Nec Corp Unsp/Adr New

Thank you for joining us today. I would like to cover our financial results for FY ended March 2025 and explain our forecast for FY ending March 2026. Here is our agenda. Financial results for FY ended March 2025. Page 4, Key Takeaways. In FY March 2025, revenue was 3,423 billion yen and non-GAAP OB was 311.3 billion yen. We achieved the non-GAAP OB target set out in our midterm management plan one year ahead of schedule. Excluding the impact of the deconsolidation of JAE, revenue increased 5.3% year-on-year. Non-GAAP OB increased by 98.9 billion yen, exceeding our expectations. Non-GAAP OP for FY March 2026 is expected to reach 320 billion yen, an increase of 20 billion yen from the mid-term management plan target. This plan factors in the macroeconomic uncertainties. Even given the environment, we will continue to steadily increase profits. Page 5, Summary of Financial Results. Adjusted operating profit was 287.2 billion yen, an improvement of 63.6 billion yen year-on-year. In addition to non-GAAP operating profit, we also achieved our mid-term management plan targets for non-GAAP net profit and EBITDA one year ahead of schedule. There will be no change to the dividend per share from the amount already announced. The amounts shown are based on the basis before the stock split, which took effect on April 1, 2025. Page 6, year-on-year change in adjusted and non-GAAP operating profit. Adjusted OB for FY ended March 2024 was 223.6 billion yen, and non-GAAP OB was 227.6 billion yen. Started from this, as you can see, we made significant improvements in IT services and social infrastructure, resulting in a total business-related operational improvement of 98.9%. The deconsolidation of JAE resulted in a negative impact of 15.2 billion yen. Nonetheless, non-GAAP OB-4FY ended March 2025 with 311.3 billion yen. Non-GAAP adjusted items amounting to 24.1 billion yen Include 12.1 billion yen recorded in the first three quarters, plus restructuring-related expenses and impairment loss of 12 billion yen posted in the fourth quarter. Adding all these factors together, adjusted OP landed at 287.2 billion yen. Please refer to pages 27 and 28 of the supplemental materials for adjusted items used in translating GAAP OP to non-GAAP OP. Page 7. Financial results by segment. The details will be covered later, but in short, revenues and adjusted OP of IT services and social infrastructure increased. Others' revenue and adjusted OP decreased due to the deconsolidation of JAE. Page 8 and onward show the details by segment. First, IT services. Domestically, revenue was up and profitability improved by 2.3%, both of which contributed to a significant enhancement of OP. Revenues, excluding NEC facilities, increased 9%. In international IT DGDF business, one-off expenses of approximately 5 billion yen were recorded in the fourth quarter, which resulted in the full year one-off cost of about 10 billion yen. Nonetheless, OP was up due to improved profitability, mainly attributable to Avalok. Page 9, Domestic IT Service Booking Status. Excluding NEC facilities, domestic IT services increased 12% year-on-year, with demand remaining robust. In public sector, in addition to municipal government platform standardization, projects for central government and agencies were the contributing factors. Enterprise sector continued to perform at a high level on par with the previous fiscal year. In finance sector, revenue decreased due to a reversal effect from the previous fiscal year, but the project pipeline remains strong. Manufacturing is up 9% due to the phasing into selecting orders based on profitability and an increase in DX-related projects. Retails and services sector is also showing steady growth. ABEAM also continues to perform well, registering a 13% increase. Page 10, Social Infrastructure. Although telecom services was impacted by the investment restraints of telecom operating and one of gains and losses as shown in the next page, due to the optimization of cost mainly around development expense, telecom services secured an increase in profit. ANS achieved a large increase in both revenue and OP by steadily delivering on the existing projects. Due to an increase in the government budget, the annual orders amounted to more than 500 billion yuan following the trend of FY 2024. Page 11, Supplemental Information on Telecom Services, Factors of Various and Adjusted OB, Changes in the Fourth Quarter. Marginal profit was affected by the worst unexpected deterioration of the base station business, recording negative 4.5 billion yen, and due to the absence of one-off loss, which was recorded in Q4 of FY2024, recorded positive 15 billion yen. However, the submarine cable business recorded a loss of 14 billion yen due to issues caused by force majeure. Delays in several projects have resulted in additional costs, and we are currently investing in countermeasures to complete the construction as soon as possible. measures have already been implemented for new contracts, and in the future, necessary actions will be taken for projects that were contracted under the former terms and conditions. Once completed, profitability is expected to return to normal. In addition to the above, we recorded a loss of 5 billion yen for streamlining assets. Putting all these factors together, we registered a loss of 8.5 billion yen in Q4, but the improvements we had made up until the third quarter made us land the full year with an increase of 16.6 billion yen in profit.

Page 12 shows free cash flows. Free cash flow from operating activities increased 73.2 billion yen from the previous fiscal year. For the breakdown, increasing adjusted OP contributed 63.6 billion yen. Improvement of cash conversion cycle generated a significant improvement of 48.5 billion yen. On the other hand, cash flow from investment activities was a net outflow of 55.1 billion yen, mainly due to investments to optimize real estate portfolio in view of future economy and to secure future options. As a result, free cash flow was 213.2 billion yen, an increase of 18 billion yen from the previous year. Page 13 shows status on the sale of investment securities. The mark-to-market amount has increased since the end of March 24 due to the inclusion of NEC Capital Solutions shares as cross-shareholding following reduction in the company's equity stake. including the sale of 7.4 billion yen during FY ended March 25. However, the cumulative sales since March 2020 amounted to 159 billion yen. The number of shares held is also down 80% from 108 at the end of March 2020 to 24 at the end of March 2025. We will continue to reduce cross-share holding going forward. Next is financial forecast for FY March 26 and the progress of Mid-Term Management Plan 2025. Page 15 shows the forecast for FY March 2026. We have revenue of 3.36 trillion yen, adjusted OP of 310 billion yen, and non-GAAP OP of 320 billion yen. The difference between adjusted OP and non-GAAP OP is 10 billion yen, assuming ongoing structural reforms. Page 16 shows revenue and adjusted OP by segment. IT services is projected to post revenue of 2 trillion 15 billion yen and adjusted OP of 263 billion yen. Social infrastructure is projected to post revenue of 1.16 trillion yen and adjusted OP of 100 billion yen. I will give you more details on both segments later in my presentation. For others, revenue is 185 billion yen, including the decrease in revenue due to the transfer of a subsidiary business. Adjusted OP is minus 4 billion yen, despite the improvement in profit due to the absence of restructuring costs and impairment losses recorded in the previous year. Adjustment is ¥49 billion, reflecting ongoing structural costs, restructuring costs, and macroeconomic risks as contingency. Page 17 shows details of IT services. In domestic IT, revenue is declining due to the transfer of corporate PC sales function to NEC personal computers. Adjusted OPE is increasing due to improved profitability. In international IT DGDF, adjusted OP increasing supported by continuous margin improvement and absence of one-time expenses recorded in the previous fiscal year. Starting this fiscal year, we will move the headquarter functions of international IT DGDF to Europe to further accelerate growth strategy. Page 18 is social infrastructure. Telecom services is expected to improve OP due to the rebound from one-time factors in the previous year. ANS factored in an increase in profits commensurate with the increase in revenue. ANS plans to increase investments to capture future business opportunities. Excluding the increase in investments, the profit margin should be flat from FY March 2025. Page 19 is for Blue Stellar. FY March 25 results show a 44% increase in revenue from the previous year with significant improvement in profitability. For FY March 2026, to ensure future growth, we will increase investment to expand our product lineup and resources while improving profitability through continuous sales and profit growth. Page 20 shows progress on low-profit businesses. Through our activities to date, a total of 12 businesses have already exited our monitoring list by the end of FY March 25. With two new businesses, including the submarine cable business, added to the monitoring list during FY March 25, a total of eight businesses are remaining. We are continuing our efforts to improve profitability of the remaining businesses, but will make a final decision by the end of FY March 2026, including the possibility of value maximization through divestiture or partnering with others if profitability improvement is not feasible. Page 21 shows capital allocation. The basic policy remains unchanged as shown on the slide. For investment in growth areas, we have decided to apply cash ROIC evaluation to M&A transactions. The method will be applied to evaluation both before and after acquisition. This should enhance our investment discipline by ensuring that cash ROIC exceeds work within five years after acquisition. Finally, we have a segment reclassification. NAC networks, previously placed under telecom services, will be reclassified into IT services domestic business following consolidation as a wholly owned subsidiary and group-wide reorganization to strengthen local government and SME businesses. The submarine cable business, also under Telco Services, will be renamed as ANS to execute national security-related businesses, including economic security. That concludes my explanation. Thank you very much for your kind attention.