Public Business

Chikara Nakamata, Executive Vice President

Noritaka Taguma, Executive Vice President

1 © NEC Corporation 2019

Speakers

Chikara Nakamata Noritaka Taguma

Public Solutions Business Unit Public Infrastructure Business Unit

Public Segment

2 © NEC Corporation 2019

Overview of Public Business
Provide solutions for public infrastructure throughout Japan

Digital
Transmitter Electronic
Satellite Remote
TV Studio Medical
Immigration Air Traffic Railway Record Monitoring Cyber Communication
System
Control System Control System Network System System Security System

Space
Dam, Water
Broadcast Self Defense Force
Airport Works Bureau
Station Hospital
National Gov.,
Railway Related
Organizations
School

Electric Road
Post Office
Power Fire Defense, Local Gov.
Police First Aid
Marine

Vessel Electric Power Traffic Control Fingerprint Post Office

Fire Department Tax and Social Cloud Service
Identification System, Security-related Educational
Network ICT System, ETC System System Disaster Systems ICT
Prevention System

3 © NEC Corporation 2019

Positioning of Public Business
Public Business supports sustainably NEC’s business and management
NEC’s Business Domains
デジタル
Global
送信機
Business
ダム/河川遠隔
鉄道 TV番組制作・ 電子カルテ 衛星通信・ 監視システム サイバー
入国管理 航空管制システム 野外通信システム
ネットワーク 報道・送出システム システム 地球観測 漏水検知 セキュリティ
System Platform Business Enterprise Business Network Service Business

宇宙
空港
Public Business ダム・水道
自衛隊
放送局
病院
Dam,
Electric Road 中央官庁・ Broadcast
Fire Defense,
Water Works Bureau
School Railway
鉄道 Hospital Post Office
Power 政府関係機関 Station
First Aid
TV Studio Remote Monitoring
Electric Power Railway Network Traffic Control Electronic Fire Department
大学
System
Post Office
ICT Educational System, ETC Medical System, Disaster System
System
Record System Prevention System
ICT 道路
電力 郵便
消防・救急 自治体
警察 Digital
海洋
Transmitter
National Gov.,
Airport Police Related Local Gov. Space Self Defense Force Marine
Organizations
艦艇 電力ネットワーク・ 交通管制システム 指紋認証システム 日本郵政向け 消防デジタル無線 税・社会保障 教育ICT 自治体向け
ネットワーク ICT・NCC・AMI システム 消防指令システム 関連システム クラウドサービス
ETC
Air Traffic
防災システム
Immigration Fingerprint Tax and Social Cloud Service Satellite Cyber
Control Identification Communication Vessel
Control System System Security-related Security System Network
System
System

4 © NEC Corporation 2019

 Forecast for Public Business Market in Japan
Maintain a current base as demand for new ICT domain increases while
existing ICT business domain diminishes

▌ Market Size (NEC Estimate) Opportunities

（¥tn）  Expansion of New ICT Business Domain

CAGR for FY17-22 estimated at 0.3%  Digital Government
Approx. ￥4.4tn Creation of government common platform
Wider use of My Number System

4.0 New ICT Business Domain  Next Generation of Social

Infrastructures
3.0 Electricity, broadcasting, roads, etc.

2.0 Existing ICT Business Domain

Threats
1.0  Sharp Downsizing of Existing ICT Market

 New Entry of Game Changers

FY17 FY18 FY19 FY20 FY21 FY22

5 © NEC Corporation 2019

 Strengths and Challenges
▌ Positioning Strengths
 Advanced Technology and Reliability
Advanced technology and reliability
#1 Face #1 Iris
Recognition Recognition Large market share and understanding of
in the World* in the World* clients’ operations
Delivery of solutions in a vertically
World’s World’s
integrated form
Top-class Top-class
AI Technology Cyber Security

 Large Market Shares and Understanding Challenges

of How Clients Operate
Deep Understanding Difficulty of large-scale development with
Have Top-rank Shares
in Public Domains of How Clients cutting-edge technologies
・Fire Defense /
Disaster Prevention
・Police
× Operate and Data
to be Handled
from Long-term
Needs for continuous investments to
・Local Governments, etc. Experience
maintain advanced technologies and
reliability
* Contest by National Institute of Standards and Technology (NIST)
6 © NEC Corporation 2019
Overview of Targets in FY2020 Mid-term Management Plan
Secure steady topline and enhance profitability in a robust public-sector market

Adjusted 8% 9%
Operating 6% 6%
Margin
9,000～
Revenue 8,932 9,080 8,950 9,100
（¥100mn）

FY2017 FY2018 FY2019 FY2020

（Estimate） （Target）
7 © NEC Corporation 2019
FY2018 Results
Profit down due to the structural improvement and unprofitable projects,
but impacts were minimized due to a revenue increase
Adjusted
Operating 550 Structural
Improvement
Other
526
Cost Increase in
Profit Revenue
unprofitable Increase
（¥100mn） ▲23 projects
Large
+22
Projects
▲40
+17

FY17 FY18
Revenue 8,932 9,080

8 © NEC Corporation 2019

Summary of FY2018

 Preparation for creating future new businesses

Alteration of Phases
Digital Government/Public Safety
in Social Infrastructure

Key Face Recognition

One ID at BS4K/8K Test Run of Virtual
Achieve- Narita Airport
For Large Scale
Sports Events Broadcasting Power Plant
ments
 Securing technological advantage

©JAXA
Realize Quasizenith
Hayabusa 2 Satellite System
Service

Challenges  Failed to minimize impacts of unprofitable projects

9 © NEC Corporation 2019
Business Development around FY2020 as a Key Year
▌Example: Narita Airport (Electronic Declaration Gate at the Customs)

Developing wide range of

businesses around
申告書をアプリで入力
“2020 as a key year”
Air traffic control,
Passenger flow
management, パスポートとQRコードを
5G infrastructure,
Urban operation,
Satellite 4K & 8K
Networks for
Customer
broadcasting
municipalities
Fast Travel,
Redevelopment of 読み取り management Systems,
Haneda Airport Communication Payment by
face recognition
Development Broadcasting
And Upgrade
of Traffic 出口ゲートへウォークスルー
Individual Services
for Finance
Infrastructure
(顔認証) and Retail
Integrated video monitoring,
Security at important facilities,
Support for decision-making
Town Planning,
Safety and Community
Security in Development,
Cities/Events Environment

10 © NEC Corporation 2019

FY2019 Outlook
Aim to achieve profit growth through effects of the structural improvement and
measures to improve profitability
GP Improvement
Adjusted
Operating
Profit
Decrease in +40
+12
3) Maintenance
/Operation
▲48 690
unprofitable
projects +37 2) Development
Investment
（¥100mn） in Tech
Development
1) New Orders
Effect of
Structural
+70

526
Improvement

+53

Revenue
FY18 FY19E
9,080 8,950
11 © NEC Corporation 2019
Measures to Minimize Unprofitable Projects and Improve Profitability
Continue to enforce improvement measures across supply chain for steady progress of
profitability improvement

[Adjusted FY2020
Operating
Margin]
FY2019
8％ 9%
FY2017-
FY2018
６％

Minimize unprofitability Better Profitability

Better contractual Clarify policy in
deciding order
Order conditions & selling prices acceptance
Receipt
Supply Chain

Set up organization
dedicated to quality
Develop-
ment Visualize and standardize
Inception planning
Cost and risk management
Development and quality
assurance process

Strengthen monitoring and measures to cope

with problems
Management
Maintenance Expand maintenance business

12 © NEC Corporation 2019

 To Achieve Mid-term Management Plan
▌ Numerical Targets（FY2020） ▌ Strategy to Achieve Targets
Steady top line growth
Tackling opportunities like
Revenue ¥900bn-910bn Digital Government and next generation
of social infrastructures
[Revenue growth +¥10bn-¥20bn]

Adjusted Contribute to entire company

Operating
Margin
9% as stable profit source
Continuous measures to improve profitability
[Improvement of profitability +1%]

Provide ”seeds” of technologies

Additional Continuous investment for
to entire company
Target technological development Continuous investment
for technological development

13 © NEC Corporation 2019

2020 Offers Opportunities for Replacing Social Systems and Infrastructures

1960s
60
years
2020s

Event Tokyo Olympics（1964） Tokyo Olympics（2020）

Universal insurance system Fall in labor population,
System （1961-） Rise in social security costs
Metropolitan Expressway
Road Aging road infrastructure
（1962-）
Chuo Shinkansen SC maglev train
Railway Tokaido Shinkansen（1964-） (2027-)
Broad- Satellite relay 4K/8K broadcasting
casting
14 © NEC Corporation 2019
2020 Offers Opportunities for Replacing Social Systems and Infrastructures

Events

Tokyo 2020 Olympics and World Masters Games

Rugby World Cup 2019TM Paralympics 2021 Kansai World Expo 2025 in Japan

FY2019 FY2020 FY2021 FY2022-27

・Consumption tax rate at 10％ ・Online license ・Integrated Resort ・Lowers age of adulthood
・Digital Procedure Act identification Act to be effective 20 to 18
Laws & promulgated at medical institutions
・Amended Family Registra- to start
Systems tion Act promulgated ・My Number system
・Amended National Health and health insurance Reform of laws related to Digital Government
Insurance Act promulgated cards to be integrated

・Fukuoka Airport to be ・Seven airports in Hokkaido
privatized to be privatized
・New National Stadium ・Entire route of New Tomei
Infra- to be completed Expressway to open
structures ・Electricity generation and
distribution to be separated
・5G to be commercialized
・Hiroshima Airport to ・Positioning satellites ”Quasi-
be privatized Zenith Satellites ” to increase
・Electricity supply- to seven
demand adjustment ・Chuo Shinkansen SC maglev
market (VPP) to open train to open
・Redevelopment of Shibuya
station area to be finished

15 © NEC Corporation 2019

Digital Government - DX (Digital Transformation) of Administration
Digitalization of
Public-private Data
Cloud by Default Administrative
Linkage
Services

FY2018 FY2019 FY2020-FY2023 FY2024-

★FY2018 ★FY2019- ★FY2020- 〔 Market Outlook〕

Digital First Preparation Systems start to spread from national and （NEC Estimate）
Act enacted of legal system regional govts to private sector
Market Overview

Public-private Data Linkage

Market to expand
with private demand
FY2023- : ~¥2tn
Reform of national and Digitalization of
regional govt services
to be full-fledged Administrative Services
FY2023: ¥400bn
National / Regional
Govt Market Public cloud to spread at
National / regional govts Cloud by Default
FY2018
FY2023: ¥160bn
Size ¥930 bn
（NEC Estimate）

16 © NEC Corporation 2019

Digital Government (Strategy and Challenges)
Digitalization of
“Cloud by Default”
Administrative Services
・Enhance usability of application
Customer procedures ・Reduce workload of administration
Needs ・Improve productivity in public and ・Enhance service levels
private sectors

Expertise × Biometric Recognition In-house Technology × Partnership

 Information linkage to My Number  Hybrid cloud through business
system base (expertise in establishing collaboration depending on
government systems) application and purpose
Basic  Biometric  Cyber security
Recognition technology
Strategy technology 1234 5678 9012

Rule Making
Inception planning toward planning of administrative services and regulatory
reform from users’ standpoint and by service design thinking

17 © NEC Corporation 2019

Next Generation of Social Infrastructures
Creation of new value by collaborating “operational expertise“ and
“advantageous technologies”
Operational Expertise Technologies New Values
Support for judging
Disaster Prevention
Airport AI Biometric whether to issue disaster
Recognition
40% 50% (Prediction) warning
（Ranked 1st） (Ranked 1st）
Disaster prevention radio Air traffic control and
(prefectures) immigration control systems Digitalization at airports

Railway Broadcast
Image Cyber
Analysis
60% 50% Security
Advanced broadcasting
（Ranked 1st） （Ranked 1st）
Ground digital
Railway radio TV transmitter
Advanced management of
Network
Road Electric Power Technology infrastructures
Sensor
(Cabled and
60% 50% Wireless)
（Ranked 1st） （Ranked 1st） Electricity supply-demand
Network equipment for adjustment
On-road transmission electricity companies
(Market shares in Japan, NEC Estimates）
18 © NEC Corporation 2019
 SDGs
Social problems
Social Insurance Labor Shortage Regional Vitalization
Expenses

Smart Transportation
Digital Healthcare
Spending
Ivestment
City Management

NEC Safer Cities

People

Finance

Jobs
Belong-
ing Industry
Startups Digital Government
Public Safety
Data network platform

Digitalization Cloud AI IoT Cyber Security

Broadcast Self Defense
Airport Railway Hospital Water Works Space
Station Force
Bureau
Digital transmitter Satellite
TV Studio system Remote Communication system
Air traffic Electronic Medical
Control system Record System monitoring system
Railway NW
Immigration National Gov.,
Control System Related Organizations Local Gov.

Marine Electric Road Police Fire Defense School

Power
Vessel NW Electric Power Traffic control Fingerprint Post Office Fire Department System, Educational ICT
ICT system, Identification System Disaster prevention system
ETC system
IT
Network
R&D Sensing

19 © NEC Corporation 2019

Summary

【Positioning】Support sustainably NEC’s business and management

【Market Environment】Steady moves expected

【Profit Projection】Improve by minimizing unprofitable projects

【Advanced Investment】Continue investment in advanced technologies

【Long-term Outlook】Prepare for new businesses focused on social issues

20 © NEC Corporation 2019