Annual Report 2017 - nec.com

1 Annual Report 2017 Year ended March 31, 2017 Editorial PolicyNEC has published integrated Annual reports containing both financial and non-financial information since Report 2017 comprises six chapters respectively entitled Profile, Commentary on Management Strategy, Business Model, Business Activities for Social Value Creation, Initiatives Supporting Sustainable Management, and Corporate I profiles NEC. Chapter II provides commentary from the President and CFO concerning our approach to enhancing corporate value over the medium/long term and revision of Mid-term Management Plan 2018. Chapter III highlights our strengths, the value we offer and examples of our social value creation initiatives.

2 Chapter IV provides an overview of each of our segments and information on our overseas operations. Chapter V discusses corporate governance and other ESG initiatives that support sustainable management, including will keep endeavoring to provide increasingly transparent and useful information in response to guidance from the International Integrated Reporting Council (IIRC) and feedback from institutional investors and various other PeriodApril 1, 2016 to March 31, 2017 (hereinafter referred to as Fiscal 2017 . Any other fiscal years would be referred to similarly) This Report also includes information obtained after this reporting of Report NEC Corporation and its Consolidated Subsidiaries Reference Guidelines ISO 26000 Global Reporting Initiative (GRI) Sustainability Reporting Guidelines United Nations Global CompactNEC is a signatory to the United Nations Global Related Information Earnings Releases/ Annual Securities Report Corporate Governance Report Corporate Social Responsibility (CSR) Annual Environmental Report Information Security Report Social Contribution ActivitiesContentsEvaluation by External Parties (As of July 2017 )

3 RobecoSAM Sustainability AwardFTSE4 Good Index SeriesETHIBEL PIONEER & EXCELLENCEM orningstar Socially Responsible Investment IndexMSCI ESG Leaders IndexesEuronext Vigeo World 120 STOXX Global ESG Leaders IndexEcoVadisTHE 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 AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS a brighter world02 Contents03 Performance Highlights05At a GlanceCommentary on Management Strategy07 Message from the President12 Mid-term Management Plan 2018 Progress and Formulation of Next Mid-term Management Plan15 Message from the CFOB usiness Model17 Our History19 The NEC Group s Vision of Social Value Creation21 Social Value Creation Process23 Innovation Management25 Social Value Creation InitiativesBusiness Activities for Social Value Creation29 Review of Operations39 International Business StructureInitiatives Supporting Sustainable

4 Management41 Initiatives Supporting Sustainable Management42 Corporate Governance45 Ensuring Compliance46 Messages from an Outside Director and an Audit & Supervisory Board Member47 Directors and Audit & Supervisory Board Members49 Cross-company Corporate Strategy Promotion Framework51 Human Rights and Diversity53 Further Promotion of Environmental Management Contributing to the Realization of a Sustainable Earth Corporate Data56 Financial Section63 Non-Financial Section64 Corporate OverviewPeople around the world today face a host of global challenges: terrorism and cybercrime that threaten their everyday security; environmental issuees such as intensification of natural disasters due to climate change; scarcity of energy, food and water resources.

5 Population growth in developing countries, aging populations in developed countries, burgeoning urban populations and widening interregional is committed to resolving these challenges with its ICT assets, especially AI and IoT technologies, and new business models developed collaboratively with customers and these activities, NEC will create social value in the form of safety, security, efficiency and equality, all of which are prerequisites for an abundant society for all people, in the aim of realizing a bright, hope-filled future in concert with people and countries across the mission is embodied in NEC s Brand Statement: Orchestrating a brighter Corporation Annual Report 2017 NEC Corporation Annual Report 2017 Performance HighlightsNEC Corporation and Consolidated Subsidiaries For the fiscal years ended or year-end as of March 31l Measures to optimize business portfolion Measures to grow business and strengthen financial foundationFiscal year ended March 31, 2011l Made NEC Electronics Corporation, a semiconductor business currently Renesas Electronics Corporation, into an equity-method affiliateFiscal year ended March 31, 2012l Made the consumer PC business into an equity-method affiliaten Acquired Global View , a video surveillance services business in ArgentinaFiscal year ended March 31.

6 2013n Acquired the business support system business of Convergys Corporationn Acquired the IT service business of Australia-based CSG LimitedFiscal year ended March 31, 2014l Divested all of NEC s stakes in NEC Mobiling, Ltd., currently MX Mobiling Co., Ltd., a mobile phone sales businessl Stopped the development of new smartphonesFiscal year ended March 31, 2015 l Divested all of NEC s stakes in NEC BIGLOBE, Ltd., currently BIGLOBE Inc., an internet service provider in March, 2014n Made NEC Fielding, Ltd., providing operation and maintenance service for IT systems, into a wholly owned subsidiaryn Established NEC Solution Innovators, Ltd. in a reorganization of seven software development subsidiariesn Established NEC Platforms, Ltd.

7 In a reorganization of four hardware development and manufacturing subsidiariesn Established NEC Management Partner, Ltd. in a reorganization of four back office operation subsidiariesn Completed acquisition of an energy storage system business for electric power companies and established NEC Energy Solutions, Inc. in North AmericaFiscal year ended March 31, 2016n Transferred administrative staff functions and shared IT assets from NEC to NEC Management Partner, Ltd. (Business Process Optimization Project)Fiscal year ended March 31, 2017 (fiscal year under review)n Acquired Brazilian IT security company Arcon Informatica Consolidated Japan Aviation Electronics Industry, LimitedMillions of yenPercent change 2017 /20162010201120122013201420152016201 62017 JGAAPIFRSR evenue.

8 3,583,148 3,115,424 3,036,836 3,071,609 3,043,114 2,935,517 2,821,181 2,824,833 2,665,035 revenue .. 712,886479,349481,492483,118569,172586,8 44 603,169 603,135 570,967 revenue ratio (%) .. Operating profit .. 50,90557,82073,742114,647106,193128,084 107,306 91,418 41,838 profit (loss) attributable to owners of the parent .. 11,428(12,518)(110,267)30,43433,74257,30 2 68,749 75,923 27,310 flows from operating activities .. 134,81633,66083,857143,74894,12487,917 97,829 97,829 92,525 flows from investing activities .. (41,241)(146,244)(49,706)(101,742)(38,89 3)(47,510)(32,202)(32,202)6,425 Free cash flows .. 93,575(112,584)34,15142,00655,23140,407 65,627 65,627 98,950 expenses.

9 275,970176,514161,968151,676142,723134,2 05123,995123,602109,319 expenditures (property, plant and equipment) .. 83,09852,85041,98045,61498,70837,42536,3 4736,34731,472 (property, plant and equipment) .. 111,16762,09753,30651,16745,16748,51844, 87950,49349,853 share data (in yen):Net profit (loss) attributable to owners of the parent .. ( )( ) dividends .. assets .. 2,937,6442,628,9312,557,5702,580,9662,50 5,3292,620,652 2,493,441 2,528,904 2,683,996 s equity .. 790,904757,054656,956710,666695,949823,6 50 792,092 769,827 854,264 on equity (%) .. s equity ratio (%) .. debt .. 729,548675,798692,734603,451575,151520,7 78 480,987 479,523 466,946 ratio (times).

10 Of consolidated subsidiaries .. 310283265270258232217217238 Number of employees .. 142,358115,840109,102102,375100,91498,88 2 98,726 98,726 107,729CO2 emissions reduction by providing IT solutions (thousand tons) .. 1,9002,1202,3102,9802,2902,5402,6202,620 2,630 Improvement in energy efficiency of products (%) .. 445366647591979717 Key Management Measures2, , , , , profitRevenues of the current businesses(Billions of yen)3, , , , , , , , , consumer PC business became an equity-method affiliateNEC Electronics Corporation became an equity-method affiliateDivested NEC Mobiling, the development of new smartphonesDivested NEC BIGLOBE, Japan Aviation Electronics Industry, LimitedPerformance HighlightsNotes: 1.