Bridge Report:（4762）XNET Second quarter of the fiscal year ending March 2024

Takehiko Motani, President	XNET Corporation (4762)

Company Information

Stock Information

* The share price is the closing price on November 22. Number of shares outstanding, DPS, and EPS are from the financial results for the second quarter of the fiscal year ending March 2024. ROE and BPS are from the previous year.

Earnings Trend

*Unit: million yen. Estimates are those of the company.

This report outlines XNET Corporation's financial results for the second quarter of the fiscal year ending March 2024.

Table of Contents

Key Points
1. Company Overview
2. Second Quarter of the Fiscal Year ending March 2024 Earnings Results
3. Fiscal Year ending March 2024 Earnings Forecasts
4. Conclusions
<Reference 1: Medium-term Management Plan 2022-2025>
<Reference 2: Regarding Corporate Governance>

Key Points

• The company operates XNET Service, which primarily provides securities management systems for a monthly fee to over 180 institutional investors. Since its founding, it has led the industry as the de facto standard, boasting a market share of around 90% in the life and non-life insurance industry in Japan. In addition to providing systems, it actively develops "SO service," the service of undertaking accounting work, etc. to further expand its business.

   

• In the second quarter of the fiscal year ending March 2024, sales were 2,762 million yen, up 3.2% year on year. All services performed well, and although sales decreased year-on-year until the first quarter, they increased in the second quarter. Operating income increased 10.0% year on year to 538 million yen. In addition to increased sales, cost-of-sales ratio improved mainly due to decreased depreciation expenses due to investment in XNET applications, and gross profit increased 9.8% year on year. SG&A expenses also augmented due to various investments, but this was absorbed. Operating income margin was 19.5%, far exceeding the target of 15%. Both sales and profit exceeded forecasts.

   

• The earnings forecast has been revised upwardly. For the fiscal year ending March 2024, sales are expected to increase 1.7% from the previous fiscal year to 5,450 million yen, and operating income is projected to rise 1.0% to 960 million yen. The forecast changed from a decrease of 1.1% in sales and 7.4% in operating income to an increase in sales and profits.

   

• Sales are expected to remain unchanged from the second quarter, and annual sales are projected to reach a new record high (5,419 million yen in the fiscal year ended March 2022). Regarding profits, the company plans to spend money for security measures and human resources-related investments. Thus, profit margin will decline slightly, but the company will secure increases in operating income and ordinary income that are on par with the company's highest records (an operating income of 968 million yen and an ordinary income of 995 million yen in the fiscal year ended March 2022). The company plans to pay a dividend of 30.00 yen/share, unchanged from the previous fiscal year. The expected dividend payout ratio is 37.0%.

   

• The company is steadily capturing strong demand and has revised its full-year earnings forecast upwardly. Sales will reach a new record high, and operating income will approach its highest level ever. Regarding task undertaking services, the company started providing services to the second company in the life and non-life insurance industry, and it is receiving many inquiries for its loan management services for life and non-life insurance and trust management systems for individuals targeting local banks. We would like to pay attention to whether the company will be able to increase sales and profits over the full year forecasts.

   

• The Japanese government's "Asset Management Nation" concept is also likely to be a tailwind for the company's business through "expansion of assets under management" and "increased entry of new asset management companies." In addition to macroeconomic factors, the company may also benefit from actual measures such as "elimination of double counting of NAVs" and "elimination of oligopoly in the public sales network" for investment trusts. Therefore, we will keep an eye on its impact on the company.

   

1. Company Overview

The company operates the “XNET Service,” which mainly provides securities management systems to more than 180 institutional investors, including life and non-life insurance companies, investment trust advisors, trust banks, and banks, for a monthly usage fee. Since its establishment, the company has led the industry as the de facto standard, holding a market share of around 90% in the life and non-life insurance industry in Japan. Currently, in addition to its securities business, it is expanding its management targets to include individual trusts and loans. It is also actively offering “SO service,” in which it not only provides systems, but also undertakes accounting and other tasks, aiming to further expand its business operations.

[1-1 Corporate History]

The company was established in June 1991 and began offering “XNET Service,” its current mainstay service. In October of the same year, Nippon Life Insurance Company adopted the “XNET Service” for its middle-office operations, which was the first major order received by the company. Based on this achievement, it expanded its service domain to include back-office services for life and non-life insurance companies. The convenience and economic benefits of these services were highly evaluated, due to which the number of clients using it increased at leading firms in the asset management industry, resulting in the expansion of its business. It was listed on NASDAQ Japan of Osaka Exchange in June 2000, and on the First Section of the Tokyo Stock Exchange in March 2004.
In March 2009, NTT DATA Corporation officially acquired the shares of XNET Corporation, making it a wholly-owned subsidiary of NTT DATA Corporation.
In April 2022, it got listed on the standard market of Tokyo Stock Exchange due to market restructuring.

[1-2 Corporate Philosophy]

The company aims to be an “eXcellent Company” that can continue to grow while collaborating with its clients.

Its objectives as an “eXcellent Company” are as follows.

In addition, the company aims to become “an ecosystem orchestrator* in the asset management industry” by “becoming a master of asset management industry operations” and “further reducing costs associated with the asset management industry,” with the mission of “contributing to building Japanese people's overall assets.”
Furthermore, its vision is to achieve “Four-Way Satisfaction,” i.e., “Good for the Buye the asset management industry as a client,” “Good for the Selle the company,” “Good for the Society: The Japanese economy and people,” and “Good for the Future.”

(*) Ecosystem Orchestrator
It is a role to create an ecosystem (a structure to create significant value through symbiosis) in the asset management industry. For this, it is necessary to become familiar with all information and elements related to asset management. The company aims to create a symbiotic environment by connecting it with any service or system that the customer requires without owning all the solutions.

[1-3 Business Environment]

The amount of money management in Japanese asset management companies is on an increasing trend. As a result of the "Asset Management Nation" concept discussed below, the company's client market is expected to continue to expand steadily.

(From "Basic Data on Asset Management Nation (October 4, 2023)," Cabinet Secretariat)

Meanwhile, the company's clients are being affected by shifts in the business environment and facing resource shortages while being forced to focus on their core businesses, resulting in growing needs for below-mentioned services of undertaking tasks such as AMO and SO services as well as a growing market for these services.

The Japanese government's "Asset Management Nation" concept is also likely to be a tailwind for the company's business.

In the Big-boned Policy 2023, approved by the Cabinet in June 2023, the government clearly stated that it will realize an Asset Management Nation that contributes to sustainable growth by releasing 2,000 trillion yen in household financial assets.
The goal is to redirect household savings to investment, leading to "an increase in financial asset income" and "supplying high-risk high return funds to support corporate growth."

The main points of the "Basic Data on the Asset Management Nation" (October 4, 2023), prepared by the Administration Office for the Realization of New Capitalism, Cabinet Secretariat, are as follows.

◎Asset Income Doubling Plan

◎Lecture by Prime Minister Kishida, hosted by the Economic Club of New York (September 21, 2023), Related part (extract)

◎Household Financial Assets

◎Asset Management Companies

◎Promoting New Entry and Competition

The increase in assets under management and the rise in the number of new asset management companies are entirely positive factors for the company's business.

As the number of assets under management grows, the diversification of assets under management, such as alternative investments, is also expected to increase. As asset management firms seek to focus their resources more than ever on improving their operational capabilities, task undertaking services are expected to provide them with more opportunities to meet such needs.

Regarding new entrants, in addition to foreign-affiliated asset management companies, an increase in the number of start-up asset management companies is also expected in Japan.
The company has already built up a significant track record by providing start-up support services in cooperation with external partners in areas such as legal aspects, which is another positive factor.

The above abolition of double calculation and elimination of oligopoly in the public sales network are also noteworthy.
It is expected that NAV calculations for investment trusts will be performed by trust banks, and daily investment trust information exchange with distributors will be performed by trust banks. Trust banks are currently outside the framework of the public sales network. This is an opportunity to point out issues such as the lack of easy connections, and there are strong calls for a review of the public sales network, which has become an oligopoly.
The market share of the top vendors of the investment trust accounting system is about 70%. The company also provides accounting management services for investment trusts, but its market share is not large. The elimination of double calculation and the revision of the public sales network are expected to lead to share fluctuations, and for the company, the impact of these changes may be more positive than negative.

As described above, the Asset Management Nation may work positively for the company in macroeconomic terms, and it can also benefit from the actual policy management.

[1-4 Business Description]

The company provides “XNET Service,” a specialized asset management system developed by the company, to over 180 institutional investors, including life and non-life insurance companies, investment trust companies, investment advisors, trust banks, and banks.
It has a single business segment, the XNET service business. The services can be categorized into “XNET Service” and “Equipment Sales.” However, “Equipment Sales” service is provided to clients who wish to install computers and other equipment while adopting “XNET Service” and accounts for about 0-1% of total sales.

（1）XNET Service
１.Clients' Situation
The institutional investors who are the company's clients invest in thousands of securities, including stocks and bonds, and have invested in various high-cost systems to manage their securities, including transactions, balances, profits/losses, and accounting processes.

(Taken from the company’s documents)

Many Japanese companies have conventionally built such systems and used them exclusively in-house. In cases of system outsourcing, where development and management are outsourced to an external company, the system is often the company-specific system, with all development and maintenance costs borne by the company.

In response to this situation, the company developed its own information system since its foundation and came up with a unique business model, which it named “XNET Service,” to offer this system to multiple clients for a monthly fee only.
It also provides comprehensive support for asset management operations from front to back office, including providing the stock information.
The company currently has approximately 180 clients.

◎Main Service Lineup

In addition to providing software customized to customer needs, the company is focusing on expanding its outsourced system management and business process services, including “10) XNET-AMO Service” and “11) Smart Outsourcing (SO) Service.”
By having the company's professional human resources undertake front, middle, and back-office operations, clients are able to focus their resources on other tasks.

（2）Business Model: Adopting a subscription model
Since its launch in 1991, the “XNET Service” has been offering its services on a subscription model, receiving a fixed monthly subscription fee on a continuous basis.
It is a pioneer in the “subscription” business model, an innovative business model distinct from the “in-house development type,” in which SI vendors and software houses develop software on contract, and the “package type,” in which package vendors provide packages.

In the “in-house development type,” all costs are borne by the ordering company, and the risk of unsuccessful development is borne solely by one company.
In the “package type,” it is cheaper to install a pre-existing system, but the cost of modification and additional development is high.

In contrast, the “XNET Service,” developed under the concept of “collaboration with clients,” differs significantly from the “in-house development” and “package type” services. The reason for this is that after the launch, it is improved and refined with clients, with no initial cost and additional investment required.
The company owns the copyrights to the application and provides it to other users, thereby increasing profitability as the number of users grows.
In addition, a major advantage for both the clients and the company is that all the know-how accumulated through collaboration with multiple clients can be stored in the XNET application to facilitate knowledge sharing.

Another feature of the “XNET Service” is the low number of service cancellations owing to the fact that users are unlikely to switch to another company's system due to the significant burden of transferring historical data once the XNET system has been installed.

[1-5 Features, Strengths, Competitive Advantages]

（1）Largest Market Share
XNET utilization accounts for 82% of the total amount of securities under management for all companies affiliated with The Life Insurance Association of Japan and 96% of non-life insurance.
The convenience and economic advantages of the comprehensive XNET service are evaluated highly, and the track record of the company's asset management system, including front, middle, and back-office services, is ranked predominantly No. 1 in the life and non-life insurance industry.

The source of this competitive advantage is extensive information on securities and applications updated constantly to reflect the information and know-how.

In addition to revising rules and systems in the securities investment and management industry, it is necessary to stay updated on new investment targets, such as cryptocurrencies. Additionally, it is essential to incorporate the information into logic and reflect it in the application rather than simply having it as information.
The “XNET System” incorporates not only the information and know-how accumulated by the company, but also the know-how acquired by its clients through securities management into the application, making it the best and most up-to-date application that accumulates a variety of know-how at any time.

（2）Provide High-added Value
The company creates high-added value by providing high-level “applications,” “know-how,” and “support” as an integrated package.

（3）Stable Profit Structure
Core sales account for about 80% of the company's sales. It is striving to establish a stable revenue base by expanding its core sales.
The Medium-term Management Plan targets core sales of 5 billion yen for the fiscal year ending March 2026.

(Taken from the company’s documents)

[1-6 ROE Analysis]

*Prepared by Investment Bridge Co., Ltd. based on disclosed material.

Although the net income margin and total asset turnover declined in the fiscal year ended March 2023, ROE exceeded 8%, which is generally targeted by Japanese companies. In its Medium-term Management Plan, the company targets 8.0% or over in the fiscal year ending March 2026.

2. Second Quarter of the Fiscal Year ending March 2024 Earnings Results

[2-1 Overview of Financial Results]

*Unit: million yen.

Increase in sales and profit, both exceeded the revised forecasts.
Sales were 2,762 million yen, up 3.2% year on year. All services performed well, and although sales decreased year-on-year until the first quarter, they increased in the second quarter. Operating income increased 10.0% year on year to 538 million yen. In addition to increased sales, cost-of-sales ratio improved mainly due to decreased depreciation expenses due to investment in XNET applications, and gross profit increased 9.8% year on year. SG&A expenses also augmented due to various investments, but this was absorbed. Operating income margin was 19.5%, far exceeding the target of 15%.
Both sales and profit exceeded forecasts.

[2-2　Trend of each service]

*Unit: million yen.

◎Application services
The company's mainstay securities management system and trust management system for individuals continued to perform well, mainly due to acquiring new clients. In addition, the loan management system, which entered a period of full-scale expansion in the previous fiscal year, is operating smoothly and providing stable services. As a result of these factors, monthly subscription fee revenues from application services are gradually increasing.

◎AMO services
In addition to an increase in orders from existing clients for system infrastructure upgrades, the monthly maintenance contracts for the XNET system, which lead to steady revenues, are expanding due to the shortage of human resources among institutional investors.

◎SO services
In addition to the firm's existing services for investment trusts and investment advisory firms, the company started providing services for the second company in the life and non-life insurance industry as described in [2-4 Topics] below. The trend among institutional investors to outsource accounting and other operations is expected to continue, and the company anticipates further expansion.

Core sales, which consist of the sales from application services, monthly application management services, and task undertaking services, and which ensure stable sales through a subscription model, grew steadily by 4.3% year on year to 2,296 million yen.

[2-3 Financial Standing and Cash Flows]

◎Main Balance Sheet

*Unit: million yen. The software contains temporary accounts.

*Prepared by Investment Bridge Co., Ltd. based on disclosed material.

Total assets increased 283 million yen from the end of the previous term to 9,564 million yen due to the increase in cash and deposits etc.
Total liabilities increased 29 million yen from the end of the previous term to 1,286 million yen.
Net assets grew 253 million yen from the end of the previous term to 8,277 million yen due to the increase in retained earnings.
Equity ratio was 86.5%, unchanged from the end of the previous term.

◎CF

*Unit: million yen.

*Prepared by Investment Bridge Co., Ltd. based on disclosed materials.

The cash inflow from operating CF expanded, and free CF recorded a surplus.
The cash position improved.

[2-4 Topics]

◎Started providing task undertaking services to Aeon Allianz Life Insurance Co. Ltd.
In October 2023, the company began providing task undertaking services to Aeon Allianz Life Insurance Co. Ltd. Specifically, the company combines a portion of its asset management operations for individual variable life insurance and individual variable annuities with its mainstay XNET service to provide administration services.
This is the second life insurance company to which the company is providing its task undertaking services.

3. Fiscal Year ending March 2024 Earnings Forecasts

[3-1 Earnings Forecast]

*Unit: million yen. Estimates are those of the company.

Upwardly revised earnings forecast, from decrease to increase in sales and profit
The earnings forecast has been revised upwardly. For the fiscal year ending March 2024, sales are expected to increase 1.7% from the previous fiscal year to 5,450 million yen, and operating income is projected to rise 1.0% to 960 million yen. The forecast changed from a decrease of 1.1% in sales and 7.4% in operating income to an increase in sales and profits.
Sales are expected to remain unchanged from the second quarter, and annual sales are projected to reach a new record high (5,419 million yen in the fiscal year ended March 2022). Regarding profits, the company plans to spend money for security measures and human resources-related investments. Thus, profit margin will decline slightly, but the company will secure increases in operating income and ordinary income that are on par with the company's highest records (an operating income of 968 million yen and an ordinary income of 995 million yen in the fiscal year ended March 2022).
The company plans to pay a dividend of 30.00 yen/share, unchanged from the previous fiscal year. The expected dividend payout ratio is 37.0%.

4. Conclusions

The company is steadily capturing strong demand and has revised its full-year earnings forecast upwardly. Sales will reach a new record high, and operating income will approach its highest level ever. Regarding task undertaking services, the company started providing services to the second company in the life and non-life insurance industry, and it is receiving many inquiries for its loan management services for life and non-life insurance and trust management systems for individuals targeting local banks. We would like to pay attention to whether the company will be able to increase sales and profits over the full year forecasts.

The Japanese government's "Asset Management Nation" concept is also likely to be a tailwind for the company's business through "expansion of assets under management" and "increased entry of new asset management companies." In addition to macroeconomic factors, the company may also benefit from actual measures such as "elimination of double counting of NAVs" and "elimination of oligopoly in the public sales network" for investment trusts. Therefore, we will keep an eye on its impact on the company.

<Reference 1: Medium-term Management Plan 2022-2025>

The company, which achieved record sales and profit in the fiscal year ended March 2022, plans to promote growth strategies and effectively utilize its assets to refine its “earning” and “spending capabilities” in order to continue to improve its corporate value and sustainable growth.
To this end, the company has formulated a Medium-term Management Plan with the fiscal year ended March 2023, as its first year. This is the first Medium-term Management Plan made public.

[1. Sources of Added Value of the Company]

The three sources of added value of the company are “applications,” “know-how,” and “support.” The company generates higher added value by fusing all the above at an advanced level.

(Taken from the company’s documents)

(1) Application
As mentioned in “1. Company Overview,” the company’s “XNET service” is an application service with a fixed monthly fee and no additional charges.
It is a pioneering subscription model and an advanced business model, distinct from the services of other companies.

The company currently has approximately 4,000 applications.
It possesses the latest and best applications by accumulating know-how over the applications it develops.
The development cost per application is typically 2-3 million yen, but the value of each application goes beyond this amount, when it is considered that it is the latest application with accumulated know-how.
The 4,000 high-value-added applications generate stable high value or cash flow through the subscription model.

(Taken from the company’s documents)

(2) Know-how
The company’s applications are improved and mounted with new functions, reflecting not only the voices of customers, but also the latest needs that the company’s employees grasp on site, and changed on a daily basis according to the operational and institutional changes.
In addition, as the company owns the copyrights to the applications and has accumulated various types of in-house know-how, it can provide the “latest and the best” at all times, ensuring that its applications do not become obsolete.

(3) Support
The company is more deeply customer-oriented than its competitors. It assigns a Client Executive (CE) for each customer to meticulously serve them and offer expertise-based support.
In many cases, the call centers of general system companies are either unaware of whether they can handle emergency requests received over a phone call or are incapable of providing an immediate response if professional support is required.
In contrast, the company’s CEs can directly respond to customers in an emergency. It can also provide immediate, specialized support and meticulously serve the customers as per the customer’s unique circumstances.

[2 Key Business Domains for Sustainable Growth]

To further strengthen its “earning capacity,” the company aims to become a “one-stop solution company” that not only provides applications, but also offers a full range of solutions for asset management.

(1) Evolution into a One-Stop Solution Company
In addition to the provision of applications (software), the company provides further added value by AMO (undertaking application management) and SO (undertaking business operations) services.

(Taken from the company’s documents)

(2) Medium- to Long-Term Service Deployment: Growth of the businesses of AMO and SO
Over the medium to long term, the company will grow the businesses of AMO (undertaking application management) and SO (undertaking business operations) services to become a true one-stop solution company.
By achieving significant growth of these businesses, the company will create a product mix that meets the needs for asset management.

(Taken from the company’s documents)

(3) Business Strategy During the Medium-Term Management Plan
The company will further strengthen its “core” segment, which secures stable sales through a subscription model, and maintain high profitability.
Focusing on the “core” will provide the basis for “earning capacity,” strengthen the management base, and further increase corporate value.

(Taken from the company’s documents)

[3. Investment Strategy]

The company will actively invest in applications, systems, and human resources while refining the “spending capacity.”

(1) Development of New Application Services
The company will actively develop new solutions and further expand its application service, one of its sources of added value.
It intends to actively promote the development of new solutions in uncultivated areas of “asset management” and “peripheral businesses.”

(Taken from the company’s documents)

(2) System Investment
The company will invest “aggressively” and “defensively” in its existing services.

*Aggressive Investment
The company will invest for improving and upgrading over 4,000 existing applications, which are their high-quality assets, to develop new solution services and improve convenience for customers.

*Defensive Investment
The company will ensure that the system is updated with the upgraded operating system to maintain a high level of service.

(3) Human Resources Strategy
The company will actively invest in human resources, which are vital.
The company will continue to focus on actively recruiting experienced personnel.
At the same time, it will utilize the expertise of veterans and the know-how accumulated in the applications to train young personnel for the future. In addition, the company will create an improved environment to enhance productivity.
The company’s strength is its ability to recruit industry veterans ready to work immediately in the face of the shortage of IT personnel.

[4. Management Goals]

The following targets have been set for the final year of the plan, that is, the fiscal year ending March 2026.

[5. Shareholder Return]

The company has maintained a stable dividend, including that in the fiscal year ended March 2015, when there were impairment losses.
The company will continue to increase dividends actively based on long-term stable dividends.

In addition, the company newly introduced a benefit plan for shareholders.
They plan to express their gratitude to shareholders and deepen their understanding of the Medium-term Management Plan to encourage them to hold shares over the medium to long term.

(Overview of the Shareholder Benefit Plan)
*Effective Period
In line with the period of the Medium-term Management Plan (April 1, 2022, to March 31, 2026).
*Eligible Shareholders
Shareholders whose names are recorded in the shareholder’s register on the record date, that is, the end of September or the end of March of each year during the effective period, and who have held at least one trading lot (100 shares) of the company.
*Benefits
All shareholders with at least 1 trading lot will receive a QUO Card worth 500 yen.

<Reference 2: Regarding Corporate Governance>

◎ Organization type, and the composition of directors and auditors

◎ Corporate Governance Report
Last update date: July 10, 2023

<Basic Policy>
We recognize that continuous improvement of business performance contributes to the development of society, enhances corporate value, and meets the expectations of our shareholders and other stakeholders. To this end, we believe that it is important for corporate governance to function effectively, realize a system that can appropriately respond to changes in the business environment, and conduct fair and transparent corporate management.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
[Supplementary Principle 3-1-2]
Considering the company's foreign shareholder ratio (0.4% as of March 2023), the scale of its business, and the cost of disclosure in English, the company has determined that it is premature to disclose and provide information in English at this time.
It will discuss the necessity of English-language disclosure at meetings of the Board of Directors and other forums while taking into consideration the trends in the ratio of foreign shareholders, the scale of its business, and the status of its overseas business operations.

【補充原則4-1-3】
Our company is systematically developing potential successor candidates to the CEO by assigning them as general managers in each division so that they can gain necessary experience as managers, and by having them attend regular management meetings as well as steering committees with NTT DATA, which is the parent company (attended by part-time directors and others) to continuously deepen their knowledge of our company's management issues and the industry.
Although the Board of Directors has not yet become actively involved in the formulation and operation of succession plans for the CEO, company executives, mainly general managers, may attend meetings of the Board of Directors as necessary to report on the status of business execution and explain matters to be discussed. The Board of Directors established a structure that allows it to confirm the status of training of successor candidates and, if necessary, discuss measures to improve the system further.
In addition, the Board of Directors reports on the status of the placement of leaders and managers and supervises the status of securing executive candidates. As explained in [Supplementary Principle 4-10-1], regarding the involvement of the Board of Directors in the future development of successors such as the CEO, in addition to discussions regarding the necessity of establishing a nomination and compensation committee, the company will establish a system that it deems appropriate during the current fiscal year.

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
[Principle 1-4]
Currently, we do not hold any listed shares for strategic shareholding. Although we do not plan to hold such shares in the future, if the possibility of holding listed shares should arise, we will take sufficient time to thoroughly examine and verify the purpose, benefits, and risks in advance, based on this principle, and will disclose the results of such examination and establish and disclose the criteria for exercising voting rights.

[Supplementary Principle 2-4-1]
(1) Human resources development and in-company environment development policies, and their statuses
Our approach to human resources development is based on on-the-job training (OJT), which is supplemented by off-the-job (OffJT) training, mainly the training programs listed below, to proactively support employees in strengthening their skills.
・ Group training for new employees
・ Business training by level
・ Training on basic financial knowledge
・ Training on individual themes
・ Introductory training in system development
・ Others
In addition, as an initiative to complement employee development, we are promoting the hiring of the following people
・ Hiring people who want to give back to the industry, such as veterans and retirees who have been active in the asset management industry for many years
・ Hiring women left the industry after maternity or childcare and resigned employees who are experienced in the asset management industry
・ Rehiring highly skilled and highly motivated former employees who are recognized by all
・ Hiring people (such as temporary staff) who are employed with us and who love our corporate culture and values
・ Hiring fresh graduates from high school
We actively hire people who understand our corporate culture and values, and we will continue to upgrade their skills as we integrate them within the company.
(2) Ensuring diversity
In order to create and provide services that continue to be sought after in the asset management industry, we continuously hire diverse human resources, including mid-career hires with a variety of work experience, and allocate them in a manner that respects their motivation and abilities so that each and every employee can grow to become a professional.
<Promoting women in managerial positions>
We believe that diversity in human resources, or diversity in values, is essential for maintaining the vitality of an organization. In this context, we are developing and improving various support systems to promote the active participation of women and enable them to work in a more flexible and diverse manner. As a result, the ratio of women in managerial positions is increasing and will continue to do so in the future.
<Promoting non-Japanese employees in managerial positions>
At present, the percentage of non-Japanese employees is very low due to the fact that our business domain is limited to the domestic domain, and we have no track record of promoting non-Japanese employees to managerial positions. For the same reason, we do not set or disclose targets for the ratio of non-Japanese managers. However, it is our basic policy to evaluate employees based on their abilities and achievements regardless of their nationality.
<Promoting mid-career hires to managerial positions>
In order to secure diverse human resources, our company has adopted mid-career hiring as a general rule since its founding, and mid-career hires account for 100% of our managerial positions. We will continue to focus on mid-career hiring based on our policy of cultivating and securing diverse human resources specializing in asset management IT and maintain the high ratio of mid-career hires in managerial positions, which is one of our company's unique characteristics.

Please refer to our website for information on the status of our employees, managers, and our training policy.
Developing Human Resources Specializing in Asset Management IT https://www.xnet.co.jp/if/sus2.html

[Supplementary Principle 3-1-3]
(1) Initiatives for sustainability
Recognizing the importance of ESG (Environmental, Social, and Corporate Governance) in improving corporate value over the medium term, we have posted our policy on sustainability and other initiatives for sustainable growth on our website. For more information on our approach toward sustainability, policies, and initiatives, please visit our website.
Sustainability https://www.xnet.co.jp/if/index_sus.html

(2) Investment in human capital
In addition to supporting the diverse work styles of our diverse human resources, we are developing and improving our work-life balance support system to enable our employees to realize their ideal work styles in order to meet the demand from society, such as promoting the active participation of women and rectifying long working hours.
In addition, human resources are essential for creating and providing services that continue to be sought after in the asset management industry. To this end, we actively support the growth of each employee so that they can become professionals. Please refer to our website for more information on our efforts to provide diverse work styles and human resources development initiatives.
https://www.xnet.co.jp/if/sus2.html

(3) Investment in intellectual property
As a provider of securities management systems and related services, we recognize that intellectual property is an important corporate asset. Our policy is to maintain and manage these assets appropriately and utilize them effectively as our strength. By securing intellectual property rights that are beneficial to our business as needed, and working on intellectual property activities, we aim to differentiate our services and secure a competitive advantage in the market, as well as to prevent infringement of intellectual property rights of third parties, including customers and business partners, and intend to reduce legal risks in our business operations. In addition to maintaining regulations in the divisions in charge, we are working to raise awareness of intellectual property rights by providing educational and enlightening opportunities for employees in cooperation with NTT DATA Corporation.

[Principle 5-1]
Our company proactively responds to requests for individual interviews, including those from shareholders, taking into consideration the equality of information disclosure and the necessity from the perspective of improving corporate value, and the President and Representative Director responds to such requests.
Our policy for dialogue with shareholders and other stakeholders is as follows.
（ｉ）The President and Representative Director oversees IR activities and promotes activities to promote dialogue with shareholders.
（ⅱ）In conducting IR activities, the personnel in charge of corporate planning, IR, legal affairs, general affairs, accounting, and other areas within the Administration Division, under the direction of the President and Representative Director, are directly involved in everything from the preparation of IR materials to company briefings and interviews with individual shareholders, in an effort to ensure continuous internal information coordination while paying close attention to insider information and to ensure fairness of information in dialogues.
（ⅲ）The President and Representative Director reports to the Board of Directors on the opinions received from shareholders and others during IR activities and discusses how to respond to them after sharing and exchanging opinions on the requirements and issues.