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฀ ฀
Transforming into a Social Value Innovator
Annual฀Report฀2013
Year฀ended฀March฀31,฀2013

Table of contents

  • Page 1
    Annual฀Report฀2013 Year฀ended฀March฀31,฀2013 Transforming into a Social Value Innovator

  • Page 2
    ... which makes efficient use of resources and whose members are safe and personally secure. Solutions for Society •฀฀ Supporting฀the฀advancement฀of฀social฀infrastructure฀and฀systems฀ ฀ throughout฀the฀world฀via฀information฀and฀communications฀technology฀(ICT...

  • Page 3
    ... 2012 to March 31, 2013 (This report also includes some information from after this reporting period.) Business Report/Management Policies 03 Message from the President 07 Mid-term Management Plan 2015 15 Performance Highlights 17 At a Glance 19 Review of Operations 27 R&D and Intellectual Property...

  • Page 4
    ... capital via a third party share allotment to the Innovation Network Corporation of Japan and eight private enterprises. As a result, NEC plans to exclude Renesas Electronics from treatment as an equity-method affiliate. In terms of focusing on its four core businesses, the NEC Group worked to build...

  • Page 5
    ... to executing sound business operations. However, we were unable to lay the groundwork for global growth, partly because a large overseas M&A initiative fell through in the IT field. Taking heed of the lessons learned from this experience, we formulated "Mid-term Management Plan 2015" in April 2013...

  • Page 6
    ... core businesses Solutions for Society Social Infrastructure Public BU Enterprise BU Smart Energy BU Telecom Carrier BU Carrier Network IT Services Energy Platforms Sensors/ Devices System Platform BU Business Innovation Unit *฀BU:฀Business฀Unit 05 NEC Corporation Annual Report...

  • Page 7
    ... Report/Management Policies devices, while tapping into technologies and expertise outside the Group as well. In order to accelerate our focus on the "Solutions for Society" and steadily execute "Mid-term Management Plan 2015," NEC implemented a major reorganization฀in฀April฀2013.฀Up...

  • Page 8
    MID-TERM MANAGEMENT PLAN 2015 In April 2013, we announced NEC's "Mid-term Management Plan 2015" covering the three-year period to March 2016.฀Under฀the฀plan,฀we฀will฀focus฀on฀"Solutions฀for฀Society"฀that฀leverage฀information฀and฀communications฀ technologies (ICT) to ...

  • Page 9
    ... of 25% as quickly as possible. Fiscal 2013 Results and Fiscal 2016 Management Targets (Billion Â¥) FY2013/3฀Results FY2016/3 Targets Net sales Operating income Net income Free cash flows ROE 3,071.6 114.6 30.4 42.0 4.5ï¼... 3,200.0 150.0 60.0 100.0 10ï¼... NEC Corporation Annual Report 2013 08

  • Page 10
    ... systems • TV studios • Electronic government • Water management medical records • POS • Leak detection Responsible฀BU:฀ •฀Seafloor฀optical฀cables •฀Seafloor฀seismographs Airports Companies Seafloor Ports Factories Banks Broadcasters Hospitals Dams/Water supply...

  • Page 11
    ...switches Essential to future information systems Transportation Society" across business domains. Within "Solutions for Society" businesses, our aim is to generate sales of approximately ¥1,400 billion in the fiscal year ending March 2016 from operations in the Public, Enterprise and Smart Energy...

  • Page 12
    ..., in April 2013, NEC established ONE Energy Corporation with ORIX Corporation and EPCO Co., Ltd. The new company has begun to provide energy services for homes by renting out energy storage systems. Under฀"Mid-term฀Management฀Plan฀2015,"฀ we plan to focus on Solutions for Society. In...

  • Page 13
    ... market growth drivers. As a global leader in this area, we are leveraging our Focus on Solutions for Society, Quickly Generate 25% Overseas Sales Ratio OVERSEAS SALES (Billion ¥) 900 Percentage of overseas sales to consolidated net sales 5.8% R1 CAG 23% 750.0 Public / Enterprise / Smart Energy...

  • Page 14
    ... and provide mutual support for business development using local strengths. In April 2013, to support this business model, we created the Global Safety Division (GSD) based in Singapore. The NEC Group's first divisional headquarters established outside Japan, the GSD will function as a control base...

  • Page 15
    ... make greater use of offshore resources, especially in China and India, rationalize shared costs across the NEC Group and seek to enhance project management and quality management. Overall, we plan to reduce costs by ¥30 billion through this program by the fiscal year ending March 2016. After the...

  • Page 16
    ... rate of employees' survey applies to NEC Corporation and its domestic consolidated subsidiaries. 7. Improvement in energy efficiency of products is based on a comparison with the year ended March 31, 2006. ฀ 8.฀฀ Until฀the฀year฀ended฀March฀31,฀2012,฀greenhouse฀gas฀emissions...

  • Page 17
    I Business Report/Management Policies NET SALES, PERCENTAGE OF OVERSEAS SALES TO CONSOLIDATED NET SALES (Billion ¥) 6,000.0 OPERATING INCOME (LOSS), OPERATING INCOME RATIO (Billion ¥) 150.0 114.6 4,215.6 Millions of U.S.฀dollars 2013 2013 100.0 73.7 3,036.8 3,071.6 50.9 57.8 1.9% 2.4% 3.7%...

  • Page 18
    ... been audited by the accounting auditors. PUBLIC฀BUSINESS NET SALES OPERATING INCOME MAJOR PRODUCTS AND SERVICES COMPOSITION OF SALES  Systems Integration (Systems Implementation, Consulting), Maintenance฀and฀Support,฀Outsourcing/Cloud฀Services,฀ System Equipment billion yen MAIN...

  • Page 19
    ...ABeam Consulting Ltd. MAJOR CONSOLIDATED SUBSIDIARIES  Services & Management Telecom Operations & Management Solutions (TOMS), Network Operation Support Systems (OSS), Business Support Systems (BSS), Network Control Platform Systems, Network Service Delivery Platform Systems NEC Network Products...

  • Page 20
    ... disaster prevention systems, and aerospace and defense systems. Operating income improved ¥5.8 billion to ¥49.0 billion, mainly reflecting increased sales and cost reductions. In fiscal 2013 in the government agency sector, NEC won an order through DSN Corporation, a special purpose company NEC...

  • Page 21
    ... the installation and operation of cyber security measures for government agencies and the private sector, NEC intends to develop even more advanced cyber security solutions. Portable DNA analyzers are another safety and security product NEC is currently developing. They will help accelerate crime...

  • Page 22
    ...฀retail/ services sectors. Operating income improved ¥4.9 billion year on year to ¥5.5 billion, mainly due to higher sales. In fiscal 2013 for the manufacturing sector, drawing on its experience in overhauling core systems, NEC implemented a common IT platform for Asahi Group Holdings, Ltd. NEC...

  • Page 23
    ... Business Support Center (RBSC) established at NEC Asia Pacific Pte Ltd an NEC subsidiary in Singapore, in May 2013. By standardizing total solutions covering sales management, ordering, inspection and inventory, and store and product management, which NEC has provided to major Japanese retailers...

  • Page 24
    ... operations and management solutions (TOMS). As a result of active efforts to expand sales under this new structure, the NEC Group won an order to supply operation support systems from KDDI CORPORATION, and began providing TOMS to Europe's largest power transmission company Réseau de transport...

  • Page 25
    I Business Report/Management Policies A wireless outdoor unit, the smallest and lightest of its kind in the world, for ultra-compact microwave communications systems (iPASOLINK) NEC has received an order for a core optical transmission network in Myanmar For Further Growth The environment for ...

  • Page 26
    ... such as NEC's core cloud platform software "WebSAM" and scale out database software for Big Data "InfoFrame Elastic Relational Store." In addition, NEC bolstered its product lineup in the security domain and in terms of virtualization. In enterprise network solutions, NEC delivered a system฀to...

  • Page 27
    ... Enterprise Business Customers Solutions-oriented Market for Telecom Carrier Business Energy and other new markets Introduction speed Platform development time Reduced by up to Cost 60%* 40%* Introduction cost Servers Networks Storage PBX/key telephones Software Partner products Reduced by up...

  • Page 28
    ... promotion of programs directed at expanding the range of applications for technologies already developed in-house. For instance, NEC is developing ways of improving the performance of corporate systems or carrier networks by combining security technologies with Targeting R&D Domains to Support...

  • Page 29
    ... intellectual property capability. Specifically, NEC is concentrating on establishing a global patent portfolio, to support quickly achieving an overseas sales ratio of 25% as targeted in "Midterm Management Plan 2015." In such areas as SDN and smart energy in particular, NEC is carrying out Group...

  • Page 30
    ... Core Values (What we value and base our behavior on) NEC Group Code of Conduct (Corporate ethics and compliance) Daily work Fiscal year plan Mid-term growth plan NEC Group Vision 2017 NEC Group Corporate Philosophy NEC Group Charter of Corporate Behavior 29 NEC Corporation Annual Report 2013

  • Page 31
    ... risk management and compliance practices to ensure that business management is always sound from the standpoint of society. To this end, we will develop more secure internal systems and procedures across the NEC Group, and strengthen supply chain initiatives. NEC Corporation Annual Report 2013 30

  • Page 32
    ... is essential for trucks to transport massive volumes of cargo and for passenger cars to travel efficiently. Traffic management systems function around the clock, 365 days a year so drivers using these expressways can travel safely, securely, and comfortably. 31 NEC Corporation Annual Report 2013

  • Page 33
    ... and Communication System): An information and communication system that communicates congestion, traffic restrictions and other road traffic information in real time and displays text and graphics on car navigation systems and other in-vehicle devices. NEC Corporation Annual Report 2013 32

  • Page 34
    ... fiscal 2013 against a Scope 1 and 2 aggregate of 6%. Looking ahead, NEC will improve the energy-saving performance of its products, and at the same time work to reduce overall CO2 emissions in its supply chain. Biodiversity Preservation Programs at the Abiko Plant NEC's Abiko Plant is located in...

  • Page 35
    ...) Control panel (accessory) Power conditioner Charge (power outage) Distribution board Charge/discharge Non-critical load Critical load pipipa (app) Critical load power distribution board Energy storage system * As of April 2013, SVP JAPAN Co., Ltd. survey NEC Corporation Annual Report 2013...

  • Page 36
    ...switches. Places where terminals are installed receive in-area telephone services and voice announcement services. The system is configured so that the center can easily set the terminals automatically. Telephone network, etc. (Backup system) Education board 35 NEC Corporation Annual Report 2013

  • Page 37
    ... infections, phishing, and other issues, and how to protect themselves. A total of 417 children took part in 9 classes nationwide in the year under review (since the inauguration of this program, about 25,000 children have attended a total of 200 classes). NEC Corporation Annual Report 2013 36

  • Page 38
    ...Using฀cloud฀services฀ to easily link simple production facilities and advanced cultivation expertise has enabled rural women to grow highquality strawberries without needing their own expertise. Japan Cloud India Air intake Water pads Air discharge 37 NEC Corporation Annual Report 2013

  • Page 39
    ... care operations drawing on ICT, sensors, and tablets and provide high-quality elderly care services. Nursing home residents use an all-purpose card (a card key incorporating a contactless IC chip) to access all services and facilities. The card can be used for entry and exit management, location...

  • Page 40
    ... adhere to the spirit of the "Better Products, Better Services" motto so NEC can realize its goal of being a leading global company under the NEC Group Vision 2017. In fiscal 2013, NEC reinforced and expanded its education and awareness programs to entrench recognition of the importance of customer...

  • Page 41
    ... core values" and "feels motivated," and aims to identify key factors in improving those attributes. NEC publishes the results on its intranet and feeds them back to each organization of the NEC Group to reinvigorate the organization and help materialize mid-term management plans. Employees' Global...

  • Page 42
    ... will continue leveraging CSR-PMR to promote CSR initiatives in its supply chain. A meeting with NGO experts in Hong Kong. * Please visit the internal control (compliance and risk management) link below for further details. http://www.nec.com/en/global/csr/ 41 NEC Corporation Annual Report 2013

  • Page 43
    ... capabilities with consumer and social design perspectives would be the key to becoming a Social Value Innovator under the "Mid-term Management Plan 2015." CRF said that it looked forward to NEC deploying this approach company-wide. Dialogue with CRF NEC Corporation Annual Report 2013 42

  • Page 44
    ...Corporate Officers) Business฀Units/Corporate฀Staff/Affiliate฀Companies BUSINESS EXECUTION Internal Audits * NEC has formulated a company-wide strategy for realizing the NEC Group Vision 2017. To this end, NEC appointed chief officers in July 2011 to lead business unit operations and promote...

  • Page 45
    ... for a global company. This policy is designed to enable NEC to secure excellent human resources while providing additional incentive for directors and corporate auditors to improve the performance of the NEC Group. Remuneration for directors is determined by resolution of the Board of Directors...

  • Page 46
    ... Director, SMBC 2007 Director and Member of the Board of Directors, Sumitomo Mitsui Financial Group, Inc. (to present) 2009 Senior Managing Director and Member of the Board of Directors, SMBC 2011 President and Chief Executive Officer, SMBC (to present) 2011 Member of the Board, NEC Corporation (to...

  • Page 47
    ...Sumitomo Corporation 2001 Senior Managing Director, Sumitomo Corporation 2001 President and Chief Executive Officer, Sumitomo Corporation 2007 Chairman of the Board of Directors, Sumitomo Corporation 2012 Senior Adviser, Sumitomo Corporation (to present) 2013 Member of the Board, NEC Corporation (to...

  • Page 48
    ...฀Services฀Operations฀Unit Shinichi Shoji ฀฀ In฀charge฀of฀System฀Platform฀Business฀Unit Senior Vice Presidents Takemitsu Kunio In฀charge฀of฀Smart฀Energy฀Business฀Unit Katsumi Emura In charge of Central Research Laboratories Isamu Kawashima* CFO (Chief Financial...

  • Page 49
    ... solutions, both at home and abroad, for government, the public sector, finance, healthcare, media and other related institutions, and the people who use them. Takayuki Morita In charge of Global Business Unit One key word critical to achieving the "Mid-Term Management Plan 2015" is "global...

  • Page 50
    ... of Big Data analysis, SDN, security, real-world data processing and smart energy, we will contribute to providing social infrastructure solutions and addressing the business issues of NEC's customers. And by promoting a new approach to R&D, one in which we work closely on-site with our customers to...

  • Page 51
    ... 57 Consolidated Statements of Cash Flows Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥94 = U.S.$1. 2. Please refer to the separate publication "Annual Report 2013 (Financials)" for details of "Note XX" on pages 51 to 58. IV Corporate Data NEC...

  • Page 52
    CONSOLIDATED BALANCE SHEETS NEC Corporation and Subsidiaries March 31, 2012 and 2013 Thousands of U.S. Dollars (Note 1) 2013 2013 Millions of Yen ASSETS CURRENT ASSETS: Cash and cash equivalents (Note 20) ...Short-term investments (Note 20) ...Trade notes and accounts receivable (Note 20) ......

  • Page 53
    ... shares in 2012 and 2013 ...Capital surplus ...Retained earnings...Treasury stock - at cost: 6,321 thousand shares in 2012 and 6,381 thousand shares in 2013 ...Total shareholders' equity ...ACCUMULATED OTHER COMPREHENSIVE INCOME: Valuation difference on available-for-sale securities ...Deferred...

  • Page 54
    CONSOLIDATED STATEMENTS OF OPERATIONS NEC Corporation and Subsidiaries Years Ended March 31, 2011, 2012 and 2013 Thousands of U.S. Dollars (Note 1) 2013 2013 Millions of Yen 2011 2012 NET SALES ...COST OF SALES (Notes 3 and 9) ...Gross profit ...SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes ...

  • Page 55
    ...INCOME NEC Corporation and Subsidiaries Years Ended March 31, 2011, 2012 and 2013 Thousands of U.S. Dollars (Note 1) 2013 2013 Millions of Yen 2011 2012 INCOME (LOSS) BEFORE MINORITY INTERESTS ...OTHER COMPREHENSIVE INCOME (Note 17): Valuation difference on available-for-sale securities...Deferred...

  • Page 56
    CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS NEC Corporation and Subsidiaries Years Ended March 31, 2011, 2012 and 2013 Thousands Shareholders' equity Outstanding number of shares of common stock Common stock Capital surplus Retained earnings Treasury stock BALANCE, APRIL 1, 2010 ...Net ...

  • Page 57
    ...sale securities Foreign currency translation adjustments Total Deferred gains or losses on hedges Total Stock...681 IV Corporate Data 21,915 $195,032 (9,936) $(11,447) 233,064 $ (74,681) 245,043 $ 108,904 $ (256) - 51,564 $1,334,905 296,351 $8,895,181 NEC Corporation Annual Report 2013 56

  • Page 58
    CONSOLIDATED STATEMENTS OF CASH FLOWS NEC Corporation and Subsidiaries Years Ended March 31, 2011, 2012 and 2013 Thousands of U.S. Dollars (Note 1) 2013 2013 Millions of Yen 2011 2012 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income taxes and minority interests...Depreciation ......

  • Page 59
    ...from sales of property, plant and equipment ...Acquisitions of intangible assets ...Purchases of investment securities ...Proceeds from sales of investment securities ...Disbursements for acquisitions of shares of newly consolidated subsidiaries ...Proceeds from sales of shares of subsidiaries being...

  • Page 60
    ... Gas Protocol (GHG Protocol). Scope 1: Direct GHG emissions occur from sources that are owned or controlled by the company Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam Scope 3: Other indirect emissions covering corporate upstream and downstream processes...

  • Page 61
    ... subsidiaries) (As of March 31, 2013) Organization Chart President Board Business Innovation Unit SI and Services Operations Unit Supply Chain Management Unit Corporate Sales and Sales Operations Unit Branch Offices Global Business Unit Regional Headquarter (RHQ) Shares of Common Stock...

  • Page 62
    ..., they represent targets that management will strive to achieve through the successful implementation of NEC's business strategies. Finally, NEC cautions you that the statements made in this annual report are not an offer of marketable securities for sale. Marketable securities may not be offered or...

  • Page 63
    ...฀contained฀in฀this฀Annual฀Report฀is฀also฀available฀on฀NEC's฀website. http://www.nec.com NEC home page Corporate Social Responsibility (CSR) website http://www.nec.com/en/global/csr NEC฀constantly฀strives฀to฀enhance฀the฀corporate฀social฀responsibility฀ (CSR...

  • Page 64
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