NEC Corporation (6701) Earnings Call Transcript & Summary

Hello, everyone. I'm Chief Operating Officer Sakai. Thank you very much for joining us in our IR Day today. First, I'd like to explain the progress of the medium-term plan for the IT Services segment. I'll explain the overview of IT Services business, performance trends and midterm management plan, environmental analysis and key measures for March 2026. First, let's look at an overview of the IT Services business. The IT Services segment is made up of business units that handle the IT business in Japan and overseas. In Japan, the public business unit, enterprise business unit and cross-industry business unit, each handle customers from the central government, local governments, private companies and lifestyle infrastructure-related businesses. And under others, we have ABeam and distribution sales. The digital platform business unit provides common products and services to all of these BUs. For international, the DGDF business unit, digital government, digital finance, has a business of 3 European companies that acquired and its own organic digital ID and DX business. This structure was launched in the last fiscal year 2023, and this is the second year. We plan to continue to develop our business under the structure during this MTP period. Now let us move on to the performance trend and midterm plan targets. First, here are the management figures for the IT Services overall. In March 2024, sales, JPY 1.914 trillion and adjusted operating profit was JPY 184.1 billion, which greatly exceeded our initial forecast for the previous fiscal year. The operating profit margin also improved significantly, reaching 9.6%. This was mainly due to business growth and improved profitability, which captures a strong domestic IT demand and it increased the probability of achieving the midterm targets. Based on these results, the adjusted operating profit target for the FY March 2026 is JPY 220 billion, an increase of approximately JPY 10 billion over initial previous year's target. The OPM is to be 11%, 0.5 percentage points higher than initial target. In the domestic IT business, sales March 2024 were JPY 1.6125 trillion, adjusted OP JPY 165.1 billion and OP margin was 10.2%, representing significant growth in both sales and profit. The main factor behind this growth were significant contribution of BluStellar, a growing business that includes system integration in response to business expansion centers and modernization as well as contribution of improved profitability through strength in management. We will continue this trend going forward, and we are targeting the adjusted OP of JPY 184 billion for March '26, JPY 10 billion more than our initial target. And OP margin is expected to be 10.9%, increase of 0.6 percentage points. In international IT, sales for March '24 were JPY 301.5 billion, adjusted OP, JPY 19 billion. OPM was 6.3%. Although profits were slightly below expectation, orders in growth areas are progressing steadily. And review of noncore business is progressing so we expect profitability to improve as expected for March '25 and March '26 years. We are on track to achieve our targets for this fiscal year of JPY 300 billion in sales, JPY 24 billion in adjusted OP and 8% profit margin. In addition, we expect to achieve our targets of March '26, JPY 310 billion in sales, JPY 36 billion in operating profit and 11.6% OPM, as initially projected. Environmental analysis shows that the domestic IT market, as I mentioned on the last year's IR Day, that the ratio of the monetization domain, namely the efficiency of replacement, was increasing. And I expect that CAGR growth will increase further this year and the demand for that modernization will continue for another 3 to 4 years. From March 2026 onwards, I expect that the DX support domain will grow significantly. We believe this means that the result of the DX domain will start to emerge in companies that have laid the foundation through their shift to the cloud. In terms of international IT, we expect to see continued growth in digital government domain in the commonwealth region, which includes the U.K. and Australia, and in the Scandinavia region, which we are targeting, as well as continued market growth in Europe and APAC in the digital finance domain. Next, I will talk about the market environment and growth strategy for each of the domestic IT business units. First, in the public BU, the trend toward the modernization of government services is now in full swing and we are preparing for cloud migration and system standardization in response to this. We steadily seize opportunity by leveraging the know-hows and personnel we have cultivated in advance in the enterprise market. And in the enterprise BU, the modernization that has already begun full-scale is continuing. The number of large-scale projects is increasing, too. Furthermore, DX projects are also gradually increasing. In the future, we will strengthen our delivery system, including consulting center on BluStellar and promote co-creation activity with customers who are promoting DX. The cross-industry BU base business is expanding, including special renewal demand related to firefighting and disaster prevention. Also, the Smart City Coooperated Mobility with infrastructure, which we've been working as a new core DX business, is experiencing delay in its social implementation. So we will revise the targets for '25 and '26 and rebuild them as a new long-term strategy. These are the key measures we are taking for '26 targets. There are 3 points in the domestic IT business. The first is BluStellar. We define the growth business that we have been promoting, the core DX up until last year, as BluStellar this year. While maintaining the existing business domain of the IT Services business, we will continue growth investment and resource on BluStellar, aiming to achieve sales growth as well as improved profitability. Yoshizaki will explain more in details of the BluStellar in the following section. The second point is the improvement of SI/Service business. We saw the progress of SI model that we've been promoting since the beginning of the medium-term plan. We gained some concrete results of scenarios offering for BluStellar business. In addition, the number of loss-making projects have decreased due to the strengthening of our project risk management. In addition, we are taking measures to improve productivity and passing on our cost to price in the face of increasing personnel costs. Going forward, we will strengthen the development of these measures and promote new initiatives, such as improving the SI process using generative AI. The third point is human resource development and recruiting. We achieved our initial target of training 10,000 DX talents in FY 2024. We aim to secure 12,000 DX talents for '25, in line with our business growth target. In addition, we are working to leverage talent management system to optimize employee assignments for our businesses. Next, I will explain BluStellar's business contribution to the IT Services segment. Revenue contribution ratio of BluStellar in the public BU and enterprise BU was, for March '23, 6.4% and 11.3%, respectively. And for March '24, this is expected to increase to 9.1% and 19.1%, respectively. And in '26 -- March '26, it's expected to be 13.5% and 25.7%. While CAGR for both BUs is expected to be just over 5%, CAGR for BluStellar is expected to be 34.3% and 38.4%, respectively. We expect the contribution of BluStellar to the domestic IT services business to be JPY 428.8 billion, equals to 25% of March '26 revenue of JPY 1.69 trillion. While sales of base business will gradually decline, a significant growth in BluStellar will ensure the growth of the overall domestic IT business. In terms of adjusted operating profit, while we expect JPY 9.4 billion decrease of base units compared to JPY 165.1 billion in March '24, we expect an increase of JPY 20.3 billion from BluStellar revenue and profit improvement resulted in a total of JPY 184 billion. The number of the DX personnel for March '23 was 10,376 people. The trend of cloud-related personnel accounted for a large proportion for this number. That hasn't changed. But as you can see in this graph, other areas are also steadily being developed in line with our business growth. In terms of recruitment, we are now also focusing on mid-career hires, too. And for March 2024, we hired 643 mid-career hires, including 26% more engineers year-on-year. We introduced job-based personnel management, and we will continue to strengthen our recruitment and assignment of optimal personnel by combining this with recruiting based on referrals and direct sourcing. These are the results and measures of our international IT business. Kubo will explain in detail later part of this presentation. So I will just be brief. First, in the digital government business, we expanded cross-selling through acquired business. And at the same time, we made progress in the sales of noncore businesses. In Japan, we expanded KMD solutions for the invoice system. And we're also making progress in using offshore resources in India. In the future, we will continue to strengthen high-profit products offering and expand our sales in the Commonwealth region market. In digital finance, we expanded Avaloq offering in the APAC market, and we are also making progress in materializing collaboration through our strategic alliance with BlackRock. We will also improve profitability by leveraging the collaboration with BlackRock to generate business results and further improve SaaS margins. We'll also work to expand the market by strengthening our global sales framework. We are carrying out structural reforms on low profit business in the organic digital ID and DX business. And in the future, we'll focus on strengthening the aviation business and the APAC business. Let me summarize. The IT Services segment target for March '26 is JPY 2 trillion in revenue; JPY 220 billion for the adjusted operating profit based on the significant growth on March '24, is approximately JPY 10 billion up from the initial plan and OP margin of 11%, which is 0.55 points higher than the plan. In the domestic IT business, we plan to leverage BluStellar to achieve growth and OPM of 10.9%. In the international IT business, we plan to improve profitability, achieve a revenue of JPY 310 billion, OPM of 11.6%. That's all from me. Thank you very much.

Thank you for joining us today. I am Yoshizaki. I'm the Chief Digital Officer and also in charge of products, services and consulting, marketing as well as group companies and affiliates. Today, I will explain the business overview of BluStellar and the 2 things that support it: BluStellar products and consulting-based business. First, an overview of BluStellar business. At the end of May this year, we announced BluStellar as a new DX brand of our overall business NEC. We want to continue to be a leading force in achieving the vision we shared with our customers and partners by using BluStellar value-creation model as a value driver. Five years ago, we launched the DX specialist organization, shown in this diagram, and began providing DX offering ahead of our other companies, and we have been evolving activities ever since. For example, in 2021, we created a cloud direct connection environment, our Inzai Data Center that no other Japanese company offered. And we've been strengthening our alliance with Microsoft, AWS and Oracle, which are known as hyperscalers. The common platform called MTP was fully deployed in 2022. In 2023, we unified hardware, software, network services, which has been a separate organization till then, and unified marketing, consulting, product services, delivery, operation, maintenance and quality control as an organization that leads DX across the entire company. And this year, based on the knowledge and achievement for the past 5 years of transformation, we announced and launched BluStellar as our new branding for DX at the end of May. BluStellar is a value-creation model that leads customers into the future. It's an end-to-end service that provides everything from conceptualization to system construction and operation to achieve the goals of our customers' management transformation. So how do we create the business that will create value for our customers? This is a combination of our solution assets, which we call offering. And it's a model of our own knowledge and assets of innovation. The technology that supports it and the technology [ standardization ] and finally, people who support our customer innovation. We call all that as BluStellar. BluStellar is positioned as a key driver for achieving the midterm management plan 2025. We'll continue to grow it further in the future. We will be working towards a target of JPY 493.5 billion for BluStellar in March 2026. Now let me explain overall the BluStellar business. The BluStellar business is made up for the commercial products, including offering that was formerly called NDP, NEC Digital Platform, and the consulting-based business center on ABeam. As you can see on this graph, we were able to turn a profit in terms of OPM from March '23, and we've been continuing to grow positively in March '24 as well. Due to the growth of the domestic IT market and progress of our own transformation, we are planning for the growth in BluStellar business overall that exceeds the initial MTP. We are steadily progressing since last year towards achieving adjusted OP of 11% or more. From here, I'll explain the individual situation. First, I'll start on BluStellar products. BluStellar products recorded revenue of JPY 226.1 billion last year. Adjusted operating profit was 3.5% in margin. As I mentioned earlier, we have continued to grow since the turnaround. This plan is on track. And in the first quarter this year, orders were up 75% year-on-year, revenue up 17% year-on-year. The outlook for the '25 is favorable, and we plan to continue to build up our order backlog for '26, taking into account the market condition and the state of overall business. And this is a breakdown of BluStellar products revenue improvement. We are conducting 3 measures to meet our targets, one, by increasing revenue through new sales; two, shifting to high-margin products in the portfolio; and finally, by improving profitability and shifting business model, including existing base. We will greatly improve our profit through these 3 measures. Let me explain one by one. First, we are expanding our earnings through revenue growth. DX is progressing in the enterprise sector, particularly in the financial and manufacturing industries as well as the public and telecommunication career sectors. We are increasing sales by strengthening enhancing scenario that resonate with customers in each industry market as well as expanding the application of our offering. In addition to domestic IT services, BluStellar is also starting to expand across the company. Next, our shift to more profitable products. Since last year, we have been significantly reviewing our portfolio and shifted to more profitable products. Looking at BluStellar products, if you look at the sales for March '24, you will see that the high-margin products such as AI, consulting and security, they account for nearly 40% of revenue, as you can see on this chart. We will continue to shift to high-margin products so that they account for more than 50% of our sales by March '26. So as you can see, the introduction support service for each product are expanding and high profitability of BluStellar products is steadily progressing. To enhance profitability, we are focused on standardization our system development framework through the utilization of generative AI and automation tools. Automation is a key component of this effort. As a part of the initiative to boost productive within the company, we are reassessing the SI model and advocating for standardization automation during the service delivery phase. NEC has created its open-source software named Exastro, and we are actively working on automating the provisioning of services using this software. By developing templates for automation, the setup of services environment on the unified platform, we have successfully reduced the workload of operators from 20 hours to just 1 hour. This allowed us to minimize individual SI efforts and enhance delivery speeds, enabling us to deploy engineers to more value-added tasks. On NEC, we are leveraging AI and automation solutions to achieve both quality enhancement and speed. Let's take a look at the example of security. NEC has developed its own database by gathering threat information such as attacker details, attacker methods and vulnerability from various sources in Japan and overseas. We extract relevant information from this database and utilize AI to convert it for use in security tools and to automatically display security-related information on dashboards. By employing this generative AI, the time required to produce cyber intelligence has been reduced by approximately 50%. The accuracy has also improved. Through the use of original database and AI, we can quickly obtain high reliable intelligence and user to propose and implement security measures for our clients. Next, I will explain our consulting base business. In the consulting base business, revenue for March '24 was JPY 149.7 billion and adjusted OPM was 9.7%. Looking ahead, we aim to increase group synergy business together with ABeam's growth to achieve sales of JPY 165 billion with an OPM of 12.9% for March '26. ABeam business is performing well, particularly in the area of businesses and technology innovation. This includes large-scale SAP implementation and system implementation services for financial sector, furthermore, the use of digital technology driving expansion of innovation areas such as data-driven management, operation sophistication, customer contact points and manufacturing sites. ABeam is focusing on growth areas that create new value for the future and pursue both social and economic value. The activities that accelerate this strategy are referred to as a value creation cycle. This year, we are working to strengthen our 3 core capabilities: value creation, transformation and co-creation. We are also expanding our investment in these areas to establish this cycle. As NEC Group, we are combining ABeam's strength in the business transformation with NEC strength in utilizing advanced technology to create and strengthen new value. Our first initiative is to narrow down our target accounts. Both companies are competing to create new values in response to key agendas, and we are providing values to 12 strategic customers while working together. The second initiative is technology-driven innovation. Our strength lies in our ability to create a value creation model while working together with both ABeam and NEC. We will create a BluStellar scenario, a value creation model that fully utilize the advanced technology of the NEC Group by sharing goals and proactively evolving and growing. We will continue to provide value to our customers in the future. Finally, I will summarize the BluStellar business, which is our growth engine. Overall, we are planning for the BluStellar business to grow faster than the initial medium-term plan. The outlook for BluStellar products is favorable for FY '25. We expect to see an increase of our profit margin through sales and shift to profitable products, improved profitability for March '26. The consulting-based business will move into a new phase of value creation that leverages the strengths of the NEC Group. We will expand our technology. As I explained today, we will contribute to the growth of IT Services and NEC and to society by further accelerating BluStellar business in fiscal year March 2026. That concludes my explanation. Thank you for listening.

I am Tomoki Kubo. I'm the Head of DGDF business unit. Thank you for joining us today. Today, I'll explain 3 points: the progress of MTP, revenue plan and profit plan. First, I will provide an update on the medium-term management plan. I'll explain the responsibility of the DGDF BU, which we're currently developing a range of software services for international markets. The business is divided into 2 segments: digital government and digital finance. In digital government domain, we have acquired U.K. -- energy software solutions U.K. in 2018, which is called SWS. And also, we acquired KMD company of Denmark in 2019 and also, we have the Digital ID/DX business consisting of the overseas corporation to our companies. In terms of digital finance, we have acquired, in 2020, Avaloq of Switzerland, and that is the center to deploy the business. Let me review the midterm management plan. In 2021, our basic strategy was such that the 3 European companies' asset software and SAAS platform and NEC asset technology and engineering capabilities are used so that we can stabilize by rebuilding of the business space, including the 3 acquired companies and business synergy to be pursued and to also create the new growth domain. That was the strategy. But in terms of the progress since then, in terms of rebuilding of the business base, we have done the bolt-on M&A, 10 of them, and also have the strategic alliance being promoted with BlackRock and also have divested noncore business. In terms of expansion by footprint, APAC overseas market exploited and KMD solution to be used domestically in Japan. SWS solution, Commonwealth region, to be deployed as well. In operation, to become efficient, offshore ratio has been expanded. Avaloq SaaS cost has become more efficient. As a result, let me explain the progress of the midterm management plan. In March '25, it is going very well. Target of the March '26 is JPY 310 billion, adjusted OP, JPY 360 billion, will be continued to be achieved. If you look at the left-hand side, the initial midterm management target, in 2025, the DGDF total was JPY 300 billion. And in the 3 European companies to have the revenue of JPY 310 billion, OP ratio must be 12% in DGDF business unit and also 22% in EBITDA of European 3 companies. If you go on the right-hand side, this is the forecast in March '25. The revenue is JPY 300 billion and also the OP ratio was 8% in 3 European companies. Just only for the revenues, the already JPY 230 billion and also EBITDA ratio of 22%, which has already achieved the target value of the March '26. For EBITDA ratio, as you can see in the bottom, Avaloq depreciation expense. And due to the definition of the accounting of the depreciation, we have reviewed the past years as well. The 2025 European 3 companies' EBITDA ratio target was 20%, but now it became 22%. And the -- so by 2% or so, there's been changed, EBITDA ratio from the past 3to the future, it has increased by approximately 2%. This is the revenue plan. In terms of revenue, supported by the very steady receipt of the order, it is going well on the progress. And from March '22 to March '26, excluding the noncore business, CAGR, 8.9% growth should be able to be achieved. In the expansion strategy of the revenue in SWS, the acquired business will be utilized to expand the cross-selling. The Commonwealth region, overseas expansion will be done as well. In KMD, central government business further enhanced again and financial leasing software business to be expanded. Avaloq SaaS business to be further expanded, global sales further be enhanced. BlackRock partnership to be achieved. And also common for 3 companies with the M&A strategy to be continued so that we would expand -- strengthen the -- enhance the products and to be expanding the market. In DID/DX, aviation business to be further -- customer share -- wallet share to be expanded by strengthening them. This year, and this is the rate of -- the effective order backlog rate. And this is the -- in the first quarter when it is revenue already realized. But in the current backlog, within the particular fiscal year, this will be achieved as the backlog. And in other words, that is the revenue already secured, so this effective order backlog rate. In the last fiscal year, the remaining effective order backlog was 82%. For 3 companies, that was also 82% as well. And this year, it's been going very well and that value has went up to 84% improved. And so therefore, we are quite confident to be able to achieve our target. This value is the plan to be disclosed to everyone. Next, let me talk about the OP plan. The adjusted OP plan with European 3 companies profitability improvement measure has been formulated to be deployed. And in March '26, we expect to achieve the JPY 36 billion. If you look at the OP margin rate from March '24 to March '25, it is approximately 2% improvement has been made. For example, in Avaloq, from 11% to 14%. In KMD, it is from 6% to substantially 8%. In this first quarter, the approximately JPY 2 billion, the structural reform expense, is accounted. So excluding that, 8% for SWS, and it is almost flat. In March '26, Avaloq continue to have the 2% expansion of the OP margin. For KMD, from 8% to 11%. For SWS, it is 13% to 15%. And this is - it's a possible number. Although it is challenging, we believe that we can achieve these target numbers. How do we achieve that? Let me explain about the breakdown of the profitability improvement plan. On the left, this year's OP margin, OP amount, JPY 24 billion and March '26 target of JPY 36 billion. As a bridging for this, KMD structural reform expense is JPY 2 billion and DI/DX structural reform expense will be accounted to be this fiscal year, therefore, JPY 1.3 billion, and that will be JPY 3.3 billion. And since it will not be accounted next fiscal year, but it will remain. And the rest of it will come from the Avaloq SaaS profitability improvement. As you can see on the right-hand side, multi-cloud environment transition to become more cost-efficient and product to be standardized more to be very cost-efficient and offshore expansion to reduce the development cost. As you can see in the middle, a JPY 3 billion profit improvement is targeted. And KMD structural reforms, this is JPY 2 billion structural reform expense is accounted. But the low profit business to be sold and divested and also streaming the assets and to achieve a cost reduction. And that is the plan, and this is -- should be able to achieve JPY 1.4 billion. And DI/DX structural reform is the JPY 2 billion or so, but delivery cost to become efficient and profitability project to be more efficient to be achieved. In March '25, as you can see in the first quarter, it is going very well. There had been a significant improvement compared to the previous fiscal year. As you can see, the revenue is 90.3% improvement and also adjusted profit, JPY 3.3 billion improvement. And also ratio to the revenue is the 4% improvement over the previous year. The factor or the reason for such a change or improvement is the Avaloq revenue increase and also productivity improvement, JPY 2.1 billion; SWS productivity improvement; KMD revenue increase; DID/DX structural reforms. And even without counting the JPY 2 billion of the structural reform expense, this will be JPY 4.3 billion adjusted OP to be achieved. So in order to improve on profitability, we have the common indices. As in March '24, it is 79% software revenue ratio. And March '24, it will be 79%; March '26 to be 83% to be targeted. In offshore development, the ratio of the personnel is the 32% in March '24 and the 40% in March '26. That concludes the DGDF report. Thank you very much.

My name is Yamashina. Thank you very much. I will explain about social infrastructure segment midterm management plan progress. I'll talk about overview of social infrastructure business, performance trends and midterm management plan and social infrastructure business landscape as well as key measures. In terms of overview of our business, it consists of telecom services and aerospace and national security, use the domain knowledge and NEC's technical capabilities to provide social value. In terms of telecom services, telecommunications system, OSS/BSS, IT infrastructure/business service applications, submarine cables systems. For the domestic telecom operators, overseas telecom operators and telecom operators and consortium of the customers. For the ANS, air traffic control systems, satellites/ground systems, satellite operation services, IT/network/sensor systems are provided to the MLIT, Civil Aviation Bureau, JAXA, cabinet office, cabinet secretarial, Ministry of Defense and related organizations. Next, business trend and midterm management plan. As you can see, in terms of segment, has been achieved the profit and revenue increase. At March '26, no change in our target. So if we further revenue grow and the telecom business model, the transformation will be progressed. As you can see in this chart, if you look at the March '24, the revenue is JPY 1,077.3 billion. Dark blue, JPY 276.1 billion, is ANS. The pale gray color, JPY 801.3 billion, is telecommunication service. OP margin is 5.1%. And 4.5% CAGR, sales have grown. By March '26, 7.3% growth is expected. In the mid-term management plan March '26, 10.5% is the target and 5.1% in March '24 and 4.4% in March '23. So it is lower. I'll explain later. Two years ago, as I explained last year as well, because of the investment in global 5G and some of the nonperforming business projects, and the profitability went down. The telecommunications service BU, it has gone down. However, last fiscal year, in the wireless business has been divested and also submarine cable work delay happened and the profitability delay happened. And therefore, 2 points has been lessened in its ability. Around 7% or so, ANS profitability improvement. Telecommunication business model transformation will be conducted. I'll explain that later in detail. Next, let me talk about the social infrastructure business landscape. Left-hand side, telecom service is the network infrastructure investment is relatively low. But software market infrastructure, softwareization is happening and OSS is expanding as well. And as you can see on the bottom left bar chart, dark blue is the operation management system, gray color is network infrastructure. Network infrastructure market, the operational management system will be increasing trend. In the right-hand side, ANS, the defense budget has doubled. Among that, NEC, as a top company of ICT domain, our contract value has been increasing. As we have made public the information in the Ministry of Defense, the central procurement amount is disclosed. NEC is ranked as the third, next to MHI and KHI. We don't do the business for the missiles nor tanks. So therefore, we are the top company in ICT domain. As you can see there, the second point, we are going to enhance and -- maintain and enhance the defense in production technology base promoted by the government of Japan. So the industrial profitability ratio will be improved in defense. Let me explain the key measures. As you can see this summary, as the -- with 58.3%, as mentioned earlier, of the CAGR increase, but due to some temporary issues that has become 53.8%. If we adjust it, excluding the temporary transient one, this will be approximately 30% CAGR growth. In terms of key measures, and as you can see on the right-hand side, profitability of global 5G business; expand software business; shift to high value-added business, meaning enhancement of AI utilization services. In ANS, further growth in order value based on defense budget increase and strengthening resources will be done, which I will explain further in detail later. The telecommunications service KPI plan and receipt of order, I will use the next 2 pages. This is the revenue and OP from March '21 to March '26. As you can see in 2023, we have the NESIC increase its revenues. Excluding the transient loss, it has been increase of the revenue and OP. In March '26, the backlog order has led the increase of the revenue increase and also transformation of the expense structures. And this model transformation has also helped in improving profitability. In March 2024, the revenue is JPY 790.5 billion; profit, JPY 50.3 billion; profit margin is 6.4%. And JPY 27.3 billion, 3.4%, these are the disclosed numbers. This is a transient loss project happen. So therefore, JPY 23 billion. But those special factors are excluded in its plan. The revenue CAGR from March '24 to March '26, and in the past, 4.1%, has declined to 3.1%. And due to the softwareization, shifted to software, our top line will be -- also we are focusing on, rather than top line, we are focusing on the profits. As a result, in March '26, JPY 840 billion of profit and 11.3% OP margin. Next, telecommunications service growth in terms of the backlog in order and also revenue and also conversion rate as described here. In March '24, due to the increase of the order and also the revenue have increased compared to previous year. And also CAGR from '23 to '25 has been declining from 2.6%, has been significantly declined, as I mentioned earlier, because of business model transformation and shifting to software. And if you look at March '24, the total amount of the receipt of order is JPY 1.4373 trillion revenue, conversion rate is 55%. It is slightly less than March '28. So therefore, due to the more increase of the multiyear contract, as a result, in March '24, it is JPY 790.5 billion in OP and 6.4%. In the future, 2.6% CAGR. And compared to the past, it is a slightly slower growth, but JPY 1.514 billion. Conversion rate, 55%. So therefore, we are for sure to achieve the JPY 840 billion. Next, I'd like to talk about telecommunications service profitability improvement in this chart -- using this chart. On the left is what has been disclosed in March '24, JPY 27.3 billion. And the blue area is under our control, and you see internal self-help effort to work on that. Far left, JPY 20 billion is what happened in March '24. This is a transient and temporary expenses, more [indiscernible] businesses which we have divested last previous year. And also submarine cable construction expense has become increased. And JPY 13.1 billion is the SG&A investment related to become more efficient. 5G-related is plus JPY 6.1 billion, which I will explain in 5G more later in the next page. In terms of 5G improvement, I'll explain later in detail. JPY 2 billion is the core business. We have shifted resources to defense business so SG&A has been reduced. As a result, JPY 35.1 billion will be improved within NEC. JPY 27.3 billion plus JPY 35.1 billion to become JPY 62.4 billion will be our actual numbers. So this fiscal year, JPY 74 billion to achieve that, plus JPY 4.3 billion network infrastructure business to be in 5G, plus 6.7%. In software ratio, to be increased, plus 10%. There will be some minus as well, but as a result, to achieve a plus JPY 4.3 billion. IT domain, subsidiaries, plus JPY 74 billion. So in March '26, in the blue-dotted line NEC internal SG&A to become efficient, most specifically 5G, and plus JPY 3.7 billion. And vRAN revenue would be increased in relation to 5G, JPY 10.3 billion. IT domain, subsidiary, plus JPY 7 billion, to achieve JPY 95 billion. And in the 5G and IT domain, I'll explain a bit later. As I explained last fiscal year, from March '21 to March '26, revenues and profits. As I explained last fiscal year, the March '21, '22, '23, there will be significant negative loss. As you can see, because of the investment has been done earlier, and there are some nonperforming projects, and in March '23, minus JPY 31.1 billion. As I promised last year, and the structural reforms and control hardware cost reduction to be achieved. So therefore, last fiscal year, minus JPY 10.8 billion. We have achieved our planned target. And last -- this fiscal year, we will achieve further profitability, plus JPY 2 billion. In next fiscal year, we total of the JPY 16 billion. And also the overseas business, JPY 20 billion, business model has been transformed so that the RU unit is the antenna would be -- was the plan to the sales. However, instead of doing so, because they had lower GP, gross profit margin, so therefore, I mean not to have the losses, we are rather licensing our own excellent technology like massive MIMO and to the Asian base station manufacturers. Therefore, we have improved our profitability significantly. And the other is our the software shift to be developed more to customers' needs and addressing customers' ever-changing needs, software ratio of the software revenue is increased. As you can see, the global 5G revenue on the left and the dark blue is the software, the gray color is the hardware. And this is revenue and GP and profits. And in March '23, hardware ratio was 64%. As a result, the revenue minus profit was actually JPY 31.1 billion negative number. Last fiscal year, hardware ratio has significantly been reduced. And the [ Rakuten ] project has been completed. Therefore, we are making some of the measures to have the improvement of the up to negative JPY 15 billion profit and loss. And in this fiscal year, software ratio has increased to 54%, very high profitable software. GP has increased, plus JPY 2 billion in March '26. RAN will be further enhanced, 67%. Software revenue GP has to be further improved, and plus JPY 16 billion. And also, RAN will be introduced. vRAN is the virtualized radio access network. And the base station to become more positioned as a software. And mobile infrastructure to be virtualized and operational management to be further done in digital transformation. In the right-hand side, from the handset terminal to the base station and vDU, vCU and the virtualized base station and the network virtualized core network and then on side of that, operations support service, business support service, which is done by the net company called Netcracker headquartered in Boston. In total, using the software for the customer value, operational cost has been reduced by 70%. What has been reduced from 10 hours to the 15 minutes by the manual work is now reduced to 15 minutes. And also, communication efficiency and virtual core effect to optimize on the pocket. And the communication efficiency has been improved by 15% and user sense of the quality has been tripled in its speed. And as a result, we have received the vRAN -- awarded for vRAN software from NTT DOCOMO, Inc. And in March '26, JPY 223 billion. Our OP margin is 13.5% Revenue growth rate is CAGR 5%. So therefore, as you can see about Netcracker, half of that is a customer-centered IT sales. On the right-hand side, Netcracker generative AI used for the business support system, especially for the Western as well as the Middle Eastern customers, AI is utilized for digital transformation software. And the customer management, generative AI is used as example. The sales support and customer care generative AI is used. And those generative AI is utilized and the digital transformation software is already provided from Netcracker. In the customer management, generative AI is used in this example. Sales support or customer care by them using the generative AI, ARPU and revenue has been increased 15% to 20%, and that is the customer's revenue and customer's operational efficiency has been improved by 50%. Those are the KPIs. And those call center, first of all, have been answered in 90% hit. And also, those 50% of those inquiries for the customer has now become a business deal for them. And this KPI has a -- KPI supported by the business support system. And last fiscal year, Middle East and Etisalat and also, we have received a large order from them. And this fiscal year, we have order from T-Mobile and thus, from Canada. And next, I'll talk about National Space National Security KPI plan. As before the revenue and profit and loss figures from FY '20 to FY '25 are shown here. Looking at FY '23, revenue was JPY 267.1 billion, and profit and loss was JPY 22.5 billion or 8.4%, which is the plan, excluding the special factors. This figure is a profit of JPY 27.9 billion, which is 10.1% lower than the disclosed here because a onetime large project boosted revenue. And this is a plan, excluding that. As you can see, the CAGR of revenue was 6.5% from FY '20 to FY '23. But due to the defense development plan announced last year for FY '23 to FY '27, orders have increased significantly. And as a result, we believe that revenue will grow at 22.4% CAGR. Here, it shows that in FY '25, it will be more than JPY 400 billion and the OP will be more than JPY 37 billion. This will be explained on the next page, but we expect the orders to be even higher than we have promised so far. Now I'd like you to look at the orders landscape. In FY '23, the backlog and orders received at the beginning of the period was JPY 853.4 billion and revenue at that time was JPY 267.1 billion. The conversion rate, in other words, the conversion rate from orders to sale, which have been just over 40% until then has dropped significantly to 31%. This is due to the increase in the multiyear contracts in the 5-year plan starting from FY '23, and we expect it to gradually increase to 31%, 34% this year and 37% next year. Also until FY '22, the CAGR for orders was 9.1%. But last year, it suddenly increased to 48%, up 50% to be exact. The main reason for this is the large increase in the defense spending. Our defense spending accounted for 2/3 of our total in FY '23. So if you look at the defense orders alone, it will increase even more. On the other hand, we are now forecasting 11.8% until FY '25. This figure seems relatively conservative because we deal with very difficult technological development in defense and space but very solid customers in defense and space. So here, we are also taking a conservative approach. But looking back at this 48.1%, I believe it will definitely go higher. Now let's look at ANS on revenue expansion and improved profitability. ANS has received orders for IT systems, sensors and networks. In aerospace, we have more than half of the market share for air traffic control systems in Japan. And in defense, we have been traditionally receiving orders for command and control systems. In this fiscal year, we received an order for the Aerosoft Defense Forces cloud system. In the sensor field, we received a large order for an earth observation satellite in collaboration with NASA and JAXA. We're also working on underwater acoustic sensors. In addition, we are promoting technology development to make optical communication systems in Space to become our core business, which I will explain later. In addition, for defense ground communication systems, we have received orders for field communication infrastructure that enables secure communication outdoors. On the right side, it shows the improved profitability. In FY '23, it was JPY 22.5 billion or 8.4%. But as I have explained, with the improved GP, thanks to the increased sales will add JPY 10 billion and defense equipment sales are expected to be about JPY 250 billion in FY '25, out of the total sales of about JPY 400 billion. So we are looking at an increase of 1.8 points, which will be an increase of JPY 4.5 billion. Ultimately, it will be more than JPY 37 billion. And to achieve this, we are strengthening our resources. Last year, we announced an increase in headcount. And in FY '23, we increased it by 750 people. This year, up 250 people. So in other words, we will increase the total head count by 1,000 people over the 2 years. And we are considering to further increase it by another 200 people next year for a total increase of 1,200 people. We also plan to build a new production facility in the future area. Last year, we said that we will add 40,000 square meters in floor space. but we have now increased this to 50,000 square meters, up 10,000 square meters. This is a topic of ANS. As I mentioned earlier, the H3 rocket was successfully launched recently. The advanced radar satellite, DAICHI-4, ALOS-4 was equipped with the optical satellite communication equipment and optical terminal that we developed. This time, the satellite in the geo-stationary orbit, that has already been launched and the low orbit that was launched this time, are 40,000 kilometers apart. And since low orbit and geo-stationary orbit move in accordance with the rotation of the earth, optical communication is now being demonstrated by us between the moving satellites, which are 40,000 kilometers apart. In addition, on the right side, we have agreed to jointly develop 1 gigabit per sec optical communication technology with Skyloom Global Corporation of North American. In this way, we plan to make our satellite optical communication and satellite cancellations to be the major core business for NEC in the future. We are certainly progressing with this development. Finally, to summarize, we are committed to profit and we'll achieve our midterm plan by growing ANS revenue and transforming our telecom business model. That's all. Thank you indeed for your kind attention.

Hi. I'm [indiscernible] Corporate Strategy, as has been just introduced. I would like to begin with an overview of NEC's corporate governance within the key points. First, allow me to talk about the background and overview of the corporate governance reforms. And secondly, I would like to talk about the specific activities for FY '23. In fact, we started considering our corporate governance reforms back in 2021. It took actually 2 years to have reached the resolution to change the organizational design. The trigger for this consideration was the voices raised by institutional investors in Europe and the United States, pointing out that we are slow in our corporate governance journey. However, in considering it, may I remind you that we truly wanted to go beyond just preparing a framework, but rather, we have been working from the perspective of independently resolving our management issues. The main issues discussed at our company were: first, the lack of discussion at the Board of Directors on improving corporate value in the mid- to long-term basis; and secondly, the need for advanced and rapid management decisions in the midst of rapid changes in the business environment. These were the 2 points. In order to solve these issues, the Board of Directors came to the conclusion that a company with a nomination committee is going to be the appropriate form for the governance purpose, and we have decided to change the organizational design. The suppression of supervision and execution clarified the division of roles between the Board of Directors and the executive officers. And we created a system that allows for appropriate discussion and supervision in order to improve our corporate value. With the change in instruction as an opportunity, the Board of Directors is now focusing on 2 points, determining the direction of management after thoroughly delegating authority to the executives and supervising and evaluating the execution of business operations. In addition, the executive side aims to improve corporate value by making the most of the authority delegated to them and making high-quality and swift decisions. With the change in the organizational design, the lineup and directors has also changed significantly. Now the company has 13 directors, of which 8 are from outside the company, making the majority independent directors, and we have recruited many people with management experiences at other companies. We also now place importance on diversity, appointing 3 women and 1 foreign national. The directors as a whole have skills matrix that takes into account the balance of attributes and experiences. In particular, when changing the organizational design, simply bringing in a new structure will not work. Believing that the selection of directors would be very critical, and we have had many discussions about this in the Nomination Committee. As a result, the discussions at the Board of Directors have become more active as members with diverse experience have come together. Now I would like to explain the status of activities in FY '23. The attendance rate for both the Board of Directors and committees was 100%. And all the directors have been committed to the company's corporate value management and the improvement of corporate value and have had many fruitful discussions. The Board of Directors has increased the number of off-site meetings in order to oversee the execution of duties and set the direction of management. At the same time, we have reduced the frequency of regular Board meetings aiming for an efficient and dense Board meetings, such as holding regular meetings 6 times a year in FY '24. I would also like to introduce some of the key points about the activities of the 3 statutory committees. First, the Nomination Committee has focused on building the ideal composition of the Board of Directors and the purpose for the CEO succession plan. In particular, we have devoted time to nurturing the next generation management. Next, the Compensation Committee discussed the ideal form of the executive compensation system that provides strong incentives for increasing corporate value and revised the compensation system in line with the change in organizational design. Finally, the Audit Committee has strengthened its framework of the related audit activities and has enhanced audits of job execution in cooperation with the internal audit department. As mentioned in the activities of the compensation committee earlier, in line with the strengthening of supervision and execution, we revised the executive compensation system in June 2023. We have shifted to another system in which variable compensation accounts for the majority and have set simple KPIs aiming at higher corporate values. In addition, when looking at the CEO's compensation, the ratio of ABS, STI and LTI is now 1:2:1:2:1.2, which is a system that strongly commits to increasing corporate value. With this change in the organizational design, we are strengthening not only the supervision side but also the execution side as well. In order to raise the level of decision making on the executive side, we have improved the quality of management meetings and established new Chief Risk Officer, and established a comprehensive risk management system across the entire company. We are also strengthening the staff of the group internal audit department, which is the third line of execution, and this department is led by a dedicated Executive Officer. Now the effectiveness of the Board of Directors is evaluated every year by a third-party organization. As shown in the items under issues for effectiveness evaluation in FY 2022, in the second column, there are many issues at the time of the change in the organizational design. In light of this, in line with the organizational design change, we have focused on 3 points in our execution. One, setting appropriate agenda; two, reviewing the monitoring process; and three, strengthening communication among the directors and between the directors and the executive officers. As a result, as shown in the right-hand column and the effectiveness evaluation for FY '23, we were evaluated as having the -- made the significant improvement in each item. However, in reality, there are still many issues we have to solve, and we are continuously taking measures in order to improve effectiveness this year as well. Finally, I would like to introduce our chart as an example of improved deliberations at the Board meetings. This chart shows the percentage of the total time spent for resolution items, reporting items and discussion items in FY '22 and FY '23, respectively. As you can see here, the discussion items, which are shown in the dark blue color, accounted for 60% in FY '23. Specifically, we are now able to secure a sufficient time to discuss important management issues such as business portfolio and capital allocation. And I feel that the quality of discussion is improving. This concludes the overview of our corporate governance. And now I would like to move on to the panel discussion. Thank you indeed for your kind attention. Now we will begin the panel discussion. Here now I like to ask Mr. [ Matsukura ], again to lead the panel discussion.

Yes. Now allow me to be the moderator from here on. In regard to NEC's corporate governance reforms and the current management situation from the perspective of our outside directors, we are honored to have Mr. [ Mochizuki ] and Mr. [ Yamada ], looking forward to receiving your comments. We would like to uncover the survey results to the extent possible that we have received from our investors and securities analysts in advance. Again, Mr. Mochizuki and Mr. Yamada, I do appreciate your time and participation. Thank you. Okay. First of all, I would like to break the ice. Both of you are appointed outside directors in June last year, we see a transition to a company with a nominating committee. First of all, I would like to hear your impressions of NEC over the past year or so. What are the issues for NEC as far as you are concerned? Here first, now I would like to ask Mr. Mochizuki to share your thoughts.

Yes. Thank you, indeed. As you have just mentioned, I have been involved with NEC for about 1.5 years. But since I began working professional, I have been in charge of industrial and economic policies and as one of the important companies in the Japanese economy. Actually, I have been watching NEC for about almost 1/3 of its 120-year history from the outside. Therefore, my experience at NEC over the past 1.5 years has made me realize again that NEC has actually gone through quite tough and difficult processes to get to where it is now today with the rise and fall in its history. Having said that, again, if you're going to ask me what I think about NEC now, I would like to actually share the following ideas. I would say that NEC, a cutting-edge technology company, has done a good job domestically here in Japan. But at the same time, I believe you have been exposed to the global competition all the time. There have been the times in the past when NEC was very active in the entire world. But then after that, there were times when you deviated from the direction of the global technology and its management was damaged, so to speak. So looking at NEC now with these perspectives, I have recently come to feel very strongly that in order for NEC to surpass its past glory and become an even bigger winner, it is absolutely necessary for NEC to find a path that will enable you to truly win in the global technology world. This is my first point.

Yes, we have just received the comments from Mr. Mochizuki, who has been watching NEC for a very long period of time. Now Mr. Yamada, please?

Thank you. Well, my frank impression about NEC is that, it is a company with a lot of potential. I think it has both good points and issues. I would like to touch upon 3 points. First, as Mr. Mochizuki pointed out, becoming a Board member, I strongly feel that NEC is a technology company. ICT and security technologies, of course. Also, you have technologies related to the Generative AI and quantum computers. NEC is a company that has promising technologies that have the potential to transform society. Yes, that's NEC. And the second point is that NEC is a company that can implement those technologies in society. I strongly feel about this. To be specific, you have 50,000 engineers globally. There are not so many companies with engineers of this scale or of this quality. When I think about NEC's future, you have a power of social implementation to implement the power of technologies into society. I feel that this ability is going to be very important and will be your important driving force to improve your corporate value in the future. On the other hand, when it comes to issues, I think there are still many areas where you are inferior to global competitors in terms of the speed of management and profitability, I have to say that. If anything, NEC tends to be a little too serious as a company. So I think that going forward, the key to increasing our corporate value will be quickly, you can expand your growth businesses. I think there is a lot of room for growth. That's all.

Thank you very much to both of you. Now I'd like to move on to the main topic. In the opening presentation, I explained the evaluation of the effectiveness of the Board of Directors. And I would like to know how you are feeling about our agenda setting and the communication status at the Board of Directors. Again, I'd like to ask you to be frank, to share your thoughts. Here now, if you don't mind, I would like to start with Mr. Yamada, please.

Sure. I began director in June last year. So it's been about a year and 4 months. But even just in this period, I feel that NEC's Board of Directors has changed significantly. There are now lively discussions about mid- to long-term issues and essential issues. And what I think great is that it is clear that CEO Morita and the rest of the executive team are sincerely listening to the opinions coming from outside directors and making an effort to try to incorporate whatever the points you believe good. I feel that the Board members are very productive and having a very good atmosphere. When we first changed the organizational design, I think there was some variation, so to speak, even among the outside directors as to what extent things should be left to the executive team, and what should be discussed at the Board of Directors meeting. I also feel that even at the executive team side, they felt that things are going to be so different from the past situations. However, recently, I think we are not getting on the same page, so to speak, and we have converged on leaving things to executive team and discussing mid- to long-term or essential issues at the Board of Directors meeting. I also feel that the pace has increased. The executive team first placed emphasis on getting approval from the Board of Directors. But recently, it has become more like they are coming up with ideas in the earlier phases, and drawing upon our knowledge to see if there is going to be anything that you can incorporate. So I think this is a change for the better. That's for sure. That's all.

Now thank you. What do you think, Mr. Mochizuki? Yes.

As was explained in the beginning, NEC's decision to change its organizational design to a company with a nominating committee as part of its management reforms, this has been a very important decision for you to make, considering the global battles to come up. I, myself have been involved with the companies with the nominating committees for a relatively long time, if I may say so. So I would like to say that unless you truly understand and believe in this change in this organizational design and to really work hard and try to improve the management, you will never succeed. This is what I am feeling about out of my own experiences, humble experiences. To achieve this, I believe, well, in just one word, that we need to separate oversight and execution. That means given a certain amount of authority to the executive team willingly and then discuss the really important points at Board meetings and think about the future of the company. I think this system is very good in the sense that it allows a wide range of outside directors with a wide range of experiences to have a broad view of the company. But we need to find a way to use it effectively. I think that the word supervision is not really correct, if I may say so. Even though it is certainly written in corporate governance code and talks about separating supervision and execution. Kantoku in Japanese is often translated into English as supervising. But I don't think it is accurate. Maybe monitoring or monitoring Board is a better word because it has the broadest meaning. Of course, if there are any wrongdoings or fraudulent cases, we would need to respond forcibly. And in that sense, the function -- to have the function of the oversight is important. But usually, I think we should be a monitoring Board. So how should we operate the monitoring Board? The most important thing, I think, is that the top management and the CEO should think about what kind of company NEC wants to be. And based on that strong vision, we should have a discussion and share the results of the discussion. And based on that, we should manage the company. And the Board of Directors as a team will function like that. And at the beginning of last year, we asked Mr. Morita to come up with the CEO's management policy, which he has done. And he brought this to all the directors and we had discussions. So the NEC management, what kind of company do they want to make NEC into? And now we have a common understanding. And also, they incorporated the critical view of outside directors. So having this common recognition or understanding was a very good process for the future Board of Directors proceedings. So executives and the BoD sharing the company, vision and direction and try to fulfill individual mission. And we made a good start. So changing the mindset of the executives so that they can utilize the BoD and as a person of having the responsibility for the management to express their views clearly at the BoD meetings and there will be more and more opportunity to do so. And we would like to continue to work this way.

Thank you very much. Both of you have given us very broad points of view. And also, it was pointed out that we have to change the mindset of the business executives, and we would like to do so. So in addition to the evaluation of the effectiveness of BoD, I would also like you to talk about the 3 committees. Since you are the members of those committees, we would like to hear your views. Starting with the nominating committee. Mr. Mochizuki, you are the Chair of Nominating Committee. And I think that the role of this nominating committee is becoming more and more important. So what are the areas that you have been focused upon?

Well, the number of a company with a nominating committee and others is not increasing in Japan. They are disliked because people misunderstand that this means that the company President will be decided by outsiders, and that is wrong. And as it was mentioned, the executives and outside directors working together through the same recognition to improve the company. We need such foundation for this committee to work. What is important is that the basic function of the nominating committee is to develop and foster next-generation leaders to find the potential candidates in the organization and to develop them, this is very important. So as an outside director, how can nominating committees support that? I think that is the most important thing. So what we have been doing in the nominating committee in the past year is to meet with many of the talented potential leaders so that we can get to know each other and have a thorough discussion about the management of the company. In the past year, we had nominating committee meetings 11 times, and we met with 35 very capable next-generation leaders. What was very significant for us is to hear from people other than CEO. How they want to make the NEC into and what kind of company they want to become? This is also another thing that we didn't know is that there are many mid-career people in NEC who are on career track and having the strong influence on other employees. So discussion with them was very interesting. So I think that the talent at NEC are very wide ranging and diverse. So on top of this pool of talent, we should have the succession plan for the CEO. So we have to really have a big pool of talents and to have a very thorough discussion on the CEO succession plan, and that is the way of thinking at the nominating committee. Thank you very much.

Next, I'd like to ask Mr. Yamada, who is a member of the Compensation Committee. The directors' compensation has been a very hot topic in the capital market. And so what kind of discussions are you having in the Compensation Committee?

Before talking about that, I would also like to comment on the nominating committee because I joined as a member of the nominating committees from this year. And as Mr. Mochizuki said, the interview with the next-generation leaders, we took time and made a lot of efforts. We have -- I have to travel from Kyoto, so it's not easy. And NEC actually works outside directors hard but it is very interesting. As Mochizuki-san said, to find those capable personnel inside NEC and also the people who came from outside of the company. So turning to Compensation Committee. The compensation system for directors have changed based upon the very deep discussion, we focused on increasing the corporate value. And we wanted to have a system with good governance. And that was the policy, which was set. And based on that, we have discussion and change the compensation system. The content was already shared with you earlier. So centering around the shareholder value or TSR to do the benchmarking against peers and to increase the weight of the stock compensation. That is the direction that we are moving forward. And also, whether it is implemented in an appropriate manner, that is something discussed at the Compensation Committee. And I believe that the Compensation Committee is working properly. Now from now on, in addition to benchmarking against our peers or competitors, we also need to think about what is the ideal compensation system or governance for NEC? So this is the fundamental discussion that we need to really have. So this is something that I have mentioned in the committee. So in the second half of this fiscal year, we would like to have such discussion. Thank you.

Thank you very much. Now I'd like to turn to Audit Committee. Mochizuki-san, you are also a member of this committee. So a shift to the company with the nominating committee means there was a significant transfer of authority from executives and the importance of audit is becoming higher than before. So I think this is one of the key points. So what are the areas that you are focused upon in the activities?

Well, for the audit system of a major enterprise, we have to have a 3-party audit system. This means that we have to have a audit policy and internal audit division and audit committee, sharing information closely and to try to improve the effectiveness. So for that, in the past year, we have been very much focused upon having the 3-party communication. In the past, we know that the audit firm gave only the quarterly report, but now we have 3-party audits every month so that we can share our findings with each other. So this is a very positive trend. And enhancing the internal audit division is very important. The number of members of Audit Committee is limited. So in order to audit a major enterprise like NEC, the internal audit division must be enhanced. Also, Chief Audit Officer, or CAO, is on the side of the executive. And so the Audit Committee making various requests to the internal audit. And also, we are having the very close and deep communication. And another thing, especially in the case of NEC, we believe that we should really take advantage of the digital technologies so that we can make the audit process more advanced and to improve efficiency. There is still much room for improvement. From time to time, audit firms are considered to be a labor-intensive and so-called black company, but that should no longer be the case. NEC calls itself client 0 for the DX and promoting the digital transformation. So also in the internal audit, we should only introduce and utilize the digital technologies which can be sold to outside of the company. So this is necessary. Now the audit companies or firms are also working on their own digitalization. So there should be some collaboration with them so that we can utilize the results of those digital technology with each other so that we can make the audit more advanced and more efficient. That type of awareness is important through the consultation with the internal audit division. So that's what we do in the 3-party audit system. So if we do so every month, this 3-party audit system communication becomes more efficient and we can have a more significant discussion. But I still think that there's much room for improvement.

Thank you very much. So far, in the first half, we talked about the effectiveness of the Board of Directors as well as 3 committees and what kind of discussions were conducted. So in the second half, we would like to focus on some of the major areas where investors are interesting and talk about what kind of specific discussions are being held. So we'd like to take up some of the questions that we received from the investors.

The first question is related to medium to long-term strategy. Now we are in the fourth year of the 2025 midterm management plan. And for the next midterm management plan, for the FY '26 and onwards, we have to start formulating it. In the past year, we had off-site meeting, and we had various discussions concerning the direction of the company. So Mr. Mochizuki, what are the key factors as you went through those discussions?

As I touched upon earlier, Mr. Morita formulated the CEO's management policy and it shows how the NEC challenges were solved in the past? And what kind of company NEC wants to become that is now clearly documented and this is a very good trend, and it's very positive. When we started to talk with Mr. Morita at the beginning was that there was a strong focus on achieving 2025 midterm management plan targets. That was a top priority. I think -- I thought that it's too much of the priority then because anything will not come to an end in 2025. And company will not be valuated only by achieving the targets. But frankly speaking, since there were cases where the mid-term management plan targets were not achieved in the past, I think that the company management was traumatized. But of course, it's a very important point. And of course, many of the audience are interested in knowing whether targets can be achieved. But based on my relationship with Mr. Morita in the past year, there is a -- he has a spirit of actually overachieving the targets. So I'm not worried about the achievement of the target. But from the perspective of the outside director, I think that what is important is to think about beyond 2025 midterm management plan. What comes after that? So that, I think, is the basic or fundamental thing. So until now, we had discussions how to achieve 2025 midterm management plan targets. But now we need to start discussing beyond or after 2025 midterm management plan. So from around the middle of this fiscal year, we should start to have a serious discussion at the BoD about the medium to long-term plan, the next plan. So I think that we are seeing a good environment to do so. For example, in today's IR meeting, there were explanations and discussion. One of the major pillars of the business for NEC is DX and the BluStellar. And as what's discussed today, I think this is the direction the company is moving forward. So what is the global growth road map or direction based upon the BluStellar? And how can you come up with the strategic stories with speed? I think it's very important what are the strategic stories. I think that the people in the society and also the employees, there are tens of thousands of employees. So I think that each one of them should understand and be convinced with those stories because this would lead to the company-wide or corporate-wide power. So to make those strategies visible to the employees and to have a strong and a good discussion on it and to create the strategic stories, I think that is important. When we say medium to long-term strategy, this means that the company as a whole should be revitalized and it should be sharing all the strategies. And the employees need to feel that they participated in the discussion. So as one of the outside directors, I sincerely hope that is the case.

Thank you very much. I feel being nudged and encouraged. Do you have anything to add, Mr. Yamada? No? Okay. So let's move on to talk about the next topic, which is capital allocation. Our policy in NEC, as we explained earlier, we want to maintain the financial health and aggressively invest in the growth areas. And in the Board of Directors, there have been many discussions on this. So we'd like to have some comments from both of you on this topic, starting with Yamada-san.

Okay, we have many businesses in the growth area. And how do we invest in the growth area? And how much do we invest? This is a crucial question for the future of NEC. And at the same time, in addition to growth investment, we have to also consider shareholder returns. And we have to decide what kind of messages do we send to the market. This is another indispensable factor. So at BoD, we think about both growth investment and shareholder return or dividend or share buybacks. We spent a long time to discuss those. Simply put, the investors look at the tens and the tens of thousands global companies and choose where to invest in. So we need to become a company to be chosen by you. So management's view on the capital allocation needs to be clearly shown to the market, and that is something that we discussed at BoD. And as a result of it, the policy of capital allocation was clearly showed to the market and was well communicated to the investors. So this was a major achievement. And I think we are moving towards a good direction. More specifically, while growth investment is a top priority, we should also pay attention to the stably increasing dividend. And that is something that the management team shares. So it's not just this fiscal year. The final year of the medium-term management plan next fiscal year, we show the dividend forecast for that. So this actually reflects the discussion that we have. Also about the share buybacks, we showed that we will be making a flexible decision how to utilize the surplus or excess capital, depending on its level. So showing such policy of flexibility is also a good result of the good discussions that we had.

Next, I'd like to ask Mr. Mochizuki to comment.

So the discussion how to utilize the capital within certain range, there's no perfect answer to that. Of course, that investors are interested in the dividend payout ratio. And we, of course, understand that, and that's something that BoD we had discussion on. I personally believe that right now, we should prioritize growth investment to enhance business model. But to invest within the range of capital we have, that is not always beneficial to NEC. We also need to discuss how much money do we need to grow. So for example, setting the cross-held shares or to objectively look at the profitability of each business and to make a difficult decision sometimes not to continue with some of the businesses. So we offer those ideas to the executive team. As I mentioned at the outset, there is no single correct answer to this question because business environment and company position would change. But at the foundation, we must have a firm philosophy. So focusing on the balance between the growth investment and shareholder return and to take responsibilities to make decisions, I think that is the key. Thank you.

Now let's move on to the third topic, that is business portfolio discussion. So this is also an area of interest of investors. They want to know what kind of discussions have been held especially NEC, we consolidated Japan Aviation Electronics or JAE this year. So various decisions were made. So concerning that, Mr. Yamada, what kind of impression do you have on this topic? If you can share with us your thoughts.

Okay. So what should be the business portfolio or especially the listed subsidiaries. This probably is one of the topics that were most frequently discussed at Board of Directors meeting. We had a very good and sincere discussions. And the major policy as BoD to focus on the business domains and the growth areas were shown. And based on that, the executives came up with the plan. And then after that, BoD will check on the progress of this plan. And of course, those are executed by the executives. So they are responsible for that. And the BoD's role is to monitor the progress. So 2 major decisions were made, frankly speaking, centering around Mr. Morita, the executive team of NEC made a good decision for the long-term challenges of the NEC and moved forward. So I personally evaluate this very highly. You mentioned the JAE and NEC Capital Solutions, the BoD endorsed decisions made by executives. So that's how we reached the conclusion. As a result, we saw the long-term challenges, and also vis-a-vis the business portfolio, we managed to accelerate the management's decision-making speed. And this business portfolio, this is a challenge which would continue indefinitely. So to appropriately discuss and to make a decision is something that we need to continue to do. Thank you very much.