NEC Releases Consolidated Financial Results for the Nine Months Ended December 31, 2019

TOKYO, Jan 29, 2020 – (JCN Newswire) – As stated in the July 10, 2019 announcement, “NEC to Revise Operating Segments,” NEC has revised its operating segments from the first quarter of the fiscal year ending March 31, 2020. Figures for the corresponding period of the previous fiscal year have been restated to conform to the new segments.

In addition, as the provisional accounting treatment for KMD Holding ApS (hereafter KMD Holding) acquired in the previous fiscal year is settled in the second quarter of the fiscal year ending March 31, 2020, the corresponding figures as of the previous fiscal year are retrospectively adjusted.

“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 calculated by deducting the amortization of intangible assets recognized as a result of M&A and expenses for the acquisition of companies (financial advisory fees, etc.) from operating profit (loss). Also, “Adjusted net profit (loss) attributable to owners of the parent” is an indicator for measuring underlying profit attributable to owners of the parent. It is calculated 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.

Overview of the third quarter of the fiscal year ending March 31, 2020 (nine months ended December 31, 2019)

The worldwide economy during the nine months ended December 31, 2019 showed slow growth, particularly in Europe and China, largely due to U.S.-China trade friction.

The Japanese economy showed firm domestic demand, but following a rise in the consumption tax, domestic demand was somewhat weakened.

Under this business environment, the NEC Group recorded consolidated revenue of 2,175.6 billion yen for the nine months ended December 31, 2019, an increase of 141.0 billion yen (6.9%) year-on-year. This increase was mainly due to increased sales overall, particularly in the Global business.

Regarding profitability, operating profit (loss) improved by 61.2 billion yen year-on-year, to an operating profit of 77.9 billion yen, mainly due to increased revenue, in addition to the recording of business structure improvement expenses in the same period of the previous fiscal year. Adjusted operating profit (loss) improved by 66.6 billion yen year-on-year, to an adjusted operating profit of 90.6 billion yen.

Income (loss) before income taxes was an income of 78.8 billion yen, a year-on-year improvement of 52.4 billion yen, mainly due to improved operating profit (loss), despite a deterioration in foreign exchange gains (losses).

Net profit (loss) attributable to owners of the parent for the nine months ended December 31, 2019 was a profit of 49.2 billion yen, an increase of 41.5 billion yen year-on-year. This was primarily due to improved income (loss) before income taxes. Adjusted net profit (loss) attributable to owners of the parent improved by 45.1 billion yen year-on-year, to an adjusted operating profit of 56.9 billion yen.

Analysis of The Condition of Assets, Liabilities, Equity, and Cash Flows

Total assets were 3,041.9 billion yen as of December 31, 2019, an increase of 78.7 billion yen as compared with the end of the previous fiscal year. Current assets as of December 31, 2019 decreased by 58.5 billion yen compared with the end of the previous fiscal year to 1,579.7 billion yen, mainly due to the collection of trade and other receivables, despite an increase in inventories due to increased investment toward the end of the fiscal year. Non-current assets as of December 31, 2019 increased by 137.2 billion yen compared with the end of the previous fiscal year to 1,462.2 billion yen. This was mainly due to an increase in property, plant and equipment, net, as a result of recording right-of-use assets in applying IFRS 16, “Leases” (hereafter “IFRS 16”).

Total liabilities as of December 31, 2019 increased by 47.4 billion yen compared with the end of the previous fiscal year to 1,950.9 billion yen. This was mainly due to a recording of lease liabilities in applying IFRS 16, despite a decrease in trade and other payables due to the payment of materials cost. The balance of interest-bearing debt amounted to 694.4 billion yen, an increase of 141.9 billion yen as compared with the end of the previous fiscal year. The debt-equity ratio as of December 31, 2019 was 0.78 (a worsening of 0.14 points as compared with the end of the previous fiscal year).

The balance of net interest-bearing debt as of December 31, 2019, calculated by offsetting the balance of interest-bearing debt with the balance of cash and cash equivalents, amounted to 441.3 billion yen, an increase of 167.1 billion yen as compared with the end of the previous fiscal year. The net debt-equity ratio as of December 31, 2019 was 0.50 (a worsening of 0.18 points as compared with the end of the previous fiscal year).

In addition, after reflecting the impact of applying IFRS 16, the changes in the balance of interest- bearing debt and that of net interest-bearing debt were a decrease of 33.2 billion yen and 8.0 billion yen respectively, at the beginning of the fiscal year ending March 31, 2020. As a result, the debt- equity ratio and the net debt-equity ratio improved by 0.07 points and 0.02 point respectively.

Total equity was 1,091.0 billion yen as of December 31, 2019, an increase of 31.3 billion yen as compared with the end of the previous fiscal year, mainly owing to net profit attributable to owners of the parent, despite the payment of dividends.

As a result, total equity attributable to owners of the parent (total equity less non-controlling interests) as of December 31, 2019 was 889.8 billion yen, and the ratio of equity attributable to owners of the parent was 29.3% (an improvement of 0.3 points as compared with the end of the previous fiscal year).

Net cash inflows from operating activities for the nine months ended December 31, 2019 were 112.2 billion yen, an increase of 138.8 billion yen as compared with the same period in the previous fiscal year, due to improved income (loss) before income taxes, the impact of applying IFRS 16 and improved working capital.

Net cash outflows from investing activities for the nine months ended December 31, 2019 were 63.0 billion yen, an increase of 26.6 billion yen as compared with the same period in the previous fiscal year, mainly due to an increase in purchases of property, plant, and equipment.

As a result, free cash flows (the sum of cash flows from operating activities and investing activities) for the nine months ended December 31, 2019 totaled a cash inflow of 49.2 billion yen, an increase of 112.2 billion yen year-on-year.

Net cash flows from financing activities for the nine months ended December 31, 2019 totaled a cash outflow of 74.8 billion yen, mainly due to repayments of lease liabilities, the redemption of commercial paper and payment of dividends.

As a result, cash and cash equivalents as of December 31, 2019 amounted to 253.1 billion yen, a decrease of 25.2 billion yen as compared with the end of the previous fiscal year.

Consolidated Financial Forecast

Beginning from the first quarter of the fiscal year ending March 31, 2020, the NEC Group discloses business indices including adjusted operating profit (loss), in the consolidated financial forecasts for the full fiscal year ending March 31, 2020. There is no change to the business indices for the consolidated financial forecasts, as previously disclosed on October 29, 2019.

To view the full report, visit: https://www.nec.com/en/press/202001/images/2901-01-01.pdf