Public Infrastructure Business

Noritaka Taguma, Executive Vice President

0 © NEC Corporation 2020 : Public Infrastructure Overview of the Public Infrastructure Business Business Domains ▌Responsible for products and system integration / services for Japanese government agencies, broadcasters, etc.

DigitalDigital Transmitter送信機 Electronic ダムRemote/河川遠隔 Medical Immigration 鉄道ネットワークTVTV番組制作・ Studio 電子カルテ衛星通信・監視システムMonitoring サイバーCyber Air Traffic Railway Record Satellite 野外通信システムCommunication 入国管理システム航空管制システム System System Control System Control System Network 報道・送出システムシステムSystem 地球観測漏水検知セキュリティSecurity System

Water Works Space Bureau Self Airport Broad Defense cast Hospital Force National Gov., Railway Related Organizations School Road Electric Post Fire Power Office Defense, Local Gov. Marine Police First Aid

Fire Department Vessel Electric Power Traffic Control Fingerprint Post Office Tax and Social Educational Cloud Service 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System, Disaster 税・社会保障教育ICT Network ICT System, ETC Identification System Security-related ICT ネットワーク ICT・NCC・AMI ETC System システム消防指令システムPrevention System関連システム防災システムSystem

1 © NEC Corporation 2020 Business Performance from FY2018 to FY2020

▌ FY2019: Increased in revenue and profit from FY2018’s across all business domains ▌ FY2020: Expected to decrease in revenue due to reductions of large contracts in the space and defense domains, but adjusted margin is on a level with FY2019’s. 9% 9% Adjusted Operating Margin 8 % 6,588 6,788 6,750 Revenue Consolidated Consolidated Consolidated subsidiaries subsidiaries (¥100mn) subsidiaries 2,155 2,300 2,335

Public Public Public Infra Infra Infra BU BU BU 4,633 4,450 *Numbers excluding 4,253 consolidated subsidiary are shown on following pages FY2018 FY2019 FY2020 (Forecast)

2 © NEC Corporation 2020 FY2019 Results

▌Recorded ¥7.5 billion as loss on devaluation of inventory, but sales increase and profitability improvement led to ¥16.5 billion profit increase

Structural Loss on (in ¥100mn) Improvement Devaluation +15 of Inventory Profitability ▲75 Improvement +70

Sales Decrease in FY19 Increase Development Unprofitable projects +25 Adjusted +180 Investment Operating FY18 ▲25 Profit Adjusted Operating Space & Defense +80 477 Profit Gov. & Public +70 312 Broadcasting +30

Revenue 4,633 (YoY) 4,253 (+9%)

3 © NEC Corporation 2020 Summary of Business in FY2019

 Plans achieved, contributing to company’s performance

Public Public Infrastructure BU Infrastructure BU ¥463.3 bn ¥47.7 bn ¥3,095.2 bn ¥145.8 bn Adjusted ・excluding JAE Revenue Operating Profit Key Achieve-  Major projects acquired / completed ments

Installation of facial Implementation of Air surveillance recognition system for driver’s license renewal radar production media personnel at service for the elderly for the JASDF Rugby World Cup 2019 Source: Ministry of Defense & JASDF websites (https://www.mod.go.jp/asdf/okinoerabujima/index.html) Challenges Minimization of impacts of unprofitable projects

4 © NEC Corporation 2020 FY2018-19 Results -Sector Summary-

Gov. &  Increased in revenue due to the expansion of projects Public combining information technology and Network technology  Maintained high profitability

 Profit loss continued in the space domain because of Space & outstanding unprofitable projects Defense  Revenue increased in the defense domain owing to large contracts, reducing unprofitable projects and improving profitability

 Revenue was flat Broadcasting  Improved profitability due to implementation of process improvements such as quality management strengthening

5 © NEC Corporation 2020 FY2020 Outlook

▌ Improvement of profitability - including the off-set of inventory devaluation in the previous year- will offset the decrease in profits due to reduced revenue, and maintain the level of FY2019. Will invest in information security strengthening.

Information (in ¥100mn) Profitability Security Revenue Improvement Strengthening Reduction +35 ▲17 (Product MIX) Loss on Devaluation ▲110 FY19 of Inventory FY20 FY20 in previous Year Adjusted +75 Adjusted Adjusted Operating Operating Operating Space & Defense ▲85 profit profit profit Broadcasting ▲15 Other ▲10 477 477 460

Revenue 4,450 4,633 (YoY) (▲4%)

6 © NEC Corporation 2020 Impact of COVID-19

 Downturn in Space & Defense domains due to limited Impact on teleworking capability for information security Q1 Results Loss on operations and delayed progress Impact on Profit: ▲ ¥1.5 billion

Countermeasures  Recover after Q2 by improving utilization rate, expense efficiency and reducing costs Outlook for this fiscal year  Obtaining the supplemental budget projects

7 © NEC Corporation 2020 Business Strategy for FY2020

 Secure the same level of operating profit as FY2019 and invest Business with an eye on the next 5-10 years Strategy Revenue ¥444.5 billion Adjusted Operating Profit ¥46 billion

 Minimization of the impact of COVID-19  Respond to DX/New Normal strategy and generational changes of public systems Focus Initiatives Preparation of Business Acquisitions Promotion of IP network Government in New Normal transformation for the Cloud broadcasting system

 Initiatives to minimize unprofitable projects

8 © NEC Corporation 2020 Measures to Minimize Unprofitable Projects Classifying the patterns of unprofitable projects, and promoting measures to enhance the quality of world/industry-first technologies FY2019 FY2020 Cause of Unprofitability

63 % of unprofitable World-first projects /Industry-first

Measures Enhanced Measures Continued to improve the ・Commercialization of R&D projects quality of products ・Proposals for client business practices through all supply chains ・Strengthening risk verification at proposal stage

Reduced by 25 % YoY Intend to reduce 50 % YoY

9 © NEC Corporation 2020 Mid- to Long-term Issues & Outlook

Challenge to business expansion for keeping stable business scale Market Share Trends of Public Infrastructure -ICT domains of Gov. & Public, Space & Defense, and 3 StrategiesPillars for for BusinessBusiness Expansion Expansion Broadcasting- *Our estimates based on external survey Challenge 1 New Competitive Advantages ¥3.2 tn New ICT Business Domain 2 New Business Model Existing ICT Business Domain (Legacy Public Systems） Transformation 3 in Public Systems

FY21 FY22 FY23 FY24 FY25

10 © NEC Corporation 2020 Challenge to Business Expansion -1- New Competitive Advantages Integrate existing strengths in ICT, sensors, domain knowledge, and policy proposal capabilities to improve competitiveness

BEFORE AFTER Acquiring orders on a Improve competitiveness single capability Case by combining several capabilities

Sales Capability Online Video platform Drone Control Business Information Information Technology or Technology Sensor Technology SI Capability

Policy or Proposal Technical Capability Video Technology Network Partnering Partnering ... Technology Related patent registrations Over5,000 11 © NEC Corporation 2020 Challenge to Business Expansion -2- New Business Model Challenge to service-based business with higher profitability with a holistic view of customer value chains SL supporting public Quasi-zenith satellite work implementation system PFI Space Satellites 2nd

Gov. & Public CALS-ASP Service Office ICT Systems Current NEC Satellite operation & Work report receipt Business Domains positioning signal & management 4th services (No. 1 in Police) based on SI, HW Driver’s license All broadcasting core system systems 1st

Broadcasting Terrestrial Digital Broadcasting Transmitters

Driver’s License Renewal Service-based Business Domains Online Video Platform Service for the Elderly for Training school reservation *CALS: Continuous Acquisition and Life-cycle Support commercial/TV show management material business

12 © NEC Corporation 2020 Challenge to Business Expansion -2- New Business Model Driver’s License Renewal Service for the Elderly

Improving administrative services for the increasing number of elderly drivers

BEFORE AFTER Training & Test Training & Test Waiting Period Waiting Period Halved Approx. 60 days

Data utilization (data mining) Administrative BPO (call center) Increased NEC workload of employees Increased productivity of employees

Police Station Training School A Training School B Police Station Training School A Training School B

Accelerating a prosperous digital society where citizens can live safely and securely

Social Issues & Outlook Digitalization Focus Operations Living Learning Workstyle Aging National Strategy Society Safe, Secure, Fulfilling Transformation Life Driver’s Licenses Financial with Modernization Crisis Workstyle Administrative Services i-Construction (CALS) Geopolitical

Issue / Risk Issue Risk 3 Revolutions Rapid Progress Social Security Adapting to COVID-19 of Specialized Learning Living Technologies GIGA School PC Administrative Data Utilization Education ICT Educational Platform Service Digitalization Community implementation of digital technology

Change Next-generation •New Governmental COVID-19 Next-generation Platform construction Infrastructure Preparation Infrastructure Preparation

14 © NEC Corporation 2020 Challenge of Business Expansion -3- Realizing Transformation of Public System -Space & Defense- Creating a safe and secure society in space and defense domain

Mid-to-Long Term Outlook Case of Technology Development –Space-

Realize strategy across domains Policy Proposals Tackling to deal with new domain Strengthening the Capabilities of Space & Cyber Optical Sensor AI Quantum Communi- Technology (Predictions Signaling

Defense Electromagnetic cation & Analysis) Domain

Need of collaboration Expansion of with other countries Overseas on security Equipment SSA・SDA Capability

Catch up with other Lack of human Satellite Manufacturing countries on the resources in the & Operation Capability Challenges speed of policy- events of financial * SSA: Space Situational Awareness making crisis SDA: Space Domain Awareness

Public Infrastructure BU supports nation-critical infrastructure

Maintain top-of-the-industry level of profit

Challenge to business expansion and maintain stable business platforms