Presentation

Financial Results for FY 200
6/3
2006/3
and
Financial Forecast for FY 200
7/3
2007/3
May 11, 2006
NEC Corporation
(http://www.nec.co.jp/ir/en/)
CAUTIONARY STATEMENTS:
This material contains forward-looking statements pertaining to strategies, financial targets, technology, products and services, and business performance of NEC
Corporation and its consolidated subsidiaries (collectively "NEC"). Written forward-looking statements may appear in other documents that NEC files with stock
exchanges or regulatory authorities, such as the U.S. Securities and Exchange Commission, and in reports to shareholders and other communications. The U.S. Private
Securities Litigation Reform Act of 1995 contains, and other applicable laws may contain, a safe-harbor for forward-looking statements, on which NEC relies in making
these disclosures. Some of the forward -looking statements can be identified by the use of forward-looking words such as "believes," "expects," "may," "will," "should,“
"seeks,“ "intends," "plans," "estimates," "aims," or "anticipates," or the negative of those words, or other comparable words or phrases. You can also identify forward
looking statements by discussions of strategy, beliefs, plans, targets, or intentions. Forward-looking statements necessarily depend on currently available assumptions,
data, or methods that may be incorrect or imprecise and NEC may not be able to realize the results expected by them. You should not place undue reliance on forward
looking statements, which reflect NEC's analysis and expectations only. Forward-looking statements are not guarantees of future performance and involve inherent risks
and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Among the factors that
could cause actual results to differ materially from such statements include (i) global economic conditions and general economic conditions in NEC's markets, (ii)
fluctuating demand for, and competitive pricing pressure on, NEC's products and services, (iii) NEC's ability to continue to win acceptance of NEC's products and
services in highly competitive markets, (iv) NEC's ability to expand into foreign markets, such as China, (v) regulatory change and uncertainty and potential legal liability
relating to NEC's business and operations, (vi) NEC's ability to restructure, or otherwise adjust, its operations to reflect changing market conditions, and (vii) movement
of currency exchange rates, particularly the rate between the yen and the U.S. dollar. Any forward-looking statements speak only as of the date on which they are made.
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 NEC. NEC does not undertake any
obligation to update or revise any of the forward-looking statements, whether as a result of new information, future events, or otherwise.
The management targets included in this material are not projections, and do not represent management's current estimates of future performance. Rather, they
represent targets that management will strive to achieve through the successful implementation of NEC's business strategies.
Finally, NEC cautions you that the statements made in this material are not an offer of securities for sale. The securities may not be offered or sold in any jurisdiction in
which registration is required absent registration or an exemption from registration under the applicable securities laws. For example, any public offering of securities to
be made in the United States must be registered under the U.S. Securities Act of 1933 and made by means of an English language prospectus that contains detailed
information about NEC and management, as well as NEC's financial statements.
(Note)
1. The consolidated financial statements of NEC are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
2. "Operating income" set forth above is a measure commonly used by other Japanese companies that report their financial results in accordance with generally
accepted accounting financial reporting practices in Japan. “Operating income” is calculated by deducting cost of sales and selling, general and administrative expenses
from net sales. Management believes this measure is useful to investors in comparing NEC’s results of operations to other Japanese companies. This measure,
however, should not be construed as an alternative to "income before income taxes" or "net income" as determined in accordance with U.S. GAAP. Please refer to the
condensed consolidated statement of operations for the calculation of the operating income.
3. In accordance with U.S. GAAP, a part of the consolidated financial information for the fiscal year ended March 31, 2005, related to certain operations that were
discontinued during the fiscal year ended March 31, 2006, has been reclassified and restated.
4. The consolidated financial results for the fiscal year ended March 31, 2005 were revised from those already announced, and restated based on U.S. GAAP. However,
as restated figures are currently being audited by NEC’s independent auditors, NEC will promptly disclose revised consolidated financial results for the fiscal year ended
March 31, 2005, after the aforementioned audit is complete.
© NEC Corporation 2006
Page 1
Restatement of Consolidated Financial Results for Past Years
„NEC will restate reported financial results for FY 01/3
through FY 05/3 based on U.S. GAAP
■Status of restatement：
•
•
Adjust the false transactions by an employee of an NEC subsidiary.
Other revisions are implemented in order to achieve uniformity throughout
the financial results in the past several years based upon U.S. GAAP.
The reported results for FY 01/3 through FY 05/3 were valid, excluding the
above mentioned false transactions.
■Items for restatement：
① Adjustment of the impact of false transactions by an NEC subsidiary.
② Disclosure of discontinued operations to ensure comparability.
③ Achieve uniformity with FY 06/3 presentation based upon U.S.GAAP :
scope of consolidation, capitalized development costs etc.
„NEC will further enforce internal control and
compliance.
© NEC Corporation 2006
Page 2
Impact of the Restatement (Round)
Sales
Segment profit
Equity
(Billion Yen)
05/3
Impact by major items
① False transactions
② Discontinued operations
06/3
-53.4
-26.2
-17.0
-61.0
Other
-26.2
06/3
10.7
NW
NW
Other
05/3
25.0
-4.0
05/3
-53.8
06/3
-30.0
-2.0
Other
-2.0
-1.0
1.0
10.0
③ Achieve uniformity
・ Scope of consolidation
*1
・ Reporting revenue net
・ Development costs:
capitalization or expense
*2
44.0
-18.0
*3
・ Warranty reserve
-3.0
・ Vacation accruals
05/3: Changes from reported amount
06/3: Differences from forecast
*1
*2
*3
*4
IT23.0,MW14.0, Other7.0
NW-10.0, Other-8.0
IT4.0, NW23.0(Mobile 2/3, Broadband 1/3)
IT1.0,NW20.0 (Mobile Terminal 18.0） ,ED4.0
© NEC Corporation 2006
*4
27.0
Page 3
25.0
-20.0
-8.0
-8.0
-22.0
-22.0
1. Financial Results for FY 2006/3
Executive Summary of FY06/3
Positive results toward growth trend
• Solidifying foundation for NGN (Next Generation Network)
Strategy
- Growth of mobile infrastructure business
- Continuous improvement of profitability in broadband business
• Bottoming out of semiconductor and SI businesses
Decrease in operating income & net income compared to
previous FY. Results were below forecasts
• Slowness in execution of reform measures and in response to
changing environment
- Delay in improving semiconductor and mobile terminal businesses
- Loss from PC business due to depreciation of yen
© NEC Corporation 2006
Page 5
Financial Results (Overview)
(Billion Yen)
FY05/3
Full Year
Actual
Net sales
FY06/3
Full Year
Actual
YOY
4,801.7
4,824.9
+ 0.5%
141.9
95.4
-46.4
3.0%
2.0%
Income before income taxes
145.1
83.3
-61.8
Net income
77.2
12.1
-65.1
(% to Net s ales )
1.6%
0.3%
39.62
6.05
-33.6
Free cash flows
30.0
153.4
+123.4
Shareholders' equity
737.0
890.9
+153.9
Net interest-bearing debt
672.0
510.6
161.4cut
Net D/E ratio(times)
0.91
0.57
0.34cut
Shareholders' equity ratio
18.5%
22.9%
+4.4%
Operating income
(% to Net s ales )
Net income per share: Basic (yen)
*FY05/3 results are restated.
© NEC Corporation 2006
Page 6
Financial Results by Segment
(Billion Yen)
FY05/3
Actual
IT Solutions
Net sales
Network Solutions
Profit/Loss
(to sales)
Net sales
Electron Devices
Profit/Loss
(to sales)
Net sales
2,167.8
2,174.6
0%
106.1
81.8
-24.3
4.9%
1,786.2
-5%
41.5
62.0
+ 20.5
2.2%
3.5%
Others/Eliminations
etc. Profit/Loss
869.1
808.4
-7%
33.4
-25.5
-58.9
3.8%
-3.1%
-110.5
55.7
-
-39.1
-22.9
+ 16.2
-
(to sales)
Net sales
-
4,801.7
4,824.9
0%
141.9
95.4
-46.4
Profit/Loss
(to sales)
*FY05/3 results are restated.
© NEC Corporation 2006
3.8%
1,875.3
Profit/Loss
(to sales)
Net sales
Total
FY06/3
Actual
YOY
Page 7
3.0%
2.0%
2. Financial Outlook for FY 2007/3
Basic Policy for FY07/3
Achievement of financial forecasts
Further
Further execution
execution
of
of growth
growth strategy
strategy
X
XFocus
Focuson
on
growth
growthbusiness
business
--Reinforcing
ReinforcingR&D
R&D
ininNGN
NGNarea
area
--Increase
Increaseinin
UNIVERGE
UNIVERGEsales
sales
-- Improvement
Improvementofof
profitability
profitabilityinin
SI
SIbusiness
business
Steady
Steady execution
execution of
of Crystallization
Crystallization of
of effects
effects
measures
of
measures
of re-organization
re-organization
to
and
to improve
improve profitability
profitability
and partnerships
partnerships
X
XTurnaround
Turnaroundofofunderunderperforming
performingbusinesses
businesses
•• Mobile
Mobileterminals
terminals
•• Semiconductors
Semiconductors
•• PCs
PCs
X
XContinuation
Continuationofof
production/
production/process
process
innovation
innovation
X
XRealization
Realizationofof
re-organization
re-organizationeffects
effects
•• Software/service
Software/service
•• Enterprise
EnterpriseN/W
N/W
•• BIGLOBE
BIGLOBE
X
XPositive
Positiveeffects
effectsofof
alliances
alliances
Improvements
Improvements in
in internal
internal governance
governance // compliance
compliance
© NEC Corporation 2006
Page 9
Financial Outlook (Overview)
(Billion Yen)
Actual
Net sales
FY07/3
1st Half
FY07/3
Full Year
FY06/3
Full Year
Forecast
YOY
Forecast
4,824.9
4,900
2%
2,250
Operating income
95.4
130
+34.6
15
(% to Net s ales )
2.0%
3%
Income before income taxes
83.3
100
+16.7
10
Net income
12.1
50
+37.9
10
(% to Net s ales )
0.3%
1%
Net income per share: Basic (yen)
6.05
25.09
+19
153.4
120
-33.4
Free cash flows
YOY
NA*
1%
0%
*Financial Results for 1st Half of FY06/3 will be restated hereafter.
(Forecasts as of May 11, 2006)
© NEC Corporation 2006
Page 10
Financial Outlook by Segment
(Billion Yen)
IT Solutions
FY06/3
Full Year
Actual
Net sales
YOY
1,010
2,220
2%
81.8
20
90
+ 8.2
3.8%
2%
4%
1,786.2
790
1,740
-3%
62.0
16
70
+ 8.0
3.5%
2%
4%
808.4
430
885
9%
-25.5
-2
8
+ 33.5
-3.1%
-1%
1%
55.7
20
55
-1%
-22.9
-19
-38
-15.1
-
-
-
4,824.9
2,250
4,900
2%
Profit/Loss
95.4
15
130
+ 34.6
(to sales)
2.0%
1%
3%
(to sales)
Network Solutions Net sales
Profit/Loss
(to sales)
Electron Devices Net sales
Profit/Loss
(to sales)
Others/Eliminations Net sales
Total
1st Half
Forecast
2,174.6
Profit/Loss
etc.
FY07/3
Full Year
Forecast
Profit/Loss
(to sales)
Net sales
(Forecasts as of May 11, 2006)
© NEC Corporation 2006
Page 11
3. Segment Information
IT Solutions Business
(Billion Yen)
Full Year
Sales
2,167.8
Personal
solutions
2,174.6
723.9
Computer
platform
500.1
Software
106.9
Approx.
2,220
749.5
106.1
489.9
Approx
90
102.8
FY06/3：
FY06/3：
‹Sales
‹Salesremained
remainedalmost
almostthe
thesame
same
as
asthe
theprevious
previousyear
year
--PC
shipment
grew
PC shipment grewsteadily
steadily
(Personal
solutions)
(Personal solutions)
--Computer
Computerplatform
platformdecreased
decreased
‹Profit
‹Profitdeclined
declinedas
ascompared
comparedwith
with
the
theprevious
previousyear
year(-¥24.3B）
(-¥24.3B）
--Forex
impact
on
Forex impact onPersonal
Personalsolutions
solutions
--Prior
investment
in
Software
Prior investment in Software
--Decreased
Decreasedprofit
profitfrom
frommaintenance
maintenance
81.8
SI/Services
836.9
05/3
FY07/3：
FY07/3：
832.4
06/3
07/3
（Forecast)
Segment profit
(Forecast as of May 11 2006)
(05/3 is restated figure)
© NEC Corporation 2006
‹Planning
‹Planningincrease
increaseboth
bothininsales
salesand
andprofit
profit
--Profit
increase
in
SI/services
is
Profit increase in SI/services is
planned
planneddue
duetotoupbeat
upbeatdomestic
domestic
IT
ITinvestment
investment
--Recovery
RecoveryofofPersonal
Personalsolutions
solutions
business
business
Page 13
IT Solutions Business
■SI/Services … FY07/3 Plan: Steady profit increase
◇Steady improvement of SI projects
SI/services profit mix & margin
- Process innovation in SI projects was actualized
(2nd half of 05/3)
- Loss from underperforming projects was narrowed by
enhanced project management
¨ Further reinforcement in FY07/3
9%
8%
8%
8%
6%
SI
6%
maintenance
◇Decrease in profit from maintenance
was more than expected
¨ Promote reform through cost reduction
¨ Make group-wide efforts to improve profitability
by sharing objectives
FY04/3
1H
FY04/3
2H
FY05/3
1H
FY05/3
2H
FY06/3
1H
■Personal solutions … FY07/3 Plan: Recovery to profitable point
◇PC profit declined by drastic change of exchange rates
¨ Reinforce tolerance to changes of business environment such as exchange rates
（Continuing production process innovation,
Reduce cost of maintenance/ support by quality improvement）
© NEC Corporation 2006
Page 14
FY06/3
2H
Network Solutions Business
Full Year
1,875.3
Sales
(Billion Yen)
Approx.
1,740
1,786.2
Social 255.4
Infrastructure
277.9
Approx.
70
Broadband 614.5
592.2
Mobile
388.5
Infrastructure
--Mobile
MobileTerminals
Terminalsdecreased
decreasedby
by27%
27%
--Mobile
Infra.
Increased
by
19%
Mobile Infra. Increased by 19%
by
byfavorable
favorablesales
salesininboth
both
Japanese
and
overseas
Japanese and overseasmarket
market
‹Profit
‹Profitincreased
increasedYoY
YoY¥¥20.5
20.5BB
--Loss
Losswidened
widenedininMobile
MobileTerminals
Terminals
because
becauseofofrebuilding
rebuildingcost
costininChina,
China,etc.
etc.
--Profit
from
infrastructure
businesses
Profit from infrastructure businesses
improved
improved
62.0
41.5
461.3
FY07/3
FY07/3Forecasts：
Forecasts：
‹Plan
‹Planto
toincrease
increaseprofit
profit
by
byimproving
improvingMobile
MobileTerminals
Terminals
Mobile 616.9
Terminals
454.8
--Turnaround
TurnaroundofofMobile
MobileTerminals
Terminalsinin2H
2H
Segment Profit
05/3
FY06/3
FY06/3Results：
Results：
‹Sales
‹Salesdecreased
decreasedYoY
YoY-5%
-5%
06/3
07/3 （Forecast）
‹Continue
‹Continuerobust
robustperformance
performance
ininInfra.
Infra.businesses
businessesas
aslast
lastyear
year
•Forecast as of May 11, 2006
•FY05/3 results are restated.
© NEC Corporation 2006
Page 15
Network Solutions Business
■ Mobile Terminals：
In 2H of FY07/3, return to breakeven level
◇Shipment volume in 06/3 10.9Mil. units (17% decrease)
→ more than 9Mil. in 07/3 (plan) Japan: flat Overseas: 40% decrease
◇Tough competition in Japan is forecasted,
however reduce loss overseas by focusing on profitability
■ Mobile infrastructure： FY07/3 Keep sales and profit level of FY06/3
◇06/3 : Sales increased by 19% and profit grew significantly.
◇07/3 : Planning to maintain good results of the previous FY
-Communication service providers in Japan will continue to invest to differentiate
services even if it will not be at the level of 06/3
-Overseas business : Market will grow steadily by the shift of GSM to W-CDMA
■ Broadband business： Keep same profit level with NGN R&D costs
◇Business with communication service providers :
Starting up toward NGN, but mostly at preparatory stage such as trials.
Leading to greater up-front development
◇Business with enterprises : Planning steady growth with UNIVERGE.
Expand overseas business by ex. capital participation in PBC
© NEC Corporation 2006
Page 16
Electron Devices Business
(Billion Yen)
Full Year
Sales
Electronic
Components/
Others
869.1
Displays
808.4
Approx.
885
92.2
97.8
68.9
*Sales in FY05/3
includes PDP.
64.6
33.4
Approx.
8
Semiconductors
(NEC Electronics)
708.0
646.0
Segment profit
•Forecast as of May 11, 2006
•FY05/3 results are restated.
© NEC Corporation 2006
06/3
‹Semiconductors
‹Semiconductors
--Full-year
Full-yearsales
salessignificantly
significantlydown
down
due
dueto
tooverall
overallweak
weakdemand
demand
--Sales
Saleshit
hitthe
thebottom
bottominin1Q
1Qand
andon
onaa
recovery
recoverytrend
trend
--Profit
Profitdropped
droppeddue
dueto
tothe
thedecline
declineinin
net
netsales
salesand
andprice
priceerosion
erosion
‹LCDs,
‹LCDs,electronic
electroniccomponents
components
--Stable
Stablesales/profit
sales/profit
FY07/3
FY07/3Forecast:
Forecast:
-25.5
05/3
FY06/3
FY06/3Results:
Results:
Sales
Salesdown
downyoy
yoyby
by-7%
-7%
Profit
Profitdecreased
decreasedyoy
yoyby
by¥¥-58.9
-58.9BB
07/3
(forecast)
‹Semiconductors
‹Semiconductorswill
willreturn
returnto
tothe
theblack
black
--Recovering
Recoveringorders
ordersand
andsales
salesfrom
from
marketing
marketingefforts
efforts
--Increasing
Increasingmarginal
marginalprofit
profitby
by
expanding
sales
expanding sales
Page 17
Conclusion
Achievement of financial forecasts
Further
Further execution
execution
of
of growth
growth strategy
strategy
X
XFocus
Focuson
on
growth
growthbusiness
business
--Reinforcing
ReinforcingR&D
R&D
ininNGN
NGNarea
area
--Increase
Increaseinin
UNIVERGE
UNIVERGEsales
sales
-- Improvement
Improvementofof
profitability
profitabilityinin
SI
SIbusiness
business
Steady
Steady execution
execution of
of Crystallization
Crystallization of
of effects
effects
measures
of
measures
of re-organization
re-organization
to
and
to improve
improve profitability
profitability
and partnerships
partnerships
X
XTurnaround
Turnaroundofofunderunderperforming
performingbusinesses
businesses
•• Mobile
Mobileterminals
terminals
•• Semiconductors
Semiconductors
•• PCs
PCs
X
XContinuation
Continuationofof
production/
production/process
process
innovation
innovation
X
XRealization
Realizationofof
re-organization
re-organizationeffects
effects
•• Software/service
Software/service
•• Enterprise
EnterpriseN/W
N/W
•• BIGLOBE
BIGLOBE
X
XPositive
Positiveeffects
effectsofof
alliances
alliances
Improvements
Improvements in
in internal
internal governance
governance // compliance
compliance
© NEC Corporation 2006
Page 18
Appendix
Sales of Mobile Terminals
Shipment volumes of mobile terminals
15.5m units
30%50%+
of Overseas
13.1
40%
20%
9.4
of Domestic
Overseas
70%+
Domestic
10.9
60%+
of Overseas
900+
1/3
90%+
of Overseas
Overseas
50%+
Domestic
of Domestic
90%+
60%
20%+
80%+
400+
2/3
of Domestic
20%
80%-
80%
03/3
Full Year
04/3
Full Year
05/3
Full Year
06/3
Full Year
07/3 (Forecast）
1H
Full Year
*Forecasts as of May. 11, 2006
© NEC Corporation 2006
Page 20
Appendix
Impact of the Restatement by Segment
(1) Net Sales ( including internal saled to other segments)
FY05/3
Restated
FY06/3
Impact (changes from reported amount)
Actual
It Solutions
2,167.8
+23.4 scope of consolidation +23.0
Network Solutions
1,875.3
-16.7 reporting revenue net -10.0
false transactions -17.0, scope of consolidation +14.0,
2,174.6
1,786.2
Electron Devices
869.1
+0.5
Others
586.4
-62.7 consolidation +7.0, reporting revenue net -8.0
698.4
-697.0
+2.1
-642.6
Eliminations
Consolidated Total
4,801.7
Impact (defferences from forecast)
808.4
discontinued operations -61.0, scope of
false transactions -17.0, scope of consolidation +44.0,
-53.4 reporting revenue net -18.0
4,824.9
-26.2
discontinued operations
-26.2
discontinued operations
-26.2
(2) Segment Profit or Loss
FY05/3
Restated
It Solutions
106.1
Network Solutions
41.5
Electron Devices
33.4
7.1
3.0
Others
Eliminations
Unallocated corporate
expenses*
-49.3
Consolidated Total
141.9
FY06/3
Actual
Impact (changes from reported amount)
+3.8 R&D costs +4.0
+15.1 false transactions -4.0, R&D costs +23.0
-3.8 warranty reserve -3.0
-4.4 descontinued operations
-
-2.0
-
81.8
+1.0 R&D costs
62.0
+20.0 R&D costs
-25.5
13.7
11.5
+4.0 R&D costs
-48.1
false transactions -4.0, discontinued operations -2.0,
+10.7 R&D costs +27.0, warranty reserve -3.0
*Unallocated corporate expenses include general corporate expenses and research and development expenses at NEC Corporation which are not
allocated to any business segment.
© NEC Corporation 2006
Impact (defferences from forecast)
Page 21
95.4
+25.0 R&D costs +25.0