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 Mid-term 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 handles 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 three European companies it 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 trends 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 the 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 1,612.5 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 on modernization, as well as contribution improved profitability through strengthened management. We'll continue this trend going forward, and we are targeting the adjusted OP of JPY 184 billion for March 2026, 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 2024 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 non-core business is progressing, so we expect profitability to improve as expected for March 2025 and March 2026.
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 2026, 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 at the last year's IR Day, that the ratio of the modernization domain, namely the efficiency of replacement, was increasing. And I expect that CAGR growth will increase further this year, and the demand for the modernization will continue for another three to four years. From March 2026 onwards, I expect that the DX support domain will grow significantly.
We believe this means that the results of the DX domain will start to emerge in companies that have laid a 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-how and personnel we have cultivated in advance in the enterprise market.
In the enterprise BU, the monetization that has already begun full scale is continuing. The number of large-scale project is increasing, too. Furthermore, DX projects are also gradually increasing. In the future, we will strengthen our delivery system, including consulting centered 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 co-operated mobility with infrastructure, which we've been working as a new core DX business, is experiencing delay in its social implementation. We will revise the targets for 2025 and 2026, and rebuild them as a new long-term strategy. These are the key measures we are taking for 2026 targets. There are three points in the domestic IT business. The first is BluStellar.
We defined a growth business that we have been promoting as a 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 improve 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 project business. In addition, the number of loss-making project 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 2025, 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 2023, 6.4% and 11.3%, respectively.
For March 2024, this is expected to increase to 9.1% and 19.1%, respectively. In 2026, March 2026, 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 4 billion - JPY 8.8 billion, equals to 25% of March 2026 revenue of JPY 1.69 trillion. While sales of base business will gradually decline, the 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 2024, we expect an increase of JPY 28.3 billion from BluStellar revenue, and profit improvement resulted in a total of JPY 184 billion. The number of DX personnel for March 2023 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 non-core businesses. In Japan, we expanded KMD solutions for the invoice system, and we also are 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 the Digital Finance, we expanded Avaloq offering in the APAC market.
And we are also making progress in materializing collaboration through a strategic alliance with BlackRock. We'll 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 2026 is JPY 2 trillion in revenue, JPY 220 billion for the adjusted operating profit. Based on the significant growth on March 2024, is approximately JPY 10 billion up from the initial plan, and OPM 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 the 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'm 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 two things that supports 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.
At 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 this DX specialist organization, shown in this diagram, and began providing DX offering ahead of our other companies, and we've been evolving our activities ever since. For example, in 2021, we created a cloud-direct connection environment, our own in the data center, that no other Japanese company offered. We've been strengthening our alliance with Microsoft, AWS, and Oracle, which are known as hyperscalers. The common platform, called an MTP, was fully deployed in 2022.
In 2023, we unified hardware, software, network services, which had been separate organizations until then, and unified marketing, consulting, product services, delivery, operation, maintenance, and quality control as an organization that leads DX across the entire company. This year, based on the knowledge and achievement for the past five 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. How do we create a 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 technologies that supports it and the technology that standardizes and unifies it, and finally, people who support our customer innovation. We call all that as BluStellar. BluStellar is positioned as a key driver for achieving the Mid-term Management Plan 2025. We'll continue to grow it further in the future. We'll be working towards a target of JPY 493.5 billion for BluStellar in March 2026. Now, let me explain the overall BluStellar business. The BluStellar business is made up of the commercial products, including offering that was formerly called NDP, NEC Digital Platform, and the consulting-based business centers on ABeam. As you can see on this graph, we were able to turn a profit in terms of OPM from March 2023, and we've been continuing to grow positively into March 2024 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 NDP, and we are steadily progressing since last year towards achieving the adjusted OP of 11% or more. From here, I'll explain the individual situation. First, I'll start with BluStellar's products. BluStellar's products record the 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 2025 is favorable, and we plan to continue to build up our order backlog for 2026, 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 three 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 three measures. Let me explain one by one. First, we are expanding our earnings through revenue growth. DX progressing in the enterprise sector, particularly in the financial and manufacturing industries, as well as the public and telecommunication carrier sectors.
We are increasing sales by strengthening and enhancing scenarios that resonate with customers in each industry and 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've been significantly reviewing our portfolio and shifted to more profitable products. Looking at BluStellar products, if you look at the sales for March 2024, 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 2026.
As you can see, the introduction support service for each product expanding and high profitability of BluStellar products is steadily progressing. To enhance profitability, we are focused on standardization of our system development framework through the initial utilization of generative AI and automation tools. Automation is a key component of this effort. As part of the initiative to boost productivity within the company, we are reassessing the SI model and advocating for standardization and automation during the service delivery phase. NEC has created its own open-source software named Exastro, and we're actively working on automating the provisioning of services using this software. By developing templates for automation, the setup of service environment on a unified platform, we have successfully reduced the workload of operators from 20 hours to just one hour.
This has allowed us to minimize the individual SI efforts and enhance delivery speeds, enabling us to deploy engineers to more value-added tasks. At 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 use it to propose and implement security measures for our clients. Next, I will explain our consulting-based business. In the consulting-based business, revenue for March 2024 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 2026. 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 is 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 three core capabilities: value creation, transformation, and co-creation. We are also expanding our investment in these areas to establish this cycle. As an NEC Group, we are combining ABeam's strengths in business transformation with NEC's strengths in utilizing advanced technology to create and strengthen new value. Our first initiatives 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 2025. We expect to see an increase of our profit margin through sales, a shift to profitable products, improved profitability for March 2026. 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, NEC, and to society by further accelerating BluStellar business in the fiscal year March 2026. That concludes my explanation. Thank you for listening.
Hi, I'm Tomoki Kubo. I'm the Head of DGDF Business Unit. Thank you for joining us today. Today, I'll explain three points: the progress of MTP, the revenue plan, and profit plan.
First, I will provide an update on the Mid-term Management Plan. I'll explain the responsibility of the DGDF BU, which is currently developing a range of software services for international market. The business is divided into two segments: Digital Government and Digital Finance. In Digital Government domain, we have acquired U.K., NEC 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, twelve companies. In terms of Digital Finance, we have acquired in 2020 , Avaloq of Switzerland, and that is essential to deploy the business. Let me review the Mid-term Management Plan.
In 2021, our basic strategy was such that the three European companies, NEC Software and SaaS platform, NEC asset technology engineering capabilities are fused so that we can stabilize by rebuilding of the business base, including the three acquired companies, and business synergy to be pursued, and to also create a 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 non-core business. In terms of expansion by footprint, APAC overseas market exploited, and KMD solution to be used in the domestically in Japan, SWS solution Commonwealth regions 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 Mid-term Management Plan. In March 2025, it is going very well. The target of March 2026 is JPY 310 billion, adjusted OP is JPY 360 billion, will be continued to be achieved. If you look at the left-hand side, the initial mid-term management target in 2025, the DGDF in total was JPY 300 billion, and in the three European companies to have the revenue of JPY 210 billion, OP ratio was 12% in DGDF business unit, and also 22% in EBITDA of the European three companies.
If you go on the right-hand side, this is the forecast in March 2025, the revenue JPY 300 billion, and also the OPM ratio was 8% in three European companies. Just only for the revenues, already JPY 230 billion, and also EBITDA ratio 22%, which is already achieved the target value of the March 2026. 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 three company EBITDA ratio target was 20%, but now it became 22%. So by 2% or so, that's been changed. EBITDA ratio from the past to the future, it has increased by approximately 2%.
This is the revenue plan. In terms of revenue, it's supported by the very steady receipt of the order. It is going well on the progress, and from March 2022 to March 2026, excluding the non-core 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 regions overseas expansion will be done as well. In KMD, central government business further enhanced, and the financial lead software business will be expanded. Avaloq SaaS business will be further expanded, global sales further be enhanced, BlackRock partnership to be achieved.
And also common for three companies with the M&A strategy to be continued, so that we would expand, strengthen the, enhance the, products and to be expanded in the market in the DX aviation business to be further customer share, market share to be expanded by strengthening them. This year, 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 is called this effective order backlog rate. In the last fiscal year, the remaining effective order backlog was 82%.
For three 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, OP, is with the three European companies. Profitability improvement measure has been formulated to be deployed, and in March 2026, we expect to achieve JPY 36 billion. If you look at the OP margin rate, from March 2024 to March 2025, 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 in the structural reform expense is accounted, so excluding that, 8% for SWS, and it is almost flat. In March 2026, Avaloq, they continue to have the 2% expansion of the OP margin, and for KMD, from 8%- 11%. For SWS, it is 13%- 15%, rather. And this is 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 twenty-sixth 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, so therefore, JPY 1.3 billion, and that will be JPY 3.3 billion. And since it will not be accounted next fiscal year, so it will remain. And the rest of it, it come from the Avaloq sales and 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, delivery cost to be efficient, and offshore expansion to reduce the development costs. As you can see in the middle, a JPY 3 billion profit improvement is targeted.
In 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 slimming the assets and to achieve a cost reduction. That is the plan, and this should be able to achieve JPY 1.4 billion. DI/DX structural reform is the JPY 2 billion or so, but this is delivery cost to become more efficient and to profitability project to be more efficient, to be achieved. In March 2025, as you can see in the first quarter, it is going very well, so it has been a significant improvement compared to the previous fiscal year. As you can see, the revenue is 19.3% improvement, and also adjusted profits, JPY 3.3 billion improvement.
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 profitability improvement, JPY 2.1 billion, SWS profitability improvement, KMD revenue increase, DGDF structural reforms. Even without counting the JPY 2 billion of the structural reform expense, this will be JPY 4.3 billion adjusted OP to be achieved. In order to improve on the profitability, we have the common indices. As in March 2024, it is 79% software revenue ratio, and the March 2024 will be 79%, March 2026 will be 83% to be target. In offshore development, the ratio of the personnel is 32% in March 2024, and 40% in March 2026.
That concludes the GP report. Thank you very much.
My name is Yamashina. Thank you very much. I'll explain about Social Infrastructure segment, Mid-term Management Plan progress. I'll talk about overview of Social Infrastructure business, performance trends, and Mid-term 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 the social value. In terms of telecom services, telecommunication system, OSS/ BSS, IT infrastructure, business service applications, submarine cable systems. For the domestic telecom operators, overseas telecom operators, and telecom operators and consortium are 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 Secretariat, Ministry of Defense, and related organizations. Next, business trend and Mid-term Management Plan. As you can see, in terms of segment, has been achieved the profit and revenue increase. In March 2026, no change in the target. So the further revenue will grow and the telecom business model, the transformation will be progressed. As you can see in this chart, if you look at the March 2024, 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 the 4.5% CAGR sales has grown by the March 2026 7.3% growth is expected. In the Mid-term Management Plan, March 2026 10.5% is a target, and 5.1% in March 2024, and 4.4% in March 2023. 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 non-performing business projects, and the profitability went down, telecom services unit, it has gone down. However, last fiscal year, in the wireless business has been divested and also submarine systems work delay happened, and the profitability delay happened, and therefore, 2 points has been worsened.
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. Pale 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 informed, 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 that the second point, the, we are going to enhance and maintain the defense production technology base of, promoted by the government of Japan. So the industrial profitability ratio will be improved in defense. Let me explain that the key measures. As you can see, this is a summary, as in with the 58.3%, as mentioned earlier, of the CAGR increase. But due to some temporary issues, that has became 53.8%.
If we adjust it, in 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 telecommunication service KPI plan and receipt of order, I will use next two pages. For the, this is the revenue and OP from March 2021 to March 2026. As you can see, in 2023, we have a NEC, this increases revenues, and excluding the transient loss, it has been increase of all revenue and OP.
In March 2026, the backlog order has led increase, has led the increase of the revenue increase, and also transformation of the expense structures, and business model transformation has also helped in improving profitability. In March 2024 , the revenue is JPY 790.5 billion, profits JPY 50.3 billion, profit margin is 6.44%, and JPY 27.3 billion, 33.4%. These are the disclosed numbers. This is a transient loss project happened, so therefore, JPY 23 billion. But the those special factors are excluded in this plan. The revenue CAGR from March 2024 to March 2026, and in the past 4.1%, has declined to 3.1%.
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 2026, JPY 840 billion of profits and 11.3% OP margin. Next, telecommunication service growth, in terms of the backlog, new order, and also revenue, and also conversion rate is described here. In the March 2024, due to the increase of the order and also the revenue have increased compared to previous year, and also CAGR from 2023 to 2025 has been declining from 2.6%, has been significantly declined, as I mentioned earlier, because of business model transformation and shifting to software.
If you look at March 2024, the total amount of the receipt of order is JPY 1,437.3 trillion revenue. Conversion rate is 55%. It is slightly less than March 2028. Therefore, because due to the more increase of the multi-year contract, as a result, in March 2024, 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%. Therefore, we are for sure to achieve end of JPY 840 billion. Next, I'd like to talk about telecommunication service profitability improvement in this chart, using this chart.
In the left is what has been discussed in March 2024, JPY 27.3 billion. In a blue area is under our control, and it's the internal self-help effort to work on that. Far left, JPY 20 billion, is what happened in March 2024. This is a transient or temporary expenses from 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 +JPY 6.1 billion, which I'll explain 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 have been reduced.
As a result, JPY 35.1 billion will be improved within NEC. JPY 27.3 billion + JPY 35.1 billion to become JPY 62.4 billion will be our actual numbers. So this fiscal year, JPY 74 billion , turn to achieve that, + JPY 4.3 billion network infrastructure business to be in the +JPY 6.7 billion in software ratio to be increased + 10%. There'll be some minus as well, but as a result, to achieve a +JPY 4.3 billion, IT domain and specific +JPY 74 billion . So in the March 2026, in the blue dotted line, NEC internal SG&A to become efficient, more specifically 5G, +JPY 3.7 billion .
And we run revenue will be increased in regards to 5G, JPY 10.3 billion, IT domain, specific +JPY 7 billion to achieve JPY 95 billion. And in this 5G and IT domain, explain a bit later. As I explained last fiscal year, in from March 2021 to March 2026, revenues and profits. As I explained last fiscal year, in March 2021, 2022, 2023, there'll be significant negative loss. As you can see, because of the investment that's been done earlier, and there are some non-performing projects, and in March 2023, -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, -JPY 10.8 billion, we have achieved our plan, target.
Last, this fiscal year, we will achieve further profitability, + JPY 2 billion. In next fiscal year, will be total of the JPY 16 billion. Also, this overseas business, JPY 20 billion, business model has been transformed so that the RU unit is the antenna. It was a plan to direct to the sales. However, instead of doing so, because they have the rather lower GP, gross profit margin, so therefore, to eliminate then not to have the losses, we are rather licensing our own excellent technology, like Massive MIMO, to the Asian base station manufacturers. Therefore, I will improve our profitability significantly. The other is the software shift to be developed more.
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, and gray color is the hardware. This is revenue and GP and profits. In March 2023, hardware ratio is 64%. As a result, the revenue minus profits 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 -JPY 15 billion profit and loss. In this fiscal year, software ratio has increased to 54%.
Very high profitable software, GP is increased, +JPY 2 billion in March 2026. vRAN will be further enhanced, 67%. S oftware revenue GP has to be further improved and + JPY 16 billion. RAN will be introduced. vRAN is a virtual 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 the digital transformation. In the right-hand side, the, from the handset terminal to the base station and vDU, vCU, the virtualized base station and the network virtualized core network. And then on the side of that, operation support service, business support service, which is done by the NEC company called Netcracker, headquartered in Boston.
In total, using the software, for the customer value, operation cost has been reduced by 70%. What has been reduced from 10 hours to 15 minutes by the manual work, is now reduced to 15 minutes. Also, communication efficiency and virtual core affects to optimize on the packet, and the communication efficiency have been improved by 15%, and user sense of the quality have been, tripled in its speed. As a result, we have received the vRAN award for vRAN software from NTT DOCOMO, Incorporated. In March 2026, JPY 223 billion, OP margin 13.5%, revenue growth rate is CAGR 5%. Therefore, as you can see, in the Boston Netcracker's, half of that is the customer-centered IT sales.
On the right-hand side, Netcracker AI, generative AI, is 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 customers management, generative AI is used example. The sales support and customer care, generative AI is used, and those, generative AI is utilized in the digital transformation software is already provided from Netcracker. In the customers 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 the customer's operational efficiency has been improved by 50%. Those are the KPIs.
Those call center first call has been answered in 90% hit, and also those 50% of those inquiries from for the customer has now became a business deal for them. And this KPI is a new 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 Rogers from Canada. And next, I'll talk about space national security KPI plan.
As before, the revenue and profit and loss figures from FY 2020 to FY 2025 are shown here. Looking at FY 2023, 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 figure, because a one-time large project boosted revenue, and this is a plan excluding that. As you can see, the CAGR of revenue was 6.5% from FY 2020 to FY 2023. But due to the defense development plan announced last year for FY 2023 to FY 2027, orders have increased significantly, and as a result, we believe that revenue will grow at 22.4% CAGR.
Here, it shows that in FY 2025, 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 2023, 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 had been just over 40% until then, has dropped significantly to 31%.
This is due to the increase in the multi-year contracts in the five-year plan starting from FY 2023, and we expect it to gradually increase to 31%, 34% this year, and 37% next year. Also, until FY 2022, 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 2023. So if we look at the defense orders alone, it will increase even more. On the other hand, we are now forecasting 11.8% until FY 2025. 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.
Here, we are also now taking a conservative approach. By 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. In defense, we have been traditionally receiving orders for command and control systems, and this fiscal year, we received an order for the Air Self-Defense Forces cloud system. In the sensor field, we received a large order for an Earth observation satellite in collaboration with NASA and the JAXA. We're also working on underwater and 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 2023, 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 2025, 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 2023, we increased it by 750 people. This year, up 250 people. So in other words, we will increase the total headcount by 1,000 people over the two 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 Fuchu area. Last year we said that, you know, we would add 40,000 sq m in floor space, but we have now increased this to 50,000 sq m , up 10,000 sq m . This is a topic of ANS. As I mentioned earlier, the H3, you know, rocket was successfully, you know, 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 geostationary orbit that has already been launched, and the low orbit that was launched this time, are 40,000 km apart. And since low orbit and geostationary 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 km apart. In addition, on the right side, we have agreed to jointly develop 1 Gb per sec optical communication technology with Skyloom Global Corporation of North America. In this way, we plan to make our satellite optical communication and satellite constellations to be the major core business for NEC in the future. We are steadily, you know, progressing with this development.
Finally, to summarize, we are now committed to profits, and we will 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 Matsukura, the Corporate Secretary, as has been just introduced. I would like to begin with an overview of NEC's corporate governance with the key points. First, allow me to talk about the, you know, background and overview of the corporate governance reforms. Secondly, I would like to talk about the specific activities for FY 2023. In fact, we started considering our corporate governance reforms back in 2021. It took actually two 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 two points.
In order to solve these issues, the Board of Directors then 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 separation of supervision and execution clarified the division of the 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 the structure as an opportunity, the Board of Directors is now focusing on two 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 in directors has also now 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 three women and one foreign national. The directors as a whole have a 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 the directors will 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 2023. The attendance rate for both the Board of Directors and the committees was 100%, and all the directors have been committed to the company's corporate value management and 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 board meetings six times a year in FY 2024 I would also like to introduce some of the key points about the activities of the three 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 executives' 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 a 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 base, STI, and LTI is now 1 to 1 to 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 a 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 defense, 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 the three points in our execution: one, setting an 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, in the effectiveness evaluation for FY 2023, we were evaluated as having made significant improvements in each item.
However, in reality, there are still many issues we have to solve, and we are continuously now taking measures in order to improve effectiveness this year as well. Finally, I would like to introduce a chart as an example of improved deliberations at the board meetings. This chart shows the, you know, percentage of the total time spent for resolution items, reporting items, and discussion items in FY 2022 and FY 2023, respectively. As you can see here, the discussion items, which are shown in the dark blue color, accounted for 60% in FY 2023. Specifically, we are now able to secure a sufficient time to discuss important management issues such as business portfolio and the 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'd 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 perspectives of our outside directors, we are honored to have Mr. Mochizuki and Mr. Yamada. Looking forward to receiving your comments. We would like to cover the survey results to the extent possible that we have received from our investors and the securities analysts in advance. Again, Mr. Mochizuki and Mr. Yamada, I do appreciate your time and participation. Thank you. Okay, now, first of all, I would like to recognize.
Both of you are appointed as outside directors in June of last year, and when NEC transitioned 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, 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 now for about a year and a half. But, since I became a 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 year and a half has made me realize again that NEC has actually gone through quite tough and difficult the 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, being 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 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 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 three 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 so 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 how quickly you can expand your growth businesses. I think there is a lot of room for growth. That's all.
Thank you very much, and 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.
Here, now, 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 became a director in June last year, so it's been about a year and four 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 are making an effort to try to incorporate whatever the points you believe good. I feel that the board members are now very productive and are 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 to what extent things should be left to the executive team and what should be discussed at the Board of Directors meeting. I also felt that even at the executive team side, they felt that things are going to be so different from the in the past situations. However, recently, I think, we are now 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.
Well, thank you. Mr. Mochizuki.
Yes. As was explained in the beginning, NEC's decision to change its organizational design to accompany with Nominating Committee as part of its management reforms, this has been a very important decision for you to make, considering the global battles and to come up. I, myself, have been involved with companies with the nominating committees and for a relatively long time, if I may say 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, in just one word, that we need to separate oversight and execution. That means giving a certain amount of authority to the execution 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, you know, find a way to use it effectively.
I think that the, you know, word supervision is not really correct, if I may say so, even though it is certainly written in the 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 a 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 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 a 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 three 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 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 talents, 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 director's 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.
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. 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. That was the policy which was set, and based on that, we had discussion and changed 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 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 the 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 we would 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 three-party audit system. This means that we have to have an audit policy and Internal Audit Division, and Audit Committee sharing information closely, and try to improve the effectiveness. So for that, in the past year, we have been very much focused upon having the three-party communication.
In the past, we know that the audit firm gave only the quarterly report, but now we have three-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 Zero for the DX and promoting the digital transformation. So also, in the Internal Audit, we should boldly 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 three-party audit system.
So if we do so every month, this, three-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, so far, in the first half, we talked about the effectiveness of the Board of Directors, as well as three committees, and what kinds of discussions were conducted. So in the second half, we would like to focus on some of the major areas where investors are interested in, 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. So first question is related to medium to long-term strategy.
Now, we are in the fourth year of the 2025 Mid-term Management Plan, and for the next Mid-term Management Plan, for the FY 2026 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, discussion?
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, there was a strong focus on achieving 2025 Mid-term Management Plan targets. That was the top priority.
I think I thought that it's too much of the priority then, because NEC will not come to an end in 2025, and company will not be evaluated 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, that 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, he has a spirit of actually overachieving the targets, so I'm not worried about the achievement of the targets.
But from the perspective of the outside director, I think that what is important is to think about beyond 2025 Mid-term 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 Mid-term Management Plan targets, but now we need to start discussing beyond or after 2025 Mid-term 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 the 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.
As was discussed today, I think this is the direction the company is moving forward. What is the global growth roadmap or direction based upon the BluStellar? 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. To make those strategies visible to the employees, and to have a strong and 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 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 discussion on this. So we would 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 return, 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 spend a long time to discuss those. Simply put, the investors look at the tens and tens of thousand global companies and choose where to invest in, so we need to become a company to be chosen by you.
Management's view on the capital allocation needs to be clearly shown to the market, and that is something that we discussed at BOD. 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 toward the 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. 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. This actually reflects the discussion that we had.
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 the result of the good discussions that we had.
Next, I'd like to ask Mr. Mochizuki to comment.
The discussion how to utilize the capital within certain range, there's no perfect answer to that. Of course, investors are interested in the dividend payout ratio, and we of course understand that, and that's something that, the 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, selling 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's 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 area of interest of the investors. They want to know what kind of discussions have been held.
Especially NEC deconsolidated Japan Aviation Electronics, or JAE, this year, so various decisions were made. So concerning that, Mr. Yamada, what kind of an 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 two major decisions were made, frankly speaking, centered around Mr. Morita. The executive team of NEC made good decisions for the long-term challenges of NEC and moved forward. So I personally evaluate this very highly. You mentioned the JAE and NEC Capital Solutions. The BOD endorsed the decisions made by executives, so that's how we reached the conclusion. As a result, we solved 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.