NEC establishes "Mid-term Management Plan 2018"
NEC has established a new mid-term management plan, the "Mid-term Management Plan 2018," covering a three-year period through the fiscal year ending March 31, 2019.
To realize a society that is safe, secure, efficient, and fair, the NEC Group focuses on “Solutions for Society,” which leverage Information and Communications Technologies (ICT), in order to advance social infrastructure as a social value innovator.
Through the implementation of the Mid-term Management Plan 2018, the NEC Group will address the reorganization of its profit structure to generate a 5% operating income ratio, as well as aim to achieve medium- to long-term improvement of corporate value by promoting the globalization of its Solutions for Society and getting back on the track to growth.
１．Mid-term Management Goals
(1) Results for FY2015 ended March 31, 2016 and business targets for FY2018 ending March 31, 2019 (consolidated)
|(In billions of yen)||Results for the fiscal year ended March 31, 2016 (Japan standard)||Results for the fiscal year ended March 31, 2016 (IFRS)||Targets for the fiscal year ending March 31, 2019 (IFRS)|
|Free cash flow||65.6||-||100.0|
|Return on equity (ROE)||8.5%||-||10%|
* "Net Income" of FY2015 is net income attributable to the stockholders of the parent company based on J-GAAP. IFRS will be applied from FY2016 onwards, and "Net Income" is the amount of Profit (loss) attributable to owners of the parent on IFRS.
* FY2015 IFRS figures are currently not audited and subject to change upon audit completion during FY2016.
(2) Mid-term management plan policies
1) Reorganize profit structure: Establish a company-wide profit structure to generate a 5% operating profit ratio
- Reform underperforming businesses and unprofitable projects
- Implement projects that promote operational reform
- Optimize development and production functions
2) Get back on the track to growth: Globalize Solutions for Society
- Focus on key businesses
- - Safety business
- - Global carrier network business
- - Retail IT service business
2. Management Strategy
(1) Reorganize profit structure
- NEC will transform the Smart Energy business from a “Business Unit” to a “Corporate Direct Business Division” and execute structural reforms. In addition to optimizing the scale of its resources by minimizing operations, NEC will accelerate efforts to shift to the Energy System Integration and Service business.
- NEC will laterally deploy know-how related to the control of unprofitable projects across the entire NEC Group. In addition, NEC will focus on strengthening the management of its global subsidiaries in an effort to control unprofitable international projects.
- The consolidation of staff operations to NEC Management Partner, Ltd. (NMP) will be extended to major Group companies. Through visualization of operations and standardization and process reform, NEC will strive to streamline its operations by 30%. At the same time, efforts to reduce expenditures and IT costs will be intensified.
- NEC will optimize hardware development and production, as well as the integration of software development functions, across the entire NEC Group. Productivity will be improved by optimally allocating resources and sharing operational know-how.
⇒ Total operating profit improvement expected by the fiscal year ending March 31, 2019 through the implementation of these initiatives: 82 billion yen (in comparison with the fiscal year ending March 31, 2016)
(2) Getting back on the track to growth
- Aiming to globalize its Solutions for Society, NEC has refined its focus to and will be concentrating its resources on three key businesses with which it can capitalize on its advantages by developing a platform incorporating the Big Data, Cloud, Cyber Security, and Software-Defined Networking (SDN) technologies it has cultivated thus far. Going forward, NEC aims to promote business expansion by catching the waves of market growth.
- Safety business (surveillance, cyber security)
Integrating its wealth of operational know-how and technological assets, NEC will provide integrated systems (including their operation) as a service to major cities and governmental/critical public facilities in emerging countries in the Asia-Pacific region and elsewhere. By enabling real-time understanding of events and happenings, NEC will contribute to further improvement of safety and security.
- Global carrier network business (TOMS, SDN/NFV)
NEC will promote the combination of Telecom Operations and Management Solution (TOMS) and SDN/Network Functions Virtualization (NFV), the continuous enhancement of the Internet of Things (IoT) and other IT/network integration solutions, the shift to open standards, and the forging of partnerships. In addition, NEC will contribute to the swift realization of new services for telecommunications carriers that meet societal needs.
- Retail IT service business
Capitalizing on its experience with major Japanese retailers, NEC will provide services covering the entire life cycle of systems, from planning to development, implementation, and maintenance, as well as strengthen omni-channel retailing and other new solutions. Moreover, NEC will contribute to round-the-clock store operations for leading convenience store chains and the improvement of convenience for consumers.
- To expand these key businesses, NEC plans to flexibly carry out M&A. Two-hundred billion yen has been earmarked for M&A initiatives.
⇒ FY2018 International Sales Target: 800 billion yen (Actual international sales for FY2015: 603.2 billion yen)
To ensure that corporate ethics and compliance are instilled within the corporate culture of the NEC Group as a whole, NEC is vigorously promoting awareness through messages delivered by members of top management and other executives, the enrichment of education and training programs, and the strengthening of organizational systems and structures. Moreover, NEC remains committed to solving the problems facing its customers and society by creating systems and frameworks based on human resource approaches aimed at fostering employees and cultivating a corporate culture that will enable NEC to continue creating social value.
Cautionary Statement with Respect to Forward-Looking Statements
This material contains forward-looking statements regarding estimations, forecasts, targets and plans in relation to the results of operations, financial conditions and other overall management of the NEC Group (the “forward-looking statements”). The forward-looking statements are made based on information currently available to NEC and certain assumptions considered reasonable as of the date of this material. These determinations and assumptions are inherently subjective and uncertain. These forward-looking statements are not guarantees of future performance, and actual operating results may differ substantially due to a number of factors.
The factors that may influence the operating results include, but are not limited to, the following:
- Effects of economic conditions, volatility in the markets generally, and fluctuations in foreign currency exchange and interest rate
- Trends and factors beyond the NEC Group’s control and fluctuations in financial conditions and profits of the NEC Group that are caused by external factors
- Risks arising from acquisitions, business combinations and reorganizations, including the possibility that the expected benefits cannot be realized or that the transactions may result in unanticipated adverse consequences
- Developments in the NEC Group’s alliances with strategic partners
- Effects of expanding the NEC Group’s global business
- Risk that the NEC Group may fail to keep pace with rapid technological developments and changes in customer preferences
- Risk that the NEC Group may lose sales due to problems with the production process or due to its failure to adapt to demand fluctuations
- Defects in products and services
- Shortcomings in material procurement and increases in delivery cost
- Acquisition and protection of intellectual property rights necessary for the operation of business
- Risk that intellectual property licenses owned by third parties cannot be obtained and/or are discontinued
- Risk that the NEC Group may be exposed to an unfavorable pricing environment due to intensified competition
- Risk that a major customer changes investment targets, reduces capital investment and/or reduces the value of transactions with the NEC Group
- Risk that the NEC Group may be unable to provide or facilitate payment arrangements (such as vendor financing) to its customers on terms acceptable to them, or risk that the NEC Group’s customers are unable to make payments on time, due to the customers’ financial difficulties or otherwise
- Risk that the NEC Group may experience a substantial loss of, or an inability to attract, talented personnel
- Risk that the NEC Group’s ability to access the commercial paper market or other debt markets are adversely affected due to a downgrade in its credit rating
- Risk that the NEC Group may incur large costs and/or liabilities in relation to internal control, legal proceedings, laws and governmental policies, environmental laws and regulations, tax practices, information management, and human rights and working environments
- Consequences of natural and fire related disasters
- Changes in methods, estimates and judgments that the NEC Group uses in applying its accounting policies
- Risk that the NEC Group may incur liabilities and losses in relation to its retirement benefit obligations
The forward-looking statements contained in this material are based on information that NEC possesses as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for NEC to predict these events or how they may affect the NEC Group. NEC does not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.