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During the first half of the consolidated fiscal year under review, Japan's economy showed signs of recovery, buoyed by rising exports especially to Asia and a positive turnaround in personal consumption boosted by incentives offered by the government including the eco-point program and eco car subsidies. In the second half of the fiscal year, the economy reached a brief plateau due to a reactionary drop in consumption after the expiration of the government incentive programs, combined with diminishing exports caused by the higher yen. A mild recovery resumed toward the end; however no strong momentums were present to drive a full-fledged recovery. A severe blow to the economy came on March 11, 2011, when an earthquake hit northeastern Japan, causing the economy to plummet .
The IT support service market, the primary business domain of the NEC Fieding group (hereinafter called “the Group”), saw growing demand for cloud computing, server virtualization and other areas that would bring IT-cost reductions to customers. However, many corporations remained reluctant to increase capital investments given the state of the economy, and this, along with growing diversification of customer needs and the intensifying price competition caused by the commoditization of services forced the Group to operate in a difficult business environment.
In this operating environment, the Group unveiled a variety of undertakings with customer satisfaction (CS)/corporate social responsibility (CSR) at the core of its management principles and advanced the ongoing cost structure re-invention a step further in an attempt to achieve solid growth. Equally emphasized was the strategy to strengthen the Company's human "assets," which were built on the belief that personnel are an invaluable asset of the Grroup and ultimately responsible for delivering service to customers.
Net sales for the consolidated fiscal year under review were \189,107 million, or down 0.9% from the same period of the previous fiscal year. Higher sales were achieved through self-initiated actions aimed at greater maintenance contract wins, as well as for software support primarily in the Maintenance Service business. Sales were also higher for cloud/virtualization-related services by the System Deployment business. In addition, the “e-lding” online shop belonging to the Supply Service Business generated higher sales bolstered by large project wins. However, the positives were more than canceled out by service suspension and the delayed delivery of shipped equipment by customer request in the wake of the earthquake, in addition to the persistently weak demand exhibited in business areas other than the above.
Ordinary income amounted to \8,523 million (down 15.7% year-on-year). Despite the profit-boosting effects of COGS reduction initiatives and smaller company-wide common costs, the decrease resulted from the impacts of the earthquake and a change in the Group's profit mix, where the weight of the entire Maintenance Services business noted for higher profit margins dropped, while that of the Supply Services business with smaller profit margins rose.
Net income came in at \4,722 million (down 3.1% year-on-year). It primarily reflected, in addition to lower ordinary income, the impact of the adoption of the accounting standard concerning asset retirement obligations (\67 million), inventory revaluation loss claimed by NEC Fielding Information Technology Services (Beijing), a consolidated subsidiary of NEC Fielding (\35 million), and the impact of the earthquake (\67 million), all of which were posted under "Other Expenses."
The earthquake depressed the Group's net sales by \2,700 million and ordinary income by \950 million.
Kiyoshi Nakanishi
President
NEC Fielding’s fundamental corporate principle is as follows: ‘Using fielding activities to facilitate new dynamism and business expansion for our customers, whilst also contributing to the creation of a stable and prosperous society’. In this context, ‘fielding’ refers not only in the way in which the Company’s IT services business helps customers realize trouble-free IT systems operations and get the most from their systems, but at the same time the way in which Company endeavors to anticipate customer needs in devising and offering new services to management.
The word ‘fielding’ itself derives from the idea of sending teams of employees to customer locations, or out into the field, to tackle problems head on. Its incorporation in NEC Fielding’s name is representative of the Company’s intention to base its revenues on fieldwork carried out throughout its nationwide business service network and at customer locations.
Based on these ideas, NEC Fielding has established the ‘Fielding Vision’ to clarify its fundamental management position and business goals over the long term. This vision is already well integrated into the system whereby potential business operations are investigated and Company employees conduct their various responsibilities.
NEC Fielding, a member of the NEC group, is primarily responsible for after-sales and support services for IT systems sold or installed by NEC and its group companies. We also provide services for other manufacturers' products, as we strive to become a highly reliable, one-stop IT solutions company for comprehensive services that enhance the operational capability and utility of IT systems. We are committed to offering detail-oriented, total solutions throughout the entire operational life cycle of IT systems.
Our comprehensive support services are mainly comprised of the following two business operations
Maintenance services are our basic core business, the hub of our on-site fieldwork, and the basis for our other on-site support services for computer networks. Our "proactive" maintenance services deploy advanced preventive technology to anticipate and detect systems malfunctions.
In addition to proactive maintenance operations, our Fielding Solutions operations provides solutions tailored to customers' specific needs. We offer enhanced on-site support services to maximize and optimize the use of IT systems according to the performance characteristics and tasks required by our customers. Our comprehensive support services enable customers to reap the greatest benefit from their IT assets.
Our business structure, consisting of Poactive Maintenance and Fielding Solutions, is a good mix of stable business operations and areas for expansion.
Proactive Maintenance include inspections, adjustments and repairs for IT equipment and systems that are sold and set up by NEC and its group companies or other vendors, as well as by other dealers. Corporate clients account for the majority of sales in proactive maintenance services, with about 80 percent of these services provided under agreements to support the entire operational life cycle of IT systems. This arrangement ensures stable revenues for our business.
Fielding Solutions, on the other hand, provides support services to troubleshoot and solve problems for customers. Most of this business is developed from the established client base for our proactive maintenance services. While the Fielding Solutions division represents a business growth area for us, our fastest-growing operation is "solutions services," in which our professional IT staff provides operational support or operates systems on behalf of customers.
Net sales came in at \95,569 million (down 2.4% year-onyear). The result was attributable to a continuing decline in non-contractual maintenance sales and the impacts of the earthquake, despite some positive factors including higher sales of maintenance contracts through self-initiated actions and of software support in the focused areas.
Operating income decreased 8.1%, to \14,502 million, reflecting dwindling profits caused by declining sales, which were not fully offset by the positive effects of ongoing production innovation activities, including cost-cutting activities for maintenance materials/equipment and higher efficiency achieved for maintenance tasks.
The earthquake had the effect of depressing net sales by \100 million and operating income by \90 million.
Net sales were \30,627 million (down 8.9% year-on-year). The decrease was attributable to a drop in large projects in the security/VoIP area combined with weaker sales due to a slow recovery in demand for services in the existing spheres, in addition to the impacts of the earthquake. However, higher sales were achieved in the cloud/virtualization sphere in the focused areas.
For this business, operatin operating loss was posted at \866 million (against the operating income of \553 million in the prior fiscal year). Despite aggressive campaigns to reduce materials costs on an ongoing basis, a decrease in sales led to the result.
The earthquake had the effect of depressing net sales by \2,080 million and operating income by \780 million.
Net sales rose 8.4% year-on-year, to \43,541 million. Higher sales by the focused area of the “e-lding” Internet shop and large project wins contributed to the increase, despite the damaging effects of the earthquake.
Operating income also rose 42.9%, to \477 million. Although large project wins were noted for low profitability, higher sales achieved by e-lding and others resulted in additional profits.
The earthquake had the effect of depressing net sales by \520 million and operating income by \70 million.
Net sales grew 0.8% year-on-year, to \19,369 million. The result reflected higher sales generated by the Media Service business and lower sales in the focused areas of IT Management Support and Helpdesk services, caused by a growing shift to self-reliance for IT system management by customers due to the weak economy.
Operating income came in at \1,851 million (up 8.3%). Although the segment's sales changed, with greater contribution now made by Media Services noted for low profitability, the increase was attributable to the success of COGS reduction initiatives, which boosted the overall profitability.
The operating results of this business were not affected by the consequences of the earthquake.
Total assets as of March 31, 2011 stood at \132,790 million, representing an increase of \784 million from a year ago.
Asset-increasing factors included cash and cash equivalents (i.e., cash, deposits, and funds deposited at affiliates) (up \2,380 million) and intangible fixed assets (i.e., software) (up \1,816 million), while asset-decreasing factors were inventories (down \1,242 million) and trade receivables (down \1,976 million), among others.
Liabilities decreased \1,723 million from the end of the previous fiscal year, to \57,688 million. This was primarily attributable to an increase in advances received (up \813 million) and a decrease in trade payables (down \282 million).
Net assets increased \2,507 million from the end of the previous fiscal year, to \75,101 million, due largely to an increase in retained earnings by \2,540 million.
As a result of the above, the shareholder equity ratio as of the end of the consolidated fiscal year under review was 56.6%, an improvement of 1.6 points from a year ago.
Cash and cash equivalents ("cash") increased \2,380 million over the consolidated fiscal year under review, to \26,599 million as of March 31, 2011.
(Cash Flows from Operating Activities)
Cash from operating activities increased \8,388 million during the consolidated fiscal year ended March 31, 2011. The increase was \1,823 million less than the increase during the preceding consolidated fiscal year. Major factors contributing to the increase were, among others, posting of net income before income taxes and minority interests (\8,351 million) and depreciation/amortization (\2,168 million), while the payment of income taxes (\3,950 million) was the major cause of the cash decrease.
(Cash from Investing Activities)
Cash decreased \3,503 million as a result of investing activities during the consolidated fiscal year ended March 31, 2011. The outflow, which was \229 million less than the outflow recorded for the preceding consolidated fiscal year, was attributable largely to the acquisition of intangible fixed assets in conjunction with the development of an internal IT system (\3,653 million).
(Cash Flows from Financing Activities)
Cash decreased \2,494 million as a result of financing activities during the consolidated fiscal year ended March 31, 2011. The outflow, which was \72 million less than the outflow posted for the preceding consolidated fiscal year, largely reflected dividend payment amounting to \2,181 million.
As a result of the above, cash and cash equivalents increased \872 million, to \24,219 million as of March 31, 2010.
| Category | FY12/3(Estimate) | FY11/3(Result) | Change | |
|---|---|---|---|---|
| Proactive Maintenance Operations |
957 | 955 | 2 | 0.2% |
| Fielding Solutions Operations |
1,003 | 935 | 68 | 7.3% |
| Net Sales | 1,960 | 1,891 | 69 | 3.6% |
| Operating Income | 100 | 80 | 20 | 25.0% |
| Ordinary Income | 100 | 85 | 15 | 17.6% |
| Net Income | 54 | 47 | 7 | 14.9% |
The above forecasts are based on information available at the time they are made,and subject to risks both known and unknown and other uncertainties.Consequentry,actual performance may differ from published forcasts.
