Application of Agent Model

Service Provider BU,

NEC LATAM S.A.

Yuichi Kusumoto
Objective of Agent Model + Request to CA
 Background
 Increasing Demand for Profitability
 Low Profitability of the Box Moving Business
 GP margin became the required KPI for AM from partners
 Incident with “Pass Through” projects

 Objectives of applying Agent Model

 To improve the profitability of Service Provider business.
 To increase the business scope

 Request for CA / Sales Directors

 Enhance the understanding of “Agent Model”, including the required process
 Build the pipeline for “Agent Model” projects

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Overview of applying Agent Model
 What is the benefit of Agent Model?
 Recognize the same number of Sales and GP (= 100% GP Rate)

 What Projects can we apply Agent Model? Example …

 Projects where NEC TAKES NO RISK as defined in IFRS. • Box Moving with No Spare Parts
 Details on P.4 • Software Licensing Business
• … etc etc

 What is the process for applying the Agent Model

 Procedure described on P.5

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 The criteria to apply Agent Model to an opportunity
 Evaluating new opportunities in terms of whether CA can act as an “Agent” entity based on the
following criteria. (Existing opportunities are not applicable.)
 Splitting an opportunity between “Agent” and “Principal” part should also be considered.
 Asking CA&RHQ’s finance team to endorse the above evaluation per opportunity.

Agent
 The entity’s performance obligation is to arrange for the provision of goods or services by another party.
 The entity obtains legal title of a product only momentarily before legal title is transferred to a customer.
 Indicators
A) Another party is primarily responsible for fulfilling the contract;
B) The entity does not have inventory risk before or after the goods have been ordered by a customer, during shipping or on return;
C) The entity does not have discretion in establishing prices for the other party’s goods or services and, therefore, the benefit that the entity can
receive from those goods or services is limited;
D) The entity’s consideration is in the form of a commission;
E) The entity is not exposed to credit risk for the amount receivable from a customer in exchange for the other party’s goods or services.

Principal
 The entity controls a promised good or service before the entity transfers the good or service to a customer.
 The entity may satisfy a performance obligation by itself or it may engage another party (e.g., subcontractor) to satisfy some or all of a
performance obligation on its behalf.
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 How to Proceed the “Agent Model” sale
 To obtain the permission from RHQ finance with consultation and top management of RHQ before
entering into contracts
 RHQ finance will inform the details of project(s) to NEC HQ(Global finance div. or equivalent)
 To keep the record for statutory accounting and authorization

Procedure
 Provide RHQ finance the contract information with Gross/net sales and GP amount, supplier, customer, and contract conditions
 RHQ finance will review contract(s) draft and summary information with legal person to check the satisfactory of IFRS 15 agent model
criteria
 RHQ finance will confirm with top management’s will “to GO” the project(s) (Like pre order meeting?)
 RHQ finance will submit the form to NECJ in order to ensure the accounting treatments (Forms to be decided: under negotiation with
NECJ) with signature of RHQ CFO and RHQ head (maybe e-mail basis would be fine?)
 RHQ finance will review AR for this treatments at least quarterly basis and build up the projects list that are subjected to this treatments,
then send it as a reference
 RHQ finance and business units will keep the record at least 5 years for audit purposes

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 Open Issues

 Definition of KPI for Account Managers

 Impact for decreasing the sales for Box Moving business

 Alignment in financial figures to be reported

 Definition of financial contents of reports to all stakeholders

 … more to be defined and resolved …

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