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): ☐
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 30, 2020 | |
| NEC Corporation | ||
| By: | /s/ Tetsuo Mukunoki | |
| Name: | Tetsuo Mukunoki | |
| Title: | General Manager, Legal Division | |
Condensed Interim Consolidated Financial Statements
for the Six-Month Period Ended September 30, 2020
| 1. | Overview of Business Results |
NEC has revised its operating segments from the fiscal year ending March 31, 2021. 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
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.
Segment results are as follows, revenue by segment is revenue from external customers.
| a. | Public Solutions Business |
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.
| b. | Public Infrastructure Business |
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.
1
| c. | Enterprise Business |
In the Enterprise business, revenue was 238.1 billion JPY, a decrease of 50.1 billion JPY (-17.4%) year-on-year, 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.
| d. | Network Services Business |
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.
| e. | Global Business |
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.
| f. | Others |
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.
2
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
| 2. | Condensed Interim Consolidated Financial Statements for the Six-Month Period Ended September 30, 2020 |
(1) Condensed Interim Consolidated Statements of Financial Position as of March 31 and September 30, 2020
| JPY (millions) | ||||||||||||
| Notes | March 31, 2020 | September 30, 2020 | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 12 | 359,252 | 371,409 | |||||||||
Trade and other receivables | 12 | 737,484 | 487,927 | |||||||||
Contract assets | 247,625 | 304,437 | ||||||||||
Inventories | 199,326 | 239,992 | ||||||||||
Other financial assets | 12 | 5,584 | 5,839 | |||||||||
Other current assets | 108,436 | 129,151 | ||||||||||
|
|
|
| |||||||||
Subtotal | 1,657,707 | 1,538,755 | ||||||||||
Assets held for sale | 6 | 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 using the equity method | 74,092 | 68,490 | ||||||||||
Other financial assets | 12 | 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 | ||||||||||
4
| JPY (millions) | ||||||||||||
| Notes | March 31, 2020 | September 30, 2020 | ||||||||||
Liabilities and equity | ||||||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade and other payables | 12 | 460,881 | 373,065 | |||||||||
Contract liabilities | 195,152 | 199,182 | ||||||||||
Bonds and borrowings | 12 | 154,992 | 65,934 | |||||||||
Accruals | 12 | 191,440 | 184,450 | |||||||||
Lease liabilities | 47,085 | 46,185 | ||||||||||
Other financial liabilities | 12 | 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 | 6 | 30,133 | 23,190 | |||||||||
|
|
|
| |||||||||
Total current liabilities | 1,221,867 | 999,891 | ||||||||||
Non-current liabilities | ||||||||||||
Bonds and borrowings | 12 | 364,828 | 416,646 | |||||||||
Lease liabilities | 108,514 | 102,202 | ||||||||||
Other financial liabilities | 12 | 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 | 7 | (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 | ||||||||||
|
|
|
| |||||||||
See accompanying notes to condensed interim consolidated financial statements.
5
(2) Condensed Interim Consolidated Statements of Profit or Loss and Comprehensive Income for the Six-Month Period Ended September 30, 2019 and 2020
Condensed Interim Consolidated Statements of Profit or Loss for the Six-Month Period Ended September 30, 2019 and 2020
| JPY (millions) | ||||||||||
| Notes | 2019 | 2020 | ||||||||
Revenue | 9 | 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 | 10 | 4,385 | 3,057 | |||||||
Finance costs | 10 | 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) | 11 | 112.30 | 41.53 | |||||||
Diluted earnings per share (JPY) | 11 | 112.30 | 41.53 | |||||||
See accompanying notes to condensed interim consolidated financial statements.
6
Condensed Interim Consolidated Statements of Comprehensive Income for the Six-Month Period Ended September 30, 2019 and 2020
| JPY (millions) | ||||||||||||
| 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 | ||||||||||
|
|
|
| |||||||||
7
Condensed Interim Consolidated Statements of Profit or Loss for the Three-Month Period Ended September 30, 2019 and 2020
| JPY (millions) | ||||||||||
| 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 | 1,105 | 448 | ||||||||
Finance costs | 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) | 11 | 99.73 | 59.47 | |||||||
Diluted earnings per share (JPY) | 11 | 99.73 | 59.47 | |||||||
See accompanying notes to condensed interim consolidated financial statements.
8
Condensed Interim Consolidated Statements of Comprehensive Income for the Three-Month Period Ended September 30, 2019 and 2020
| JPY (millions) | ||||||||||||
| 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 | ||||||||||
|
|
|
| |||||||||
9
(3) Condensed Interim Consolidated Statements of Changes in Equity for the Six-Month Period Ended September 30, 2019 and 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, 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 | 8 | — | — | (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 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
| 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 new 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 | 8 | — | — | (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 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
See accompanying notes to condensed interim consolidated financial statements.
10
(4) Condensed Interim Consolidated Statements of Cash Flows for the Six-Month Period Ended September 30, 2019 and 2020
| JPY (millions) | ||||||||||||
| 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 | 10 | (4,385 | ) | (3,057 | ) | |||||||
Finance costs | 10 | 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 | ) | ||||||||
Other, 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 | ||||||||||
Other, net | (5,500 | ) | (857 | ) | ||||||||
|
|
|
| |||||||||
Net cash used in investing activities | (49,707 | ) | (34,195 | ) | ||||||||
11
| JPY (millions) | ||||||||||||
| 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 new shares | — | 60,893 | ||||||||||
Dividends paid | 8 | (10,398 | ) | (10,400 | ) | |||||||
Dividends paid to non-controlling interests | (2,553 | ) | (3,530 | ) | ||||||||
Proceeds from disposal of treasury shares | 60 | 3,225 | ||||||||||
Other, 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 the beginning of the period | 278,314 | 359,252 | ||||||||||
|
|
|
| |||||||||
Increase (decrease) in cash and cash equivalents resulting from transfer to assets held for sale | 6 | 1,541 | (2,936 | ) | ||||||||
|
|
|
| |||||||||
Cash and cash equivalents, at the end of the period | 270,020 | 371,409 | ||||||||||
|
|
|
| |||||||||
See accompanying notes to condensed interim consolidated financial statements.
12
Notes to Condensed Interim Consolidated Financial Statements
| 1. | Reporting Entity |
NEC Corporation (the “Company” or “NEC”) is a public company incorporated in Japan. NEC and its subsidiaries (collectively, the “NEC Group”) has five segments: Public Solutions business, Public Infrastructure business, Enterprise business, Network Services business, and Global business, all of which are operating segments. For further information regarding these businesses, see Note 5. “Segment Information.”
| 2. | Basis of Preparation |
(1) Compliance with International Financial Reporting Standards
The Company’s condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The term “IFRS” also includes International Accounting Standards (“IAS”) and the related interpretations of the Standard Interpretations Committee (“SIC”) and IFRS Interpretations Committee (“IFRIC”). The Company’s condensed interim consolidated financial statements have been prepared in accordance with IAS 34.
(2) Approval of Financial Statements
The condensed interim consolidated financial statements were approved by Takashi Niino, Representative Director, President and CEO, and Takayuki Morita, Representative Director, Senior Executive Vice President and CFO, on October 29, 2020.
(3) Basis of Measurement
The condensed interim consolidated financial statements have been prepared on historical cost, except for the following important items.
| • | Derivatives are measured at fair value. |
| • | Equity instruments measured at fair value through profit or loss and equity instruments designated as measured at fair value through other comprehensive income |
| • | Defined benefit asset or liability are recognized using the present value of defined benefit obligations, less the fair value of plan assets. |
(4) Functional and Presentation Currency
The condensed interim consolidated financial statements are presented in Japanese yen (“JPY”), which is the functional currency of the Company. All financial information presented in JPY has been rounded to the nearest million JPY, except when otherwise indicated.
| 3. | 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.
| 4. | Use of Accounting Estimates and Judgments |
The preparation of condensed interim consolidated financial statements in accordance with IFRS requires management to make certain judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions may differ from the actual results.
These estimates and underlying assumptions are reviewed by management on a continuous basis. Changes in these accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
13
The judgments, estimates and assumptions including the impact of the COVID-19 pandemic made by management in the process of applying the accounting policies that have a material impact in the condensed interim consolidated financial statements for the six-month period ended September 30, 2020 are principally consistent with those applied for the previous fiscal year ended March 31, 2020.
| 5. | Segment Information |
(1) General information about reportable segments
The reportable segments of NEC Group 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 fee and other fees.) from operating profit (loss).
Intersegment revenues are made at amount that approximates arm’s-length prices.
14
(3) Segment information on revenue, profit or loss by reportable segment
Segment information on revenue, profit or loss by reportable segment for the six-month period ended September 30, 2019 and 2020, are as follows:
Six-month period ended September 30, 2019
| JPY (millions) | ||||||||||||||||||||||||||||||||||||
| Reportable segments | ||||||||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | Others | Reconciling items | 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 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Amortization of acquisition-related intangible assets | (8,325 | ) | ||||||||||||||||||||||||||||||||||
M&A related expenses | (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 | Reconciling items | 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 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Amortization of acquisition-related intangible assets | (9,062 | ) | ||||||||||||||||||||||||||||||||||
M&A related expenses | (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 | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
15
Notes:
“Others” mainly includes businesses such as business consulting and package solution services for the six-month period ended September 30, 2019 and 2020.
“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.
(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 has been reclassified to conform to the presentation of the revised segments for the fiscal year ending March 31, 2021.
(5) Geographical information
Revenues from contract with customers by country or region for the six-month period ended September 30, 2019 and 2020, are as follows:
| JPY (millions) | ||||||||
| 2019 | 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 | ||||||
|
|
|
| |||||
16
| 6. | Assets Held for Sale |
Major components of assets held for sale and liabilities directly associated with assets held for sale as of March 31 and September 30, 2020, are as follows:
| JPY (millions) | ||||||||
| March 31, 2020 | September 30, 2020 | |||||||
Cash and cash equivalents | 4,161 | 7,097 | ||||||
Trade and other receivables | 12,349 | 20,171 | ||||||
Inventories | 16,496 | 13,306 | ||||||
Other assets | 8,204 | 10,938 | ||||||
|
|
|
| |||||
Assets held for sale | 41,210 | 51,512 | ||||||
|
|
|
| |||||
| JPY (millions) | ||||||||
| March 31, 2020 | September 30, 2020 | |||||||
Trade and other payables | 11,786 | 7,932 | ||||||
Other liabilities | 18,347 | 15,258 | ||||||
|
|
|
| |||||
Liabilities directly associated with assets held for sale | 30,133 | 23,190 | ||||||
The assets held for sale as of March 31, 2020, consisted of groups of assets and liabilities relating to two subsidiaries, NEC Display Solutions, Ltd. and Showa Optronics Co., Ltd. NEC Display Solutions, Ltd. belongs to the “Global” segment, and the sale of its 66% share is scheduled to close by the end of 2020.
In addition, the assets and liabilities of Nippon Avionics Co., Ltd. (“Nippon Avionics”) were classified as a disposal group held for sale during the fiscal year ended March 31, 2020. NEC sold all of common shares of Nippon Avionics through a cash tender offer.
The assets held for sale as of September 30, 2020, consisted of groups of assets and liabilities relating to two subsidiaries, which is NEC Display Solutions, Ltd. and NEC Financial Services, LLC and one associate, SINCERE Corporation. NEC Display Solutions, Ltd. belongs to the “Global” segment, and the sale of its 66% share is scheduled to close on November 1, 2020. NEC Financial Services, LLC belongs to the “Global” segment, and the sale of its all share is scheduled to close on November 30, 2020. NEC completed the sale of 36.3% share of SINCERE Corporation on October 30, 2020, and SINCERE Corporation is no longer an associate of NEC.
In addition, the assets and liabilities of Showa Optronics Co., Ltd. were classified as a disposal group held for sale during the fiscal year ended March 31, 2020. NEC sold all of shares of Showa Optronics Co., Ltd. on June 1, 2020, and Showa Optronics Co., Ltd. is no longer a subsidiary of NEC.
17
| 7. | Equity |
(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) | ||||||||
| March 31, 2020 | 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 | ) | ||||
|
|
|
| |||||
18
| 8. | Dividends |
(1) Dividends declared for which the effective date falls in the six-month period ended September 30, 2019 and 2020
Six-month period ended September 30, 2019
Resolution | Board of directors on April 26, 2019 | |
Type of shares | Ordinary shares | |
Total dividends JPY (millions) | 10,393 | |
Source of dividends | Retained earnings | |
Dividends per share (JPY) | 40 | |
Record date | March 31, 2019 | |
Effective date | June 3, 2019 |
Six-month period ended September 30, 2020
Resolution | Board of directors on May 12, 2020 | |
Type of shares | Ordinary shares | |
Total dividends JPY (millions) | 10,393 | |
Source of dividends | Retained earnings | |
Dividends per share (JPY) | 40 | |
Record date | March 31, 2020 | |
Effective date | June 1, 2020 |
(2) Dividends declared for which the record date is in the six-month period ended September 30, 2020, but the effective date falls in the following period
Resolution | Board of directors on October 29, 2020 | |
Type of shares | Ordinary shares | |
Total dividends JPY (millions) | 10,914 | |
Source of dividends | Retained earnings | |
Dividends per share (JPY) | 40 | |
Record date | September 30, 2020 | |
Effective date | December 1, 2020 |
19
| 9. | Revenue |
Disaggregation of revenue
The NEC Group has five reportable segments: Public Solutions, Public Infrastructure, Enterprise, Network Services, and Global.
The revenue disaggregated by type of good or service and the reconciliation of the disaggregated revenue with the five reportable segments for the six-month period ended September 30, 2019 and 2020, are as follows:
Six-month period ended September 30, 2019
| JPY (millions) | ||||||||||||||||||||||||||||||||
| Reportable segments | Others | Consolidated Total | ||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | |||||||||||||||||||||||||||
Contracts for hardware and packaged software deployments | 79,493 | 125,998 | 81,539 | 67,497 | 82,137 | 436,664 | 94,056 | 530,720 | ||||||||||||||||||||||||
Contracts for services to customers (including maintenance and outsourcing) | 70,295 | 47,625 | 115,142 | 85,831 | 98,201 | 417,094 | 61,035 | 478,129 | ||||||||||||||||||||||||
Contracts for system integrations and equipment constructions | 57,454 | 125,595 | 91,507 | 61,060 | 62,927 | 398,543 | 41,601 | 440,144 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 207,242 | 299,218 | 288,188 | 214,388 | 243,265 | 1,252,301 | 196,692 | 1,448,993 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Six-month period ended September 30, 2020
|
| |||||||||||||||||||||||||||||||
| JPY (millions) | ||||||||||||||||||||||||||||||||
| Reportable segments | Others | Consolidated Total | ||||||||||||||||||||||||||||||
| Public Solutions | Public Infrastructure | Enterprise | Network Services | Global | Total | |||||||||||||||||||||||||||
Contracts for hardware and packaged software deployments | 53,180 | 124,470 | 58,170 | 61,212 | 60,462 | 357,494 | 77,838 | 435,332 | ||||||||||||||||||||||||
Contracts for services to customers (including maintenance and outsourcing) | 69,952 | 52,846 | 107,568 | 97,308 | 80,393 | 408,067 | 56,800 | 464,867 | ||||||||||||||||||||||||
Contracts for system integrations and equipment constructions | 53,972 | 104,306 | 72,371 | 66,968 | 78,425 | 376,042 | 38,789 | 414,831 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 177,104 | 281,622 | 238,109 | 225,488 | 219,280 | 1,141,603 | 173,427 | 1,315,030 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
The above disaggregated revenue information for the six-month period ended September 30, 2020 has been restated to conform to the current segment composition reflecting a new performance management system and a new organization structure effective April 1, 2020.
20
| 10. | Finance Income and Finance Costs |
Components of finance income and finance costs for the six-month period ended September 30, 2019 and 2020, are as follows:
| JPY (millions) | ||||||||
| 2019 | 2020 | |||||||
Finance income | ||||||||
Interest income | 825 | 419 | ||||||
Dividend income | 3,186 | 2,368 | ||||||
Other | 374 | 270 | ||||||
|
|
|
| |||||
Total | 4,385 | 3,057 | ||||||
|
|
|
| |||||
Finance costs | ||||||||
Interest expenses | 4,768 | 4,142 | ||||||
Foreign exchange losses, net | 2,511 | 112 | ||||||
Other | 1,454 | 928 | ||||||
|
|
|
| |||||
Total | 8,733 | 5,182 | ||||||
|
|
|
| |||||
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.
| 11. | Earnings Per Share |
The calculation of basic earnings per share (“EPS”) and diluted EPS has been based on the following net profit attributable to ordinary shareholders of the parent company for the six-month period ended September 30, 2019 and 2020:
Six-month period ended September 30, 2019 and 2020
| JPY (millions) | ||||||||
| 2019 | 2020 | |||||||
Net profit attributable to owners of the Parent | 29,162 | 11,008 | ||||||
Net profit attributable to ordinary shareholders of the Parent to calculate basic EPS | 29,162 | 11,008 | ||||||
Net profit attributable to ordinary shareholders of the Parent after adjustment for the effects of dilutive potential ordinary shares | 29,162 | 11,008 | ||||||
Weighted-average number of ordinary shares to calculate basic EPS (in thousands of shares) | 259,691 | 265,082 | ||||||
|
|
|
| |||||
Weighted-average number of ordinary shares (diluted) (in thousands of shares) | 259,691 | 265,082 | ||||||
Basic EPS (JPY) | 112.30 | 41.53 | ||||||
Diluted EPS (JPY) | 112.30 | 41.53 | ||||||
Net Profit attributable to ordinary shareholders of the Parent after adjustment for the effects of dilutive potential ordinary shares includes the effect of share options issued by Japan Aviation Electronics Industry, Limited, a subsidiary of the Company.
21
The calculation of basic EPS and diluted EPS has been based on the following net profit attributable to ordinary shareholders of the parent company for the three-month period ended September 30, 2019 and 2020:
Three-month period ended September 30, 2019 and 2020
| JPY (millions) | ||||||||
| 2019 | 2020 | |||||||
Net profit attributable to owners of the Parent | 25,897 | 16,010 | ||||||
Net profit attributable to ordinary shareholders of the Parent to calculate basic EPS | 25,897 | 16,010 | ||||||
Net profit attributable to ordinary shareholders of the Parent after adjustment for the effects of dilutive potential ordinary shares | 25,897 | 16,010 | ||||||
Weighted-average number of ordinary shares to calculate basic EPS (in thousands of shares) | 259,678 | 269,234 | ||||||
|
|
|
| |||||
Weighted-average number of ordinary shares (diluted) (in thousands of shares) | 259,678 | 269,234 | ||||||
Basic EPS (JPY) | 99.73 | 59.47 | ||||||
Diluted EPS (JPY) | 99.73 | 59.47 | ||||||
Net Profit attributable to ordinary shareholders of the Parent after adjustment for the effects of dilutive potential ordinary shares includes the effect of share options issued by Japan Aviation Electronics Industry, Limited, a subsidiary of the Company.
22
| 12. | Financial Instruments |
Fair value measurement of financial instruments
The carrying amounts and fair values of financial assets and liabilities as of March 31 and September 30, 2020, are as follows:
| JPY (millions) | ||||||||||||||||
| March 31, 2020 | September 30, 2020 | |||||||||||||||
| Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
Financial liabilities measured at amortized cost: | ||||||||||||||||
Bonds | 199,596 | 200,425 | 179,512 | 180,257 | ||||||||||||
Long-term borrowings | 220,219 | 220,879 | 237,134 | 237,725 | ||||||||||||
The financial instruments whose fair value is determined to be close or equal to the carrying amount are excluded from the chart above. The financial instruments regularly measured at fair value but equal to the carrying amount are also excluded from the chart above.
Basis of the fair value measurement for financial instruments
Cash and cash equivalents, trade and other receivables, trade and other payables, and accruals: The fair value is determined as equal or close to the carrying amount since they are to be settled in a short term.
The fair value of loans is measured by discounting estimated future cash flows to the present value based on an interest rate that takes into account the remaining period to the maturity date and credit risk.
Among equity instruments designated as measured at fair value through other comprehensive income, and equity instruments measured at fair value through profit or loss, the fair value of listed equity instruments is determined using a quoted market price at an exchange. The fair value of equity securities with no active market is measured mainly by using the comparable company valuation method or other appropriate valuation methods. Price book-value ratio (PBR) of a comparable company is used as a significant unobservable input in the fair value measurement of the equity securities with no active market. The fair value increases (decreases) as the PBR of a comparable company rises (declines).
Among the fair values of derivative assets and liabilities, forward exchange contracts are determined using quoted forward exchange rates at the end of the fiscal year, while interest rate swaps are calculated as the present value of the estimated future cash flows based on the interest rate at the end of the reporting period.
The fair values of short-term borrowings and long-term borrowings (current portion) are determined as the carrying amount, as the carrying amount is a reasonable estimate of fair value due to the relatively short period of maturity of these instruments. The fair value of long-term borrowings (excluding the current portion) is calculated as the present value of the estimated future cash flows, based on the expected interest rate at which a similar new borrowing was made.
The fair value of bonds is determined based on the quoted market price in a non-active market.
Fair value hierarchy
Hierarchy and classification used for the fair value measurement for financial assets and liabilities measured at fair value are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices classified into Level 1 that are observable for the financial asset or liability, either directly or indirectly
Level 3: Unobservable inputs that are not based on observable market data
The NEC Group recognizes transfers between levels of the fair value hierarchy when a triggering event of the change has occurred.
Financial assets classified into Level 3 mainly consist of unquoted equity instruments. The fair value of significant unquoted equity instruments is measured by using the comparable company valuation method or other appropriate valuation methods. For the financial assets classified into Level 3, changes of unobservable inputs to reasonably possible alternative assumptions are not expected to cause significant changes in the fair value of those financial assets. Further, fair value measurements of financial assets and liabilities classified into Level 3 are reviewed and approved by the personnel responsible based on relating internal regulations.
23
Financial assets and liabilities measured at fair value on a recurring basis by fair value category as of March 31 and September 30, 2020, are as follows:
| JPY (millions) | ||||||||||||||||
| As of March 31, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets measured at fair value through profit or loss | — | 1,578 | 10,531 | 12,109 | ||||||||||||
Equity instruments designated as measured at fair value through other comprehensive income | 94,273 | — | 72,952 | 167,225 | ||||||||||||
Financial liabilities measured at fair value through profit or loss | — | 1,058 | — | 1,058 | ||||||||||||
| JPY (millions) | ||||||||||||||||
| As of September 30, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets measured at fair value through profit or loss | — | 1,201 | 9,825 | 11,026 | ||||||||||||
Equity instruments designated as measured at fair value through other comprehensive income | 120,573 | — | 73,856 | 194,429 | ||||||||||||
Financial liabilities measured at fair value through profit or loss | — | 656 | — | 656 | ||||||||||||
There were no significant financial assets or liabilities that were transferred between levels during the six-month period ended September 30, 2019 and 2020, and there were no significant changes in Level 3 assets measured at fair value on a recurring basis for the six-month period ended September 30, 2019 and 2020.
| 13. | Subsequent Events |
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
