 31.2 520.7 0.59 2 2 152.75 40 25.8 2,963.2 858.9 4.6 29.0 552.5 0.64 2 2 385.02 70 18.2 3,123.3 910.7 11.3 29.2 675.4 0.74 2 2 557.18 90 16.2 3,668.6 1,308.2 13.5 35.7 702.9 0.54 2 518.54 2 100 19.3 3,761.7 1,513.5 10.0 40.2 597.4 0.39 2 424.51 2 110 25.9 3,984.1 1,623.8 7.3 40.8 608.5 0.37 102,375 100,914 98,882 98,726 107,729 109,390 110,595 112,638 114,714 117,418 118,527 Ratio of female to all managers (%) 5 Ratio of female to all managers (non-consolidated, %) Employee engagement index (%) Greenhouse gas emissions (Scope 1 + Scope 2) (thousand tons） Greenhouse gas emissions (Scope 3 6 ) (thousand tons) － 4.9 — － － － 5.1 — － － — 5.2 — — — － 5.4 — － － － 5.5 — 350 7,410 － 5.8 — 338 7,606 7.8 5.9 14 329 7,585 7.8 6.2 20 373 6,996 9.2 6.9 25 327 6,158 9.6 7.8 35 324 6,535 10.3 8.9 36 259 6,894 1 Net profit attributable to owners of the parent per share is calculated based on the weighted-average number of shares outstanding during each period. 2 The amounts reflect a share consolidation (with a ratio of 10 shares to 1 share) that took effect on October 1, 2017. 3 Owners’ equity = Equity attributable to owners of the parent 4 The debt-equity ratio is calculated by dividing interest-bearing debt by owners’ equity. 5 As of April 1 of the following fiscal year 6 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. For this reason, the total differs from the sum of each scope. For more detailed non-financial data, please follow the link below. https://www.nec.com/en/global/csr/data/index.html Financial and Non-financial HighlightsNEC Integrated Report 2023 Initiatives and Frameworks Strategies and Progress NEC’s Corporate Value Cover Story Corporate Data 68 Company Name NEC Corporation Organization Chart Address 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan Established July 17, 1899 Number of Employees (As of March 31, 2023) 118,527 (NEC Corporation and consolidated subsidiaries) Total Number of Shares Issued (As of March 31, 2023) 272,849,863 shares Stock Exchange Listing Tokyo (Securities Code: 6701) Shareholder Register Administrator Sumitomo Mitsui Trust Bank, Limited 1-4-1, Marunouchi, Chiyoda-ku, Tokyo President Board of Directors Nominating Committee Compensation Committee Audit Committee Cross-Industry Unit DGDF Business Unit Public Solutions Business Unit Enterprise Business Unit Telecom Services Business Unit Aerospace and National Security Business Unit Digital Platform Business Unit Global Innovation Unit Corporate Staff Classification of Shareholders (Shareholding Ratio) (As of March 31, 2023) ●● Japanese Government and Local Governments 0.00% ● Japanese Individuals and Others 21.36% ● Foreign Investors 37.12% Number of Shareholders: 149,823 Major Shareholders (Top 10) (As of March 31, 2023) ● Financial Institutions Name of Shareholders 31.30% The Master Trust Bank of Japan, Ltd. (Trust Account) ● Securities Companies 3.33% ● Other Corporations 6.89% Custody Bank of Japan, Ltd. (Trust Account) NIPPON TELEGRAPH AND TELEPHONE CORPORATION Sumitomo Life Insurance Company STATE STREET BANK WEST CLIENT – TREATY 505234 NEC Employee Shareholding Association STATE STREET BANK AND TRUST COMPANY 505001 GOVERNMENT OF NORWAY JP MORGAN CHASE BANK 385781 STATE STREET BANK AND TRUST COMPANY 505103 Number of Shares Held (Thousands of shares) Shareholding Ratio (%) 46,724 20,781 13,023 5,600 5,077 4,093 3,738 3,610 3,475 2,978 17.52 7.79 4.88 2.10 1.90 1.54 1.40 1.35 1.30 1.12 Note: The shareholding ratio is calculated by excluding the number of shares of treasury stock (6,209,767 shares). Corporate OverviewNEC Integrated Report 2023 Initiatives and Frameworks Strategies and Progress NEC’s Corporate Value Cover Story Corporate Data Corporate Overview 69 Sustainability https://www.nec.com/en/global/sustainability/index.html Investor Relations https://www.nec.com/en/global/ir The above link offers further details of NEC’s approach to management for sustainability based on ESG themes, NEC ESG Databook 2023, and related information. 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. Department in Charge: Sustainability Strategy Planning Office, Stakeholder Relations Department Department in Charge: Investor Relations Office, Stakeholder Relations Department Evaluation by External Parties (As of June 2023) Dow Jones Sustainability Indices（DJSI） Internet IR 優秀賞 FTSE4Good Index Series 2022 Daiwa Investor Relations Internet IR Excellence Award 2022 Internet IR 優秀賞 2022 Internet IR 優秀賞 2022 Gomez IR Site Ranking Nikko Investor Relations Gold Award 2022 2022 All Japanese Listed Companies’ Website Ranking Best website in the All Markets Ranking category AAA MSCI ESG Leaders Indexes Internet IR Excellence Award 2022 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 ISS ESG Corporate Rating CDP (Climate Change, Water Security, and Supplier Engagement) EcoVadis Internet IR Excellence Award 2022 supplies; rights; Internet IR Excellence Award 2022 Cautionary Statement with Respect to Forward-looking Statements This material contains forward-looking statements regarding esti- mations, 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 perfor- mance, 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 restrictions; • potential failure to procure components, equipment or other • difficulties protecting the NEC Group’s intellectual property • 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 • potential changes in effective tax rates or deferred tax assets, or adverse tax examinations; • risks related to corporate governance and social responsibility medium-term management plan; requirements; • fluctuations in the NEC Group’s revenue and profitability from • risks related to natural disasters, public health issues, armed hos- period to period; tilities and terrorism; • difficulty achieving the benefits expected from acquisitions, busi- • risks related to the NEC Group’s pension assets and defined ben- ness combinations and reorganizations and business withdrawals; • potential deterioration in the NEC Group’s relationships with stra- tegic 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 advance- ments 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; Trademarks • NEC is a registered trademark of NEC Corporation in Japan and other countries. efit 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 for- ward-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, 2022, 2023, and 2024 were referred to as FY2022, FY2023, and FY2024, respectively. Any other fiscal years would be referred to similarly. • All other names may be trademarks of their respective owners. NEC Integrated Report 2023 Initiatives and Frameworks Strategies and Progress NEC’s Corporate Value Cover Story Corporate Data 

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