Business Segments

Chapter 5Enterprise Market

VisionGrowthstrategy

Focus themes for growth● Deliver issue-solving lifecycle services and● Implementation of digital and green transformation

propose grand designs for the future● Expand operations into business ICT areas(production technology sectors, etc.)

Introduction

Contribute to the resolution of social challenges
by sharing visions for the future of ICT utilization

Strategy● Smart manufacturing● Enhancement of security and ICT governance● Predictive detection of cyber-attacks and system

failuresMedium- to long-term outlook and strategy

Business details

Future prospects

We conduct business for major private companies in the manufacturing and non-manufacturing industries, as well as fordomestic financial institutions and foreign companies. Additionally, we support information utilization to enhancecompetitiveness, work style innovation, and cost reductions through the application of ICT platforms.
Operating environment

Operating income (million yen) / Operating margin (%)■ Bookings■ Operating income■ Revenue● Operating margin■ Order backlog

55,376

11.4%

57,281

55,17254,547
46,896
29,20849,45741,28954,00039,99636,996

31,281

9.3%

8.4%

6,294
5,089

9.3%

Business opportunities

Conventionally, investment in offices and data centers has
been driven primarily by renewal-related demand. However,with the growing application of ICT outside of corporate
environments (for work style innovation, cloud computing,etc.), we expect to observe a growing need for accessmanagement and integration related to decentralized datathat was formerly collectively managed within closed
corporate networks. Moving forward, we will continue to
conduct network design predicated upon the combined useof internal ICT platforms and cloud technologies whilestrengthening zero trust-focused security measures applied
to ensure safe access to information assets.

In terms of new business domains, we plan to facilitate
preventative maintenance, traceability, and decarbonizationsupporting electricity usage visualization by continuing toapply wireless networks and data generated throughproduction lines and manufacturing equipment, thereby
encouraging large-scale networking within factories. At thesame time, we aim to push forward with our implementationof cyber security measures. As time progresses, we expect
to observe improvements in efficiency and productivity
achieved through data sharing conducted throughout and in
between supply chains. This sharing will apply to data usage
within and between factories, as well as data applied among
companies belonging to both the same and different
corporate groups.

4,611
3,484

Management Capital

26,47257,000Operating environment

Growth Strategy

Demand for security enhancement, cloud systems, and work style innovation remains high.

Bookings / revenue / order backlog (million yen)

60,233

Value Creation

Business overview

Focus areas
2019

2020

2021

2022

2023

2019

(FY)

2020

2022 (FY)

Smart manufacturing

Social infrastructure to realize Society 5.0

CAGR(for the three-year period ending with fiscal 2022)

Bookings-2.9%

Revenue-3.7%

Operatingincome-9.9%

We are observing growth in PoC activities associatedprimarily with the on-site application of data and digital twin
technologies within manufacturing sectors, as well as
decarbonization achieved through the visualization of power
consumption. Beginning with the formulation of granddesigns aimed at generating new projects, we areundertaking proposal activities associated with a variety ofobjectives including the implementation of industrial wirelesstechnology and the enhancement of security at businesssites.

We are undertaking efforts facilitating PoC testing
associated with smart buildings. This testing focuses on a
range of elements, including the integration of networks
supporting the numerous sensors and devices installed
within office buildings, the efficiency of data application andadministration achieved through the integration of ICT
platforms, and the creation of new value accomplished via
system linkage utilizing indoor sensors.

* Effective from fiscal 2022, we have reclassified the internet service provider (ISP) industry (formerly included under the enterprise market) under the telecom carrier market. Also effective fromfiscal 2022, we adjusted our accounting policies and began recording a portion of the labor costs and other expenses incurred through our engineering division as costs of revenue. Thesechanges have been reflected through bookings, revenue, and the order backlog for fiscal 2021 and all subsequent accounting periods, as well as through operating income for fiscal 2022.

Distinguishing features of the businessProfitability

As digital technology rapidly evolves, we are observing an
ongoing need for the application and stable operation of
integrated ICT platforms that facilitate the use of advanced
digital technologies. At the same time, we are encountering
growth in demand for security enhancement supporting thesafe application of data dispersed throughout cloud andremote working systems and the well-balanced handling ofboth data utilization and ICT governance within corporategroups and new sectors (factories, manufacturing sites,etc.). With regard to the financial industry, we haveobserved relatively constant progress in terms of bothtechnological improvements and infrastructure renewal. In
the context of manufacturing and non-manufacturingindustries, which are associated with a diverse range ofdigitalization-related needs, we anticipate ongoing demand
for the operational application of ICT.

With the largest service ratio among the four markets defined by
the Net One Group, the enterprise market is highly profitable,accounting for approximately 60% of total revenue. While
providing conventional system maintenance, we have continued
to generate high amounts of revenue through service-based
operations, including those aimed at generating solutions
adopting ICT lifecycle-oriented perspectives. In contrast, theenterprise market’s operating margin declined in fiscal 2020
due to COVID-19-related impact before falling again in fiscal
2021 as investment within the manufacturing industry wascurtailed in response to semiconductor shortages. Later, in
fiscal 2022, both revenue and the operating margin generated
through the enterprise market improved thanks to our
successful capture of expanding demand in the manufacturing
and non-manufacturing industries. Moving forward, we will pushforward with efforts aimed at standardizing and automating ouroperations, target the expansion of remote operations, andendeavor to maintain ongoing profitability.

net one report 2023

Performance and outlook
Fiscal 2022 results

Fiscal 2023 outlook

With regard to the manufacturing industry, investment fromautomakers was robust, particularly in expenditures related
to EVs. Meanwhile, in terms of non-manufacturingindustries, we observed growth in bookings associated with
next-generation ICT platforms and security enhancementbusiness operations (zero trust and secure access serviceedge [SASE]). As for the financial industry, integration of
next-generation infrastructure continued unabated. Revenue
increased year on year, driven by sales targeting
automakers, among whom investment has been resurgent.

We project growth in both bookings and revenue. In termsof bookings, we expect expansion in the category of smart
manufacturing within the manufacturing industry, particularly
among automakers. Meanwhile, within non-manufacturingindustries, we anticipate growth in association with security
enhancement businesses and service platforms as
operational digitalization progresses. We expect bookings
generated through the financial industry to remain level year
on year, consisting primarily of bookings connected toongoing projects. Meanwhile, we plan to convert our
substantial order backlog into revenue and accordingly
project growth in overall enterprise market revenue.
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Business Segments

51

Growth potential

Governance2021(outlook)52

Business Segments

Chapter 5

Telecom Carrier Market

VisionGrowthstrategy

Focus themes for growth● Propose co-creation businesses, including● Strengthen corporate business throughservice platform installation and corporate
business support, to telecom carriers

Medium- to long-term outlook and strategy

Business details

Future prospects

We develop businesses for telecom carriers. Collaborating with clients, we also establish safe and secure ICT platforms thatfunction as social infrastructure.

Bookings / revenue / order backlog (million yen)

Operating income (million yen) / Operating margin (%)■ Bookings■ Operating income■ Revenue● Operating margin■ Order backlog

10.5%

53,88848,20735,442 35,176

51,51910.1%

49,005 49,000 48,000

36,48931,04430,04427,530

3,708

10.0%

10.1%

4,797

4,958

3,688

Business opportunities

We will continue to make decisions regarding our delivery oflarge hardware for network facilities based on acomprehensive range of factors, including profitability. Moving
forward, our priority operations will focus on areas unrelated totelecommunications, which have become a central target for
telecom carriers. Under these circumstances, we aim todevelop services that facilitate digital transformation forcorporate customers (application of data centers, furnishing ofcloud services, etc.) and expand our digitalization-supporting
co-creation business. Moving forward, we will contribute to
the development of society by expanding our delivery ofadded value and utilizing growth in client businesses as aconduit for generating transformation in industrial structures.

In addition to developing security services that support
external access to office networks (through remote working,etc.) and the use of multiple cloud systems, we will
spearhead technological innovation targeting the realizationof Society 5.0, a visionary concept that centrally involves
surmounting social challenges through new value createdby IoT-based connections between people and things.
Moving forward, we will combine the network-related
expertise we have cultivated over our many years ofexistence with 5G and digital technologies to add newvalue, thereby facilitating co-creation business operations
that support expansion in client businesses and creating
business within heretofore unexplored domains.

Management Capital

17,481

14,508Operating environment

Growth Strategy

Enthusiasm for investment targeting business expansion among corporate entities is strong. We arefocusing on building service platforms associated with cloud computing and other technologies while
also concentrating on providing corporate clients with technological support.

Operating environment

39,464

collaboration with telecom carriers● Collaborative business in other markets andexpansion of solutions for MSPs

Value Creation

Business overview

Introduction

Expand new business prospects through co-creation
involving telecom carriers

Strategy

Focus areas
2019

2020

2021

2022

2023

2019

(FY)

2020

2021

2022 (FY)Operatingincome10.2%

Social infrastructure to realize Society 5.0(outlook)

CAGR(for the three-year period ending with fiscal 2022)

Bookings

13.3%

Revenue

11.7%* Effective from fiscal 2022, we have reclassified the ISP industry (formerly included under the enterprise market) under the telecom carrier market. Also effective from fiscal 2022, we
adjusted our accounting policies and began recording a portion of the labor costs and other expenses incurred through our engineering division as costs of revenue. These changes havebeen reflected through bookings, revenue, and the order backlog for fiscal 2021 and all subsequent accounting periods, as well as through operating income for fiscal 2022.

Profitability

Until the early 2010s, growth was primarily driven by the delivery oflarge hardware for network facilities, but new hardware installations
have since subsided, and we have also observed a trend ofcommoditization with regard to hardware. In response, we havebeen shifting the focus of our operations toward operational
support and the integration of service delivery platforms. Recently,
amid this shift, revenue has been growing due to investment
conducted in pursuit of line reinforcement in response to expansion
in remote working and video communication volume. At the sametime, operations targeting network facilities focus mainly on productdelivery, so the Net One Group is shifting toward domains throughwhich it can provide services on an ongoing basis. We aim tocreate high added value by supporting the development of services
that telecom carriers can provide and through our co-creation
business, which focuses on developing businesses for corporateclients in partnership with telecom carriers.

Services (delivery of large hardware to telecom carriers, etc.)
generate about 40% of revenue achieved through thetelecom carrier market, a service ratio that is somewhat
lower than those observed within the enterprise and publicmarkets. However, due to a limited client count, we are able
to minimize SG&A expenses incurred through this market,
which successfully generates operating margins on par withthose reported through the other markets. By targeting ashift away from business structures focused on productsales and engaging in platform integration beginning with
PoC activities conducted during the service planning stage,
we are able to provide advanced operation services in
addition to platform maintenance. Currently, we are striving
to improve profitability by proposing high-value-added
systems capable of contributing to growth in clientbusinesses and providing services that reduce operationalburdens following service launches.

net one report 2023

Performance and outlook
Fiscal 2022 results

Fiscal 2023 outlook

Although investment targeting line reinforcement inresponse to growth in telecommunications traffic stemmingfrom remote working and other factors has subsided, we
also observed strong bookings in connection with cocreation business operations leveraging our expertise
concerning large-scale projects and digitalization support.
Revenue rose year on year as we recognized proceeds
generated through line reinforcement investment conductedsince fiscal 2021.

We project slight decreases in both bookings and revenue.
Line reinforcement investment conducted in response to
growth in remote working demand had previously boosted
bookings generated through the telecom carrier market, but
we expect this positive impact will dissipate in fiscal 2023.
Regardless, we will continue to focus on supporting theactivities of client companies and facilitating digitalization andsecurity enhancement through our co-creation business.
Although we expect to book revenue generated throughinvestment targeting line reinforcement, we anticipate a slightdecrease in overall telecom carrier market revenue.

net one report 2023

Business Segments

53

Growth potential

increasingly drawing attention from telecom carriers as a way
to achieve carbon neutrality. While expanding circular
economy-conscious measures formulated to extend hardware
life, we will also support the businesses of corporate clients byproviding both expertise facilitating transitions toward smart
factory facilities and joint verification environments, thereby
supporting the resolution of technological issues.

GovernanceDistinguishing features of the businessWe are participating in PoC activities aimed at establishing
5G-based multi-access edge computing (MEC) services,which, through IT service environments located in close
proximity to the user, enable the processing of large amountsof data generated by terminals and devices. We are confident
that this state-of-the-art solution will achieve low-latency andhigh-security network usage without the need for Internet
connectivity. At the same time, green transformation (GX) is

54

Business Segments

Chapter 5

Public Market

VisionGrowthstrategy

Focus themes for growth● Propose optimization of ICT platforms,● Shift to cloud computing for ICT platforms,

including operations, for markets where
digitalization is progressing

Introduction

Provide a safe and secure ICT platform for social
infrastructure and realize a sustainable society

Strategy

strengthen security● Social infrastructure to realize Society 5.0● Participate in bidding focused on value-added

proposals such as ICT utilization and provisionof functions

Medium- to long-term outlook and strategy

Business details

Future prospects

We conduct business for public institutions such as central and local governments, education (universities and research
institutes), companies that provide social infrastructure (power companies, railways, etc.), and healthcare (hospitals). We alsoestablish ICT platforms and enhance security to support the application of public information and other data.
We are observing robust demand surrounding security measures supporting data utilization, cloudsystems, and work style innovation.

Bookings / revenue / order backlog (million yen)

Operating income (million yen) / Operating margin (%)■ Bookings■ Operating income■ Revenue● Operating margin■ Order backlog

80,63962,672

71,255 69,795
55,79371,00061,68470,00056,96164,20063,459 61,425 63,200

9.6%

8,260

8.9%

7.8%
5,485

39,715

5,492

4,327

Business opportunities

We have hitherto facilitated digitalization by migrating
systems originally integrated separately according to theirrespective applications to a common platform, thereby
improving efficiency and reducing operating costs. As time
progresses, we will continue to focus on sectors in which
ICT application is anticipated, including those associatedwith municipal governments, school systems, and social
infrastructure. Meanwhile, in accordance with a fundamental
rationale focused on security enhancement as a systemcore, we will promote data governance-based security
measures while capturing demand surrounding thereorganization of corporate group activities and thefortification of foundational corporate group structures.

In due course, we plan to improve the convenience of ourservices using platforms we have developed to date, enhancequality of life in general, and provide support facilitating
effective system operation and the delivery of functionality thatpaves the way for operational streamlining. Moving forward,
we must implement security measures and update our
network design to accommodate connections with external
environments, including those associated with remote working
systems and cloud computing setups administered bygovernment agencies. Meanwhile, we project that the use ofdata will continue to drive business efficiency and revitalizationin fields supporting the achievement of a sustainable society,including electric power, gas, rail transport, and medical care.

Management Capital

38,255

11.8%

Operating environment

Growth Strategy

Operating environment

Value Creation

Business overview

Focus areas
2019

2020

2021

2022

2023

2019

(FY)

2020

2021

2022 (FY)(outlook)

CAGR(for the three-year period ending with fiscal 2022)

Bookings-0.7%

Revenue

3.4%

Operatingincome8.3%* Effective from fiscal 2022, we adjusted our accounting policies and began recording a portion of the labor costs and other expenses incurred through our engineering division as costs ofrevenue.

Profitability

Capitalizing on drastic municipal security measure overhauls
implemented in response to unauthorized access incidents that
occurred in 2016, we have steadily captured renewal demandassociated with Japan’s GIGA school concept initiative and efforts
targeting strengthened security cloud systems and enhanced
information security. Meanwhile, we continue to observe demand for
digital technology application approaches conceived to addresschanging social conditions and resolve social challenges. With regard tobusinesses supporting non-municipal daily life infrastructure (associatedwith electric power, gas, railroads, medical care, etc.), we havewitnessed a trend toward revamping information platforms to facilitate
structural changes in business operations as a response to liberalizationand population decline. As time progresses, we will expand our deliveryof comprehensive support services, which cover a wide scope
extending from the renewal of ICT platforms enabling digitalization and
ICT utilization to the administration of these same platforms.

In recent years, we have generated improvements in profitability
primarily by conducting a greater volume of direct business
transactions, thereby expanding our delivery of maintenance andoperations services. By refining our proposal and technologicalcapabilities, we have become able to integrate and maintain entire
ICT platforms, which are becoming increasingly sophisticated as aresult of security enhancement and applications related to sharedinfrastructure. Furthermore, with regard to public bidding
decisions made based on comprehensive assessments, we areendeavoring to distinguish ourselves through function-oriented
proposals that combine designs aimed at fully leveraging ourtechnological capabilities with original financial services. Services
generate about 50% of our public market revenue; this service
ratio is second only to the service ratio achieved through ourenterprise marketing activities, and as a result, the public market
is a key profit driver for the Net One Group as a whole. By
expanding operational and managed services, we will aim toestablish a stable and expanded earnings base moving forward.

net one report 2023

We will expand our business while maintaining a particularfocus on sound cloud computing and information security
enhancement for municipal government agencies. Additionally,by establishing, and improving the convenience of, platforms
that enable the safe and secure use of connections linked toexternal systems associated primarily with remote working andcloud services, we will facilitate upgrades for regional ICT
platforms, the resolution of local challenges through resident
service digitalization, and regional revitalization achieved
through the digitalization of educational systems.

Moving forward, we will support electric power, gas, andrailroad infrastructure upgrades that utilize digital technology
to ensure efficient facility maintenance and management. At
the same time, we will propose platform integration that
contributes to the stabilization of social infrastructure byfacilitating effective implementation of cyber security
measures, stable operation of increasingly complex
systems, and operational upgrades enabling the applicationof data and digital technologies within medical contexts(medical digital transformation).

Performance and outlook
Fiscal 2022 results

Fiscal 2023 outlook

With regard to bookings, performance previously observedin association with large social infrastructure projects
dissipated, and bookings recorded in connection withinformation security cloud and security enhancement
projects for municipal government agencies comparedunfavorably with the relatively high results reported in fiscal
2021. Regardless, we experienced growth in demandsurrounding network system renewal projects for research
institutes and universities. Revenue rose year on year as webooked proceeds generated primarily through information
security cloud and security enhancement projects formunicipal governments.

We project increases in both bookings and revenue. With
regard to the former, we anticipate that bookings
associated with information security cloud and security
enhancement projects for municipal governments will
dissipate, but we also expect expansion in bookings
recorded in connection with Society 5.0-related digitalizationof social infrastructure (electric power, rail transport, etc.). In
terms of the latter, we expect revenue to grow as weconvert our abundant order backlog, which consists
primarily of outstanding orders related to information
security cloud and security enhancement projects formunicipal governments.
net one report 2023

Business Segments

55

Growth potential

Social infrastructure to realize Society 5.0

GovernanceDistinguishing features of the business

Digital government

56

Business Segments

Chapter 5Partner Business

VisionGrowthstrategy

Focus themes for growth● Establish a collaborative model with partner● Expand solution businesses for partnercompanies● Provide timely proposals, assistance,
and technical support, as well as strategic
products and solutions

Medium- to long-term outlook and strategy

Business details

Future prospects

Our partner business focuses on collaboration with partner companies through consolidated subsidiary Net One Partners. Bymeans of this business, we leverage the business foundation of the Net One Group to provide comprehensive support systems
that enable our partner companies to concentrate on system integration.
Operating environment

Operating income (million yen) / Operating margin (%)■ Bookings■ Operating income■ Revenue

13.4%● Operating margin■ Order backlog

48,65944,962
39,73048,400 46,357

48,000 48,000

40,201

8.0%

33,865

6,225

Business opportunities

As digital transformation demand increases, we aim toestablish a strong domestic presence by leveraging our
product selection capabilities, technical support, andlogistics functions to support system integrators. In
addition to providing ICT platform products associatedwith networks and security, we will facilitate thedevelopment of partner businesses by providing highvalue-added solutions (information indicating futurechanges in trends, technical proposal support, etc.) thatleverage our strong relationships with vendors.

In addition to our mainstay network equipment, we will
expand our delivery of security products and cloud-based
solutions, thereby joining our partners in pursuit ofstructural societal transformation addressing everchanging ICT market and business environments and theeventual realization of a prosperous future. With regard to
new products, we will support market-wide digitaltransformation by quickly providing solutions that facilitate
ICT application, including both general and PoC testing forequipment targeting local 5G systems, network
visualization, and software utilization.

3,706

3,507

Management Capital

18,80018,80016,757

14,165

3,093

9.2%

8.8%

Operating environment

Growth Strategy

Performance from business operations targeting system integrators and MSPs has been strong.

Bookings / revenue / order backlog (million yen)

38,727companies● Develop solutions for MSPs

Value Creation

Business overview

Introduction

Readily adopt cutting-edge technology,
enabling accommodation of diverse business models

Strategy

Delivering new value

8,299

2019

2020

2021

2022

2023

(FY)

2019

2020

2021

2022 (FY)Operatingincome26.3%(outlook)

CAGR(for the three-year period ending with fiscal 2022)

Bookings

2.5%

Revenue

6.2%

Distinguishing features of the businessWe are observing steady expansion in sales of ICT platformproducts, with particular growth in performance comingfrom network equipment provided by Cisco Systems, whichtargets system integrators responsible for developing
information systems. Growth has been largely driven bysales of products specifically designed for Wi-Fi services
provided by partner companies acting as managed service
providers (MSPs). Also responsible for growth is relationshipenhancement achieved by leveraging the overseas productprocurement capabilities and quality control processes that
the Net One Group has developed over the years since its
founding. Furthermore, growth has been additionally
boosted by demand stemming from digital transformation
progress and expansion in business opportunities achieved
through product resale and our delivery of technical support
and products with high added value.

The profit structure of the partner business differs
significantly from those associated with our other threemarkets, which concentrate on direct transactions withcustomers. Indirect wholesale transactions involving
products and equipment form the central core of ourpartner business, so this business generates a lower shareof its revenue through services (about 20%) than our otherthree markets. The activities of this business include
evaluation and procurement of proposed equipment andvalue-added services such as quality assurance, technology
verification, and proposal support. Accordingly, the grossprofit margin generated through this business approximates
our company-wide gross profit margin on products. In
contrast, the operating margin of the partner business issimilar to those of our other markets because this business
operates using a small staff, keeping its SG&A expenses
low primarily by entrusting a portion of its processes to Net
One Systems.

net one report 2023

For the first time in Japan, we are providing programs thatenable the smooth sale of subscription-based products
from Cisco Systems to our partner companies. With
initiatives such as these, comprehensive software contract
management adapted to accommodate technology use in
the digital transformation era, and support covering
existing-agreement-related operations ranging fromsystem installation to utilization and usage expansion, weare assisting our partner companies as they aim to
maximize their earnings.

We have supported, and continue to support, the timely
launch of ICT products through initiatives such as ourestablishment of solution verification labs that test andverify properties including radio wave characteristics,
performance, and connectivity for partner companies
exploring opportunities for providing local 5G products.
Additionally, we provide this same support by furnishing
the kitting environments, workforces, and logistic functions
necessary for the sale of ICT equipment.

Performance and outlook
Fiscal 2022 results

Fiscal 2023 outlook

Despite ongoing strong performance from network
enhancement and security reinforcement business
operations targeting major partners, bookings fell slightly
year on year primarily because bookings associated with
Wi-Fi service business operations aimed at MSPs
compared unfavorably with those reported for fiscal 2021.
Revenue increased year on year, driven by strong
proceeds from business operations targeting major
partners.

We project a decline in bookings and growth in revenue.
With regard to bookings, we will continue to strengthen
our collaborative business activities with major partners,
but we do not anticipate any significant year-on-yearchange in performance from Wi-Fi service business
operations targeting MSPs. Regardless, we forecast
growth in revenue stemming from our efforts targetingstronger collaborative business activities involving ourmajor partners.

net one report 2023

Business Segments

Profitability

Providing business platforms

Governance

57

Growth potential

Customer success

58