Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2020
Commission File Number 000-12713
NEC Corporation
(Translation of registrant’s name into English)
7-1, Shiba 5-chome
Minato-ku, Tokyo 108-8001
Japan
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: | October 29, 2020 | |
| NEC Corporation | ||
| By: | /s/ Tetsuo Mukunoki | |
| Name: | Tetsuo Mukunoki | |
| Title: | General Manager, Legal Division | |
Table of Contents
Press Release - Media Contacts: press@news.jp.nec.com
***** For immediate use October 29, 2020
Consolidated Financial Results
for the Six-month Period Ended
September 30, 2020
Table of Contents
Summary of Consolidated Financial Results for the Six-month Period Ended September 30, 2020 [IFRS]
| October 29, 2020 | ||||||||
| Company name | NEC Corporation | Stock exchange listing: Tokyo | ||||||
| Code number | 6701 | URL https://www.nec.com/ | ||||||
| Representative | Takashi Niino, President and CEO | |||||||
| Contact | Akiko Shikimori, General Manager of the Corporate Communications Division | TEL +81-3-3798-6511 | ||||
Scheduled date of Quarterly Report filing | October 30, 2020 Scheduled date of dividend payments December 1, 2020 | |||||
Supplementary materials for financial results | Yes | |||||
| Financial results briefing | Yes (for institutional investors and analysts) | |||||
| (Million JPY, rounded to the nearest million JPY) | ||||||
1. Consolidated Financial Results for the Six-month Period Ended September 30, 2020 (April 1, 2020 – September 30, 2020)
(1) Consolidated Operating Results | (Percentage figures represent year-on-year changes) |
| Revenue | Operating profit | Profit before income taxes | Net profit | Net profit attributable to owners of the parent | Total comprehensive income | |||||||||||||||||||||||||||||||||||||||||||
Six-month period ended | | JPY (millions | ) | % | | JPY (millions | ) | % | | JPY (millions | ) | % | | JPY (millions | ) | % | | JPY (millions | ) | % | | JPY (millions | ) | % | ||||||||||||||||||||||||
September 30, 2020 | 1,315,030 | (9.2 | ) | 19,973 | (57.4 | ) | 19,363 | (58.0 | ) | 13,314 | (59.4 | ) | 11,008 | (62.3 | ) | 33,073 | 203.1 | |||||||||||||||||||||||||||||||
September 30, 2019 | 1,448,993 | 8.4 | 46,856 | 238.9 | 46,115 | 111.8 | 32,820 | 123.5 | 29,162 | 218.4 | 10,911 | (54.5 | ) | |||||||||||||||||||||||||||||||||||
| Adjusted operating profit | Adjusted net profit attributable to owners of the parent | Basic earnings per share | Diluted earnings per share | Adjusted basic earnings per share | ||||||||||||||||||||||||||||
Six-month period ended | | JPY (millions | ) | % | | JPY (millions | ) | % | JPY | JPY | JPY | |||||||||||||||||||||
September 30, 2020 | 29,036 | (47.6 | ) | 16,589 | (51.6 | ) | 41.53 | 41.53 | 62.58 | |||||||||||||||||||||||
September 30, 2019 | 55,384 | 196.6 | 34,307 | 188.1 | 112.30 | 112.30 | 132.11 | |||||||||||||||||||||||||
(2) Consolidated Financial Position
|
| |||||||||||||||||||||||||||||||
| Total assets | Total equity | Equity attributable to owners of the parent | Ratio of equity attributable to owners of the parent to total assets | |||||||||||||
As of | | JPY (millions | ) | | JPY (millions | ) | | JPY (millions | ) | % | ||||||
September 30, 2020 | 3,025,927 | 1,196,884 | 993,194 | 32.8 | ||||||||||||
March 31, 2020 | 3,123,254 | 1,114,523 | 910,674 | 29.2 | ||||||||||||
2. Dividends
| ||||||||||||||||||||||||
| Annual dividends | ||||||||||||||||||||||||
| End of first quarter | End of second quarter | End of third quarter | Fiscal year-end | Total | ||||||||||||||||||||
Years ended | JPY | JPY | JPY | JPY | JPY | |||||||||||||||||||
March 31, 2020 | — | 30.00 | — | 40.00 | 70.00 | |||||||||||||||||||
March 31, 2021 | — | 40.00 | ||||||||||||||||||||||
March 31, 2021 (forecast) | — | 40.00 | 80.00 | |||||||||||||||||||||
| * | Notes-Revision in the dividends forecast from latest announcement: None |
Table of Contents
3. Consolidated Financial Results Forecast for the Year Ending March 31, 2021 (April 1, 2020 – March 31, 2021)
(Percentage figures represent year-on-year changes)
| Revenue | Operating profit | Net profit attributable to owners of the parent | Basic earnings per share | |||||||||||||||||||||||||
| | JPY (millions) |
| % | | JPY (millions) |
| % | | JPY (millions) |
| % | JPY | ||||||||||||||||
Year ending March 31, 2021 | 3,030,000 | (2.1 | ) | 150,000 | 17.5 | 90,000 | (10.0 | ) | 335.07 | |||||||||||||||||||
| Adjusted operating profit | Adjusted net profit attributable to owners of the parent | Adjusted basic earnings per share | ||||||||||||||||||||
| | JPY (millions) |
| % | | JPY (millions) |
| % | JPY | ||||||||||||||
Year ending March 31, 2021 | 165,000 | 13.2 | 99,000 | (11.0 | ) | 368.57 | ||||||||||||||||
| * | Notes-Revision in consolidated financial results forecast from latest announcement: None |
| * | Notes |
(1) Changes in significant subsidiaries during the period
(Changes in specified subsidiaries resulting in the change in consolidation scope): None
| Newly included | : — | — | (Name of the company) | |||||||
| Excluded | : — | — | (Name of the company) |
(2) Changes in accounting policies and changes in accounting estimates
| 1) Changes in accounting policies required by IFRS | : None | |||
| 2) Changes in accounting policies other than 1) | : None | |||
| 3) Changes in accounting estimates | : None |
(3) Number of shares outstanding (common stock)
1) Number of shares outstanding at the end of period (including treasury stock) | September 30, 2020 | 272,849,863 shares | March 31, 2020 | 260,473,263 shares | ||||||||||||
2) Number of treasury stock at the end of period | September 30, 2020 | 361,816 shares | March 31, 2020 | 885,719 shares | ||||||||||||
3) Average number of shares during the period | September 30, 2020 | 265,082,491 shares | September 30, 2019 | 259,690,532 shares |
| * | This summary of consolidated financial results falls outside the scope of quarterly review procedures to be performed by certified public accountants or an audit firm. |
| * | Explanation concerning the appropriate use of the financial results forecast and other special matters |
(Adjusted profit (loss))
For definitions of “Adjusted operating profit (loss)” and “Adjusted net profit (loss) attributable to owners of the parent,” please refer to “1.Overview of Business Results” on page 2.
Table of Contents
(Cautionary statement with respect to forward-looking statements)
The forward-looking statements such as operating results forecast contained in this statements summary are based on the information currently available to NEC Corporation (“the Company”) and certain assumptions considered reasonable. Actual operating results may differ significantly from these forecasts due to various factors. For details, please refer to “3. Cautionary Statement with Respect to Forward-Looking Statements” on page 25.
(How to obtain supplementary financial materials and information on the financial results briefing)
On October 29, 2020, the Company will hold a financial results briefing for the institutional investors and analysts. Presentation materials will be posted on the company website after the release of financial results, and the presentation video and Q&A summary will be also posted on the company website promptly after the financial results briefing.
In addition to the above, the Company periodically holds briefings on business and operating results for the individual investors. Presentation materials and Q&A summary will be posted on the company website promptly after the briefing. For the schedule and details, please check the company website.
Table of Contents
Table of Contents of Attachment
- 1 -
Table of Contents
1. Overview of Business Results
As stated in the July 21, 2020 announcement, “NEC to Revise Operating Segments”, starting from the first quarter of the consolidated financial results for the fiscal year ending March 31, 2021, NEC announced operating results using revised segments. Figures for the corresponding period of the previous fiscal year have been restated to conform to the new segments.
“Adjusted operating profit (loss)” is an indicator for measuring underlying profitability in order to clarify the contribution of acquired companies to NEC’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). Also, “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 amount of tax and non-controlling interests from net profit (loss) attributable to owners of the parent.
(1) Overview of Operating Results
i) Overview of the six-month period ended September 30, 2020
The world economy and the Japanese economy both deteriorated significantly during the six-month period ended September 30, 2020, due to the effects of restrictions on personal movement and suspension of sales and production activities due to the global pandemic of new coronavirus (“COVID-19”). Even after the lifting of restrictions on personal movement, the pace of improvement slowed down mainly due to self-restraint of economic activity.
Under this business environment, the NEC Group recorded consolidated revenue of 1,315.0 billion JPY for the six-month period ended September 30, 2020, a decrease of 134.0 billion JPY (-9.2%) year-on-year. This decrease was mainly due to decreased revenue in the Enterprise business, the Public Solutions business and the Global business.
Regarding profitability, operating profit worsened by 26.9 billion JPY year-on-year, to an operating profit of 20.0 billion JPY, mainly due to decreased revenue, despite improvement in selling, general and administrative expenses from the efficiency on expenditure, in addition to improvement in other operating income from gain on sales of subsidiaries. Adjusted operating profit worsened by 26.3 billion JPY year-on-year, to an adjusted operating profit of 29.0 billion JPY.
Profit before income taxes was a profit of 19.4 billion JPY, a year-on-year worsening of 26.8 billion JPY, mainly due to worsened operating profit.
Net profit attributable to owners of the parent was a profit of 11.0 billion JPY, a worsening of 18.2 billion JPY year-on-year. This was primarily due to worsened profit before income taxes. Adjusted net profit attributable to owners of the parent worsened by 17.7 billion JPY year-on-year, to an adjusted net profit attributable to owners of the parent of 16.6 billion JPY.
- 2 -
Table of Contents
ii) Results by main segment
Revenue by segment (revenue from customers):
Segments | Six-month period ended September 30, 2019 | Six-month period ended September 30, 2020 | Change | |||||||||
| JPY (billions) | JPY (billions) | % | ||||||||||
Public Solutions | 207.2 | 177.1 | (14.5 | ) | ||||||||
Public Infrastructure | 299.2 | 281.6 | (5.9 | ) | ||||||||
Enterprise | 288.2 | 238.1 | (17.4 | ) | ||||||||
Network Services | 214.4 | 225.5 | 5.2 | |||||||||
Global | 243.3 | 219.3 | (9.9 | ) | ||||||||
Others | 196.7 | 173.4 | (11.8 | ) | ||||||||
|
|
|
|
|
| |||||||
Total | 1,449.0 | 1,315.0 | (9.2 | ) | ||||||||
|
|
|
|
|
| |||||||
Adjusted operating profit (loss) by segment:
Segments | Six-month period ended September 30, 2019 | Six-month period ended September 30, 2020 | Change | |||||||||
| JPY (billions) | JPY (billions) | JPY (billions) | ||||||||||
Public Solutions | 9.9 | 4.6 | (5.3 | ) | ||||||||
Public Infrastructure | 24.2 | 16.6 | (7.7 | ) | ||||||||
Enterprise | 25.2 | 18.0 | (7.3 | ) | ||||||||
Network Services | 9.1 | 6.2 | (2.9 | ) | ||||||||
Global | 1.1 | (3.3 | ) | (4.4 | ) | |||||||
Others | 13.9 | 7.2 | (6.7 | ) | ||||||||
Reconciling items | (28.1 | ) | (20.2 | ) | 7.9 | |||||||
|
|
|
|
|
| |||||||
Total | 55.4 | 29.0 | (26.3 | ) | ||||||||
|
|
|
|
|
| |||||||
Notes:
Amounts in this section ii) “Results by main segment” are rounded to 0.1 billion JPY. Amounts in millions of JPY are shown in Note 3 “Segment Information” in Note (5) “Notes to Condensed Interim Consolidated Financial Statements”.
- 3 -
Table of Contents
(Business segment figures in brackets below denote increases or decreases as compared with the corresponding period of the previous fiscal year.)
| Public Solutions Business | ||||||
Revenue: | 177.1 billion JPY | (-14.5%) | ||||
Adjusted Operating Profit (Loss): | 4.6 billion JPY | (-5.3 billion JPY) |
In the Public Solutions business, revenue was 177.1 billion JPY, a decrease of 30.1 billion JPY (-14.5%) year-on-year, mainly due to decreased sales in sectors that include healthcare and regional industries, as well as reduced renewal demand for business PCs.
Adjusted operating profit (loss) worsened by 5.3 billion JPY year-on-year, to an adjusted operating profit of 4.6 billion JPY, mainly due to decreased sales.
Public Infrastructure Business | ||||||
Revenue: | 281.6 billion JPY | (-5.9%) | ||||
Adjusted Operating Profit (Loss): | 16.6 billion JPY | (-7.7 billion JPY) |
In the Public Infrastructure business, revenue was 281.6 billion JPY, a decrease of 17.6 billion JPY (-5.9%) year-on-year, mainly due to decreased sales in sectors that include aerospace and defense, as well as decreased sales at consolidated subsidiaries.
Adjusted operating profit (loss) worsened by 7.7 billion JPY year-on-year, to an adjusted operating profit of 16.6 billion JPY, mainly due to decreased profit at consolidated subsidiaries.
Enterprise Business | ||||||
Revenue: | 238.1 billion JPY | (-17.4%) | ||||
Adjusted Operating Profit (Loss): | 18.0 billion JPY | (-7.3 billion JPY) |
In the Enterprise business, revenue was 238.1 billion JPY, a decrease of 50.1 billion JPY (-17.4%) year-on-year, mainly due to reduced IT investments in the manufacturing, retail and service sectors, in addition to decreased sales of large-scale projects as compared with the corresponding period of the previous year and reduced renewal demand for business PCs.
Adjusted operating profit (loss) worsened by 7.3 billion JPY year-on-year, to an adjusted operating profit of 18.0 billion JPY, mainly due to decreased sales.
Network Services Business | ||||||
Revenue: | 225.5 billion JPY | (+5.2%) | ||||
Adjusted Operating Profit (Loss): | 6.2 billion JPY | (-2.9 billion JPY) |
In the Network Services business, revenue was 225.5 billion JPY, an increase of 11.1 billion JPY (+5.2%) year-on-year, mainly due to increased sales at consolidated subsidiaries.
Adjusted operating profit (loss) worsened by 2.9 billion JPY year-on-year, to an adjusted operating profit of 6.2 billion JPY, mainly due to growing 5G investment, despite increased sales.
- 4 -
Table of Contents
Global Business | ||||||
Revenue: | 219.3 billion JPY | (-9.9%) | ||||
Adjusted Operating Profit (Loss): | -3.3 billion JPY | (-4.4 billion JPY) |
In the Global business, revenue was 219.3 billion JPY, a decrease of 24.0 billion JPY (-9.9%) year-on-year, mainly due to decreased sales in the display and wireless backhaul areas, in addition to the termination of part of KMD’s business, which was expected from the time of its acquisition, despite increased sales of submarine systems.
Adjusted operating profit (loss) worsened by 4.4 billion JPY year-on-year, to an adjusted operating loss of 3.3 billion JPY, mainly due to decreased sales.
Others | ||||||
Revenue: | 173.4 billion JPY | (-11.8%) | ||||
Adjusted Operating Profit (Loss): | 7.2 billion JPY | (-6.7 billion JPY) |
In the Others, revenue was 173.4 billion JPY, a decrease of 23.3 billion JPY (-11.8%) year-on-year.
Adjusted operating profit (loss) worsened by 6.7 billion JPY year-on-year, to an adjusted operating profit of 7.2 billion JPY.
- 5 -
Table of Contents
(2) Overview of Financial Position
Analysis of the condition of assets, liabilities, equity, and cash flows
Total assets were 3,025.9 billion JPY as of September 30, 2020, a decrease of 97.3 billion JPY as compared with the end of the previous fiscal year. Current assets as of September 30, 2020 decreased by 108.7 billion JPY compared with the end of the previous fiscal year to 1,590.3 billion JPY, mainly due to the collection of trade and other receivables, despite increased inventories. Non-current assets as of September 30, 2020 increased by 11.3 billion JPY compared with the end of the previous fiscal year to 1,435.7 billion JPY. This was mainly due to an increase in other financial assets resulting from the rising market value of equity securities.
Total liabilities as of September 30, 2020 decreased by 179.7 billion JPY compared with the end of the previous fiscal year to 1,829.0 billion JPY. This was mainly due to a decrease in trade and other payables from the payment of materials cost and a decrease in interest-bearing debt from repayments. The balance of interest-bearing debt amounted to 631.0 billion JPY, a decrease of 44.5 billion JPY as compared with the end of the previous fiscal year. The debt-equity ratio as of September 30, 2020 was 0.64 (an improvement of 0.10 points as compared with the end of the previous fiscal year). The balance of net interest-bearing debt as of September 30, 2020, calculated by offsetting the balance of interest-bearing debt with the balance of cash and cash equivalents, amounted to 259.6 billion JPY, a decrease of 56.6 billion JPY as compared with the end of the previous fiscal year. The net debt-equity ratio as of September 30, 2020 was 0.26 (an improvement of 0.09 points as compared with the end of the previous fiscal year).
Total equity was 1,196.9 billion JPY as of September 30, 2020, an increase of 82.4 billion JPY as compared with the end of the previous fiscal year, mainly due to the execution of issuance of new shares by way of third-party allotment to Nippon Telegraph and Telephone Corporation (“NTT Corporation”), the increase in other components of equity resulting from the rising market value of equity securities, and the recognition of net profit for the six-month period ended September 30, 2020, despite payment of dividends.
As a result, total equity attributable to owners of the parent (total equity less non-controlling interests) as of September 30, 2020 was 993.2 billion JPY, and the ratio of equity attributable to owners of the parent was 32.8% (an improvement of 3.7 points as compared with the end of the previous fiscal year).
Net cash inflows from operating activities for the six-month period ended September 30, 2020 were 63.9 billion JPY, a year-on-year worsening of 41.4 billion JPY, mainly due to worsened profit before income taxes, despite improved working capital.
Net cash outflows from investing activities for the six-month period ended September 30, 2020 were 34.2 billion JPY, a decrease of 15.5 billion JPY year-on-year, mainly due to proceeds from sales of subsidiaries.
As a result, free cash flows (the sum of cash flows from operating activities and investing activities) for the six-month period ended September 30, 2020 totaled a cash inflow of 29.7 billion JPY, a year-on-year worsening of 25.9 billion JPY
Net cash flows from financing activities for the six-month period ended September 30, 2020 totaled a cash outflow of 14.3 billion JPY, mainly due to redemption of bonds, repayments of lease liabilities and dividends paid, despite proceeds from issuance of common shares and proceeds from issuance of bonds.
As a result, cash and cash equivalents as of September 30, 2020 amounted to 371.4 billion JPY, an increase of 12.2 billion JPY as compared with the end of the previous fiscal year.
(3) Outlook for the Fiscal Year Ending March 31, 2021
There is no change to the outlook for the fiscal year ending March 31, 2021, as previously disclosed on July 31, 2020.
- 6 -
Table of Contents
2. Condensed Interim Consolidated Financial Statements and Notes to Condensed Interim Consolidated Financial Statements
(1) Condensed Interim Consolidated Statements of Financial Position
| JPY (millions) | ||||||||||||
| Notes | As of March 31, 2020 | As of September 30, 2020 | ||||||||||
Assets | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | 359,252 | 371,409 | ||||||||||
Trade and other receivables | 737,484 | 487,927 | ||||||||||
Contract assets | 247,625 | 304,437 | ||||||||||
Inventories | 199,326 | 239,992 | ||||||||||
Other financial assets | 5,584 | 5,839 | ||||||||||
Other current assets | 108,436 | 129,151 | ||||||||||
|
|
|
| |||||||||
Subtotal | 1,657,707 | 1,538,755 | ||||||||||
Assets held for sale | 41,210 | 51,512 | ||||||||||
|
|
|
| |||||||||
Total current assets | 1,698,917 | 1,590,267 | ||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment, net | 558,077 | 553,163 | ||||||||||
Goodwill | 182,334 | 191,767 | ||||||||||
Intangible assets, net | 199,093 | 197,493 | ||||||||||
Investments accounted for | 74,092 | 68,490 | ||||||||||
Other financial assets | 219,326 | 245,226 | ||||||||||
Deferred tax assets | 165,183 | 154,213 | ||||||||||
Other non-current assets | 26,232 | 25,308 | ||||||||||
|
|
|
| |||||||||
Total non-current assets | 1,424,337 | 1,435,660 | ||||||||||
|
|
|
| |||||||||
Total assets | 3,123,254 | 3,025,927 | ||||||||||
|
|
|
| |||||||||
- 7 -
Table of Contents
Condensed Interim Consolidated Statements of Financial Position (Continued)
| JPY (millions) | ||||||||||||
| Notes | As of March 31, 2020 | As of September 30, 2020 | ||||||||||
Liabilities and equity | ||||||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade and other payables | 460,881 | 373,065 | ||||||||||
Contract liabilities | 195,152 | 199,182 | ||||||||||
Bonds and borrowings | 154,992 | 65,934 | ||||||||||
Accruals | 191,440 | 184,450 | ||||||||||
Lease liabilities | 47,085 | 46,185 | ||||||||||
Other financial liabilities | 14,995 | 14,668 | ||||||||||
Accrued income taxes | 12,624 | 7,526 | ||||||||||
Provisions | 59,412 | 52,581 | ||||||||||
Other current liabilities | 55,153 | 33,110 | ||||||||||
|
|
|
| |||||||||
Subtotal | 1,191,734 | 976,701 | ||||||||||
Liabilities directly associated with assets held for sale | 30,133 | 23,190 | ||||||||||
|
|
|
| |||||||||
Total current liabilities | 1,221,867 | 999,891 | ||||||||||
Non-current liabilities | ||||||||||||
Bonds and borrowings | 364,828 | 416,646 | ||||||||||
Lease liabilities | 108,514 | 102,202 | ||||||||||
Other financial liabilities | 42,402 | 33,714 | ||||||||||
Net defined benefit liabilities | 224,469 | 233,804 | ||||||||||
Provisions | 12,369 | 10,153 | ||||||||||
Other non-current liabilities | 34,282 | 32,633 | ||||||||||
|
|
|
| |||||||||
Total non-current liabilities | 786,864 | 829,152 | ||||||||||
|
|
|
| |||||||||
Total liabilities | 2,008,731 | 1,829,043 | ||||||||||
Equity | ||||||||||||
Share capital | 397,199 | 427,831 | ||||||||||
Share premium | 139,735 | 170,119 | ||||||||||
Retained earnings | 436,361 | 436,976 | ||||||||||
Treasury shares | (4,157 | ) | (1,562 | ) | ||||||||
Other components of equity | 4 | (58,464 | ) | (40,170 | ) | |||||||
|
|
|
| |||||||||
Total equity attributable to owners of the parent | 910,674 | 993,194 | ||||||||||
Non-controlling interests | 203,849 | 203,690 | ||||||||||
|
|
|
| |||||||||
Total equity | 1,114,523 | 1,196,884 | ||||||||||
|
|
|
| |||||||||
Total liabilities and equity | 3,123,254 | 3,025,927 | ||||||||||
|
|
|
| |||||||||
- 8 -
Table of Contents
(2) Condensed Interim Consolidated Statements of Profit or Loss and Comprehensive Income
Condensed Interim Consolidated Statements of Profit or Loss
| JPY (millions) | ||||||||||||
Six-month period ended September 30 | Notes | 2019 | 2020 | |||||||||
Revenue | 1,448,993 | 1,315,030 | ||||||||||
Cost of sales | 1,042,268 | 960,314 | ||||||||||
|
|
|
| |||||||||
Gross profit | 406,725 | 354,716 | ||||||||||
Selling, general and administrative expenses | 359,539 | 346,252 | ||||||||||
Other operating income (expenses) | (330 | ) | 11,509 | |||||||||
|
|
|
| |||||||||
Operating profit | 46,856 | 19,973 | ||||||||||
Finance income | 5 | 4,385 | 3,057 | |||||||||
Finance costs | 5 | 8,733 | 5,182 | |||||||||
Share of profit of entities accounted for using the equity method | 3,607 | 1,515 | ||||||||||
|
|
|
| |||||||||
Profit before income taxes | 46,115 | 19,363 | ||||||||||
Income taxes | 13,295 | 6,049 | ||||||||||
|
|
|
| |||||||||
Net profit | 32,820 | 13,314 | ||||||||||
|
|
|
| |||||||||
Net profit attributable to | ||||||||||||
Owners of the parent | 29,162 | 11,008 | ||||||||||
Non-controlling interests | 3,658 | 2,306 | ||||||||||
|
|
|
| |||||||||
Total | 32,820 | 13,314 | ||||||||||
|
|
|
| |||||||||
Earnings per share attributable to owners of the parent | ||||||||||||
Basic earnings per share (JPY) | 112.30 | 41.53 | ||||||||||
Diluted earnings per share (JPY) | 112.30 | 41.53 | ||||||||||
- 9 -
Table of Contents
Condensed Interim Consolidated Statements of Comprehensive Income
| JPY (millions) | ||||||||||||
Six-month period ended September 30 | Notes | 2019 | 2020 | |||||||||
Net profit | 32,820 | 13,314 | ||||||||||
Other comprehensive income, net of tax | ||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||
Equity instruments designated as measured at fair value through other comprehensive income | (5,470 | ) | 16,255 | |||||||||
Remeasurements of defined benefit plans | — | (2,122 | ) | |||||||||
Share of other comprehensive income of entities accounted for using the equity method | 6 | 186 | ||||||||||
|
|
|
| |||||||||
Total items that will not be reclassified to profit or loss | (5,464 | ) | 14,319 | |||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||
Exchange differences on translating foreign operations | (16,266 | ) | 4,984 | |||||||||
Cash flow hedges | (19 | ) | 417 | |||||||||
Share of other comprehensive income of entities accounted for using the equity method | (160 | ) | 39 | |||||||||
|
|
|
| |||||||||
Total items that may be reclassified subsequently to profit or loss | (16,445 | ) | 5,440 | |||||||||
|
|
|
| |||||||||
Total other comprehensive income, net of tax | (21,909 | ) | 19,759 | |||||||||
|
|
|
| |||||||||
Total comprehensive income | 10,911 | 33,073 | ||||||||||
|
|
|
| |||||||||
Total comprehensive income attributable to | ||||||||||||
Owners of the parent | 10,132 | 29,302 | ||||||||||
Non-controlling interests | 779 | 3,771 | ||||||||||
|
|
|
| |||||||||
Total | 10,911 | 33,073 | ||||||||||
|
|
|
| |||||||||
- 10 -
Table of Contents
[Three-month Period Information]
Condensed Interim Consolidated Statements of Profit or Loss and Comprehensive Income
Condensed Interim Consolidated Statements of Profit or Loss
| JPY (millions) | ||||||||||||
Three-month period ended September 30 | Notes | 2019 | 2020 | |||||||||
Revenue | 795,138 | 727,301 | ||||||||||
Cost of sales | 569,185 | 522,503 | ||||||||||
|
|
|
| |||||||||
Gross profit | 225,953 | 204,798 | ||||||||||
Selling, general and administrative expenses | 183,927 | 176,462 | ||||||||||
Other operating income (expenses) | 1,448 | 1,911 | ||||||||||
|
|
|
| |||||||||
Operating profit | 43,474 | 30,247 | ||||||||||
Finance income | 5 | 1,105 | 448 | |||||||||
Finance costs | 5 | 4,542 | 2,779 | |||||||||
Share of profit of entities accounted for using the equity method | 2,333 | 1,063 | ||||||||||
|
|
|
| |||||||||
Profit before income taxes | 42,370 | 28,979 | ||||||||||
Income taxes | 12,142 | 9,285 | ||||||||||
|
|
|
| |||||||||
Net profit | 30,228 | 19,694 | ||||||||||
|
|
|
| |||||||||
Net profit attributable to | ||||||||||||
Owners of the parent | 25,897 | 16,010 | ||||||||||
Non-controlling interests | 4,331 | 3,684 | ||||||||||
|
|
|
| |||||||||
Total | 30,228 | 19,694 | ||||||||||
|
|
|
| |||||||||
Earnings per share attributable to owners of the parent | ||||||||||||
Basic earnings per share (JPY) | 99.73 | 59.47 | ||||||||||
Diluted earnings per share (JPY) | 99.73 | 59.47 | ||||||||||
- 11 -
Table of Contents
Condensed Interim Consolidated Statements of Comprehensive Income
| JPY (millions) | ||||||||||||
Three-month period ended September 30 | Notes | 2019 | 2020 | |||||||||
Net profit | 30,228 | 19,694 | ||||||||||
Other comprehensive income, net of tax | ||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||
Equity instruments designated as measured at fair value through other comprehensive income | 1,357 | 929 | ||||||||||
Remeasurements of defined benefit plans | — | (2,122 | ) | |||||||||
Share of other comprehensive income of entities accounted for using the equity method | 28 | (120 | ) | |||||||||
|
|
|
| |||||||||
Total items that will not be reclassified to profit or loss | 1,385 | (1,313 | ) | |||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||
Exchange differences on translating foreign operations | (7,916 | ) | 2,100 | |||||||||
Cash flow hedges | (11 | ) | 450 | |||||||||
Share of other comprehensive income of entities accounted for using the equity method | (64 | ) | 2 | |||||||||
|
|
|
| |||||||||
Total items that may be reclassified subsequently to profit or loss | (7,991 | ) | 2,552 | |||||||||
|
|
|
| |||||||||
Total other comprehensive income, net of tax | (6,606 | ) | 1,239 | |||||||||
|
|
|
| |||||||||
Total comprehensive income | 23,622 | 20,933 | ||||||||||
|
|
|
| |||||||||
Total comprehensive income attributable to | ||||||||||||
Owners of the parent | 20,685 | 16,645 | ||||||||||
Non-controlling interests | 2,937 | 4,288 | ||||||||||
|
|
|
| |||||||||
Total | 23,622 | 20,933 | ||||||||||
|
|
|
| |||||||||
- 12 -
Table of Contents
(3) Condensed Interim Consolidated Statements of Changes in Equity
(Six-month period ended September 30, 2019)
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Equity attributable to owners of the parent | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
| Notes | Share capital | Share premium | Retained earnings | Treasury shares | Other components of equity | Total | ||||||||||||||||||||||||||||||
As of April 1, 2019 | 397,199 | 138,824 | 354,582 | (3,547 | ) | (28,119 | ) | 858,939 | 200,742 | 1,059,681 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net profit | — | — | 29,162 | — | — | 29,162 | 3,658 | 32,820 | ||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | (19,030 | ) | (19,030 | ) | (2,879 | ) | (21,909 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Comprehensive income | — | — | 29,162 | — | (19,030 | ) | 10,132 | 779 | 10,911 | |||||||||||||||||||||||||||
Purchase of treasury shares | — | — | — | (654 | ) | — | (654 | ) | — | (654 | ) | |||||||||||||||||||||||||
Disposal of treasury shares | — | (0 | ) | — | 60 | — | 60 | — | 60 | |||||||||||||||||||||||||||
Cash dividends | — | — | (10,393 | ) | — | — | (10,393 | ) | (2,553 | ) | (12,946 | ) | ||||||||||||||||||||||||
Put option, written over shares held by a non-controlling interest shareholder | — | 630 | — | — | — | 630 | — | 630 | ||||||||||||||||||||||||||||
Changes in interests in subsidiaries | — | (10 | ) | — | — | — | (10 | ) | 291 | 281 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total transactions with owners | — | 620 | (10,393 | ) | (594 | ) | — | (10,367 | ) | (2,262 | ) | (12,629 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
As of September 30, 2019 | 397,199 | 139,444 | 373,351 | (4,141 | ) | (47,149 | ) | 858,704 | 199,259 | 1,057,963 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Six-month period ended September 30, 2020)
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Equity attributable to owners of the parent | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
| Notes | Share capital | Share premium | Retained earnings | Treasury shares | Other components of equity | Total | ||||||||||||||||||||||||||||||
As of April 1, 2020 | 397,199 | 139,735 | 436,361 | (4,157 | ) | (58,464 | ) | 910,674 | 203,849 | 1,114,523 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net profit | — | — | 11,008 | — | — | 11,008 | 2,306 | 13,314 | ||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 18,294 | 18,294 | 1,465 | 19,759 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Comprehensive income | — | — | 11,008 | — | 18,294 | 29,302 | 3,771 | 33,073 | ||||||||||||||||||||||||||||
Issuance of common shares | 30,632 | 30,374 | — | — | — | 61,006 | — | 61,006 | ||||||||||||||||||||||||||||
Purchase of treasury shares | — | — | — | (610 | ) | — | (610 | ) | — | (610 | ) | |||||||||||||||||||||||||
Disposal of treasury shares | — | 20 | — | 3,205 | — | 3,225 | — | 3,225 | ||||||||||||||||||||||||||||
Cash dividends | — | — | (10,393 | ) | — | — | (10,393 | ) | (3,532 | ) | (13,925 | ) | ||||||||||||||||||||||||
Changes in interests in subsidiaries | — | (9 | ) | — | — | — | (9 | ) | (398 | ) | (407 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total transactions with owners | 30,632 | 30,385 | (10,393 | ) | 2,595 | — | 53,219 | (3,930 | ) | 49,289 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
As of September 30, 2020 | 427,831 | 170,119 | 436,976 | (1,562 | ) | (40,170 | ) | 993,194 | 203,690 | 1,196,884 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
- 13 -
Table of Contents
(4) Condensed Interim Consolidated Statements of Cash Flows
| JPY (millions) | ||||||||||||
Six-month period ended September 30 | Notes | 2019 | 2020 | |||||||||
Cash flows from operating activities | ||||||||||||
Profit before income taxes | 46,115 | 19,363 | ||||||||||
Depreciation and amortization | 79,473 | 80,946 | ||||||||||
Impairment loss | 3,047 | 265 | ||||||||||
(Decrease) in provisions | (10,902 | ) | (9,907 | ) | ||||||||
Finance income | 5 | (4,385 | ) | (3,057 | ) | |||||||
Finance costs | 5 | 8,733 | 5,182 | |||||||||
Share of profit of entities accounted for using the equity method | (3,607 | ) | (1,515 | ) | ||||||||
Decrease in trade and other receivables | 156,043 | 241,763 | ||||||||||
(Increase) in inventories | (39,316 | ) | (38,413 | ) | ||||||||
(Decrease) in trade and other payables | (35,458 | ) | (84,231 | ) | ||||||||
Others, net | (86,775 | ) | (136,089 | ) | ||||||||
|
|
|
| |||||||||
Subtotal | 112,968 | 74,307 | ||||||||||
Interest and dividends received | 4,683 | 3,394 | ||||||||||
Interest paid | (4,267 | ) | (3,827 | ) | ||||||||
Income taxes paid | (8,042 | ) | (9,944 | ) | ||||||||
|
|
|
| |||||||||
Net cash provided by operating activities | 105,342 | 63,930 | ||||||||||
Cash flows from investing activities | ||||||||||||
Purchases of property, plant and equipment | (40,793 | ) | (33,903 | ) | ||||||||
Proceeds from sales of property, plant and equipment | 2,355 | 4,610 | ||||||||||
Acquisitions of intangible assets | (8,091 | ) | (4,692 | ) | ||||||||
Purchase of equity instruments designated as measured at fair value through other comprehensive income | (757 | ) | (1,867 | ) | ||||||||
Proceeds from sales of equity instruments designated as measured at fair value through other comprehensive income | 7,434 | 879 | ||||||||||
Purchase of shares of newly consolidated subsidiaries | (5,751 | ) | (4,594 | ) | ||||||||
Increase in cash flows resulting in change in scope of consolidation, net of consideration transferred | 52 | — | ||||||||||
Proceeds from sales of subsidiaries | — | 6,111 | ||||||||||
Purchases of investments in associates or joint ventures | (266 | ) | (210 | ) | ||||||||
Proceeds from sales of investments in associates or joint ventures | 1,610 | 328 | ||||||||||
Others, net | (5,500 | ) | (857 | ) | ||||||||
|
|
|
| |||||||||
Net cash used in investing activities | (49,707 | ) | (34,195 | ) | ||||||||
- 14 -
Table of Contents
Condensed Interim Consolidated Statements of Cash Flows (Continued)
| JPY (millions) | ||||||||||||
Six-month period ended September 30 | Notes | 2019 | 2020 | |||||||||
Cash flows from financing activities | ||||||||||||
(Decrease) in short-term borrowings, net | (16,636 | ) | (34,064 | ) | ||||||||
Proceeds from long-term borrowings | 35,774 | 20,100 | ||||||||||
Repayments of long-term borrowings | (41,561 | ) | (1,017 | ) | ||||||||
Proceeds from issuance of bonds | — | 35,000 | ||||||||||
Redemption of bonds | — | (55,000 | ) | |||||||||
Repayments of lease liabilities | (26,482 | ) | (28,239 | ) | ||||||||
Proceeds from issuance of common shares | — | 60,893 | ||||||||||
Dividends paid | (10,398 | ) | (10,400 | ) | ||||||||
Dividends paid to non-controlling interests | (2,553 | ) | (3,530 | ) | ||||||||
Proceeds from disposal of treasury shares | 60 | 3,225 | ||||||||||
Others, net | (14 | ) | (1,259 | ) | ||||||||
|
|
|
| |||||||||
Net cash used in financing activities | (61,810 | ) | (14,291 | ) | ||||||||
|
|
|
| |||||||||
Effect of exchange rate changes on cash and cash equivalents | (3,660 | ) | (351 | ) | ||||||||
|
|
|
| |||||||||
Net (decrease) increase in cash and cash equivalents | (9,835 | ) | 15,093 | |||||||||
|
|
|
| |||||||||
Cash and cash equivalents, at beginning of period | 278,314 | 359,252 | ||||||||||
|
|
|
| |||||||||
Increase (decrease) in cash and cash equivalents resulting from transfer to assets held for sale | 1,541 | (2,936 | ) | |||||||||
|
|
|
| |||||||||
Cash and cash equivalents, at the end of period | 270,020 | 371,409 | ||||||||||
|
|
|
| |||||||||
- 15 -
Table of Contents
(5) Notes to Condensed Interim Consolidated Financial Statements
Not applicable.
2. Significant Accounting Policies
Significant accounting policies adopted for the six-month period ended September 30, 2020 are consistent with those applied for the previous fiscal year ended March 31, 2020.
Income taxes for the six-month period ended September 30, 2020 are calculated using reasonably estimated annual effective tax rate.
- 16 -
Table of Contents
(1) General information about reportable segments
The reportable segments of NEC Group ( “the Company” or “NEC” ) are determined from operating segments that are identified in terms of similarity of products, services and markets based on business, and are the businesses for which the Company is able to obtain respective financial information separately, and the businesses are investigated periodically in order for the Board of Directors to conduct periodic investigation to determine distribution of management resources and evaluate their business results. The Company has five reportable segments, which are Public Solutions, Public Infrastructure, Enterprise, Network Services, and Global businesses.
Descriptions of each reportable segment are as follows:
Public Solutions business mainly provides Systems Integration (Systems Implementation, Consulting), Maintenance and Support, Outsourcing / Cloud Services, and System Equipment, for Public, Healthcare, and Regional industries.
Public Infrastructure business mainly provides Systems Integration (Systems Implementation, Consulting), Maintenance and Support, Outsourcing / Cloud Services, and System Equipment, for Government, and Media industry.
Enterprise business mainly provides Systems Integration (Systems Implementation, Consulting), Maintenance and Support, Outsourcing / Cloud Services, and System Equipment, for Manufacturing, Retail, Services and Finance industries.
Network Services business mainly provides Network Infrastructure (Core Network, Mobile Phone Base Stations, Optical Transmission Systems, Routers / Switches) and Systems Integration (Systems Implementation, and Consulting), and Services & Management (OSS/BSS, Service Solutions), for telecom market in Japan.
Global business mainly provides Safer Cities (Public Safety, Digital Government), Software Services for Service Providers (OSS/BSS), Network Infrastructure (Submarine Systems, Wireless Backhaul), System Devices (Displays, Projectors), and Energy Storage System.
Notes:
OSS: Operation Support System, BSS: Business Support System
(2) Basis of measurement for reportable segment revenue and segment profit or loss
Segment profit (loss) 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).
Intersegment revenues are made at amount that approximates arm’s-length prices.
- 17 -
Table of Contents
(3) Information about revenue, profit or loss by reportable segment
(Six-month period ended September 30, 2019)
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Reportable Segments | ||||||||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | Others (Note 1) | Reconciling items (Note 2) | Consolidated Total | ||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
External customers | 207,242 | 299,218 | 288,188 | 214,388 | 243,265 | 1,252,301 | 196,692 | — | 1,448,993 | |||||||||||||||||||||||||||
Intersegment | 7,596 | 2,004 | 22,921 | 4,488 | 206 | 37,215 | 5,603 | (42,818 | ) | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 214,838 | 301,222 | 311,109 | 218,876 | 243,471 | 1,289,516 | 202,295 | (42,818 | ) | 1,448,993 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Segment profit (loss) | 9,893 | 24,246 | 25,221 | 9,138 | 1,096 | 69,594 | 13,888 | (28,098 | ) | 55,384 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Acquisition-related amortization of intangible assets | (8,325 | ) | ||||||||||||||||||||||||||||||||||
Expenses for M&A | (203 | ) | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Operating profit | 46,856 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Finance income | 4,385 | |||||||||||||||||||||||||||||||||||
Finance costs | (8,733 | ) | ||||||||||||||||||||||||||||||||||
Share of profit of entities accounted for using the equity method | 3,607 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Profit before income taxes | 46,115 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
(Six-month period ended September 30, 2020)
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Reportable Segments | ||||||||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | Others (Note 1) | Reconciling items (Note 2) | Consolidated Total | ||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
External customers | 177,104 | 281,622 | 238,109 | 225,488 | 219,280 | 1,141,603 | 173,427 | — | 1,315,030 | |||||||||||||||||||||||||||
Intersegment | 5,347 | 1,623 | 20,712 | 4,226 | 273 | 32,181 | 3,909 | (36,090 | ) | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 182,451 | 283,245 | 258,821 | 229,714 | 219,553 | 1,173,784 | 177,336 | (36,090 | ) | 1,315,030 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Segment profit (loss) | 4,633 | 16,595 | 17,965 | 6,200 | (3,348 | ) | 42,045 | 7,153 | (20,162 | ) | 29,036 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Acquisition-related amortization of intangible assets | (9,062 | ) | ||||||||||||||||||||||||||||||||||
Expenses for M&A | (1 | ) | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Operating profit | 19,973 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Finance income | 3,057 | |||||||||||||||||||||||||||||||||||
Finance costs | (5,182 | ) | ||||||||||||||||||||||||||||||||||
Share of profit of entities accounted for using the equity method | 1,515 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Profit before income taxes | 19,363 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
- 18 -
Table of Contents
Notes:
| 1. | “Others” mainly includes businesses such as business consulting and package solution services for the six-month period ended September 30, 2019 and 2020. |
| 2. | “Reconciling items” in segment profit (loss) includes amounts not allocated to each reportable segment that consist principally of corporate expenses of 26,558 million JPY and 19,852 million JPY for the six-month period ended September 30, 2019 and 2020, respectively. Corporate expenses are mainly general and administrative expenses and research and development expenses incurred at the headquarters of NEC. |
- 19 -
Table of Contents
(Three-month period ended September 30, 2019)
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Reportable Segments | ||||||||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | Others (Note 1) | Reconciling items (Note 2) | Consolidated Total | ||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
External customers | 120,063 | 168,690 | 150,582 | 119,571 | 129,031 | 687,937 | 107,201 | — | 795,138 | |||||||||||||||||||||||||||
Intersegment | 4,638 | 1,151 | 11,541 | 2,431 | 114 | 19,875 | 2,944 | (22,819 | ) | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 124,701 | 169,841 | 162,123 | 122,002 | 129,145 | 707,812 | 110,145 | (22,819 | ) | 795,138 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Segment profit (loss) | 10,235 | 16,677 | 16,984 | 9,248 | 1,666 | 54,811 | 8,974 | (16,006 | ) | 47,779 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Acquisition-related amortization of intangible assets | (4,094 | ) | ||||||||||||||||||||||||||||||||||
Expenses for M&A | (211 | ) | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Operating profit | 43,474 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Finance income | 1,105 | |||||||||||||||||||||||||||||||||||
Finance costs | (4,542 | ) | ||||||||||||||||||||||||||||||||||
Share of profit of entities accounted for using the equity method | 2,333 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Profit before income taxes | 42,370 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
(Three-month period ended September 30, 2020)
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Reportable Segments | ||||||||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | Others (Note 1) | Reconciling items (Note 2) | Consolidated Total | ||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
External customers | 102,286 | 158,889 | 123,123 | 126,447 | 122,271 | 633,016 | 94,285 | — | 727,301 | |||||||||||||||||||||||||||
Intersegment | 3,343 | 1,113 | 10,281 | 2,143 | 131 | 17,011 | 1,942 | (18,953 | ) | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 105,629 | 160,002 | 133,404 | 128,590 | 122,402 | 650,027 | 96,227 | (18,953 | ) | 727,301 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Segment profit (loss) | 7,899 | 14,770 | 15,314 | 8,268 | (302 | ) | 45,949 | 2,831 | (13,942 | ) | 34,838 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Acquisition-related amortization of intangible assets | (4,590 | ) | ||||||||||||||||||||||||||||||||||
Expenses for M&A | (1 | ) | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Operating profit | 30,247 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Finance income | 448 | |||||||||||||||||||||||||||||||||||
Finance costs | (2,779 | ) | ||||||||||||||||||||||||||||||||||
Share of profit of entities accounted for using the equity method | 1,063 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Profit before income taxes | 28,979 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
- 20 -
Table of Contents
Notes:
| 1. | “Others” mainly includes businesses such as business consulting and package solution services for the three-month period ended September 30, 2019 and 2020. |
| 2. | “Reconciling items” in segment profit (loss) includes amounts not allocated to each reportable segment that consist principally of corporate expenses of 18,248 million JPY and 12,354 million JPY for the three-month period ended September 30, 2019 and 2020, respectively. Corporate expenses are mainly general and administrative expenses and research and development expenses incurred at the headquarters of NEC. |
(4) Information about revising reportable segments
From the first quarter of the fiscal year ending March 31, 2021, the Company’s descriptions of the reportable segments have been revised based on a new performance management system and a new organization structure effective as of April 1, 2020.
Under the former organization structure, among the products and services provided by each business unit to customers, products and services managed by other business units were recorded as revenue in the segment to which the business unit managing the products and services belonged. However, sales revenue of products and services are now recorded in the business unit providing products and services to customers.
Along with this, the “System Platform” segment is no longer an operating segment, and, excluding revenue recorded in other operating segments, revenue previously recorded in the “System Platform” segment, is now included in “Others”.
NEC also made segment changes due to organizational reforms and changes in the management system of subsidiaries that have been implemented to accelerate business development related to digital transformation (DX) and strengthen business execution capabilities by integrating businesses with compatibility.
In connection with this revision, segment information for the six-month period ended September 30, 2019 and the three-month period ended September 30, 2019 has been reclassified to conform to the presentation of the revised segments for the fiscal year ending March 31, 2021.
- 21 -
Table of Contents
(5) Information about geographic areas
Revenue from customers
| JPY (millions) | ||||||||
| Six-month period ended September 30, 2019 | Six-month period ended September 30, 2020 | |||||||
Japan | 1,082,644 | 977,515 | ||||||
North America and Latin America | 86,358 | 63,093 | ||||||
Europe, Middle East, and Africa | 110,957 | 106,368 | ||||||
China, East Asia, and Asia Pacific | 169,034 | 168,054 | ||||||
|
|
|
| |||||
Total | 1,448,993 | 1,315,030 | ||||||
|
|
|
| |||||
| JPY (millions) | ||||||||
| Three-month period ended September 30, 2019 | Three-month period ended September 30, 2020 | |||||||
Japan | 598,362 | 538,962 | ||||||
North America and Latin America | 46,210 | 35,590 | ||||||
Europe, Middle East, and Africa | 55,047 | 56,713 | ||||||
China, East Asia, and Asia Pacific | 95,519 | 96,036 | ||||||
|
|
|
| |||||
Total | 795,138 | 727,301 | ||||||
|
|
|
| |||||
(1) Increase in equity due to issuance of new shares and disposal of treasury shares by way of third-party allotment
The board of directors of the Company passed a resolution as of June 25, 2020, to issue 12,376,600 new shares and dispose of 647,000 treasury shares (a total of 13,023,600 shares) at a price of 4,950 JPY per share, or 64,467 million JPY in total, to NTT Corporation by way of third-party allotment. The board of directors also passed a resolution as of the same date, to execute a capital and business alliance agreement with NTT Corporation, and executed the agreement on the same date. The payment for the shares has completed on July 10, 2020.
(2) Breakdown of other components of equity
A breakdown of other components of equity as of March 31 and September 30, 2020, is as follows:
| JPY (millions) | ||||||||
| As of March 31, 2020 | As of September 30, 2020 | |||||||
Remeasurements of defined benefit plans | (35,326 | ) | (37,448 | ) | ||||
Exchange differences on translating foreign operations | (32,415 | ) | (28,768 | ) | ||||
Cash flow hedges | (609 | ) | (230 | ) | ||||
Equity instruments designated as measured at fair value through other comprehensive income | 9,886 | 26,276 | ||||||
|
|
|
| |||||
Total | (58,464 | ) | (40,170 | ) | ||||
|
|
|
| |||||
- 22 -
Table of Contents
5. Finance Income and Finance Costs
| JPY (millions) | ||||||||
| Six-month period ended September 30, 2019 | Six-month period ended September 30, 2020 | |||||||
Finance income | ||||||||
Interest income | 825 | 419 | ||||||
Dividend income | 3,186 | 2,368 | ||||||
Other | 374 | 270 | ||||||
|
|
|
| |||||
Total | 4,385 | 3,057 | ||||||
|
|
|
| |||||
| JPY (millions) | ||||||||
| Six-month period ended September 30, 2019 | Six-month period ended September 30, 2020 | |||||||
Finance costs | ||||||||
Interest expenses | 4,768 | 4,142 | ||||||
Foreign exchange losses, net | 2,511 | 112 | ||||||
Other | 1,454 | 928 | ||||||
|
|
|
| |||||
Total | 8,733 | 5,182 | ||||||
|
|
|
| |||||
| JPY (millions) | ||||||||
| Three-month period ended September 30, 2019 | Three-month period ended September 30, 2020 | |||||||
Finance income | ||||||||
Interest income | 426 | 201 | ||||||
Dividend income | 491 | 55 | ||||||
Other | 188 | 192 | ||||||
|
|
|
| |||||
Total | 1,105 | 448 | ||||||
|
|
|
| |||||
| JPY (millions) | ||||||||
| Three-month period ended September 30, 2019 | Three-month period ended September 30, 2020 | |||||||
Finance costs | ||||||||
Interest expenses | 2,391 | 1,959 | ||||||
Foreign exchange losses, net | 1,154 | 375 | ||||||
Other | 997 | 445 | ||||||
|
|
|
| |||||
Total | 4,542 | 2,779 | ||||||
|
|
|
| |||||
Interest income arises from financial assets measured at amortized cost. Dividend income arises from equity instruments designated as measured at fair value through other comprehensive income. In addition, interest expenses arise from financial liabilities measured at amortized cost and lease liabilities.
- 23 -
Table of Contents
Conclusion of a stock purchase and sale contract
The board of directors of the Company passed a resolution as of October 3, 2020 to acquire all of the shares of WP/AV CH Holdings I B.V. (“WP/AV CH Holdings I”), which owns 100% share of Avaloq Group AG (“Avaloq”), a leading Swiss financial software company. This resolution is accompanied with the conclusion of a stock purchase and sale contract with Avaloq’s shareholding association, and a shareholder of WP/AV CH Holdings I that is indirectly wholly owned by funds managed by Warburg Pincus LLC.
Overview of this acquisition is as follows:
(1) Purpose of Acquisition
The acquisition of Avaloq will provide NEC with digital finance software and domain knowledge as it enters into the field globally and strengthens its business in the digital government field.
(2) Amount of Acquisition
The acquisition is expected to be worth 2.05 billion Swiss francs (approximately 236.0 billion JPY).
(3) Schedule of Acquisition
The acquisition is expected to be executed by April 2021.
- 24 -
Table of Contents
3. 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:
| • | adverse economic conditions in Japan or internationally; |
| • | foreign currency exchange and interest rate risks; |
| • | changes in the markets in which the NEC Group operates; |
| • | the recent outbreak of the novel coronavirus; |
| • | potential inability to achieve the goals in the NEC Group’s medium-term management plan; |
| • | fluctuations in the NEC Group’s revenue and profitability from period to period; |
| • | difficulty achieving the benefits expected from acquisitions, business combinations and reorganizations; |
| • | potential deterioration in the NEC Group’s relationships with strategic partners or problems relating to their products or services; |
| • | difficulty achieving the NEC Group’s growth strategies outside Japan; |
| • | potential inability to keep pace with rapid technological advancements in the NEC Group’s industry and to commercialize new technologies; |
| • | intense competition in the markets in which the NEC Group operates; |
| • | risks relating to the NEC Group’s concentrated customer base; |
| • | difficulties with respect to new businesses; |
| • | potential failures in the products and services the NEC Group provides; |
| • | potential failure to procure components, equipment or other supplies; |
| • | difficulties protecting the NEC Group’s intellectual property rights; |
| • | potential inability to obtain certain intellectual property licenses; |
| • | the NEC Group’s customers may encounter financial difficulties; |
| • | difficulty attracting, hiring and retaining skilled personnel; |
| • | difficulty obtaining additional financing to meet the NEC Group’s funding needs; |
| • | potential failure of internal controls; |
| • | potentially costly and time-consuming legal proceedings; |
| • | risks related to regulatory change and uncertainty; |
| • | risks related to environmental laws and regulations; |
| • | information security and data protection concerns and restrictions; |
| • | potential changes in effective tax rates or deferred tax assets, or adverse tax examinations; |
| • | risks related to corporate governance and social responsibility requirements; |
| • | risks related to natural disasters, public health issues, armed hostilities and terrorism; |
| • | risks related to the NEC Group’s pension assets and defined benefit obligations; and |
| • | risks related to impairment losses with regard to goodwill. |
- 25 -
Table of Contents
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.
***
- 26 -