FY2021-2025 Mid-Term Plan
May 21, 2021
ARTERIA Networks Corporation

Disclaimer
Plans, forecasts and strategies which are shown in this presentation are
assumptions which are based on information currently available and views
except historical facts.
Any forward-looking statements in this document are based on the current
assumptions and beliefs of ARTERIA in light of the information currently
available to it, and involve known and unknown risks, uncertainties and otherfactors. Such risks, uncertainties and other factors may cause ARTERIA’s
actual results, performance, achievements or financial position to be materiallydifferent from any future results, performance, achievements or financial
position expressed or implied by such forward-looking information.
The Company accepts no responsibility for any damage or other problems
caused by the use of information in this presentation.
In addition, the Company has no obligation to update statements in thispresentation.
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ARTERIA Group New Tag Line

Connecting New Abilities
ARTERIA Group Manifesto
We have reached a turning point in workstyles and lifestyles.
Today’s world relies on the availability of safe, reliable communications at all times and in every situation.
Networks are becoming ever more important as the infrastructure supporting 5G, IoT, and society.
The world is moving into a new era.
ARTERIA is taking the first step towards opening up the networks and services it has developed and refined to all people.
For business, for life. For companies, and for individuals.
By expanding our networks beyond our current domains, making these vital arteries of the world even bigger and faster, andextending them to even further extremities, we will excite the world with a new heartbeat.
ARTERIA will pursue a sustainable world through networks.
The future where everything is connected as one starts today.

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ARTERIA Networks Group FY21-FY25 Mid-Term Plan
Main measures for FY21-25 and earnings targets for FY25 (excl. M&A)

Aim for market capitalization of over 200bn yen through continued investments towards sustainable growth
FY21

FY23

FY25

Net sales

54.5bn yen

65.0bn yen +80.0bn yen +(*)

Operating profit

9.3bn yen

11.5bn yen +15.0bn yen +EBITDA margin

30.0% or higher

Dividend payout ratio

Target 50% (biannual dividends)*Targeting sales of 100.0bn yen including M&A

FY21-FY25 management strategy framework
Measures for growing the core business Gain further demand by optimizing and updating FTTx network
 Enhance customization capabilities to generate added value and aim to capture more network demand from OTTs (note) Accelerate growth in the rental market in addition to the owned condo market and further consolidate leading position

Measures for incorporating a new growth portfolio Respond to soaring demand for telecommuting by building a D2C(note) service platform for condominium residents
 Use the D2C service platform to expand the range of customers to SOHOs, and corporations
 Capture growth domains through M&A or business alliances, accelerate expansion of the non-telecommunications business

Pursue planet-friendly management by addressing workstyle reform (Hatarakikata Kaikaku) and SDGs

 Use clean energy in provisioning to condos and contribute to a decarbonized society through the provision of telecommuting
solutions etc.
 Upgrade to highly energy-efficient internal system and strengthen security by implementing zero trust (note) security
 Enhance development of human resources, implement diversity and reform workstyles through roll out of satellite offices etc.
* For a definition of the terms with notes added please refer to the glossary included at the end of this document,*“Fiscal 2020” or FY2020 refers to the fiscal year ended March 31, 2021, and other fiscal years are referred to in a corresponding manner in this document.

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FY2018-2020 Mid-Term Plan Review

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FY2018-2020 Mid-Term Plan Review

Business Results

All core services grew as planned, and the mid-term plan
was broadly achieved
 Used network assets and specialized in growth markets to achieve growth outpacing themarket overall
 Released highspeed broadband services ahead of other companies
 Won major projects by responding flexibly to customer needs
 Full-scale entry into the rental market for condominium internet services
 Carried out structural reform of non-core businesses

計画
Targets

Used network assets andspecialized in growth markets toachieve growth outpacing themarket In expected growth markets (central cities andB2B), concentration of management resources
achieved sales growth of 2.5%-3.0%, equivalent
to three times the growth of the fixed-line
telecommunications market.
 Use of network assets and application ofoperating leverage achieved growth in operating
profit of 5.5%-6.0%, double the growth in sales.

TargetKPI

Results(FY17-20 CAGR)(FY17-20 CAGR)

Sales growth

Circa 2.5-3.0%

3.9%

EBIT growth

Circa 5.5-6.0%

4.7%

EBITDA margin

Maintain 30%
level

30.5% (FY18)
33.6% (FY19)
33.8% (FY20)

Results

IssuesMid-term plan targets achieved

Further market expansion driven
by the spread of cloud computing
and telecommuting

 Achieved sales targets through significant growthin each business field. Impacted by the spread of
COVID-19 cost of sales increased resulting in
EBIT growth falling short of the original target.
 Offered high-speed broadband services (400Gbps leased circuit, 10 Gbps internet, IPoE(note),
10 Gbps condo internet) ahead of othercompanies in response to the continuing increase
in data traffic Won major orders for OTTs and MNOs(note) by
responding flexibly to customer needs
 Maintained growth in the owned-condo internet
service market while making full-scale entry into
the rental market
 Restructured non-core (data center) business andpaved the way to carbon neutral operations

 Capture further customer demand driven by the
spread of cloud computing and telecommuting Attempt to enter new markets and domains bycatering to needs for high quality and increased
security awareness6

FY2021-2025 Mid-Term Plan

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Milestones to Achieving Targets
FY20

FY21

FY23

FY25

Sales

53.3bn yen

54.5bn yen(excl. M&A)

65.0bn yen or higher

80.0bn yen or higher

Operating profit

8.9bn yen

9.3bn yen

11.5bn yen or higher

15.0bn yen or higher

EBITDA margin

33.8％+ 30% or higher

Marketcapitalization

80.0bn yen～200.0bn yen or higher

Customers/sales Develop broadband services(excl. M&A)

(excl. M&A)

Capture growth domains

Capture network and condominium internet demandInternet

Continue to provide highspeed broadband services

Optimize and update services

KPI

27,561 lines

Cumulative number of FTTx(note) lines

Network

Provide broadband services
ahead of other companies

Securely capture network demand, expand and enhance comprehensive proposal capabilities

KPI

17,794 Gbps

Total bandwidth of Ethernet lines

Condo

Maintain position as leader

Strengthen position as leader/Start up DX business and expand services

KPI

Owned: 590,250 units
Rental: 199,556 units

Number of paying units in building-wide ISP for condominiums

Investment

8.7bn yen

12.0bn yen(*)

9.0bn yen/year(*)

Growth investment

5.0bn yen

8.0bn yen

5.0bn yen/year

Streamlining
investments

0.7bn yen

2.0bn yen

1.0bn yen/year

Investment forenhancing andincreasing installations

3.0bn yen

2.0bn yen

3.0bn yen/year

M&A

Capture growth domains

Sales scale

Around 20.0bn yen*Excluding investment in large business deals

8Revenue Milestones

 Start up DX business using condominium internet as a base, and accelerate growth of core business Aim for sales of 100.0bn yen by expanding the range of new services through M&As

(Billions of yen)

80.0

65.0
4.0
DX

53.3
0.7

54.5
0.8

Condo

10.7

11.4

19.0

14.5

こ

16.5

19.0

Network

12.4

13.3

Internet

18.5

19.3

21.0

23.5

Others

10.9

9.7

9.0

8.5

FY20

FY21

FY23

FY25

*FY20 sales numbers shown retroactively reclassified according to FY21 core service classifications

Continuous growth of corebusiness

10.0

Expand rangeof new services
through M&As

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Operating Profit Milestones
 Optimize and update network assets, aim for operating profit of 11.5bn yen in FY23, 15.0bn yen in FY25

(Billions of yen)

27.0
+8.4%
21.5
18.0

18.5

12.0

10.0
D&A

OperatingprofitEBITDA
margin9.1

EBITDA

9.2

11.5

15.0

8.9

9.3

FY20

FY21

FY23

FY25

33.8%

33.9%

33%+

33%+

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Capital Policy: ROIC Improve capital efficiency by increasing the utilization of network assets and concentrating investment on key
businesses.
 Maintain ROIC at a level above WACC, even during new business start-up and structural reforms, increasing
it to the 10% level from FY23 onward.
Map of Increased Capital Efficiency

High

Improve ROIC by focusing on corebusinesses and expanding new
businesses

ROIC Improvement Plan (Organic growth)

Realize a high level of capital efficiency improvement
through growth strategies and productivity improvement(%)

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Future corebusiness

Capitalefficiency(Investment
profit)New
business

Current corebusiness

WACC

12Capital efficiency
improvement(ex. transfer of
DC business)

Exit non-corebusinesses

Low
Low

Capital cost
(Invested capital)

High

11

10.0%

10
WACC 9
5%～6％

13.0%

Maintain at a level above
WACC even during new
business start-up andbusiness selection andreorganization

8.6%

8.9%

8
0

FY20

FY21

FY23

FY25
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Capital Policy: FCF

 To improve ROIC leverage the advantages of our network assets to increase ROA
 Balanced use of cash flows between investment in growth domains and shareholder returns
 Maintain a high dividend payout ratio (50% target)
Cumulative CF Plan Over the MidTerm Plan Period

Cumulative FCF
Allocation Plan
(Billions of yen)

Increase utilization of
owned networks to
improve cost leverage

47.0

23.0

91.0

44.0
44.0

As of March 2021

ROA
FY20 results
6.1%

FY23～25 targets
Approx. 8％～9％(Organic growth only)

Operating Investment FCF
CF
CF
Concentrate CAPEX on developmentof new services and network
expansion to cope with higher traffic
demand, and generate a high level of
FCF

21.0

FCF

Debt Dividends(Incl. dividends to minority
repayment
shareholders of subsidiary)

Maintain payout ratio of 50%,
balance debt repayment andshareholder returns within FCF

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Initiatives: Internet

Capture demand for high-quality internet driven by the adaptation of cloud and zero trust.

Sales

Initiatives
FTTx
 Expand area of services exceeding 10Gbps

CAGR: 4.9% (FY20-25)(Billions of yen)

 Eyeing the spread of zero-trust security, propose comprehensive
solutions combining cyber security, etc.

+4.9%
+4.5%

18.5

19.3

21.0

23.5
12.7

FTTx

10.1

10.6

11.4

ISP

6.0

6.4

6.7

7.3

IPTS

4.1
1.6

4.2
1.8

4.6
1.7

5.3

FY20

FY21

FY23

FY25

Consolidation
adjustments

1.9

ISP
 Promote a shift from the PPPoE(note) protocol to our own operated
IPoE protocol, and strengthen quality and cost control with a focus onwholesale ISP (note)
IPTS Examine alliances with unified communication (note) service provider
KPI Cumulative number of FTTx lines

Macro and Customer Trends
 Demand for high quality without congestion(note) or lag, and secureinternet environments tailored to purpose*FY20 services shown retroactively reclassified according to FY21 classifications

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Initiatives: Network

Work to securely capture network demand against a background of telecommuting and digital transformation

Sales

Initiatives
Leased circuit Aim to expand business opportunities by renewing backbone network
and aggressively expanding into new data center areas

CAGR: 8.8% (FY20-25)(Billions of yen)

+8.8%
19.0

+7.2%
12.4
Leased circuit
VPN
Consolidation
adjustments

16.5
13.3
10.9

11.8

7.8

8.4

4.8
0.2

5.1

5.8

7.3

0.2

0.2

0.2

FY20

FY21

FY23

FY25

Macro and Customer Trends

 With geographical dispersion of data centers expected as part of thegovernment’s regional revitalization strategy, capture emergent
demand for new lines
 Capture growth in demand arising from an expected move among
overseas OTTs to relocate their domestic data centers against abackground trend in data localization
VPN
 Propose comprehensive solutions with added services such assoftware-based virtualization technologies and cyber security
KPI Total bandwidth of Ethernet lines

 Expanding network demand with an emphasis on security andresilience(note) against a background of telecommuting and digitaltransformation*FY20 services shown retroactively reclassified according to FY21 classifications

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Initiatives: Condominium Internet

Enter the rental market in addition to the owned market and further consolidate position as leader in thecondominium internet market

Sales

Initiatives
 Leverage strength as a telecommunications provider with own lines andtechnological capabilities to provide services differentiated from othercompanies and capture more comprehensive service contracts

CAGR: 12.0% (FY20-25)(Billions of yen)
+12.0%
19.0
+5.7%
10.7
ISP
Consolidation
adjustments

10.8

14.5
11.4

11.8

15.0

19.4

0.0

0.5

0.4

0.5

FY20

FY21

FY23

FY25

 In addition to the owned condominium market, where we have a highshare, strive to maintain and expand leading market share in all
directions by providing services to meet demand for services in small
condominiums
 Expand optional services such as smart keys and portal services(Mcloud), to differentiate, prevent cancellations, and increase the unit
price.
KPI
 Number of paying units in building-wide ISP for condominiums

Macro and Customer Trends
 With market entry by providers of dedicated services, CATV, andFTTH, competition with other companies is increasing. Winning
projects that prioritize scale by cooperating with major developers andcondominium operators is key.
 Against a backdrop of widespread telecommuting, high quality movie
streaming, and the spread of eSports, demand for safe, secure, highspeed internet environments is growing.
*FY20 services shown retroactively reclassified according to FY21 classifications

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DX: DX Business Strategy – Start Up of D2C Services Business Using DX
Initiatives

 Start by providing fast track services for condo residents
 Build a service platform to enable provision of D2C services
 Use the D2C service platform to expand the range of customers from condo residents toindividuals, SOHOs, and corporations
FY21 0.8bn yen

FY23 4.0bn yen

FY25 10.0bn yen

Development of D2C services for SOHOs and corporations

Services

Alliances with content partners such as video streaming and eSports
Fast track and cyber security solutions
Start by providing various services
Services for condominium residents such as telephone and internet options ➡ Expand through use of integrated portal
Portal integration

D2C

App compatibility

Platforms

Condominium residents ➡ Standalone homes,
SOHOs, consumers

EC
Fast track

Customer databaseintegration

Payment

Service
platformSIM
Other
company
services

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DX: Overview of Connectix – Provision to Start in FY21 H1
 Provide Connectix from August 2021: a service enabling priority telecommunications to residents at acondominium using ARTERIA’s condominium ISP services (patent pending)
Outline Connectix uses SD-WAN (note) technology to control the quality of telecommunications
in each condo via a virtual network. It is an option service instantly available tousers upon online application at an additional charge.

Connectix Service Image

Subscribing to Connectix the route switches from thebasic route to a priority route
Stress-free viewing of 4K
video streaming, online
learning and telecommuting!

Merit 1

Saves significantly on time and costs compared toa separate internet connection

Merit 2

One can subscribe to a higher quality connection
during the required time interval

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Criteria for Considerations of M&A/alliances Examine M&A and alliances from horizontal and vertical perspectives to increase value of network
assets Narrow down from the perspectives of both portfolio growth potential and synergy effects
 In the short term, consider in areas which contribute to the start up of D2C Services Business

Nontelecommunication
business

Sharing service
IoT service for
condominium
Security
solutions・・・

Vertical perspectives

Content
distribution

Capture growth domains

Increase value of owned
assetsExpand businessfoundation

Horizontal perspectives
Network infrastructure

Operation/
Human resources

Customers

・・・
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Pursue planet-friendly management by addressing workstyle reform(Hatarakikata Kaikaku) and SDGs
 Use clean energy in provisioning to condos and contribute to a decarbonized society through the provision of telecommuting
solutions etc.
 Upgrade to highly energy-efficient internal system and strengthen security by implementing zero-trust security
 Enhance development of human resources, implement diversity and reform workstyles through roll out of satellite offices etc.
Initiatives

FY21

Formulate and execute basic
SDGs strategy

Awareness raising activities for all
employees
Determine sustainable growthtargets and materiality issues

Contribute to SDGs throughbusiness expansion anddevelopment

Digitalize internal operations
Workstyle reform

FY22

FY23

Public announcement

Offer telecommuting solutions
Reduce the environmental load through efforts in core business and new service
development
ERP Go Live
Drive the adoption of zerotrust security
Open multiple satellite
offices

Renewal of business systems
Revisit headquarter
functions,prepare renovation

Open reformed
headquarter

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Appendix

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Glossary
OTT

Stands for Over The Top. Service providers who provide content such as video and audio over internet lines.

D2C

Stands for Direct To Consumer. Scheme to provide services directly to users through EC sites, etc.

Zero trust

A network security environment that constantly monitors and checks users and devices on the premise that all network traffic is not trusted.

IPoE

Stands for Internet Protocol over Ethernet. A method for transmitting IP packets using Ethernet as a telecommunication route.

MNO

Stands for Mobile Network Operator. MNOs establish and operate their own wireless base stations to provide mobile telecommunication
services.

FTTx

Stands for Fiber To The Home. A service that provides super-high-speed internet access between tens of Mbps to up to several Gbps by
optical fiber cable connections to each home. The term FTTx is used to refer to include services for offices as well as households.

Congestion

Poor connection performance and lag caused by crowded networks due to recent expansion in internet use, such as viewing videos over theinternet.

PPPoE

Stands for Point-to-Point Protocol over Ethernet. The method that enables the function of protocol PPP（Point-to-Point） over Ethernet.

Wholesale ISP

Wholesale services to ISPs.

Unified communication

Systems that integrate various communication tools such as phone, email, chat and online meeting system, etc.

Security and resilience

The capability and systems for minimizing the impact of cyber attacks on systems and networks and restoring them to their original state.

SD-WAN

Software Defined Wide Area Network: a specific application of software defined networking (SDN)
technology expanding from LAN (Local Area Network) to WAN connections. SDN offers bandwidth on
demand, security, and authentication functions through software to enable shorter network connection times
and easy changes to configurations and functions.

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Change in Core Services Classifications

 In light of our current business scale and management strategy, we have changed our core service classification as
follows:

Up to FY2020

From FY2021 onward

Internet services
FTTx

Internet services
FTTx

ISP

ISP
B2C

Others

IPTS

IPTS

OthersNetwork services

Network services

Leased circuit

Leased circuit

VPN
Others

VPN

Condominium internet services

Condominium internet services

ISP

ISP

OthersOthersOthersOthersOthers*Consolidated adjustment amount is included in each segment22