NEC establishes "Mid-term Management Plan 2020"
Tokyo, January 30, 2018 - NEC has established a new mid-term management plan, the "Mid-term Management Plan 2020," covering a three-year period through the fiscal year ending March 31, 2021.
Through the implementation of the Mid-term Management Plan 2020, the NEC Group will implement fundamental profit structure reforms, including reduction of fixed costs, and aim to continuously generate a 5% operating income ratio by focusing on safety business as an engine for global growth, among other measures.
1. Mid-term Management Targets (Consolidated)
|(In billions of yen)||Results for the fiscal year ended March 31, 2017||Forecasts for the fiscal year ending March 31, 2018||Targets for the fiscal year ending March 31, 2021|
(Operating profit ratio)
|Free cash flows *||99.0||100.0||100.0|
|Return on equity (ROE)||3%||5%||10%|
- *Excluding M&A
(Forecasts are as of January 30, 2018.)
2. Mid-term Management Policies
(1)Reform of profit structure
- Reduce SGA (personnel expenses, other expenditures)
- Restructure telecom carrier and energy business
- Reorganize production bases in Japan
(2)Achievement of growth
- Capitalize on various growth opportunities in Japan and transform into a service business
- Focus on safety business as an engine for global growth
(3)Restructuring of execution capabilities
- Create customer value by leveraging the latest technologies
- Reform that enables employees to exhibit their maximum potential
3. Measures based on management policies
(1)Reform of profit structure
- Reduce fixed costs, including personnel expenses, in order to create a structure that enables continued investment for transforming into a service business. Downsize personnel in Japan by 3,000, mainly among indirect departments and the hardware business domain.
- In the telecom carrier business, strengthen software and services in accordance with market changes. Position international software and service areas as focus domains, while carrying out a review of strategies and business structures and placing Telecom Operations and Management Systems (TOMS) as a business core. Deploy the networking strengths cultivated in the telecom carrier market to other areas as well.
- In the energy business, change from a multi-directional operation approach to a focus on energy SI (service integration) business. Discontinue in-house development and manufacturing for the small-scale storage battery business.
- Reorganize the global value chain. Reorganize the 9 domestic factories of NEC Platforms, Ltd. to maximize efficiency.
(2)Achievement of growth
- In Japan, secure growth by capitalizing on NEC's artificial intelligence (AI) technologies, as well as its biometric authentication, security and network services. This will be accomplished by focusing largely on 3 areas for growth: The building of Safer Cities that are safe, secure and prosperous; The formation of a sustainable smart supply chain; and The realization of "connected automobiles" that are safe and comfortable. Transform into a business model that provides services by leveraging partnerships, including customers, in order to solve social challenges.
- Position safety business as an engine for global growth and aim to become the global leader in this category. Aim to attain revenue of 200 billion yen, an operating income ratio of 5% or more, and EBITDA ratio of 20% or more in FY2020 by shifting to a platform-based service business and gradually expanding the business area from public safety to include digital government and other services.
- To accelerate growth of global business and establish a business structure with centralized responsibilities and authorities while improving management speed and reducing costs.
- Make use of the current 200-billion-yen allotment for M&A investments and continue to carry out M&A centered on safety business.
(3)Restructuring of execution capabilities
- Anticipate customer needs and accelerate monetization of competitive technologies. Break away from the self-sufficiency mindset by forging diverse alliances with external organizations, and reinforce business development capabilities by promoting solution development based on co-creation.
- Introduce a lasting structure that operates with a sense of speed while improving execution strength. Define management's responsibilities and authorities more clearly, and reinforce commitment to results. Introduce an evaluation and remuneration system that encourages innovative behavior and new challenges. Actively recruit and appoint a variety of human resources in order to quickly respond to market changes and challenges.
Aiming to become a Social Value Innovator, NEC will also maximize social as well as economic value by leveraging its strengths in technology, human resources and co-creation with various stakeholders. In regard to social value, within the first half of FY2018, NEC will formulate ESG priority themes and KPIs to contribute to achieving the SDGs.
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 at all, 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 Rules, tax practice, information management, and human rights and working environment
- Consequences of natural and fire 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.
About NEC Corporation
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