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Management Strategy and Policy

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(As of June 30, 2023)

(1) Fundamental Management Policy

The NEC Group defines its corporate philosophy, “the NEC Way,", which summarizes the management practices and operations that the NEC Group adheres to, including its values and the driving principles behind its actions.

The NEC Way articulates NEC’s "Purpose" and "Principles" as a company as well as the expected behaviors, “Code of Values” and “Code of Conduct”, that all of the members comprising the NEC Group are expected to demonstrate.


Purpose
The "Purpose" is a declaration based on the statement of "Orchestrating a brighter world" to contribute to a prosperous society.

“NEC creates the social values of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential.”

Principles
"Principles" are the basis for the NEC Group's actions and are comprised of three important positions.

The Founding Spirits of “Better Products, Better Services”
Uncompromising Integrity and Respect for Human Rights
Relentless Pursuit of Innovation

Code of Values
The “Code of Values” should be embodied by each and every one of the NEC Group, regardless of their position or level in the company.

“Look Outward. See the Future.”
“Think Simply. Display Clear Strategy.”
“Be Passionate. Follow through to the End.”
“Move Fast. Never Miss an Opportunity.”
“Encourage Openness. Stimulate the Growth of All.”

Code of Conduct
To ensure NEC's ability to maintain society's trust and its commitment as a Social Value Innovator, the “Code of Conduct” details what is expected of each and every one of the NEC Group from today's society with respect to integrity and standards of conduct.

  1. Basic Position
  2. Respect for Human Rights
  3. Environmental Preservation
  4. Business Activities with Integrity
  5. Management of the company’s Assets and Information

Consultation and Report on Doubts and Concerns about Compliance

To fulfill the Purpose of NEC Corporation (hereinafter, “the Company”), the NEC Group aims to create social values continuously and to maximize its corporate value by implementing its middle and long term management strategy including its "Mid-term Management Plan" based on the Company’s Principles.

Each and every one of the NEC Group, must compare our work style and organization structures to the Code of Values and identify where we need to strengthen and improve, and must conform to this Code of Conduct and conduct ourselves with high ethical standards and integrity.

The value that customers and society expect from us is constantly changing. To remain an essential company in the eyes of society in the years to come, we must create new value by constantly keeping our finger on the pulse of what it consists of. The NEC Group combines ICT technologies with diverse knowledge and ideas in collaboration with people around the world. We realize bright, hope-filled societies and ways of life, this is our aim.

(2) Management Indicator Goals

To realize its corporate value, the NEC Group will strive as one to achieve “Purpose”, “Strategies” and “Culture” as its management policies. In order to realize Purpose, the Company positions its EBITDA growth rate*1 for Strategies and its engagement score for Culture as core indicators. In addition, the Company sets targets of revenue, adjusted operating profit*2, adjusted net profit*3, EBITDA*4 and ROIC*5 as management indicators.

  • *1
    “EBITDA growth rate” is compound annual growth rate of EBITDA from fiscal 2021 to fiscal 2026.
  • *2
    "Adjusted operating profit (loss)” is an indicator for measuring underlying profitability in order to clarify the contribution of acquired companies to the NEC Group’s overall earnings. It is measured by deducting amortization of intangible assets recognized as a result of M&A and expenses for acquisition of companies (financial advisory fees and other fees) from operating profit (loss).
  • *3
    "Adjusted net profit (loss) attributable to owners of the parent" is an indicator for measuring underlying profitability attributable to owners of the parent. It is measured by deducting adjustment items of operating profit (loss) and corresponding amounts of tax and non-controlling interests from net profit (loss) attributable to owners of the parent.
  • *4
    “EBITDA”: Gross profit - SG&A + Depreciation and amortization
  • *5
    “ROIC”: (Adjusted operating profit - Deemed corporate tax <30.5%>)/(Interest bearing debt at end of period + Net assets end of period)

(3) Business environment

During the fiscal year ended March 31, 2023, the global economy slowed down in the second half of the year due to inflation and monetary tightening policies mainly in Europe and the United States, as well as the impact of the spread of COVID-19 in China. The Japanese economy remained firm, mainly due to domestic demand as a result of the easing of behavioral restrictions associated with the suppression of COVID-19, despite continued rising prices from factors such as increasing resource prices and a rapid depreciation of the yen.

In the meanwhile, digitalization in the whole society in addition to cloud shift in conventional IT market has been accelerating during the changes to the new life style. As initiatives to advanced digital government are expanded in Europe, as the Digital Agency was established in Japan and the Japanese government announced “the Vision for a Digital Garden City Nation”, Digital Transformation (DX) in central and local government is expected to be further promoted. Moreover, as environmental issues become further serious, companies’ contributions are required to realize sustainable society and the role of technologies are increasing.

Under such business environment, NEC Group formulated the “Mid-term Management Plan 2025” that sets forth management’s policy to address challenges ahead with the integrity of purpose, strategy and culture. Highly motivated, NEC Group aims to achieve growth, focusing on its global business pillars including Japan, transforming its IT business in Japan, and to reinforce sustainability management infrastructure, under this “Mid-term Management Plan 2025”.

(4) Middle and Long Term Management Strategy and Challenges to be Addressed by the NEC Group

The NEC Group’s Directors, corporate officers and employees are striving as one to carry out its management policies, combining its “(i) Purpose”, “(ii) Strategies” and “(iii) Culture”. These policies are based on the “Mid-term Management Plan 2025”, announced in May 2021.

(i) Purpose

In the “NEC Way” the NEC Group defines its Purpose as creating the social value of safety, security, fairness and efficiency to promote a more sustainable world where everyone has the chance to reach their full potential. As a corporate group seeking to create social values, the NEC Group will aim to realize it by “Seize the Future Together” with society and customers. To that end, the NEC Group formulated the “NEC 2030VISION”, which explains what the NEC Group wants to achieve by 2030.

In addition, in order to realize the Purpose, the Company will take the opportunity of the transition to a Company with a Nominating Committee, etc. to clearly separate the oversight function from execution by management with regard to corporate governance. This will strengthen the oversight function of the Board of Directors, while at the same time, accelerating timely decision-making and implementation by delegating substantial authority from the Board of Directors to Executive Officers with respect to business execution. In line with this, the Company is taking a number of actions to enhance governance on the execution side. These include strengthening the company-wide risk management system under the leadership of the newly established Chief Risk Officer (CRO), improving decision-making quality by reorganizing the executive meeting bodies centered on the Executive Committee, and strengthening the internal audit function.

(ii) Strategy

By converting NEC Group’s advantage of capabilities in technology into customer value, the NEC Group will achieve growth by “Focusing on our global business pillars,” “Transforming our IT business in Japan,” and “Creation of future growth.”
With regard to “Focusing on our global business pillars,” the NEC Group will strive for business growth in the Digital Government and Digital Finance Business by enhancing its profitability through shifting to highly profitable software businesses and expanding the scope of offshore operations. Furthermore, the NEC Group will achieve business growth by manifesting global synergy between the Company and its subsidiaries. In the Global 5G Business, the NEC Group will develop business opportunities regarding base stations in Japan and overseas, enhance the NEC-made software and services, and optimize the sales structure and development scale according to business scale.
As for “Transforming our IT business in Japan,” the NEC Group will further enhance the “NEC Digital Platform,” a shared basis of the DX business, by developing joint products across industries and thereby boost profitability. Furthermore, the Company will generate new business opportunities by further promoting its strategic partnership program to achieve resolution of management issues and joint creation of social value together with advanced customers, and by working in tandem with government policies on projects driving social change, like smart cities.

As for the “Creation of future growth,” the NEC Group will further accelerate cooperation with entities outside the company including academic and research institutions to advance business development activities in the AI, the healthcare and life sciences business, and businesses related to carbon neutrality domains.
As for the base business, which are traditional components of NEC Group’s business, the NEC Group will improve low profitable business by enhancing monitoring and make management decisions if improvement plans are not attained, including withdrawing from businesses, aiming to achieve steady growth in each business and profitability exceeding that of competitors.

With regard to financial strength, the prerequisite for implementing and supporting these growth strategies, the NEC Group will generate cash flows by continuously growing EBITDA and optimizing portfolio assets. The Company will implement capital allocation emphasizing business growth with these as capital, strive to construct a sound financial basis, and support future growth investments.

In addition, to reinforce the non-financial evaluation methodologies to underpin the sustainable growth of the NEC Group and society, the NEC Group have identified seven themes as the “Materiality”, which are management priorities from an ESG perspective. These seven themes are climate change, security, AI and human rights, diverse human resources, corporate governance, supply chain sustainability, and compliance. The NEC Group also plans to identify new themes as the Materiality for growth and opportunity creation. Through the practice of the Materiality, the NEC Group aim to promote businesses with significant social, environmental, and economic value, and to be continuously included in major ESG indices.

(iii) Culture

In order to realize its Purpose, as highly motivated employees are indispensable, the NEC Group aims to transform itself into an “Employer of Choice.” In the fiscal year ending March 31, 2024, the Company is emphasizing “investment in people” who will execute its strategies and create culture, and aiming to improve engagement and achieve human capital management by reforming its systems and improving its environment to maximize the power of its organization and human resources. In particular, the Company will make efforts to firmly establish job-based human resource management that has been introduced at upper levels, improve personnel mobility by expanding its internal open recruitment, and develop next-generation leaders by investing in promising human resources. With these, the Company is working to fill each position in conformity with the right time, the right place and the right person, in a way that is linked to its business strategies. The Company will also further promote diversity as a source of innovation.

Through these measures, the NEC Group aims to achieve revenue of 3.5 trillion JPY, adjusted operating profit of 300 billion JPY (ratio to revenue: 8.6%), adjusted net profit of 185 billion JPY (ratio to revenue: 5.3%), and EBITDA of 450 billion JPY (ratio to revenue: 12.9%) in the fiscal year ending March 31, 2026.

By achieving the “Mid-term Management Plan 2025” and jointly developing the vision of the future upheld in the “NEC 2030VISION” for achievement of its Purpose, the NEC Group will contribute to the achievement of the Sustainable Development Goals (SDGs) set by the United Nations.