Bridge Report:（9600）I-NET Fiscal Year March 2019

President Mitsuru Sakai	I-NET CORP. (9600)

Corporate Information

Stock Information

*The share price is the closing price on June 26.
*The values of shares outstanding, ROE, DPS, EPS, and BPS were taken from the brief financial report for the term ended Mar. 2019.

Consolidated Earnings Trends

* Unit: Million yen, yen.
*The estimated values were provided by the company. Net income is profit attributable to owners of the parent. Hereinafter the same applies.

This report outlines I-NET CORP., describes its mid-term management plan and earnings trend, including the interview with President Sakai, and so on.

Table of Contents

Key Points
1. Company Overview
2. Earnings Trend
3. Mid-term Management Plan
4. Interview with the President Sakai
5. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• Based on its own data center with Japan’s highest level of safety and management of system operations which has been nurtured for many years, I-NET CORP. offers optimal one-stop solutions to meet various needs from customers, including system planning, development, operation, and monitoring, as well as printing, enclosing and sealing, and advanced cloud computing. Its strengths are the great capability of operating business through vertical integration and horizontal expansion and the stable business model supported by a robust customer portfolio.

   

• For the term ending March 2020, the estimated sales is 30 billion yen, up 8.7% year on year, and operating income will rise by 4.4% year on year to 2.4 billion yen. The information processing service and the system development service are expected to see growth in sales and profit. Although SG&A will augment, it will be offset by sales growth, which secures a rise in profit. Sales are projected to increase for the 9th consecutive term, hitting a record high. Profit is forecasted to rise for the 10th consecutive term, hitting a record high like in the previous term. The dividend is to be 43 yen/share, up 3 yen/share from the previous term, increasing for the 8th consecutive term. The estimated payout ratio is 43.0%.

   

• As the first step to become “an excellent company that enables sustainable growth,” the company produced a mid-term management plan, started this term and expected to end three years later, in the term ending March 2022, and it is proceeding with this plan. In order to improve its corporate value and expand its business scale, it is proceeding with the three plans: “the business strategy plan,” “the investment strategy plan,” and “the ESG plan.” It aims to achieve sales of 33.2 billion yen in the current mid-term management plan and sales of 50 billion yen in the next mid-term management plan that will end in the term ending March 2025, and it will still continue pursuing further growth.

   

• We interviewed President Sakai about his missions, the company’s strengths and characteristics, his message toward shareholders and investors, etc. He said “We aim to grow further with ‘one inet’ by utilizing our unique strengths. We would appreciate your support from the mid/long-term viewpoint.”

   

• The company’s target management indicators are “sales,” “operating income,” “operating income ratio,” and “ROE.” Among them, sales and operating income are expected to hit a record high this term, and ROE is as stable as 10%. It seems that they are performing well.

   

• On the other hand, although operating income ratio bottomed out at 6.9% in the term ended March 2015 and increased to 8.5% in the previous term, it is estimated to be 8.2% during the period of the mid-term management plan from this term. This means that the company will enhance the investment in equipment, human resources, and R&D for further growth. We would like to pay attention to whether the company will evolve into “a company that can earn money” with higher profitability as their investment will bear fruit, as mentioned by President Sakai during the interview.

   

• Although the company did not disclose the sales from their data center and cloud services, we would like to see what kinds of services it will offer with “one inet” based on the fact that it has grown to a certain level from zero over the past 10 years and that there are about 1,400 companies using its cloud service.

   

1. Company Overview

Based on its own data center with Japan’s highest level of safety and management of system operations which has been nurtured for many years, I-NET CORP. offers optimal one-stop solutions to meet various needs from customers, including system planning, development, operation, and monitoring, as well as printing, enclosing and sealing, and advanced cloud computing. Its strengths are the great capability of operating business through vertical integration and horizontal expansion and the stable business model supported by a robust customer portfolio.

【1-1 Corporate history】

Although private automobiles were distributed rapidly and the number of gas stations were expected to increase, the gas station managers were suffering from the fact that it was difficult to manage accounts receivable, sale, customers, etc. surely and efficiently at that time.
Considering that introducing a system which could solve those problems would bring a big business chance, Mr. Noriyoshi Ikeda from a foreign-affiliated oil company (currently, chairman of the board of I-NET CORP.) established Fuji Consult Co., Ltd., the predecessor of I-NET CORP., in 1971, with the purpose of undertaking the counting at gas stations.
As Mr. Ikeda expected, the company was designated as a regional or nationwide calculation center first by Idemitsu Kosan and then by other oil wholesalers, including Showa Shell Sekiyu, Mobil, Kygnus Sekiyu, and Mitsui Oil, resulting in rapid business growth. In 1997, it was listed in the second section of Tokyo Stock Exchange.
Later, it expanded its business domains beyond the distribution of oil such as M&A, etc., and intensified its presence in its current main fields, including data centers, finance, manufacturing, retail, and distribution. In 2006, it was listed in the first section of Tokyo Stock Exchange.
The company is still cultivating new promising fields, including drones.

【1-2 Corporate philosophy】

As I-NET CORP. will commemorate the 50th anniversary of incorporation in 2021, it set “inet Way” as the corporate group’s ethos, considering that it is necessary for executives and employees to share common values as their standards when taking any action all together in order to grow further and become an enterprise that can grow sustainably.

“inet Way” consists of 4 layers: “Corporate Philosophy,” “Corporate Vision,” “Management Policy,” and “Mid-term Management Plan.” It is based on “Charter of Corporate Code” corporations should follow and “Course of Action” which serves as the driving force for attaining “inet Way.”

(Taken from the reference material of the company)

“inet Way” set a new management policy: “To become an excellent company that enables sustainable growth—keep growing while changing,” in order to expand its business scale and develop a sturdy foundation for business growth.
It indicates the mindset: “The company and employees need to keep growing by changing themselves while seeing the changes of the times and trends.”

The mid-term management plan will be described later.

【1-3 Market environment】

I-NET CORP. recognizes the industrial and business environments of its major domains and those the company will focus on as follows.

(Taken from the reference material of the company)

The market of data centers in which the company is competitive and the market of drones it focuses on are both expected to grow steadily.

(Taken from the reference material of the company)

Through the consolidation and reorganization of oil wholesalers, the number of them decreased from 15 in 1990 to 5. As a result, the number of domestic service stations has halved from the peak around 1990.
Amid this situation, the company acquired new customers and increased its market share based on its experiences and capabilities it has developed, and it cemented its No.1 position as competitors withdrew from their businesses.
There are many orders for the development of systems for interconnecting credit cards and sales data, etc., and it is unnecessary to conduct significant investment for increasing customers. This situation is favorable for the company.

Through the advent and spread of technologies and methods to increase business efficiency, such as cloud computing, AI, IoT, and RPA, the demand for investment in systems is growing in almost all fields in addition to petroleum-related ones, and the business environment surrounding the company is good.

【1-4 Business contents】

Based on its own data center with Japan’s highest level of safety and management of system operations which has been nurtured for many years, I-NET CORP. offers optimal one-stop solutions to meet various needs from customers, including system planning, development, operation, and monitoring, as well as printing, enclosing and sealing, and advanced cloud computing.
Its core businesses are “information processing,” “system development,” and “system equipment sales.”

(1) Information processing service
It is composed of the 5 services: “undertaking of accounting and information processing in the fields of oil sale, retail, distribution, finance, etc.,” “management of credit data and delivery to card companies,” “printing, processing, and dispatch of bills, direct mails for sales promotion, etc.,” “IT management services,” and “cloud services.”

As for the commissioned counting settlement services for service stations (gas stations), the company’s initial business, it offers services related to credit cards and settlement of accounts receivable for payment at gas stations.
Credit-card transactions are handled by data centers of I-NET via networks.
On behalf of gas stations, the company processes data of accounts receivable and calculates quantities, unit prices, discounts, etc., and then it produces and dispatches bills at the end of each month.
The company has the largest market share, as about 33% of gas stations in Japan use the systems of I-NET.
By utilizing its know-how, experiences, and business base nurtured through the processing of credit cards and accounts receivable, I-NET handled settlement tasks in other fields, including finance and retail, and expanded its business scale.

As the company has dealt with the task of dispatching bills at gas stations, it also prints, encloses, and seals credit-card statements, tax notices, election cards, direct mails, bills, etc.
It also undertakes the tasks of inputting data, receiving applications for credit cards, handling inquiries about status of card utilization, and operating call centers from credit card companies, which are major clients, through business process outsourcing (BPO).

In the information processing service, the company is recently exerting their strengths and concentrating on “the data center service” and “the cloud service” the most. The company developed these services earlier than its competitors.
It has 7 data centers in 4 regions: Hokkaido (1 center), Yokohama (4 centers), Nagano (1 center) and Osaka (1 center), which back up one another and can cope with disasters.

In the cloud service, started by utilizing the business base nurtured through the data center business, the company not only offers its own services, but also cooperates with various competitive enterprises that offer useful applications to customers for mounting a platform.
By improving the customer satisfaction level, the company has established this service as a stable recurring-revenue business.

(2) System development service
Based on the trusting relationship that has been fostered for many years, the company designs and develops systems for customers in a broad range of fields, including development of business applications, packaged software and general-purpose tools, embedding control, and space development.
There are customers from a wide array of business fields such as banks and financial institutions, gas stations, convenience stores, supermarkets, space development, construction, architecture, aviation, travel, public offices, municipalities, medicine, and manufacturing.

(3) System equipment sales
The company procures and sells PCs, POS, supplies, and packaged software that are necessary to install systems in customers’ facilities, and it also gives instructions for operating devices and software.

【1-5 Characteristics and strengths】

(1) Advanced capability of operating business based on vertical integration and horizontal expansion
I-NET’s business started with the processing for gas stations, and then it vertically integrated the business operations for design and consultation for installing systems, development of systems, operation of its own data centers, printing, enclosing, and sealing of bills, call center operation, and BPO. Thus, it established and strengthened the base for business targeted at gas stations, and also it expanded its business domain.
In addition, based on the know-how and technologies nurtured through the above businesses, the company undertook system development in fields other than gas stations, such as distribution, manufacturing, and financial institutions, and it sold data centers to expand business horizontally and acquired customers in various fields.
The company’s advanced capability of operating business, which realized the expansion of its business domain and customer base, cannot be ignored when evaluating the company.

(Taken from the reference material of the company)

(2) Stable business model supported by its robust customer portfolio
The number of client companies gained with the above-mentioned advanced capability of operating business exceeds 4,000. The customer portfolio is composed of various enterprises in a broad range of fields. Since I-NET offers a wide array of services centered around its cloud data center according to the business types of customers, its business model is stable and not affected by the ups and downs of customers and industries.

(3) Provision of one-stop services
One of its strengths is the capability to offer various IT-related services to customers in a broad range of industries and fields on a one-stop basis.

For example, ORIX Bank Corporation, one of the customers, entrusts I-NET with all processes for credit-card loans, excluding advertisement, lending, depositing, and collection. Thus, I-NET operates and manages the tasks at data centers.

(Taken from the reference material of the company)

There are few companies that can offer services with a high security level in all IT-related processes ranging from upstream to downstream ones, including system development, operation of data centers, construction and operation of systems, provision of various cloud services, and printing, enclosing, sealing, and dispatch of bills. On the other hand, I-NET gives high convenience and satisfaction to customers, which leads to a high barrier to entry and a significant competitive advantage.

【1-6 Target managerial indicators】

The company’s important managerial indicators are “sales,” “operating income,” “operating income ratio,” and “ROE” as they imply main business results to improve its corporate value sustainably through its continuous expansion on business scale.

【1-7 ROE analysis】

While leverage dropped, ROE increased continuously due to improved profitability and efficiency of assets.
Although the estimated net income margin for this term is 5.3%, lower than the previous term, it is highly likely that ROE will remain two-digit.
In the mid-term management plan, the company aims to achieve ROE of 11.1% in the term ending March 2022.

【1-8 Dividend policy and the system for shareholder benefits】

The company’s dividend policy is to continue paying stable dividends while securing some retained earnings for the future capital requirements.
The company has not set a target payout ratio. However, it has been over 40% in the past several years, and the estimated payout ratio for this term is 43.0%.
In addition, the company established a system for shareholder benefits.
The company presents Quo Cards once a year to shareholders who hold 1,000 or more shares as of September. 30 according to the number of shares they hold, and it also provides premium benefits worth 1,000 yen to shareholders who hold shares for 3 or more years.
Furthermore, the company donates 10% of the amounts of shareholder benefits to organizations for disabled people, etc. so that shareholders can contribute to the society.

2. Earnings Trend

(1) Fiscal Year March 2019 Earnings Results

① Earnings Results

*Unit: Million yen.

Sales grew for the 8th consecutive term and profit rose for the 9th consecutive term, exceeding the estimates. Profit hit a record high like in the previous term.
Sales were 27.5 billion yen, up 7.7% year on year, and operating income was 2.3 billion yen, up 12.7% year on year.
The information processing service and the system development service saw growth in sales and profit.
Sales grew for the 8th consecutive term and profit rose for the 9th consecutive term, exceeding the initial estimates. Profit hit a record high this term again, following the previous term.

② Trend by Segment

*Unit: Million yen.
*Operating income was calculated with the company’s original simplified method so the values are for reference. The composition ratio of operating income means operating income ratio.

(Information processing service)
Performance was healthy as the company made new large-scale transactions mainly for IT management and cloud services utilizing data centers. However, the number of entrusted tasks decreased as some customers revised BPO services.

(System development service)
System development for oil business and distribution services performed well.

(System products sales)
Although the sales of products, etc., accompanied with system development, were healthy, sales declined after the end of a large-scale project of selling POS equipment, etc. to gas stations in the previous fiscal year.

③ Financial Conditions and Cash Flow
◎Major BS

*Unit: Million yen.

Total assets were 28.5 billion yen, up 2.5 billion yen from the end of the previous term, due to the growth of property, plant and equipment (buildings and structures) along with the upgrade of equipment at data centers. Total liabilities augmented 1.6 billion yen from the end of the previous term to 14.1 billion yen, due to the rise in borrowings to acquire the shares of consolidated subsidiaries and upgrading the above-mentioned equipment.
Net assets increased 800 million yen from the end of the previous term, due to the growth of retained earnings, etc.
Equity-to-asset ratio dropped by 1.6 points from the end of the previous term to 50.3%.

◎Cash flow

*Unit: Million yen.

The surplus of operating CF increased due to the rise in profit before income taxes, etc.
As the expenditure for acquiring property, plant and equipment augmented, the deficit of investing CF increased and free CF turned negative.
Financing CF turned positive, due to the rise in borrowings.
The cash position was nearly unchanged.

④ Main Topics
◎Start of the micro data center business
In March 2019, the company started the micro data center business.

As the volume of handled data has been explosively increasing in recent years, there is a growing interest in edge computing, a means to reduce data processing time and the load of a network by processing data at a spot where it has emerged or in the vicinity of a client. A micro data center is attracting attention as one of methods for realizing that.

The company established a micro data center in its own drone flying field in Kimitsu-shi, Chiba Prefecture, to process footages, flight data, etc. acquired by drones there. It also can send necessary information to a cloud data center via a network as needed. The company aims to establish micro data centers in construction and civil engineering sites, factories, plants, agricultural fields, traffic systems, etc. in addition to drone flying fields.

(Taken from the reference material of the company)

◎Launch of the BIM installation support service
In March 2019, I-NET started the BIM installation support service.

This is the first service of the cutting-edge construction process and rental business operated by I-NET, AKTIO, the largest construction equipment rental company, and PaperlessStudio, the largest consulting firm for building information modeling (BIM).
The construction industry suffers from a chronic shortage of manpower and a decrease of veteran workers, services for design, construction, automation, and high demand for streamlining. As a solution, the construction industry is promoting the installation of BIM.

However, companies need to prepare expensive software, high-spec devices, an operational environment, IoT equipment, advanced personnel, and so on, in order to install BIM. Since it is difficult for small and medium-sized construction companies, the distribution of BIM has not progressed in the industry.
The company’s service would solve these problems to promote the installation of BIM.
The company offers services to the clients of the BIM package on Virtual Desktop as well as distributing instruction videos for BIM from its own cloud platform. It also supports the training of drone pilots who can manage the progress of construction and maintenance by using drones.

◎Collaborative development of high-precision AIT cloud services
In August 2018, I-NET decided to develop high-precision AIT cloud services in collaboration with SPJ, a venture firm from the University of Tokyo that offers AI solutions. As part of the collaborative development, they released a high-precision AI chatbot cloud service.
For example, it can easily develop a system in which an AI character answers questions from job-hunting students through chats 24 hours a day on behalf of HR staff of companies.
Users can use the system anywhere, anytime via the cloud, and questions and answers will be stored at a data center of I-NET.

◎Establishment of the diversity promotion division
In October 2018, the company established the diversity promotion division in order to accurately meet the diversifying needs of employees, empower women, and reform working styles more swiftly.

Under the slogan: “Everyone, including you and me, can flourish,” the division will conduct activities inside and outside the company and in each region.
It will focus on broad concepts such as gender neutrality, handicaps, senior staff, foreign workers, digital natives, etc.
The company will grow sustainably by adapting to the changes in the times and preparing an environment where everyone can flourish.

(2) Fiscal Year March 2020 Earnings Estimates

① Earnings Estimates

*Unit: Million yen. The estimates were announced by the company.

Sales and profit are projected to grow for the 9th and 10th consecutive term, respectively. Sales forecasted to hit a record high. Profit expected to hit a record high continuously.
It is estimated that sales will grow by 8.7% year on year to 30 billion yen and operating income will rise by 4.4% year on year to 2.4 billion yen.
The information processing service and the system development service are expected to see growth in sales and profit.
SG&A will augment, but it will be offset by sales growth, securing a rise in profit. Sales are projected to increase for the 9th consecutive term, hitting a record high.
Profit is forecasted to rise for the 10th consecutive term, hitting a record high again, following the previous term.
The dividend is to be 43 yen/share, up 3 yen/share from the previous term, increasing for the 8th consecutive term. The estimated payout ratio is 43.0%.

② Trend by Segment

*Unit: Million yen.
*Operating income was calculated with the company’s original simplified method so the values are for reference.
*The composition ratio of operating income means operating income ratio.

(Information processing service)
The data center business and cloud services are performing well. Sales and profit are estimated to grow this term as well, despite the costs for upfront investment, amortization of licenses, and R&D.

(System development service)
The demand for system development is expected to keep growing in 2019, causing increase in sales and profit.

3. Mid-term Management Plan

(1) Positioning of the current mid-term management plan
As the first step for becoming “an excellent company that enables sustainable growth,” which is set as a management policy, the company produced a mid-term management plan, started this term and expected to end three years later, in the term ending March 2022, and it is proceeding with this plan.
In order to improve its corporate value and expand its business scale, it is proceeding with the three plans: “the business strategy plan,” “the investment strategy plan,” and “the ESG plan.” It aims to achieve sales of 33.2 billion yen in the current mid-term management plan and sales of 50 billion yen in the next mid-term management plan that will end in the term ending March 2025, and it will still continue pursuing further growth.

(2) Management strategy
The basic management strategy is to emphasize the balance between “defense” which cements the bond with customers and “offense” which cultivates new market fields and services.
The company will establish a firm customer-first philosophy, provide proposals with added value, develop promising products and services, and invest in human resources.
In particular, the company will hone its capabilities to the level of being able to give proposals with high added value exceeding the customer expectation.

Company-wide intensive measure (1): Partner strategy and sales channel strategy
Since it has become difficult to operate all businesses by itself, I-NET will deepen the cooperation with partners that excel at system development, cloud services, sale, and OEM as well as striving to raise the top line, enrich the lineup of services, increase sale, and expand its business domain.

Company-wide intensive measure (2): Building services of cloud platform (NGEC) + applications as a platform operator
I-NET will mount not only its services, but also a variety of excellent applications useful for customers on the cloud platform, which is an advantage of the company, in order to improve its strengths and value significantly as a platform operator.

Company-wide intensive measure (3): Further promotion of cross-selling in business covering from planning to BPO
As I-NET offers a wide array of services on a one-stop basis, it will conduct marketing activities, targeting a broad range of customers regardless of industries and businesses and promote cross-selling, for system planning and development, operation at data centers, cloud operation, enclosing and sealing of printed matter.

(3) Business strategy plan
① Information processing service

Although the number of domestic gas stations is decreasing, the company received orders from new service stations, expanding its market share and maintaining the top position. It will continue implementing new defensive and aggressive measures to further expand its market share.
It considers that it is necessary to expand sales channels and promote the OEM model in order to spread the cloud service.

② System development service

In the field of “space,” I-NET has started transactions with several venture firms and will develop a new business model.
As for new service markets, it will cultivate new business fields which market reform will be demanded, such as sharing and rental businesses.

(4) Investment strategy plan

I-NET will strive to secure excellent personnel as well as developing personnel and their careers under the assumption that planned investment and meticulous PDCA would lead to the growth of both employees and the company.
It will increase investment in R&D to differentiate its business and enhance its competitiveness. They will especially invest in the development of the next-generation cloud platform by evolving the current cloud base and the data science business, including the analysis of big data, which is expected to grow rapidly.

(5) ESG plan
Focusing on society among ESG (environment, society, and governance), the company upheld the promotion of wellness management and diversity and declared the following stance.
“I-NET CORP., under a philosophy that employees are the greatest assets in management, actively promotes the wellness management, considering both physical and mental wellness of our employees as a source of continuous development of our corporate value. I-NET CORP. promotes the innovation of individual work style to make working environment where our employees can exert all their abilities in peace.”

Our concrete activities were highly evaluated, and we received the following public certifications.

In I-NET DATA SERVICE CORP., a special subsidiary (approved by the Minister of Health, Labour and Welfare) established for the purpose of providing disabled people with job opportunities and helping them become independent and self-sufficient, disabled people conduct data inputting, scanning, chores and business card production.
In addition, we established “A cheering squad for working mothers,” a website for supporting child care and women’s empowerment, where users can find nursery facilities by utilizing the open data of the City of Yokohama, where its headquarters is located.

(6) Numerical goals

The information processing service and the system development service are estimated to keep growing steadily, and sales and profit are projected to hit a record high continuously.
CAGR (compound annual growth rate) in 3 years is 6.4% for sales and 5.2% for operating income. Operating income ratio remains around 8%.
The target ROE for the term ending March 2022 is 11.1%. The company will concentrate on the enhancement of its earning capacity, with ROE being an important management indicator.

4. Interview with President Sakai

We interviewed Mr. Mitsuru Sakai, who was appointed as the fourth president of I-NET CORP. in June 2018, about his personal mission, his company’s strengths and characteristics, and his message for shareholders and investors.

Personal Mission: Developing employees who possess the abilities and mindset which will lead I-NET in the new era under “one inet”
This might be obvious, but “development of people” is the most important. In fact, I strongly believe that we must develop employees who possess the abilities and mindset which will lead I-NET in the new era.

Our company, which will celebrate its 50th anniversary next year, started as a company that offered services to its customers, but in the process of including a large number of companies in our corporate group, most of our sales now come from “development.”
Manufacturing and developing products demanded by our customers is of great importance, but, as a labor-intensive business, evolving into “a company that can earn” with higher profitability is also important.
In 50 years of our history, the challenging issue for our company was the distinct separation of development and services. In the future, we need to transform the company into one that offers services along with engaging in development, that is, a hybrid company. For that fusion, every individual employee must change their way of thinking, study more and improve their skills.

Thankfully, in the past few years, we have been very busy with plenty of work in the IT industry, but I believe our company, which specializes in cloud services, has not achieved our full growth potential because we have been putting all our efforts on completing the task right in front of us.
Originally, everyone is supposed to autonomously consider the customers’ point of view, but because many companies gathered together, unfortunately there has been some dispersion in engagement in our work. I believe this is one of the reasons we haven’t seen significant growth.

We newly enacted the “inet Way” in the current mid-term management plan and held up “establishing a firm customer first philosophy” as our management strategy in order to unify everyone’s thoughts and make all our employees know the importance of responding to our customers. I call this thought “one inet.” If we can implement this, I believe that we can achieve far greater growth than before.

This company is made of “people,” so right now, we want to focus on the development of people. We want to train personnel who can develop and present new services and take actions.
For that purpose, we need every individual employee to study and improve their skills, but as a company, we also provide various opportunities such as offering level-based educational training, education for qualification exam for project management, and company-provided classes for training the next generation of managers.
In addition, believing that employees are the greatest assets in management, I recognize that I have an important role in building a work environment which is easier to work in, by engaging in wellness management, supporting women’s participation, etc.

The Company’s strengths and characteristics, and future activities: Development of new services based on the capability of operating business that expands the customer base and business field
Our company was originally a company that undertook processing tasks for gas stations, and using that as a base, we have expanded the business field and customer base through vertical integration and horizontal expansion. Such capability of operating business is a great strength of our company.
Further, we have conducted a service-based business since our foundation, which made cloud services a central business of our company. Moreover, we possess our own data centers and the groundwork where our customers can use them without any worries, which is our huge competitive edge.

In the future, we will aim for further growth by developing new services as “one inet,” using such strengths as our foundation.
In the company, I usually tell people to “make astonishing proposals that our customers don’t notice.”
The “proposal with added value” that is laid out in the management strategy of the mid-term management plan is one that, in short, exceeds the expectations of our customers.
In this world of intense competition, merely doing what our customers ask will not produce any value. It is obvious that responding to the wishes of our customers is important, but responding to essential customer needs that even our customers don’t notice will allow us to gain high recognition.

For example, proposals related to data science business, which details how we should use the tremendous amount of data we gathered using data centers owned by our company, as a new service.
I believe that the fact that we already have groundwork where we can make such proposals is also a strength of our company.

Message for shareholders and investors
Since our company started as a business which reliably handles our customers’ data, we want to construct our business as a mechanism from the point of view of how to utilize that data in the future.
Generally, there is a growing trend toward a sharing economy, that is, a shift from ownership to utilization. I believe that our company can keep up with that trend and capture our customers’ needs promptly because of our enormous customer base of about 4,300 companies, which is our strength.
We aim for further growth through “one inet” using these strengths that are unique to our company, so we would appreciate your continued medium and long-term support.

5. Conclusions

The company’s target management indicators are “sales,” “operating income,” “operating income ratio,” and “ROE.” Among them, sales and operating income are expected to hit a record high this term, and ROE is as stable as 10%. It seems that they are performing well.
On the other hand, although operating income ratio bottomed out at 6.9% in the term ended March 2015 and increased to 8.5% in the previous term, it is estimated to be 8.2% during the period of the mid-term management plan from this term. This means that the company will enhance the investment in equipment, human resources, and R&D for further growth. We would like to pay attention to whether the company will evolve into “a company that can earn money” with higher profitability as their investment will bear fruit, as mentioned by President Sakai during the interview.
Although the company did not disclose the sales from their data center and cloud services, we would like to see what kinds of services it will offer with “one inet” based on the fact that it has grown to a certain level from zero over the past 10 years and that there are about 1,400 companies using its cloud service.

<Reference: Regarding Corporate Governance>

◎Organization type and the composition of directors

◎Corporate Governance Report
Last update date: June 26, 2019

<Basic Idea>
We promote construction and maintenance of business management systems as priority items which can cope with a change of the management environment quickly, while we improve business transparency for the purpose of effectiveness and efficiency of business operations, reliability of the financial statements, and the compliance with the relevant laws and ordinances.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>