52 | NEC Integrated Report 2021 | 53 | |
NEC's Business Model
Business Overview
Public Solutions Business
Public Infrastructure Business
Social Value Goals under the Mid-term Management Plan 2025 Expand the value we provide to help realize prosperous local societies
• Achieve continued growth while transforming our business model
• Help resolve social issues by providing value beyond existing frameworks
9.3% | About 10% |
(39.4 billion yen) |
Social Value Goals under the Mid-term Management Plan 2025 Transform social systems
• Contribute to a social system that allows all people to enjoy prosperity and convenience
• Create public infrastructure that allows for safe and secure living
8.6% | About 10% |
(59.4 billion yen) |
FY2021FY2026
Estimated adjusted OP ratio target
Achievements and Issues to be Addressed under the Mid-term Management Plan 2020
Achievements | Issues |
• Improved operating profit ratio with measures that included | • Increase profitability of business through business profitability |
reducing unprofitable projects | analysis, followed by improvement measures |
• Reviewed and implemented strategies in response to sudden | • Help resolve social issues by taking on challenges that create new |
changes in the external environment (COVID-19, etc.) | social value |
Business Opportunities and Key Measures for the Medium to Long Term
FY2021FY2026
Estimated adjusted OP ratio target
Achievements and Issues to be Addressed under the Mid-term Management Plan 2020
Achievements | Issues |
• Exceeded targets put forth for each fiscal year of the Mid-term | • Increase efforts to reduce unprofitable projects despite such projects |
Management Plan 2020 | being on a downward trend |
• Achieved horizontal expansion of technological assets and launched | • Improve capital efficiency despite maintaining high profitability |
new value creation endeavors in the fields of government, | |
education, broadcasting, and security |
Business Opportunities and Key Measures for the Medium to Long Term
Business Opportunities
- Accelerated digitalization due to lifestyle and workstyle changes
- Increased expectations for ICT to resolve social issues
-
Expanding Business Domains to Resolve Social Issues The COVID-19pandemic has caused significant changes in the way we conduct business and live our lives. This applies to NEC as well, and we are taking steps to go beyond the conventional boundaries of an ICT vendor and promote co-creationand connection building with customers and business partners. This is part of a move to transform and create further social value.
To that end, we will stand at the forefront of the various issues gripping Japan, such as rising social security costs and a shrinking labor force, and muster a firm response, leveraging the trust and track record we have built up to date delivering the latest systems in public, medical and local industry fields, as well as our cutting-edge technology. At the same time, we will also
work to create services with true value from the consumer's perspective. In addition, we will utilize our extensive track record and society's trust in us, as well as our advanced technologies to tackle environmental problems and natural disasters, the latter of which are increasing in intensity and frequency, and help resolve customer and social issues.
- Transforming Our Business Model We aim to transform our business model customers and society while also spurring growth. More specifically, we will utilize the from promoting our existing packaging business offerings. As we develop assets in digital government, healthcare, city management, public safety and transportation, we are developing mechanisms and systems for these assets. On top of ensuring high quality in a stable manner, we plan to increase speed of delivery, which will increase the value we pro- vide to customers and help raise business profitability.to provide new value toour own businessknow-howgainedto provide newdigital
Business Opportunities
• Expanding role of ICT in the transformation of social systems
• Expansion of new business areas due to the promotion of digital governments
● Expanding Business in New ICT Fields
"Toward a proud society. Toward a proud future." This is the vision that the Public Infrastructure Business Unit put forth during the formulation of the Mid-term Management Plan 2025. Our goal is to realize a society in which all people can enjoy prosperity. To this end, we will combine NEC's technologies, products, and solutions and work with partner companies to create new social value. Over the past year, we have embarked on new initiatives. These include promoting OPE,* NEC's education cloud service, and digital education that provides one terminal for each person. It also includes the development of cloud-based offerings for government offices to accelerate government digitalization. We are also looking into creating new value in the aviation industry utilizing data linkage. As we continue to build and operate public
infrastructure, we will also work to create new value at the same time. By taking on this challenge, we will transform the structure of public systems themselves, creating a society that both we and our customers can take pride in.
* OPE: Open Platform for Education
● Introducing of ROIC-based Management
The Public Infrastructure Business Unit supports customer operations in sectors such as government offices, broadcast stations, and security by facilitating the stable operation of super mission- critical ICT systems. We are maintaining stable revenue levels and stable operating profit ratios amid high technical demand and several large-scale projects. In a move to increase "quality of management" even further, the Public Infrastructure Business Unit, with its various characteristics, will adopt a pioneering role, taking on ROIC-based management from fiscal 2022. This initiative will involve measures tailored to the characteristics of each business that, instead of only maintaining high profitability, are also intended to increase capital efficiency, and thereby improve corporate and business value in a sustainable manner.
54 | NEC Integrated Report 2021 | 55 | |
NEC's Business Model
Business Overview
Enterprise Business
Network Services Business
Social Value Goals under the Mid-term Management Plan 2025 Provide value and create new business opportunities that will meet customer and market demand
• Enhance efforts toward DX that will go beyond the boundaries of companies and industries to resolve social issues
• Leverage NEC's strengths and its partnerships with customers to promote the co-creation of growth businesses
9.6% | About 13% |
(48.2 billion yen) |
FY2021FY2026
Social Value Goals under the Mid-term Management Plan 2025 Contribute to the digital transformation of society
as a whole by maximizing the communications-related value rooted in 5G
• Promote open systems as a way to expand 5G as a form of social infrastructure
• Maximize value for customers by modernizing carrier operators and providing DX support
• Contribute to the development of DX among industries by integrating
7.6% | About 10% |
(41.2 billion yen) |
FY2021FY2026
Estimated adjusted OP ratio target
Achievements and Issues to be Addressed under the Mid-term Management Plan 2020
networks and IT
Achievements and Issues to be Addressed under the Mid-term Management Plan 2020
Achievements | Issues |
• Developed solutions and services aimed to accelerate DX, and | • Shift to a business structure that is not affected by changes in the |
promoted the creation of DX-related offerings | macro environment |
• Established a solid business foundation that can maintain a stable | • Continue to increase profitability |
operating profit ratio of 10% |
Achievements
- Expanded 5G businesses via a full-scale launch of commercial 5G networks with domestic carriers
- Maintained profitability by retaining the top position in telecom- related business
- Developed NEC Smart Connectivity and established a co-creation system
Issues
- Expand footprint and portfolio in software domains (core, RIC, etc.) in order to expand 5G business globally
- Establish a customer profit model using end-to-end solutions in the NEC Smart Connectivity business
Business Opportunities and Key Measures for the Medium to Long Term
Business Opportunities and Key Measures for the Medium to Long Term
Business Opportunities
• Greater expectations for ICT as a means to solve a variety of social issues, such as environmental problems, decarbonization, and labor shortages
• More new business opportunities and acceleration of ICT use in markets as a result of COVID-19
● Ramping Up Initiatives in Growth Fields
To respond to market needs in light of the rapid changes taking place in society, we have taken steps to develop solutions and services for customers in the manufacturing, retail/service, and financial industries. Taking this further, we plan to ramp up and expand efforts toward DX that will go beyond the boundaries of companies and industries to resolve social issues.
Looking even further into the future, we are also promoting efforts to help realize a sustainable society. These efforts will not be done on our own. Instead, we will work with our customers and business partners and devise a medium- to long- term plan that utilizes all of our strengths and, when imple- mented, will result in the co-creation of value.
-
Increasing Profitability of the SI Services Business The system integration services business is at the heart Enterprise Business, and we will go forward with plans to ment modeling and create new offerings for it. These measures will improve productivity, quality, and delivery speed; at the same time, we will shift toward the type of business that creates value, boosting profitability as a result. Along with these measures, we will also enhance our efforts to cultivate human resources who specialize in consulting necessary for business and those with a
high level of expertise in DX.of theimple-
● Improving Management Efficiency
To establish a sustainable profit growth cycle, we will set up and reinforce a system for monitoring business profitability while working to improve the asset efficiency of our business investments by reducing the number of days in our cash conversion cycle along with other efforts. Also, we will continue to invest resources generated through this process in growth businesses to further refine our strengths and raise our competitiveness.
Business Opportunities
- Expansion of global opportunities from the full-scale launch of the 5G market and development of open systems
- Optimization of overall management for domestic carri- ers and expansion of business in value-added fields
- Expansion of business opportunities to support DX in industrial and public sectors
The rise of 5G and the IoT has sped up the digital shift. DX is also accelerating on a new level as the industrial world harnesses it to acquire new business and promote effective management utilizing AI, the IoT, the cloud, and other tools. In consideration of these conditions, we aim to expand business based on the following three pillars.
● Leading the Shift to Open Systems and Promoting the Global 5G Business
The current telecom carrier market demands a flexible response to a variety of needs, and open and virtual systems are expanding into network domains, driven by IT. Telecom operators are turning toward investing in next-generation communications and DX
in the wake of 5G. NEC will take advantage of these market conditions and assume a leading role in the Open RAN market, setting up a system for operations that will allow the Company to leverage mobile telecommunications infrastructure to provide value globally. We will also expand our Global 5G Business, backed by two of NEC's strengths, wireless technology and system integration.
● Optimizing Overall Management for Domestic Carriers and Expanding Business in Value-added Fields
In addition to our efforts to make solid business contributions that meet customer expectations, we are also working to optimize overall management and expand business in value-added fields. The former is rooted in our track record of supporting commercial networks and takes advantage of our customer engagement, whereas the latter takes advantage of modernized information platforms and other forms of innovation.
● Expanding Business to Support DX in Industrial and Public Sectors
To expand business, we will integrate telecommunications with IT to get a grasp on social changes, and use NEC's comprehensive capabilities to provide industries with end-to-end solutions centered on local networks and data distribution.
56
NEC's Business Model
Business Overview
Global Business
NEC Integrated Report 2021 | 57 | |
Relationship of Targets and Growth Businesses in FY2020 by Segment
Social Value Goals under the Mid-term Management Plan 2025 Become a true global company through profitable growth
• Become a thought leader through active investments in the growth areas of digital government (DG)/digital finance (DF) and submarine systems
• Transform the Company's organization, systems, and culture to become one that is truly global
About 11%
FY2026
Public | Public | Enterprise | Network | Global | Others | |
Solutions | Infrastructure | Services | Business | |||
CAGR from FY2021 to FY2026 | About | Flat | About | About | About | ― |
0%~1% | 1%~5% | 3%~8% | 4%~6% | |||
FY2026 Targets: Estimated Adjusted OP Ratio | About 10% | About 10% | About 13% | About 10% | About 11% | ― |
Digital Government/Digital Finance | ● | ● | ● | ● |
Estimated adjusted OP ratio target
Achievements and Issues to be Addressed under the Mid-term Management Plan 2020
Business | Global 5G | ● | |||
IT Business Transformation in Japan | ● | ● | ● | ● | |
Growth | |||||
Future Growth Business Creation | ● | ||||
Achievements | Issues |
• Completed portfolio switch, setting the foundation for profitable | • Expand DG/DF globally and ramp up optimization of synergies |
growth | • Accelerate transformation to a services- and SaaS-based business |
• Improved profitability of the Global Business and brought adjusted | model |
operating profit into positive figures |
Business Opportunities and Key Measures for the Medium to Long Term
M&A*1 Accomplishments and Future Direction
M&A accomplishments before FY2011 (≥10B JPY)
Recent M&A accomplishments (≥10B JPY)
Business Opportunities
• Digitalization in government and finance areas
• Greater demand for submarine cables due to increased global communications traffic
are the infection control solutions we have implemented at five major Hawaiian airports and the touchless boarding platform we have implemented at Rome Fiumicino Leonardo da Vinci Airport in collaboration with SITA. We also intend to accelerate the shift toward a SaaS-based business model in other public safety fields.
● Submarine Systems-Strengthening Business Execution Capabilities to Respond to Market Expansion
Year / Amount*2 | IRR*3 |
FY2006 | 20% | ||
30.0B JPY | 10% | ||
0% | (a) | (b) | |
Currently NEC Software Solutions UK
Year / Amount*2 | EBITDA Margin |
FY2018 | 30% | ||
20% | |||
475M GBP | 10% | ||
0% | FY2018 | FY2021 | |
● Digital Governments/Digital Finance-Utilizing Synergies
to Accelerate Global Expansion
We plan to capture the trend toward DX in Nordic and Commonwealth nations, Asia, and Japan and expand into government services, law enforcement, healthcare, aviation, trans- port, education, and financial fields. To accelerate this expansion, we will leverage NEC's superior biometrics technology as well as its sales network in each country. We will also utilize synergies-
There is an urgent need to increase transmission capacity stemming from the increase in video content, remote work, and online learning. As a result, there has been a noticeable rise in direct investments in submarine cables, particularly among over-the- top (OTT) service providers. NEC will develop and enhance the functionality of new products that contribute to the expansion of transmission capacity and quality improvement ahead of other companies, aiming to increase its share not only in the Pacific
Year / Amount*2
FY2009
430M USD*4
IRR*3
20%
10% | ||
0% | (a) | (b) |
Year / Amount*2 | EBITDA Margin |
FY2019 | 30% | ||
20% | |||
8.0B DKK | 10% | ||
0% | FY2019 | FY2021 | |
product synergies that involve sharing software assets between three acquired companies to create a shared platform, and cost synergies that take advantage of NEC procurement capabilities and centralized software development resources.
The demand for solutions at airports is gradually recovering after stagnating due to COVID-19. Some examples of this recovery
Ocean, where NEC has a high market share, but also in the Indian Ocean and Atlantic Ocean. We will also continue to increase our business execution capabilities, which include production, cable installation, and quality control, in line with the expansion of business scale.
*1 Other than the above 4 companies, 3 M&As were implemented from FY2005 (CSG, 2012, 227.5M AUD; A123, 2014, 100M USD; Avaloq, 2020, 2.05B CHF). *2 Year refers to first FY; amount refers to total.
*3 Reference value (a) excludes corporate value; reference value (b) includes corporate value (computed from time of acquisition to present).
*4 430M USD for Netcracker is only for its stock acquisition cost. IRR is computed by including a loan from NEC to NC.
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NEC Corporation published this content on 10 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 November 2021 03:04:07 UTC.