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Annual Report 2020

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Annual Report 2020

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JP TOWER, 2-7-2 Marunouchi, Chiyoda-ku, Tokyo 100-7024
ir@netone.co.jp
Public Relations & Investor Relations Office
Issued in: December 2020■Annual Report 2020

CONTENTS

President’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 03

03

Chapter 1: Value Creation

President’s Message

The Net One Systems Value Creation Story . . . . . . . . . . . . . . . . . . 09
Corporate History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Our Strengths  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Targeting Sustained Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Chapter 2: Growth Strategy

23

Management Philosophy

Contribute to innovation in society by utilizing ICT

TopicsOverview of Fiscal 2019-21 Medium-Term Business Plan . . . . . . 19

Value Creation

Our Value Creation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Guided by our management philosophy, “Contribute to innovation in society by utilizing ICT,” our management vision is tobe “a company trusted and supported by all stakeholders (an admired company).” Based on that management philosophy
and vision, our management strategy is to transform Net One Systems into a company capable of providing new value for
future generations by driving “Three growth steps” – growth of customer / partner, growth of the company and growth of
employees.
We have also set out “seven missions” for our business – fulfill our responsibilities to customers, partners, shareholders
and employees, and contribute to the ICT market, civic society and the global environment. We will strive passionately andtirelessly to win the highest levels of approval from stakeholders as an admired company.

Chairman’s Message

The Company’s Philosophy System

Management Vision

Progress with Fiscal 2019-21 Medium-Term Business PlanFirst Year Review and Future Initiatives . . . . . . . . . . . . . . . . . . . 20
Results in New Business Fields and Future Initiatives . . . . . . . . 21
Measures to Achieve the Targets in45

Our Medium-Term Business Plan  . . . . . . . . . . . . . . . . . . . . . . . 22
Topics / Executive Interview

Message fromthe CRO / CCO--Our Integrated Service Business . . . . . . . . . . . . . . . . . 23
Chapter 3: Sustainability

Growth Strategy

To be a company trusted and supported by all stakeholders(an admired company)
Management Strategy

Three growth steps
Growth of customer /partner

Value co-creation

Growth of the company

Growth of employees

UniquenessInitiative

Basic Approach and Key Sustainability Issues . . . . . . . . . . . . . . 27
Key Issue (2) Strengthen Security . . . . . . . . . . . . . . . . . . . . . . . . . 33
Key Issue (3) Build Relationships with Stakeholders  . . . . . . . . . . 35
Key Issue (4) Improve and Reinforce the Business Base . . . . . . . 37

49

Sustainability

Key Issue (1) Train Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Our responsibilities and contributions

Seven missions

Discussion with
Outside Executive Directors

Message from the CRO / CCO . . . . . . . . . . . . . . . . 45
Discussion with Outside Executive Directors . . . . . 49
Key Issue (5) Provide New Value  . . . . . . . . . . . . . . . . . . . . . . . . . 53

Chapter 4: Review of Operations

Editorial Policy
Our management vision is to be "a company trusted and supportedby all stakeholders (an admired company)." Net One Systems supplies
products and equipment from around the world, primarily fromcompanies in North America. That global approach in procurement
also extends to our stance on markets and providing value.
In fiscal 2019, the period covered by this report, the Company
identified a number of fraudulent acts that unfortunately had a negative
impact on our stakeholders (see page 4 for more details). We are using
this report to again underline the steps we are taking to reinforce risk
management and governance. We have also provided content about
the Group’s value creation process, Integrated Service Business andprogress with achieving sustainability to illustrate our ongoing efforts
to transform Net One Systems into a leading company in integrated
services. We have selected key information from Net One Systems’value creation process and business strategy for medium- to longterm growth, as well as non-financial data, and presented it in a clear
and integrated manner. We have designed the report to be used inconjunction with the Net One Systems corporate website as part of ourefforts to communicate effectively with shareholders, investors and all
our other stakeholders.
Please note that financial data for the fiscal years 2014 through 2019has been restated to reflect revisions disclosed in March 2020.

Enterprise Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Telecom Carrier Market  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Public Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Partner Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Annual Report 2020

Responsibility tocustomers

Responsibility topartners

Contributions to
the ICT market

Responsibility toshareholders

Contributions to
civic society

Responsibility toemployees

Contributions to
the global
environment

Skills and spirit of TAKUMINet One Systems is one of Japan’s leading companies involved in the
integration of systems for the information network society. To address
expected changes in our market, all our engineers are enhancing their skills,
aiming to transform themselves from system integration professionals toexperts in utilizing all aspects of ICT. We will remain focused on our roles
as TAKUMI (“masters” or “experts” in English) in the network field, while
also aiming to be a company that helps to change society by taking on thechallenge of creating next-generation ICT platforms.

Annual Report 2020

Key Data

Key Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Forward-looking Statements
This report contains forward-looking statements that involve inherent
risks and uncertainties and therefore may differ materially from
actual results. Forward-looking statements are based on information
currently available to the Company and investors should not place
undue reliance on them. The Company undertakes no obligation
to update or revise current forecasts in this report to reflect
events, changes in the operating environment or other unforeseen
developments that may occur in the future.

Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

01

Reference Guidelines
International Integrated Reporting Council (IIRC):
The International <IR> Framework
Ministry of Economy, Trade and Industry:
Guidance for Collaborative Value Creation

Review of Operations

Key Issue (6) Utilize ICT to Reduce Environmental Impact . . . . . 55

02

■President’s Message

President & CEO
Net One Systems Co., Ltd.

The fundamental issues behind the recent fraudulent acts were delays to personnel transfers in somedivisions and a failure by people in management positions to identify the fraudulent transactions.
Mechanisms were in place to rapidly identify fraud, but they were not applied effectively.
In April 2020 we overhauled our organization and changed our senior management team. As part ofthe organizational reforms, we have created a new Companywide business control framework comprisinga new Sales Supervisory Office reporting directly to the president, which coordinates with SalesManagement Offices set up in each business unit.
We have also overhauled training systems for managers and introduced clearer criteria related to risk
management and compliance enforcement in performance assessments to ensure better understandingof Net One’s management policies and ensure managers are fulfilling their roles.
We now recognize that proactive risk management has to be our default approach in order to rapidly
identify fraudulent acts. Until now, we have tended to use a defensive approach, responding to risk using
mechanisms aligned to policies and standards developed by external bodies. However, we now need tolook beyond those mechanisms to rapidly identify risk, which means increasing our sensitivity to risk andbroadening our view of the kind of risks the Group faces. Every employee needs to be aware of potential
risks around them and be capable of identifying them, otherwise fraudulent acts will never be eradicated.

Based on the committee’s analysis of the causes of the incident, we believe there were problems
with fraud risk management and compliance activities, preventing us from identifying and preventing
the fraudulent acts. We have identified a number of specific issues related to both areas: in fraud risk
management, (1) rules were mere formalities, (2) issues with the risk management framework, (3) issues
with risk management activities, and (4) issues with internal control; in compliance activities, (1) ineffective
activities, (2) issues with the stance of management and executives with respect to compliance activities,(3) failure to rigorously implement measures to prevent any recurrence of fraudulent acts after an earlier
incident that came to light in 2013 (a former employee conspired with external firms to defraud theCompany by billing for fictitious contracting work), and (4) issues with the Group’s organizational culture.

Key countermeasures, progress with implementation and report disclosure
Net One Systems takes the findings of the investigation very seriously. To prevent any recurrence, we
are implementing 27 improvements in 11 subcategories under four key themes: (1) review of basic policy
on business transactions, (2) strengthen risk management systems, (3) enhance business controls, and(4) review of compliance activities (see page 46). Of the 27 improvements, 25 had been completed as of
September 30, 2020, and we plan to continue implementing activities and ensuring existing measurestake hold in the Group. In this Annual Report, we provide more details about our thoughts on the
fraudulent acts in the President’s Message (pages 3-8), the Message from the CRO / CCO (page 45),and the Discussion with Outside Executive Directors (pages 49-52). We also explain changes made to
our organization in April 2020 in Growth Strategy: Measures to Achieve the Targets in Our Medium-TermBusiness Plan (page 22) and describe the steps we are taking to reinforce governance, risk management
and compliance in Sustainability: Key Issue 4: Improve and Reinforce the Business Base (pages 37-48).

Annual Report 2020

Key Data

Annual Report 2020

Rolling out measures and ensuring they take hold:creating an organization where everyone can speak their mind

The investigation identified transactions without the physical delivery of goods (hereinafter “fraudulent
acts”) involving repeated fictitious transactions of ICT equipment for central government agencies as
the end users. An employee, no longer with the Company, made contact with individuals responsible for
equipment transactions within the Company, ordered subordinates to prepare necessary documents,
and received final approval from his superior while hiding the fictitious nature of the transactions. The
fraudulent acts were carried out solely by the employee in question with no organizational involvementby the Company. The cumulative negative impact of the transactions on the consolidated financial
statements was ¥32.1 billion for revenue, ¥3.6 billion for operating income, ¥3.6 billion for ordinary incomeand ¥9.3 billion for net income attributable to owners of the parent.

Review of Operations

03

During fiscal 2019, ended March 31, 2020, we received the final report from a special investigative
committee established to examine a transaction without the physical delivery of goods (hereinafter“fraudulent acts”; details on page 4). On behalf of Net One Systems, I would like to take this opportunity tosincerely apologize to shareholders, investors and all our other stakeholders for the fraudulent acts.
After an earlier case of fraudulent acts in 2013 (details on page 4), we overhauled systems andstructures as part of a broad package of response measures, which we believe had a positive impact.
Despite taking those steps, we were extremely disappointed to learn about this subsequent case, which
we view very seriously. We are now taking an even tougher line, such as reinforcing risk management
systems and business control systems. The Group’s management team, led by myself, will also step up
messaging and take steps to raise risk awareness at the individual employee level.

As explained in our disclosure on December 13, 2019, “Notice regarding the establishment of a special
investigative committee,” the Tokyo Regional Taxation Bureau informed us that it was unable, througha tax inquiry, to confirm that Net One Systems actually made deliveries in connection with one ofits transactions, prompting us to establish a special investigative committee. The investigation wascompleted on March 12, 2020 after we received the committee’s final report.

Sustainability

Preventing
recurrence,
strengthening
risk
management
andgovernance

We are actively communicating management’s viewson the issue to raise risk awareness across the Group

Overview and causes

Growth Strategy

Transactions
without
physicaldeliveries infiscal 2019

Special Investigative Committee – Background and Response

Value Creation

Toru Arai

President’s Message

Targeting a new phase ofshared growth with customers
by helping each employee to
implement Work Style Innovation 2.0/DX
through better communication04

■ President’s Message

Customers: Significantly reduces time needed to design and deploy new systems

netone on netone

Provide ICT platforms that drive work style innovation based on Net One’s experience

Net One: Clear improvement in speed, accuracy and quality of work
Work Style
Innovation
2.0/DX

Systemize all work; automatically link workflow, reduce number of person-hours to minimum

Work Style
Innovation
1.0

Create environments that enable all employees to work anytime, anywhere with any device
Wide range of ICT tools
Flexible personnel systems
Free office environments

Overhaul work rules

Upgrade system platform

Key Data

Annual Report 2020

Increase companywide productivity by overhauling all operations and integrating systems
Insights from our own successes and failures provided as added value to customers

Review of Operations

05

Implement
Work
StyleInnovation
Innovation2.0/DX
2.0/DX
Implement
Work
Style

Sustainability

Our operating environment has changed drastically due to the COVID-19 outbreak. The path to containing
the virus will be long and the economic impact is already significant. There has also been a major shift inwhat companies need to do to remain viable. We are now in an era where companies will have to adapt
their work styles in order to survive.
Even before the COVID-19 outbreak, we were confident that customers would be open to our
proposals for work style innovation. However, Net One Systems will not be able to sustain its recent
growth without steadily addressing and resolving new issues that arise from society’s increasingly diverse
approaches to work.
We have already shifted the focus of our business model from hardware sales to the provision ofsolutions-based services. Also, we are not tied to any specific make of equipment due to our existing
position as a multivendor supplier for various manufacturers, which means equipment sourcing is unlikely
to be affected much by the new operating environment. Moreover, we now have access to refurbishedequipment from the pre-owned market through our Net One Next subsidiary established in 2019. These
diverse supply chains will help to mitigate business risk.
Another positive trend for Net One Systems is the growing use of video conferencing and homeworking, with more people needing to connect to corporate intranets via the public internet. That trend
is likely to drive demand for more secure and flexible security solutions. Also, as data traffic increases,
companies will miss out on the benefits of technology if they cannot flexibly control communication
channels to get the best performance from their systems. That’s where Net One Systems can help. As acompany with detailed knowledge of networks, we can develop solutions that boost investment returns forcustomers. In other words, we expect more business opportunities for the Net One Group. Backed by ourlong track record of support for the utilization of ICT, we will continue to contribute to innovation in society
by using our expertise to devise new systems and create new ideas.

Under our Medium-Term Business Plan, we have redefined all the Group’s activities as “Integrated Service
Business.” The new definition, which is based on the idea that all our activities intrinsically generate value,
has been communicated to employees to make them aware that everything they do has the potential
to add value. At the end of fiscal 2019, services accounted for 43.4% of bookings. The ratio has been
rising steadily, despite some temporary negative factors, such as a number of 5G orders centered on
equipment. Profit margins are also rising in existing projects, underscoring how customers are starting torecognize the value of our solutions.
One of our basic strategies is to implement Work Style Innovation 2.0/DX. To achieve that, we areharnessing Net One’s own experiences in digital transformation (netone DX) to update business rules
for the digital era and build a system platform optimized for service businesses. Based on the platform,
we aim to systemize and automate all business processes. If we can incorporate all the lessons learned
from our responses to the recent fraudulent acts and COVID-19 into netone DX, we can utilize systems to
manage those kinds of issues in the future. In fact, some customers have asked us to provide expertise
gained from measures we implemented to clearly address the fraudulent acts, as well as data about theireffectiveness. Initially, we planned to adopt new revenue recognition standards in fiscal 2020 as part ofefforts to integrate accounting and back office processes. However, in the wake of the fraudulent acts,
we have decided to delay the new standards until fiscal 2021. Changing the timing of revenue recognition
from shipments to customer acceptance inspections is a major undertaking for Net One Systems.
Progress has also been delayed slightly by the COVID-19 outbreak, but we are very committed to realizing
this project.
One of the objectives of netone DX is to utilize ICT to reform our business, enabling the visualizationof information to boost productivity. Ultimately, we aim to create a platform that supports the Group’s
sustained growth. We plan to combine the experience gained from that process with Work Style
Innovation 2.0 to provide customers with unique insights and expertise, which is packaged as “netone on
netone” – one of the models of our Integrated Service Business.

Growth Strategy

Changes in our operating environment andwork styles caused by COVID-19

Upgrading and reinforcing systems withWork Style Innovation 2.0/DX (netone on netone) andsteadily implementing the Medium-Term Business Plan

Value Creation

Business risks
andopportunities

Medium-TermBusiness Plan
progress
reportPresident’s Message

We also have to create a corporate culture where junior employees have no hesitation raising concerns if
they feel the behavior of managers infringes compliance standards. It is one of my key missions to change
the thinking of frontline employees and create the environment to support that culture.
Effective from fiscal 2020, we appointed an executive director with extensive experience in engineeringand sales divisions to the posts of Chief Risk Officer (CRO) and Chief Compliance Officer (CCO). Basedon his popularity within the Company and leverage in frontline business areas, we believe he is the best
person to rapidly implement and establish systems to prevent recurrence and to take a more proactive
approach to strengthening risk management.
During the unexpected events triggered by the fraudulent acts, we received considerable support fromoutside executive directors and outside audit & supervisory board members. In developing measures
to prevent recurrence, including those explained above, they provided considerable constructive input
and advice from various perspectives, drawing on different experience and expertise to that of our insideboard members.
In addition, we have been visiting all our business partners to apologize and report to them about
the incident. After the previous incident in 2013, we received reprimands from our partners, who were
mostly focused on seeing reports about the effectiveness of our response measures and progress with
implementation. My feeling this time is that our relationship with customers has changed, with many
calling on us to implement a rapid response to the issue and continue providing them with support.
However, I am well aware that another similar incident will have grave consequences for the future of theCompany. We are firmly committed to preventing any recurrence in order to meet the expectations of ourcustomers.

Train personnel

Annual Report 202006

■ President’s Message

Medium-TermBusiness
Plan Targets
Medium-TermBusiness
Plan Targets

Dotted line : Original plan

Fiscal2018

Fiscal2021

Results

Targets

Business modeltransformation

Sustained growth(Cloud systems / Security)

220.0
174.8

Service
ratio

7.0%

42.6%

9.5%

Revenue¥142.4bn 141.5

16.8%

190.0

187.5

200.0

8.9

8.9

8.0

9.5

8.5

4.7

Our vision
for the next
phase ofgrowth

3.6
2.9
1.4

Operatingincome

16.4

3.1bn

4.1

1.9

5.5

7.2

12.1

15.0

17.0

21.0

2013

2014

2015

2016

2017

2018

2019

2020

2021 (FY)

Preparing for the next phase of growth by overhauling
our organization and instilling our vision in the workforce

Annual Report 2020

Annual Report 2020

Key Data

07

As part of the shift in our business model from equipment sales to services, we had targeted the field of
ICT consulting by extending the Group’s reach into the business intelligence market, where consultants use
data to provide advice and insights to business leaders. However, our thinking has changed, partly due to
COVID-19. As a company, we now want to take a more “real-world” approach by working with customers
to pursue the continued optimization of ICT, even if business conditions change dramatically, and bycreating businesses with them to contribute to “customer success.” We want to become a company thatalways thinks about how to contribute to customers and that provides more powerful support to help themgrow. Working with customers to expand their businesses also has the potential to open doors to newopportunities for the Group.
Net One Systems has always adapted to developments in the ICT industry – from the first phase of
corporate network integration to the second phase of support for internet service infrastructure and the third
phase of cloud computing and security measures. We are now seeing
the transition to the fourth phase – IoT and DX based on networks. I’m
confident the Group’s next stage will come into focus if we envisage agrowth strategy aligned with changes in the operating environment. At thisturning point, my message to employees is that they have the chance tocreate new things together and I want them to enjoy this rare opportunity.
Finally, I would like to apologize again for the problems caused by
the fraudulent acts. We are working hard to prevent any recurrence andI want to assure our customers and all our other stakeholders that Net
One Systems remains a company they can rely on. Also, by implementing
our netone DX approach, we aim to be an even stronger company thatcan overcome any challenges in the operating environment, including
the impact of COVID-19. Going forward, Net One Systems will strive to
become a company that creates new systems with customers to support
the next stage of growth, while also actively working to boost corporate
value. I hope we can count on your continued understanding and support
as we work to realize that vision.

Review of Operations

The organizational reforms in April 2020 are designed to drive our growth strategy and establish a robust
management structure. In addition to the Sales Supervisory Office, we established a new Human Resources
Development Office to hire and train the people needed to support the Net One Group’s growth.
We also created other organizations to support the Group’s sales activities – the Product Marketing
Department is tasked with reinforcing vendor relations to support the development of new services, which
are integral to the current growth strategy, and the Field Marketing Department will create new businessmodels as the organization responsible for market development. An Advanced Technology Strategy Officehas also been set up to identify promising new technologies from a medium- to long-term perspective. In
each business unit, sales and engineering departments have been separated to enhance control functions,deepen links between business units and their customers, and enable a more flexible response to technicalrequests from customers.
The introduction of mandatory age limits for executives in fiscal 2019 and these latest organizational
reforms are bringing new blood into our leadership ranks, including the promotion of younger managers. At
the same time, we aim to keep hold of key employees by extending the retirement age for our workforce.
The goal is to cultivate an organizational culture where talented personnel pass on their experience andexpertise to support new managers, driving the Group’s further growth. When I was appointed President in
2018, I consulted with the Advisory Committee about succession plans for the next generations of businessleaders. We are now steadily taking steps to cultivate the Group’s future leaders.
The Group’s business activities include many environmental, social and governance (ESG) elements. In
the environmental sphere, we are actively working to protect customers’ investment in existing systems byusing ICT platform virtualization and refurbished equipment. In the social sphere, we are implementing work
style innovation and providing as much data as possible about how the reforms are leading to changes inCreating new businesses with customers based on
the pursuit of “customer success”

Sustainability

Targetinga new era ofgrowth

7.4%

153.3
7.0

50.0%
Operatingmargin
2.2％

ROE

140.1

153.1

186.1

Growth Strategy

OperatingmarginReforms to adapt to new era(Integrated Service Business)

Value Creation

working environments. And in the governance sphere, we are using netone DX to help companies visualize
existing governance mechanisms. From fiscal 2020, we are using the Vision Inculcation Committee, which
was reconvened after the recent fraudulent acts, to lead discussions on three key topics – our vision for the
Net One Group, business activities that take into account ESG considerations, and efforts to help realize theSustainable Development Goals (SDGs). Through a range of activities, we are clarifying our position on ESG
and implementing measures and benchmarks. One example is related to the impact of COVID-19. While theoutbreak has spurred the creation of home working environments, there is still a need for people to gather incertain locations. Through our business, we are exploring new ways of employee interaction and work styles
for future generations, and we plan to provide data from our research to customers.
Our basic dividend policy is to achieve a dividend payout ratio of “at least 30%.” In fiscal 2019, we
lifted the payout ratio to 37.7%, as earnings exceeded our forecasts. We have said that when cash on
hand is consistently above the ¥25-30 billion level, we will work to return cash to shareholders throughshare buybacks and other means. Cash reserves are currently above that level, but the outlook is now
very uncertain due to the COVID-19 outbreak. Once conditions improve, we plan to review our policy onshareholder returns, taking into account a range of considerations, including our stance on the dividend
payout ratio, investment in M&A, and funds needed to support the Group’s further expansion.

President’s Message

In the first year of our Medium-Term Business Plan (fiscal 2019), progress with some measures was slower
than expected, but overall the plan is ahead of schedule. Prospects for fiscal 2020 are also becoming
clearer. Our medium-term growth strategy is based on three growth steps: by steadily implementing ourbasic strategies, we aim to support the growth of employees and the growth of the Company, while also
sowing the seeds for the next phase of growth for customers and partners through an ongoing process oftrial and error.

08

1

Value Creation

Business
environment

Social challenges
Labor shortages

Data security

Expansion of natural
disaster risks

Globalization

Reduce environmental
impact1 Gain an understanding of needs

2 Share information on demand trends

Networks enable people to “connect” to exchange data and to “communicate” to convert raw data into useful information. By
connecting people to people, and people to society with technology, we can propel “change” in the way ICT is used by people toachieve their wills.
Net One Systems aims to contribute to innovation in society by utilizing ICT and to be “a company trusted and supportedby all stakeholders (an admired company).”

Value Creation

Networks enable people to “connect” to exchange data

Net One Systems provides support for utilizing ICT, helping people andcompanies to “connect” and “communicate” and ultimately drive “change”
in society

President’s Message

Overview of the Value Creation Story

The Net One Systems Value Creation Story

Business environment / Business model
Japanesecustomers

Verification
Evaluation
Integration

Value creation and strengths
Leading
overseas
vendors

Provide expertisein utilizing ICT

Businessmodel
4 Create added value

3 Gain an understanding of technology trends

Expertise inutilizing ICTPowerful
verification
capabilities

Multi-vendor
approach

We work together with our customers and partners to support
customer success based on our unique business model.
We are able to provide high-value-added solutions and services by
growing our three strengths and important non-financial capital.

▶ Chapter 1: Value Creation
Corporate History

P.11

Our Value Creation

P.13

Our Strengths

P.15

Targeting Sustained GrowthP.17
Sustainability

Three strengths

With networks as our core technology since our founding, we have
expanded our business domains and grown along with the evolution
and spread of ICT technology.

Strategies
Leading company in integrated services
Three basic strategies

Three growth steps
Key sustainability issues

Networks enable people to “communicate” to convert raw data into useful information
Created value(output)

Solutions
Digitalization / ICT Governance
Optimal solutions based on expertise in utilizing ICTThree basic strategies / Three growth steps
With the aim of becoming a leading company in integrated services,
we have set out three basic strategies and are pursuing a MediumTerm Business Plan that focuses on three growth steps.

▶ Chapter 2: Growth Strategy

P.19▶ Chapter 3: Sustainability

P.27

Key sustainability issues
We have defined the key issues in conducting our business from two
perspectives: sustainable growth with society through our businessand sustainability as a company.

Review of Operations

Strategies

Growth Strategy

×

Our value creation process

Achieve customer success
Key Data

Created value (output) / Innovation in society (outcome)Innovation insociety(outcome)“Change” the way we use ICT with optimal combination
Contribute to the transformation into a sustainable society

Aiming to be "a company trusted and supported by
all stakeholders (an admired company)"09

Annual Report 2020

Solutions / Contribution to innovation in society
By pursuing optimization in ICT utilization and customer success, wewill create new value that enable customers to overcome changes inthe environment.

▶ Chapter 4: Review of Operations P.57

Annual Report 202010

1 Value Creation

Networks have been our core technology since the first days of the Company.
The network business field continues to expand as connectivity technologies
become more importantand sale of routers, switches and other ICT equipment. Net One Systems has grown by enhancing its technical skills as a pioneer in the industry and by using its independent industry perspective backed by testing and verification to supply advanced

Growth in the Network Business Field

Using our advanced network technologies as a point of difference, we are extending ourbusiness reach from networks into all areas of ICT, such as cloud systems, security and IoTtechnologies that anticipate change.
The emergence of cloud systems in recent years has created a new role for networks. Cloud systems can provide ICT

Value Creation

Net One Systems was established in 1988 as a specialist network installation company, focusing initially on the procurement

President’s Message

Corporate History

resources such as CPU, memory and disk capacity in servers and storage systems based on user requirements. That has
led to growth in the provision of server and storage functions over networks, leading to expansion in Net One Systems’
business fields. Meanwhile, deploying cyber security measures to identify and contain intruders on the network is an

2020

June 2020
Established the “netone Briefing Center” and “Lab as aService” to help customers accelerate DX
January 2019
Established Net One Next Co., Ltd.
to provide ICT functionality
using refurbished products

2019

April 2017
Established Net One Connect G.K.
to develop cloud platform software

2017

September 1999
Certified as a gold partner
by Cisco Systems

1999

1988

Existing

November 2008
Established Net One Partners Co., Ltd.
to expand business partnerships

2008

1,111

1,570

2,023

2,431

2000

2004

2007

2010

2019

FoundedChanges inmarketconditions

Wider use of
information systems

Customerneeds

Sharing information between business sites

Internet uptake

Applications

Applications

Applications

Servers

Servers

Servers

Storage

Storage

Storage

Applications

Change innetwork boundary

Utilization of ICT becomes central to business reform

Applications

Internet

Contributed to the start of
the network era

Helped more people benefit
from the convenience of
networks
Participation in a major project
for telecom firms

VirtualserverUtilizing ICT

Cloud / Security

Network

All areas of ICT platforms

Growth in
Net One Systems’
business field

Network system
Supported social revitalization
through ICT utilization

Created new added value throughco-creation with customers

Built secure and safe cloudsystems and other ICT platforms

Pursuing ICT utilization that contributes toinnovation in society

Controls CPUs / memory /disks and other
ICT resources

Privatecloud

Complete
ICT platform(multi-cloud)Publiccloud

Key Data

Corporate network

Installed networks, mainly for
major private sector companies

Annual Report 2020

Improving communication speeds

Applications

Virtualserver
VirtualserverBusiness
fields11

Improvements in
ICT system efficiency

Fiscal Year

Shift to cloud computing

Review of Operations

601

cloud becoming more widespread. Networks are needed to securely and effectively connect the different parts of those

Sustainability

Sales
Employees

ICT platforms are continuing to evolve, with multi-cloud systems that combine elements of the private cloud and public

Shift to cloud computing –driving growth in our business fields and allowing us to create unique value

May 2013
Opened an Innovative Office in the new head officebuilding to give customers first-hand experience of ICT
Showcases modern work practices with tools
optimized to various environments

2013

helps Net One Systems stand out in the market.

cloud systems, which is also spurring growth in our business fields.

October 2016
Opened a Security Operation Center(NetOne-SOC) staffed by a security
analyst team to provide 24-houryear-round monitoring services

2016

expertise in advanced network technology, that trend is opening up more possibilities for us to create unique value that

Growth Strategy

effective way of stopping the spread of computer viruses and preventing unauthorized data leaks. As a company withAll transfers of data rely on networks, so our understanding of communication
flow means we can optimize the entire ICT platform and enhance security

Annual Report 202012

1 Value Creation

We actively engage in dialogue with customers and
ICT vendors to create optimal solutions andour unique added value to achieve customer success

Net One Systems focuses on communication with both customers and ICT vendors. Through close cooperation with leading
overseas vendors, we access the latest information about the global network industry and provide feedback to vendors
about the needs of the Japanese market, resulting in a shared technology roadmap with a horizon of several years. Net One

President’s Message

Our Value Creation

Systems does much more than provide solutions for customers’ technical issues. To address diverse needs, we run a programthat allows customers to see first-hand the benefits of fully deployed cutting-edge technologies, giving them an insight into
solutions and services in-house before providing them to customers. The know-how we gain is then used to provide ideas andsuggestions to customers about how to deploy new ICT. We also proactively learn from our failures, as well as our successes,
to help customers reduce the time they need for trial and error in system deployment. That is part of our rigorous customer-

Value Creation

how ideal ICT environments will look in the future. Net One Systems also installs, uses and evaluates next-generation ICToriented approach in all phases of projects – from ICT platform design through to operation – helping Net One Systems tocreate unique added value and achieve customer success.

Networks enable people to “connect” to exchange data

Japan’s quality requirements

Feedback of market needs tovendors’ head offices

1 Gain an understanding of needs

Increase productivity

Work style innovation

BCP measures

Verification
Evaluation
Integration

×Provide expertisein utilizing ICT

Leading
overseas
vendors

Security measures

Review of Operations

Japanesecustomers

2 Share information on demand trends

Minimizerisks

Optimize
Resources

お客様

Customers
4 Create added value

3 Gain an understanding of technology trends

Vendors improve existingproducts, develop new products
Shared technology roadmap

Maximize
providedvalue

Key Data

Providing optimal
solutions, services andutilization know-how, as wellas cutting-edge technologies
from overseas

Sustainability

Interacting with customers
who are proactive in ICT
utilization

Digitalization / ICT Governance
Optimal solution based on expertise in utilizing ICT

Growth Strategy

Combine products from vendors to create solutions and services optimized to

Networks enable people to “communicate” to convert raw data
into useful information• Net One Systems uses solutions and systems in-house• Accumulates expertise in how to use systems, as well as merits and pitfalls

13

Annual Report 2020

Achieve customer successAnnual Report 202014

1 Value Creation

Our multi-vendor approach and expertise in utilizing ICT, backed by powerfulverification capabilities, allow us to provide high-quality, high-value-added
optimized solutions

Net One Systems has no affiliations to a single vendor or corporate group. By taking advantage of this multi-vendor position,
we can propose optimal systems from an objective standpoint by combining the best products from vendors in Japan andoverseas. We also independently assess new technology at our technology research facility – one of Japan’s largest. Using

President’s Message

Our Strengths

those powerful verification capabilities, we can provide full support to customers during the deployment of new systems, suchas predicting potential issues based on the method of system migration and developing measures for any issues that may occur.
Using know-how gained from installing systems in-house prior to offering them to customers, we can also propose
capital that supports these three strengths is our human resources instilled with our TAKUMI expertise – the ability to leverageadvanced technologies to meet the demands of customers –, our strong bonds with our customers and business partners, and1

our accumulated technical capabilities, which are based on our network technology as a pioneer in the industry.

TAKUMI
human
resources

In our business field, we compete with manufacturers that have significant capital resources, but Net One Systems is able
to create unique value based on our three strengths to provide high-quality, high-value-added optimized solutions. We aim tocontinue growing by cultivating close relationships with customers that support such approach.

1

Three strengths
Multi-vendor
approach

Characteristics and strengths

Evaluation

A group of professionals
that leads to the combined
utilization of advanced
technologies

Integration

×Provide expertise in3
Customers/ Business
partners

2Powerful
verification
capabilities

Characteristics and strengths
Core technologies that support
unique value creation, and designand optimization that enables awide range of responses

3 Customers/ Business
partners

Characteristics and strengths
A unique position to create
ecosystems that leverage eachcompany’s strengths from thecustomer’s perspective

Indicators:
Number of engineers
Because we specialize not in applications,but in ICT platforms that are critical to every
company, engineers are able to apply their skills
laterally, regardless of the industry. In fiscal
2019, there were 1,361 engineers, which is
57.8% of all employees.

Indicators:
Share of top organizations in our revenue
The top 100 companies account for just under
80% of our revenue (fiscal 2019), and ourcustomer base is primarily made up of leading
Japanese corporations and public institutions.
Among these companies, we are in a position
that can create new systems that leverage ourstrengths with customers who are proactive intransforming their businesses through ICT.

We a r e a c c u m u l a t i n g k n o w l e d g eof new ICT utilization through theimplementation of Work Style Innovation
2.0/DX, and developing and runningeducation programs designed toenhance creativity and adaptability.

Focus themes:
Growth of the company:
UniquenessWe have implemented fundamental
reforms to improve productivity and areusing this experience to a large extent inproposals to existing markets as well as“focus markets and new models.”

Focus themes:
Growth of customer / partner:
Value co-creation
We create new value together with ourcustomers through our “Integrated
Service Business,” which contributes toimprovement in productivity.

Key Data

Non-financial capital

Networktechnology
capabilities

Networktechnology
capabilities

Our elite, multi-skilled and flexible thinking
human resources underpin our productivity
and quality improvements. The Group’s
average GAIT score rate, which measurescomprehensive ICT knowledge, was 504.9(fiscal 2019), significantly higher than theindustry average (406).

Focus themes:
Growth of employees:
Initiative

Review of Operations

2

utilizing ICT

Indicators:
GAIT* score rate

Sustainability

Verification

TAKUMI
human resources

Growth Strategy

Non-financial capital that support the three strengths and themes to focus on
the Medium-Term Business Plan

Expertise inutilizing ICT

Value Creation

solutions and services that incorporate ideas about potential applications after installation. We believe that the non-financial* GAIT: Global Assessment of Information Technology: A globally universal assessment tool for accurately and quantitatively assessing the skills of ICT engineers inseven key areas required in the cloud era (DB, OS, applications, storage, security, network, and virtualization).

15

Annual Report 2020

Annual Report 202016

1 Value Creation

We aim to be an admired company by promoting
our Integrated Service Business and addressing key issues
to achieve sustainable growth together with society

The ICT market has entered a period of major change. Cloud service companies are growing rapidly, ICT vendors are shifting
focus from equipment to software, and customers are driving digital transformation (DX) in their businesses. Net One Systems
has created new value by integrating cloud systems and providing network security services. Going forward, we will continue

President’s Message

Targeting Sustained Growth

to transform our business to ensure the Group is capable of providing new added value that supports the growth of customers.
In addition, Net One Systems has identified a number of key sustainability issues related to its business activities: train
value, and utilize ICT to reduce environmental impact. We plan to address those issues as a matter of priority to ensure theGroup grows in a sustainable manner with society. In each category, we aim to contribute to innovation in society and be acompany trusted and supported by all stakeholders (an admired company).

Value Creation

personnel, strengthen security, build relationships with stakeholders, improve and reinforce the business base, provide new

Ideal business model
Corporate vision“Change” the way we use ICT with optimal combination

Growth Strategy

Admired Company

Contribute to our customers, further support their business growth,promote ICT utilization, and achieve “change” for our customers
Customers

Information

Business partners

Value Interaction(Mutual value ripple effect)

Stakeholders

Knowledge andexperience
Three basic strategies

Quality

Expand focus markets
and new models

Lab asa Service

netonenetone on
Briefing Center
netoneOptimize

Plan

OperateConsulting

Maintain

Project management

Implement Work Style
Innovation 2.0/DX

Three growth steps

Contribute toinnovation insociety

Growth of customer / partner

Value co-creation

Growth of employees

Employees
Growth of the company

Initiative

Uniquenessthe ICT market

Design / Install

OperatePartners

Shareholders

Become an attractive company that can provide new value

Propose

Lifecycle services fromthe standpoint of customer success

Drive the Integrated
Service Business

Trust

Key sustainability issues

Build

Provide new value

Civic society
Utilize ICT to reduce
environmental impact
the Global environment

Unique service platform

Train personnel
Build relationships withstakeholders

Key Data

Strengthen security

Review of Operations“all in”
Platform

Customers

Focus on creating high added value

Engagement model

Sustainability

Vendors

Improve and reinforce
the business baseUnique intellectual property

Creation, practice, and evolution

17

Annual Report 2020

Annual Report 202018

2Growth Strategy

We are implementing the three basic strategies with the aim of increasing
the service ratio to 50% to transform ourselves into a company that creates
new added value together with our customers

We will achieve sustained growth centered on accelerating integrated
services and expanding focus markets, while implementing measures thatwill lead to the next fiscal year and beyond

Positioning and overview of Fiscal 2019-21 Medium-Term Business Plan

By strategy: Review of the first year and future initiatives

Reforms to adapt to new eraof ICT. At the same time, the recent spread of COVID-19 is raising awareness of the need to fundamentally rethink ourStrong

We will accelerate proposals for network
systems, security measures, and cloudutilization that is in line with customers’
requirements centered around customer success in each market and businessmodel.

work style. In order for us to continue to grow in this environment, we need to create high added value that enables our

Expand focus markets andnew models

customers to achieve the utilization of ICT they require and deliver a clear return on their investment. We also believe thatin order to provide consistent services, from design proposals to system installation and stable operations, to support the➡ Details on P.21

We focused on customer success and began to focus on optimization proposals
to enable more effective utilization of ICT,and as a result, performance in the service
business was solid, with service bookings
increasing ¥9.1 billion year on year. Meanwhile, the service ratio of bookings declined to 43.4% from fiscal 2018’s 44.0%,
due to the rise of 5G projects, mainly
equipment sales.

We will continue to focus on customer success and support customers from the overall conceptualization stage of ICT utilization.
In accordance with the ideal state androadmap jointly developed with customers, we will offer unique, high-value-added
solutions in a phased and ongoing manner,combining elements such as network systems, security measures, and cloud utilization.

With a view to adopting the new revenue
recognition standards that will be applied
from April 2021, we have redeveloped andoptimized our business processes and internal rules, while designing a digital platform
policy to achieve operation automation.
However, the adoption of the new revenue recognition standards has been postponed for one year due to factors including
investigations related to fraudulent acts.

We will begin digitalization in phases to support new operation processes. This will allow us to link operation processes and data,
automate operations, and provide more
useful information to our customers on a
trial basis.

above-mentioned efforts, it is necessary to improve the productivity and service quality of the Group. For this reason, we
have positioned and are promoting the current Medium-Term Business Plan as reforms to adapt to a new era.

Three basic strategies

Strong

Focus on creating high added value

Drive the Integrated Service
Business

Expand focus markets andnew models
Extend market coverage

Drive the Integrated Service
Business
Increase the service ratio

Implement Work Style
Innovation 2.0/DX
Increase productivity

We will expand revenues in three focus
markets (healthcare, school systems, andsmart factory markets) where significant
progress in digitalization is expected, andin two new business models (support for
managed service providers (MSP) anddevelopment of the refurbishment business) that capture the growing demand
for the shift from ownership to use.

We define all of our activities for our customers as Integrated Service Businessthat creates high added value and provides lifecycle services to support theseries of activities that include planning,building, operation and optimization for
the future of ICT.

We will provide highly effective solutions
by pursuing both business innovationand digitalization to improve the productivity of the Group, improving operational speed, quality, and governance, andsharing the knowledge of the Group’s
successes and failures in these initiatives
with our customers.

Slight delay
Implement Work Style
Innovation 2.0/DX

Three growth steps
Become an attractive company that can provide new value

Growth of customer / partner
Value co-creation

Progress of the Medium-Term Business Plan
Performance highlights for the first year

Growth of employees
Initiative

Growth of the company
UniquenessOperating margin: 8.9%
(Up 1.9 pt YoY)

Service ratio: 42.8%(Up 0.2 pt YoY)

Medium-Term Business Plan targets
Operating margin: 9.5% Service ratio: 50.0% ROE: 16.8%

19Annual Report 2020

Operating income: ¥16.4 bn(Up 35.4% YoY)

Outlook from the next fiscal year and beyond

Bookings and profitability were higher thanplanned due to strong growth in value added businesses including security measuresand cloud systems.
Meanwhile, revenue fell slightly short of theplan due to delays in the delivery of someequipment as a result of the COVID-19 outbreak.

We maintain our plan to achieve the figures
as announced for the third (and final) yearof the Medium-Term Business Plan. In thesecond year of the Medium-Term Business
Plan, although revenue is expected to belower than the plan due to the impact of
the COVID-19 outbreak, operating income
is expected to be in line with the plan due
to improved profitability.

Annual Report 2020

Key Data

Fiscal 2019

Review of the first year

Review of Operations

Performance was strong in all of our focus
markets and our new business models progressed as planned, thanks to the continued strength of shifting to cloud computing and security measures.

Our customers are currently placing digitalization at the heart of their business strategies and investing in the utilization

Sustainability

Future initiatives

Growth Strategy

Review of the first year

Value Creation

Progress with Fiscal 2019-21 Medium-Term Business Plan: First Year Review and Future Initiatives

President’s Message

Overview of Fiscal 2019-21 Medium-Term Business Plan

20

2 Growth Strategy

Measures to Achieve the Targets in Our Medium-Term Business Plan

Results in New Business Fields and Future Initiatives

In addition to responding proactively to the significant changes in the market
caused by the COVID-19 outbreak, we are implementing structural reform topromote our growth strategy and establish a strong management base

Focus markets

Response to the COVID-19 outbreak

StrongStrongStrong

As a result of the COVID-19 outbreak, it has become increasingly difficult for customers to go to work, and they are fundamentally reviewing their work style utilizing ICT from the perspective of business continuity. The Group will continue to support thebusiness continuity and work style innovation of customers through the following initiatives.

School systems

Healthcare

Smart factory*Business segments: Enterprise market and partner business

Target customer: Large manufacturers

Bookings: +¥2.0 bn

Bookings: +¥2.5 bn

Bookings: +¥2.7 bn

Project examples

Project examples

Project examples• Integration of different ICT platforms fordifferent medical systems• Virtual desktops for electronic medical records• Operational services that cover all ICT platforms• Integration of different ICT platforms fordifferent educational systems• Classroom Wi-Fi for utilization of ICT in
education• Network isolation in line with security guidelines• Operational services to support customers’
shortage of human resources• Grand design creation consulting• Development of an intra-plant network system
and visualization of tens of thousands ofconnected devices• Intra-plant security and network operation
services[Compared with FY2018](FY2021 target: +¥5.0 bn)[Compared with FY2018](FY2021 target: +¥5.0 bn)

Supporting thebusiness continuityof customers[Compared with FY2018](FY2021 target: +¥5.0 bn)

Customer demands and main future initiatives

Customer demands and main future initiatives

Customer demands and main future initiatives• Separate procurement of medical applications
and platforms• Work style innovation for healthcare workers• Utilization of ICT in the education of children
and students• Integration of platforms for educational
information systems• Data collection, visualization, analysis andimprovement to boost the utilization rate ofproduction facilities

Improvement in thebusiness continuityof the Group(Acceleration of Work
Style Innovation 2.0/DX)

Implementing structural reform to promote our growth strategy and establish a strong management baseWe implemented the following structural reforms on April 1, 2020 to promote our growth strategy and establish a strong management base.

New models
As planned

Managed Service Providers (MSP) support

Refurbishment business

Bookings: +¥1.0 bn [Compared with FY2018]

Bookings: +¥1.6 bn [Compared with FY2018](FY2021 target: +¥5.0 bn)(FY2021 target: +¥5.0 bn)

Project examples

Project examples

MSP

Users

System integrators

Wi-Fi

Nationwide chain
storesInformation systems
subsidiaries oflarge companies

SecurityGroup companies

Telecom carriers

SD-WAN

Medium- andsmall-scale bases

Customer demands and main future initiatives• Service providers: Co-creation of new services with high operability• Users: Shift to a usage model in response to the shortage of ICT humanresources

21

Annual Report 2020

• Continued use of equipment no longer supported during the cloud
migration period• Verification of equipment selection for expansion to hundreds oflocations• Use of commodity equipment for 10 years
Customer demands and main future initiatives• Improvement in investment efficiency through the use ofrefurbished products• Shift from ownership to usage modelEstablishment and reorganization of sales departments to strengthen relationships with focus
markets and markets and customers we serveEstablishment of new engineering departments to increase the flexibility and speed of customer
service in the technology field

Review of business
control systems

Establishment of the Sales Supervisory Office, an organization reporting directly to thepresident, to control and manage operational rules for the entire company, including sales
transactions
Establishment of a Sales Management Office in each business unit to promote the optimizationof sales operations and to control business operations in cooperation with the Sales Supervisory
OfficeExpansion of thesales support
systemEstablishment of the Product Marketing Department to strengthen product strategy and vendor
relationsEstablishment of the Field Marketing Department to capture focus markets, accumulateknowledge on each market, and create new business models
Establishment of the Advanced Technology Strategy Office to keep abreast of the latest
technology trends, discover new technologies, and study business models from a medium- tolong-term perspective
Establishment of the Business Management Department to strengthen management of theservice business

Promotion of humanresource strategy

 stablishment of the Human Resources Development Office to promote the recruitment andEdevelopment of human resources

Annual Report 2020

Key Data

Services

Improving customer
responsiveness

Review of Operations

As planned

Promotion of digitalization by digitizing paper forms and contracts and expanding the scope ofelectronic commerce (electronic data interchange, EDI)Strengthening systems to support customers’ system operations from remote locations
Establishing a system that does not affect the provision of services to customers even whengoing to work is difficult

Sustainability*Business segment: Public market

Target customer: Education boards

Growth Strategy*Business segment: Public market

Target customer: Large hospitals

Provision of systems that support remote working environments, including video conferencing
and web conferencing, virtual desktops, and file sharing services
Provision of network systems for stable system operation and security measures for preventing
information leaks, even when working outside companies
Provision of knowledge gained through work style innovation the Group has pursued for ten
years

Value Creation

We are implementing projects and initiatives to create high added value andgrowing bookings in response to strong needs for cloud utilization andsecurity measures

President’s Message

Progress with Fiscal 2019-21 Medium-Term Business Plan:

22

2 Growth Strategy--Our Integrated Service BusinessFeatures of Net One’s Integrated Service Business (1): A Service Platform Backed by Unique Intellectual Property

We will evolve into a leading company inintegrated services that achieves valueinteraction

Establishment of facilities dedicated to accelerating customers’ DX,
by leveraging the tangible and intangible assets we have cultivatedCapturing business opportunities as a player capable of providing total servicesa Technical Center, Quality Assurance & Management Center, Security Operation Center (NetOne-SOC) and eXpert Operation
Center (XOC), other companies have reduced or eliminated facilities and equipment with a view toward asset or cost efficiency,
as the focus of the ICT industry has shifted from hardware to software. Furthermore, an increasingly smaller number of companies

Fumihiko Shinoura

are retaining their hardware quality control know-how. On the other hand, the fact that the Group has retained its facilities andSenior Vice President
In charge of Business Development
Division and Customer Service Divisionequipment and has continued to refine its technology, which is grounded in material things, has led to the creation of new
relationships with partners who wish to conduct joint verification. We are also able to create new value by combining our unique
In June 2020, we renovated the “Solution Briefing Center”, which demonstrates state-of-the-art ICT, into the “netone Briefing

Overview of Net One’s Integrated Service BusinessWe will reconsider the nature of tangible and intangible assets, with the aim of creating
new value and ripple effects
Since fiscal 2018, we have defined all of the Group’s activities as “Integrated Service Business,” and have been working

Center”, which focuses on interactive value co-creation. We also established “Lab as a Service” to verify ICT utilization in a multicloud environment with our customers. These efforts will enable us to verify the effectiveness of ICT platform utilization, in termsof both the overall DX concept and cutting-edge technology, in order to help customers realize their ideal future vision. We arevery excited about the contributions we will make toward helping our customers accelerate DX.
In addition, as the shift to cloud computing progresses and the major players in the industry change, we believe that we canEverything ranging from our facilities and equipment to our technological capabilities, experience, solutions, and systems

become an ICT platform advisor because we can propose entire systems without competing with cloud services. By effectively

operations and optimization represents our unique intellectual property. In fiscal 2020, we are realigning the nature and value ofleveraging all of our assets, we believe that we can accelerate our Integrated Service Business and uniquely position ourselves

these assets and accelerating the effective utilization of our intellectual property and the expansion of our service platform, withas a player who can design, build, operate, and optimize the entire system and capture new business opportunities.

the aim of value interaction between ourselves and our customers, vendors, and partners.

Features of Net One’s Integrated Service Business (2): Lifecycle Services from the Standpoint of
Customer SuccessInformation

Business partners

Value Interaction(Mutual value ripple effect)

Overview of the Integrated

Quality

Service Business

Engagement model“all in”
Platform

Lab asa Service

netonenetone on
Briefing Center
netoneOptimize

Plan

OperateConsulting

Propose

Project management

Design / Install

OperateBuild

Unique service platform

Unique intellectual property

We a re leve raging the uniqueintellectual proper t y we haveaccumulated to evolve our service
p l a t fo r m, w h il e s i m u l t a n e o u s l y
expanding and linking our lifecycle
ser vices from the standpoint of
cu s tome r su c c e s s. By building
a n d d e l i ve r i n g a n e n g a g e m e n tmodel that maximizes value for ourcustomers, the new value that wehave co-created with our customers
will create ripple ef fects for ourcustomers, and beyond.

to include monitoring, operations management, and optimization services as standard services, which had previously been
provided on a customer-by-customer basis. The standardized service menu now consists of 16 services, several of which areunlikely to be available at other companies.
For example, our operations management services include training services. Operations management services are generally
services in which an engineer manages the system on the behalf of the customer. However, it can be beneficial for both thecustomer and ourselves, if the customer understands and is able to utilize their own system. For this reason, we provide
onboarding training services that go beyond simply training customers on how to use their systems, to assist them in making themost effective use of their systems.
We also have a proven track record in installing cloud systems, starting with the installation of network systems. One of our

Key Data

Lifecycle services fromthe standpoint of customer success
MaintainIn fiscal 2019, we expanded and standardized our service menu, which was focused on design, installation, and maintenance

Knowledge andexperience

Review of Operations

Achieving optimization by taking charge of system integration, including onboarding training
Promoting the standardization of services to enable roll out

Sustainability

to increase the service ratio. “All of the Group’s activities” refers to the various tangible and intangible assets of the Group.

Customers

Growth Strategy

solutions and onsite strengths with these new relationships.

Vendors

Value Creation

One example of our unique intellectual property is our multiple variety of facilities and equipment. Although the Group possesses

President’s Message

Topics / Executive Interview

strengths is our thorough knowledge of system integration, which allows us to make proactive optimization proposals. Throughour organizational reforms in April 2020, we have shifted to an organizational structure that enables us to provide services more
efficiently on a company-wide scale. We would like to provide high-value-added services to customers, even for those to whom
we only provide maintenance services at the moment, by promoting optimization proposals based on system integration.

Creation, practice, and evolution

23

Annual Report 2020

Annual Report 202024

2 Growth Strategy

Strategy (2): Business Strategy for the COVID-19 Era

Digitalizing and expanding customer contact points / By making the onsite strength which isdemonstrated at times of emergency more accessible, we will promote DX and contribute tosocial innovation

Customer strategy
support services

I personally believe that standardizing the business flow and rolling it out is only one step in DX. A perspective that includes theentire value chain, not just internal processes, is indispensable for DX. Because our business model still relies on the number
New operations servicesof employees to increase the value we provide, we can say that the ultimate DX is to shift to a model that creates value throughOptimization proposals based on
system integration

Lifecycle services targeted by Net One

System maintenance services
Maintenance support based onunderstanding of system structure

Product maintenance services
Product failure recovery andinvestigation of causes
Expansion of service areas

For this reason, through our organizational reforms in April 2020, we established a new Advanced Technology Strategy Office tocapture next-generation technologies and study new business models.
Our communication with customers is becoming increasingly centered on digital channels, and is expanding due to COVID-19.
In fiscal 2019, we made significant progress in making a variety of information available, including maintenance information
provided to customers through the launch of a customer portal. Although there were some engineers who were concerned prior
to the launch that all of the information would be open, this structure is now supporting communication with customers, and theengineers have shifted to a mindset of creating new value.

Strategy (1): Market Strategy Based on Model Case Studies

The momentum for DX, including the advance of telework, has never been greater in fiscal 2020. Against this backdrop, it will
be necessary for us to further communicate our successes and failures in the utilization of ICT to customers. In addition, while it

The joint cloud service for municipalities in prefectures is a model case of the Integrated Service Business. We initially installed

was necessary in the past to convince vendors to open up their APIs (Application Programming Interfaces), as they promote DX,

an integrated platform for a prefecture, and have expanded our services to include the provision of a security cloud, as wellvendors are now rethinking the way they create value, and are opening up their APIs themselves. In April 2020, we establishedas storage services which include the education boards. In fiscal 2020, we will install a joint-use platform that will include local

a Field Marketing Department to strengthen our new proposal model for customers under the impact of COVID-19, as well as agovernments in the prefecture, and launch a joint cloud service for municipalities. This platform has already been connected to

Product Marketing Department to further strengthen our relationships with vendors from a value chain perspective.
We are also observing transformation within the Company. I believe that our greatest strength is our onsite strength. Wheneducation boards, and other local governments, enabling customers to level ICT costs and enhance security. This is creatinga system problem occurs, people naturally come together, even if they are not involved, to come up with ideas and solve the

new collaboration models, not only in the vertical deployment of services in terms of expansion of services, but also in terms ofproblem. This is the best example of our onsite strength, but it has only been clearly demonstrated in times of emergency.

spreading out services from one prefecture to other municipalities in the prefecture and beyond. At the present time, our market

However, unexpected constraints have arisen due to the impact of COVID-19, and autonomous and spontaneous problem-

strategy is to focus on expanding collaborative models, particularly with public institutions, and creating new collaborative

solving actions have emerged throughout the Company. DX is inevitably part of the framework of a grand design, and it is notmodels in the enterprise market. As we increase such collaborative models, we intend to become the core of these models, andalways possible to see the progress made in day-to-day operations by each individual. Meanwhile, I strongly feel that if there

build win-win relationships with participating businesses and serve as a hub of the ecosystem, with the aim of value interaction.

are a few guideposts, many employees will be able to realize their own personal growth, and it will be possible to innovate theCompany in a way that is recognizable. In order to do so, I want to create many structures and opportunities for employees toConnecting with the education fieldElementary,junior high,and high schools

Joint cloud service for municipalities

Expansion of sharing to other prefectures

Municipalities in
the prefecture

大学
Universities

Academic
network

Other prefecture
Service
platform

Local government
joint cloud system

Other prefecture

Lab as a Service

Public cloud

Common platform services

Cloud HUB
Integrated operations services

Security services

The functions necessary forcloud services, including multicloud connectivity and security
measures, are provided as the
Cloud HUB service. Public clouds
can also be used safely andsecurely, and the service is also
connected to the education field.
In addition to providing an ICT
platform to municipalities in theprefecture, it will also be possible to expand the sharing ofcloud systems to other prefectures in the future.

grow on the frontline.
It is important to provide strategic services and installa platform that incorporates the entire value chain. As
we move forward with the formation of an ecosystem,
we will continue to promote DX for the Company andour customers in order to achieve value interaction,
without missing out on harnessing the momentum for

Key Data

Education boards

Joint cloud services formunicipalities

Review of Operations

other prefectures, and allows the system of one prefecture to be expanded horizontally across the prefecture to municipalities,

Sustainability

Moving to a new stage of collaboration with customers and becoming an ecosystem hub

Growth Strategy

Services that support the development of
the ICT platform strategies of customers,by ex p a n d i n g t h e s c o p e o f p r o p o s a l sfrom traditional services such as design,
installation, and maintenance to operations
and overall system optimization.

structures. Close relationships with world-leading partners and customers are essential when considering new business models.

Value Creation

Deepening relationships with customers

Supporting the development ofstrategies for the entire ICT platform

President’s Message

Becoming a strategic partner

innovation created by the impact of COVID-19.

Service platform that supports sales activities

25

Annual Report 2020

Annual Report 202026

3

Sustainability
Key Sustainability Issues

Pursuing sustainable growth with society through our business andmaintaining sustainability as a company
Train personnel
Our management philosophy is to “Contribute to innovation in society by utilizing ICT,” and we aim to contribute to social
overcome issues in their operations and contribute to their success. We have defined key sustainability issues from two

Strengthen security

Results

Cultivating personnel who can put customers’ ideas
into practiceCreating a working environment where all employees
can maximize their abilities

Number of technical qualification holders: 1,411
Average years worked at Net One Systems: 9.27 years
Promoted six industry-academic collaboration projects

Achieving safe and secure access to ICT networks
Development and provision of cyber security

Number of engineers certified by Palo Alto Networks*:
Top company in Japan
Number of participants in training courses for Group
employees: 354 (fiscal 2019)as a company for preparing against risks.

Gaining an understanding of customer satisfaction
and changing expectations through ongoing customer
satisfaction surveys
Verification of the Company’s policies through regular
employee awareness surveys

Customer satisfaction “Satisfied / Somewhat satisfied”:
89.4% (fiscal 2019)
Employee awareness survey: Valid response rate ofover 90% (fiscal 2019)

Reinforcing risk management
Promoting complianceMeasures to prevent recurrence (P.46)

Provide new value

Creating value co-creation opportunities to promote ICT
utilization

Established facilities dedicated to accelerating DX
Service bookings: +11.5% (compare to fiscal 2018)

Utilize ICT to reduce
environmental
impactReduction of energy usage and CO2 emissions in ourbusiness activities
Developing the refurbishment businessUnit energy consumption: Achieved a reduction of
average of 1% each year over five fiscal years
Refurbishment business bookings: +¥1.6 billion(compare to fiscal 2018)

Approach to key sustainability issues

Digitalization / ICT Governance
Optimal solution based on
expertise in utilizing ICT

Achieve customer success

Build relationships
with stakeholders

Increaseproductivity

Work styleinnovation

Maximize value provided
by customers

BCP
measures

Optimize customer
resources

Security
measures

Minimize customer risks

Improve andreinforce thebusiness base

Sustainable growth with society through our business*A network security vendor supplying world-class next-generation firewalls

Operation of management system

Key sustainability issues
Strengthen security

We have obtained system certifications related to the management system for the promotion of key sustainability issues.

Train personnel
Build relationships withstakeholders

Improve and reinforce
the business base

ISO27001:

Information security management system certification standard

ISO27017:

Security quality management system for cloud services

ISO14001:

Environmental management system certification standard

ISO9001:	Quality management system (inspection and verification of computer network equipment at

Maintaining sustainability as a company

our Quality Assurance & Management Center)
Privacy mark:Strengthen governance

Promote compliance

Personal information protection management system

Identify andeliminate risk

Key Data

Eliminating risks inhibiting
sustainability

Example of ICT utilization ▶ https://report.netone.co.jp/en/sustainability/summary/reference.html

Responsibilities andcontributions tostakeholders

27

Annual Report 2020

Responsibility tocustomers

Responsibility topartners

Responsibility toshareholders

Responsibility toemployees

Contributions to
the ICT market

Review of Operations

Utilize ICT to reduce
environmental impact

Provide new value

Sustainability

technologies

Growth Strategy

perspectives: a perspective of sustainable growth with society through business and a perspective of maintaining sustainability

Value Creation

innovation through our business. We are using our expertise in utilizing ICT and advanced ICT platforms to help customers

Initiatives

President’s Message

Basic Approach and Key Sustainability Issues

Contributions to
civic society

Contributions to
the global
environment

Annual Report 202028

3 Sustainability

Basic approach to human resources development and empowering diverse personnel support systems

Training framework and the employees Net One needs

As a company that uses the experiences of success and failure in our business as reference cases to utilize in solutions for

At Net One Systems, we strive to cultivate personnel who can put customers’ ideas into practice, based on our belief that “there

customers, all the knowledge and experience of our employees is used to create added value.

is an optimal solution for every customer.” We have a variety of training and education systems in place to enhance our human

In our Medium-Term Business Plan, we are promoting the Integrated Service Business as a basic strategy to convert theactions of each employee into a service, and our human resources are the driving force behind our growth. We are focusing ourefforts on training personnel who can work independently and create solutions.
diverse backgrounds. By creating a workplace environment in which each employee can proactively express personal ideas andwork with enthusiasm, regardless of any differences, including gender, age, nationality, disability, work experience, or values,
we aim to draw out various strengths of each individual, foster a corporate culture of openness, and achieve sustainable growththrough increased productivity.

<Employees Net One needs>(1) The ability to address customer needs using a wealth of expertise in cutting-edge technologies and the desire to boldly takeon groundbreaking new challenges(2) The ability to lead innovation by leveraging communication skills and building collaborative relationships with all project partners(3) The ability to work independently towards goals in self-designed career path scenarios

Net One Systems’ training framework
Orientation /Early training

Grade

Work basics
add-onHuman Resources Department is responsible for the overall management of humanresources to establish and maintain the business base that will support the growthof the entire Net One Group over the medium to long term.

Work basics

As an advisory body for the Management Committee, it discusses key systems andinitiatives related to organizations, personnel and human resources development,
and reports to the Management Committee. The HRC consists of general managers,
directors, and others, is supervised by an executive director, and is chaired by ageneral manager.

Orientation for
mid-career hires
	-Understanding of
the Company
	-Understanding ofinternal systems
	-Understanding of
the work

As an advisory body for the Management Committee, it discusses key systems
and initiatives related to promotion of diversity, and reports to the Management
Committee. The DSC consists of directors, deputy directors, and others, issupervised by an executive director, and is chaired by a director.

★ New management
literacy basic training
S grade Training for
promoted employees

J

Engineers
SBO**
PMP***Engineers
Skill improvement-AI-Security-Automation-Software

J grade Skills
improvement training★ New J grade
Training for promoted
employees (for midcareer hires)
Third-year employees
Follow-up training

Engineers
Basics-Network

Second-year employees
Follow-up trainingA
New employee
training★ Brothertraining★ TAKUMI
development
program

Review of Operations

Diversity Steering Committee (DSC)

S

Sales
SBO**

Leadershipdevelopment program

Sustainability

Human Resources Council (HRC)★ New S grade Skills
improvement training

Optional

Theme-specific seminars / e-learning

Human Resources Department

Newly established in April 2020. Human Resources Development Office promotes
the enhanced recruitment and early development of human resources.

Training for
newly appointed
managers

E grade Training for
promoted employees

E45

Training for
managerial positions

Human Resources Development Office

We position the growth of employees (initiative) as our growth strategy and promotepersonnel measures under the strong commitment of the management team.

★ Training for
newly appointed
directors★

Top commitment★ New BMC* Training

E123

Mandatory

Selective training
Growth Strategy

Training forexecutives

Executives

Development Office in April 2020 to strengthen the recruitment and training of human resources that will contribute to the growthof the Net One Group.

By position

Diversityorganizations and systems under the strong commitment of the management team. We established the Human Resources

By job type

Career seminar

By grade

To promote personnel training and empowerment of diverse personnel, we manage and operate various cross-company

Goal-based training

Risk / Compliance / Harassment

Implementation system

Basic training

Value Creation

We are also promoting diversity with the aim of creating synergies and innovation through the integration of people fromresource training programs.

President’s Message

Key Issue (1) Train Personnel

First-year employees
Follow-up training

Sales
Work basics** Strategic Business Orientation (Training for strategic businessIn fiscal 2020, we will strengthen basic training by expanding grade-specific training at a wide range of levels, and also strengthen

Key Data

Provided by our Network Academy ★ Additional training from fiscal 2020
*Business Model Canvas (Inspection method that visualizes business structure)
thinking) ***Project Management Professionals

sales training through Business Model Canvas (BMC) training.
In addition, in response to organizational reforms, we have expanded training for newly appointed directors and managerial
positions, and introduced a TAKUMI development program to leverage the strengths of upper-level engineers in the professional
field as well.
Related indicators
Number of technical qualification holders: 1,411 (as of August 4, 2020)
29

Annual Report 2020

Annual Report 202030

3 Sustainability

Occupational health and safety initiatives

Full operation of the job description system started

Net One Systems believes that empowerment of our employees is essential for the growth of the Company and that ensuring
the health and safety of our employees is extremely important to achieve this, and we have established a health and safety

We started the full operation of the job description system inmanagement system based on this belief.

Growth of employees

2020, in order to support the autonomous career path buildingby employees. Job descriptions visualize the roles expected of

Key measures in occupational health and safety

Loyalty improvement

Prevention of overwork

link them to the missions of each organization and skills, clearlyverbalizing the responsibilities, actions and skills expected
for individuals. The introduction of a job description system

Strategic
HR management

allows each employee to picture more clearly his or her own

Job description

We are working to establish a comfortable and healthy work environment by setting Work-Life Balance Targets for compliancewith laws and regulations, ensuring employee health, and improving productivity.
Related indicators

goals, which will enable employees to proactively communicate
their goals in one-on-one meetings with superiors, thereby

HiringTraining

Stimulation

Retention

Amount of overtime hours worked (monthly average): Target of 30 hours or less; fiscal 2019 result: 24.0 hours
Paid leave utilization rate: Target of 80% or more; fiscal 2019 result: 68%* We are further promoting the use of the planned annual leave system and considering the introduction of an hourly paid

Talent management

express their ideas.

leave system in order to achieve the target for the paid leave utilization rate.
Consideration for mental healthKey measures to support career development
Development based on one-on-one dialogue and understanding

We conduct stress checks to prevent mental health problems and improve the workplace environment. The participation rate
has improved each year, at 89.7% in fiscal 2017, 92.2% in fiscal 2018, and 96.2% in fiscal 2019. We are also disclosing trends
and analysis by organization to those in managerial positions in each department to help them respond. The level of stress inhave established a one-on-one system. Currently, through the proactive efforts of each department, the one-on-one system

the workplace is low and favorable compared to the national average.

has been expanded to include Skip One-On-One, a dialogue with a director or deputy director who is not a direct supervisor,

Related indicators

and Cross One-On-One, a dialogue with mentors across departments. In fiscal 2019, we introduced a Development One-On-

Level of stress in the workplace: 88 (If the national average is set at 100)

Sustainability

We believe daily experience in the workplace is the basis for employee growth, and to make that experience more effective, we

One Sheet system to visualize the progress with implementation and content of one-on-one dialogue and link them to initiatives
to improve quality. We plan to utilize the one-on-one implementation rate as a key indicator for our initiatives. In fiscal 2020, we
will hold study sessions for managerial positions with the aim of sharing know-how on the implementation of the Development

Measures against COVID-19
In response to the spread of COVID-19, the Net One Group is encouraging its employees to work a hybrid work schedulewith a focus on remote working with some office work, as well as web and video conferencing both inside and outside theCompany in order to prevent damage to the health of employees of Net One Group and partner companies, customers, andEstablishing systems and fostering an organizational culture to promote the empowerment of diverse human resourcesbusiness partners, and to continue to fulfill our social responsibilities in our business.

In addition to a Flexi Work System and Remote Working System, we have established a Work Select System that allows
employees to limit their time, place, and job duties, and a Multi-Job System that allows employees to work at other companies

Related indicators
Remote work utilization rate: 82.8% (as of May 25, 2020 *The date when the state of emergency was lifted for all

to acquire skills, thereby supporting career development through continued employment. Moreover, we support career

prefectures)

Review of Operations

One-On-One in order to strengthen our management level to support the career development of employees.

Growth Strategy

promoting autonomous career development, and fostering a
corporate culture that encourages employees to proactively

Value Creationindividuals, which were previously defined by job grade, andPresident’s Message

Support for career development that draws out the initiative of employees

development beyond the scope of current operations by implementing personnel transfers, an internal job posting system, andeven industry-academic collaboration projects. Furthermore, we are working to create an organizational culture that encourages
Key Data

the empowerment of diverse human resources through the Diversity Promotion Day as a company-wide event, holding
workshops, and ongoing educational activities on diversity through the distribution of top management messages and columns.
Related indicators
Average years worked at Net One Systems: 9.27 years (fiscal 2019)
Personnel transfer implementation rate: 6.3% company-wide average, 9.3% for managers (implemented in April 2020)
Use of the internal job posting system: 17 applicants for 32 (17 cases) openings, transfer decided on for 12 applicants (fiscal 2019)
Number of industry-academic collaboration projects: 6 (as of the end of July 2020)31

Annual Report 2020

Annual Report 202032

3 Sustainability

Basic approach

Providing security services

Net One Systems has been a pioneer in the network field since it was founded. By actively exploiting new products and tech-

Amid advances in ICT technology, security threats and risks are becoming more sophisticated, making existing approaches

nologies and supplying them to customers, we have contributed to advances in information technology in a range of fields,

and measures increasingly obsolete. Net One Systems provides a range of security services that ensure the reliable and securefrom industry and the economy to arts and sciences. At Net One Systems, ensuring information is handled appropriately andoperation of public ICT platforms.

President’s Message

Key Issue (2) Strengthen Security

We also provide research and training for customers and run courses at universities and colleges of technology to cultivate

securely is a key responsibility to society and one of our most important management issues.
Information security is becoming increasingly important in modern society. In response, we are strengthening the Group’s
erence our own experience from moves to strengthen security to improve the service menu for customers.

SolutionsP rovision of solution with optimized security packages tailored to the cloud development

Cloud security:

stage of customers

Basic policy on information security
To protect our information assets, we are implementing a range of measures in line with our Basic Policy on Information Secu-

Network security:

 rovision of solution with comprehensive network security for entire organizations, includingP
secure cloud access and internal LAN

rity, such as ensuring compliance with and appropriate management of regulations, and conducting education and training for
IoT security:O ptimal security solutions based on visualizing all IP devices, including IoT devices and PCs

party.

Endpoint and mobile security:

 olutions that provide protections against sophisticated endpoint attacks and rapid response
S
based on threat activity detection, analysis and control

As cyber-attacks become more sophisticated, ensuring internal cyber security is one of our responsibilities to society. We havePhysical security:

Integrated physical solutions and image analysis solutions

established a Computer Security Incident Response Team (CSIRT) framework covering all divisions in the Group to respond

Security services that support the customer’s life cycle

rapidly to any cyber security incidents in Net One Systems’ networks and speed up decision-making.

MSS (managed security services):	IDS/IPS (intrusion detection and prevention system) monitoring services and next-generation

Growth Strategy

employees. Information security measures in all areas of the Group have received ISMS certification from an accredited third

CSIRT framework

Value Creation

security stance based on internal risk management guidelines and our lineup of security products and services. We plan to ref-security professionals who understand and can utilize the latest security technologies.

firewall monitoring services that conduct real-time monitoring and analysis of log output from
MDR (managed detection &response) services:

Chief Information Security Officer (CISO)
Information Security Audit Department

monitoring and operation services that maintain and strengthen internal cloud governance byInformation Management
Department Administrator

Information System Management Department

Information System Operation
Officer

Information System
Operation Administrator

Facility Management Department

Facility Management Department
Officer (site managers)

Facility Management
Department Administrator

Information Security Education and Training Department
Product Management Department
Public Relations Department

Related indicators
Major information security incidents requiring external reporting: 0 incidents
Employee participation rate in information security e-learning courses: 100%
Number of engineers certified by Palo Alto Networks: Top company in Japan

Security diagnosis services:	Assessment services that inspect and analyze the vulnerabilities (security holes) in an
organization’s network and information systems and report the results with measures to be
taken
Education / Training
Network academy: 	Cultivating information security personnel and providing security courses to customers
tailored to the level of user proficiency
Examples of contribution to resolution of social issues through our business:
Joint development of information security education programs

The shortage of information security human resources has become a social issue. According to the “Findings of METI’s Study ofRecent Trends and Future Estimates Concerning IT Human Resources” released by the Ministry of Economy, Trade and Industry, there
was a shortage of 193,000 information security personnel in Japan in 2020.
Kagawa University Faculty of Engineering and Design established a Program in Computer Science, Systems, and Security in April
2018 to develop human resources for information security, and it is conducting a variety of educational and research activities toaddress the lack of human resources mentioned above. We are jointly developing an information security education program together
with Kagawa University. The program includes classes on information security with instructors from our Network Academy, as well aspractical information security exercises using actual network equipment with our network engineers serving as instructors.

Annual Report 2020

Key Data

NetOne-CSIRT

visualizing security risks in the cloud
Review of Operations

Information Management Department

Information Management Security
Officer (each department / office)Annual Report 2020

responding to devices infected with malware within an organization’s network

Cloud security services:	Respond to ICT governance risks stemming from loss of control during cloud usage. Security

ISMS Office

33

Security monitoring and operation services for detecting, identifying, andSustainability

target devices installed in the customer’s environment34

3 Sustainability

Basic approach

President’s Message

Key Issue (3) Build Relationships with Stakeholders
Key measures

Our management vision is to be “a company trusted and supported by all stakeholders (an admired company)”. To achievethat vision, we have set out “seven missions” for our business – fulfill our responsibilities to customers, partners, shareholders

Three contributions

Realizing a prosperous society forpeopleAlthough ICT has dramatically increased the convenience of society, technology alone cannot enrich thelives of people. This is why we are engaged in activities that contribute to the enrichment of people’s lives,
such as support for social welfare organizations andsports activities.

Contributing to the creation of anenvironmentally friendly society

We contribute to the creation of a sustainable society
by using cutting-edge ICT to prevent global warming
and by taking steps to save energy and resources.

dependent on building trust with our various stakeholders. Net One Systems is working to create those connections throughdialogue with stakeholders.

Key measures and highlights
Four responsibilities

Basic approach

Pursuing business success forcustomers

Responsibility tocustomers

Building win-win relationships

Responsibility topartners

Responsibility toshareholders

Responsibility toemployees

We have formulated the Partner CSR Guidelines toshare our philosophy and policies with our suppliers.
In fiscal 2019, we once again conducted compliancequestionnaires to gain an understanding of the situation of our partners and build relationships based on
mutual understanding.

We disclose information and actively engage in dialogue with market participants in accordance with
our disclosure policy. In fiscal 2019, the Company’s
Chairman and President held meetings with investors
in Japan and overseas 36 times, while the Public Relations & Investor Relations Office held 255 investor
meetings.
Net One Systems has set up training programs to
support personal growth and development and ensure
equal opportunities for all employees. The Company isalso working to provide safe and comfortable working
environments that take into account employee health.
We are also promoting the concept of RCT*. In fiscal
2019, we conducted a trial for the full operation of
the job description system, and also conducted an
employee awareness survey.

*Respect, Communication, Teamwork: A shared communication approach designed to create strong links between the Company and employees, enhance
workplace environments and improve working conditions.

35

Annual Report 2020

Contributions to
civic society

Contributions to
the global
environment
Case studies of communication with stakeholders ▶

https://report.netone.co.jp/en/sustainability/issues/issues3/feature.html#a01

Implementation of a customer satisfaction survey
In the fiscal 2019 customer satisfaction survey, of the overall satisfaction level (satisfied and somewhat satisfied), the score for"satisfied," in particular, was the highest level since the survey began, rising by 9.8 percentage points. While customers’ expectations
for the Company have been for “sales support” and “SE support” up until now, future expectations are “design and installation related”
and the “provision of information from Net One.” Because there is a strong correlation between satisfaction and the survey item
“intention to continue doing business,” we are focusing on activities and initiatives to improve customer satisfaction.

Implementation of an employee awareness survey
In February 2020, we conducted an employee awareness survey in order to gain a better understanding of employee attitudes and to
identify issues related to the Company’s policies in order to reflect them in the future policies.
Because this employee awareness survey was conducted after the revelation of fraudulent acts in December 2019 and before
the announcement of measures to prevent recurrence in March 2020, we believe that the timing of this survey was most conducive
to identifying issues for the Company with respect to items such as trust in management policies. With a valid response rate of over
90%, we were able to confirm that employees felt they were making a real contribution to customers. However, there were also many
requests for a more effective training system.
We will continue to conduct employee awareness surveys on a regular basis going forward so that we can verify the results ofregular initiatives and reflect them in future policies.

Annual Report 2020

Key Data

Pursuing the happiness of ouremployees

We have set up a committee to improve customer
satisfaction. As part of its activities, the committee
runs customer satisfaction surveys and engages in
dialogue with customers.
In the fiscal 2019 customer satisfaction survey, 89.4%
of respondents were satisfied or somewhat satisfied,
an increase of 0.9 percentage points from the previous
survey.

Review of Operations

Realization of continuous growth

Key measures and highlights

Contributions to
the ICT market

Sustainability

Contributing to the development andexpansion of the ICT market

We are constantly monitoring market trends, proactively introducing new technologies, and contributing
to the development and expansion of the ICT market
as one of the leaders in the field of ICT technologies
with a focus on network technologies.

and employees, and contribute to the ICT market, civic society and the global environment. The Group’s sustained growth is

Growth Strategy

Key measures

Value Creation

Basic approach36

3 Sustainability

Basic approach to corporate governance

Governance structure

Fiscal 2020

The Company’s management vision is “to be a company trusted and supported by all stakeholders (an admired company).”
Shareholders Meeting

The Company believes it can become an admired company by fulfilling its responsibilities to customers, partners, shareholders,and employees, and being committed to making a positive contribution to the ICT market, civic society, and the global environ-Elect / dismiss
Determine cap for
remuneration

ment. The Company also believes that third parties should decide whether or not it is a truly admired company, and is therefore
committed to continuing to work and improve so that it receives the highest rating as an admired company from all stakeholders.

Advisory Committee

Advise / reportenhance and strengthen corporate governance to realize transparent and fair decision-making in a swift and decisive way.

(Chairman: President & CEO) Attend

10 executive directors

Supervisory Board
4 members(including 4 independent
outside executive directors)(including 3 independent
outside members)

Elect / dismiss

AuditreportAccounting Auditor

Exchange
opinions

Tohmatsu LLC

Value Creation

Audit &

Board of Directors

Based on its management vision stated above, the Company advocates sustained growth as its foremost priority. In order
to attain this objective and to enhance its corporate value over the medium to long term, the Company continuously strives toElect / dismiss
Determine cap for
remuneration

Deloitte Touche

Advise / report

Progress in strengthening corporate governance
Board of Directors / Audit & Supervisory Board

2006

Committees•Compliance Committee established(2003)•Term of office for executive directors
reduced from two years to one

Appoint /oversee

Other•Group Compliance Manual established(2003)

Business execution
organization
Investment & Financing
Committee•Whistleblower system introduced

Accounting audit
Exchange
opinions

Instruct / report

President & CEO

Internal Audit Office

Management
Committee

Risk Management Committee

Growth Strategy

Until 2005 •One outside executive director
appointed (2004)

Audit

President’s Message

Key Issue (4) Improve and Reinforce the Business Base

Appoint / oversee

2007•Risk Management Committee
established•Investment & Financing Committee
established2009•Advisory Committee establishedCompliance Committee

Vice Presidents

2011•Vice President system introduced

2015

2016

•Female outside executive director
appointed•Compliance Committee and Risk
Management Committee integrated as
the Risk & Compliance Committee•Corporate Governance Guidelines
published•Assessment of effectiveness of Board of
Directors started•Audit & Supervisory Board member
contact point added to compliancereporting and advice line

2017
•Risk & Compliance Committee divided
into Risk Management Committee andCompliance Committee•Sales Supervisory Office established•Vision Book revised

Board of Directors (Fiscal 2019: Held a total of 15 times)

Investment & Financing Committee (Fiscal 2019: Held a total of 18 times)

Decides important matters related to the Company’s
management vision, management policy, medium-term businessplan and other management and operational issues; also
responsible for oversight of all the Group’s business activities.

As an advisory organ for the Board of Directors, discusses anddecides on matters related to investment and financing to ensure
an appropriate and efficient decision-making framework forinvestment and financing matters in the Board of Directors.

Audit & Supervisory Board (Fiscal 2019: Held a total of 13 times)

Risk Management Committee

Audits the execution of duties by executive directors andexercises its authority with respect to the appointment anddismissal of accounting auditors and their compensation from an
independent and objective standpoint.

The Risk Management & Compliance Committee wasreorganized and the Risk Management Committee wasestablished in April 2020, as an advisory organ for theManagement Committee. The committee is responsible forassessing and controlling risk management activities anddiscussing and reporting on important matters related to Grouprisk management in order to ensure sustained growth in theGroup’s corporate value.

Advisory Committee (Fiscal 2019: Held a total of 4 times)

As an advisory organ for the Board of Directors, discusses
and reports on matters related to executive compensationand the appointment and dismissal of executive directors
and vice presidents, with the remit of increasing managementtransparency and fairness and reinforcing corporate governance.
Management Committee (Fiscal 2019: Held a total of 21 times)

Established under the President & CEO, carries out appropriate
and timely discussions and decisions with respect tofundamental and important Company matters, while allowing theBoard of Directors to focus on the management and supervisory
functions in order to ensure management transparency andfairness and establish a system for the prompt and efficient
execution of operations.

37

Annual Report 2020

Compliance Committee

The Risk Management & Compliance Committee wasreorganized and the Compliance Committee was established in
April 2020, as an advisory organ for the Management Committee.
The committee is responsible for assessing and controllingcompliance activities and discussing and reporting on importantmatters related to Group compliance activities in order tostrengthen compliance at the Group.

Annual Report 2020

Key Data

2020(responsible departments, subsidiaries, etc.)

Review of Operations•Stock option compensation system
introduced

2012

Sustainability

Business Operation Organizations•Vision Book published38

3 Sustainability

Executives ▶

Board of Directors and Audit & Supervisory Board members
Chairman

Takayuki Yoshino

Toru Arai joined the Company in 1990. He was appointed Vice President of the Network
Technology Division in 2006, became an Executive Director of the Company in 2006,
and assumed his current position in 2018. He has made every effort to strengthen the
management base of the entire Group and to optimize management, among others, as
Chairman of the Board of Directors
Executive Director of the Company in charge of corporate planning operations and others.
Chairman of the Management Committee In addition, since assuming the position as President & CEO, under the new management
system, he has been responsible for overall management of the Company to strengthen its
management base.
President & CEO

Outside Executive Director

Ryugo Hayano

Shinji Hirakawa joined the Company in 2011 after serving positions including Operation
Director in charge of the Public System Business Division of Cisco Systems K.K. (now Cisco
Systems G.K.), and was appointed Vice President of the Company in the same year. He has
been in his current position since 2018 and has been in charge of the East Japan Business
Unit 1 since April 2020. He has a wealth of experience and a proven track record throughmany years of practical experience in sales operations. Since assuming the position as
Vice President, he has made every effort to expand sales of the Company’s products andservices.

Takafumi Takeshita joined the Company in 1989. After being appointed as Vice Presidentof the Technical Service Headquarters of Network Service and Technologies Co., Ltd.
(now Net One Systems Co., Ltd.) in 2006 and serving as an Executive Director of the same
company, he was appointed to his current position in 2018. He has been in charge of the
Takafumi Takeshita
Corporate Planning & Management Division since April 2020. He has a wealth of experience
Chairman of Vision Inculcation Committee and a proven track record through many years of practical experience in technology
In charge of Risk Management Committee operations. Since assuming the position as Executive Director in charge of divisions suchas the Corporate Planning & Management Division, he has made every effort to strengthen
In charge of Compliance Committee
In charge of Human Resources Council
management and other functions of the entire Group.

Takuya Tanaka
Chairman of the Investment &Financing Committee

Senior Vice President
In charge of Business
Development Division andCustomer Service Division

Fumihiko Shinoura

Outside Executive Director

Mitsuo Imai
Chairman of the Advisory
Committee
Independent Executive Officer

Fumihiko Shinoura became an Advisor of the Company in 2008 after serving positions
including the General Manager of the Product Planning Division and Managing Director of
Nihon Cisco Systems, K.K. (now Cisco Systems G.K.). He has been in his current position
since 2019, after having been appointed as Vice President of Net One Partners Co., Ltd.
in 2009. He has a wealth of experience and a proven track record through many years ofpractical experience in the product planning department, and has made efforts to expand
products and services of the Company since assuming the position as Vice President.

Mitsuo Imai served positions including Representative Executive Officer, President, Chief
Executive Officer and Director of Hitachi Cable, Ltd. (now Hitachi Metals, Ltd.) before
assuming his current position in 2012. He makes full use of his extensive knowledge andexperience in the field of information and communications business and his experience as acorporate executive to oversee the Company’s management.

Full-time Audit &Supervisory Board Member

Toru Matsuda
Chairman of the Audit & Supervisory
Board

Outside Audit &Supervisory Board Member

Keiichi Horii
Independent Executive Officer

Outside Audit &Supervisory Board Member

Hideki Suda
Independent Executive Officer

Outside Audit &Supervisory Board Member

Sachiko Iizuka
Independent Executive Officer

Toru Matsuda joined the Company in 1991. After serving as General Manager of the Quality
Assurance & Management Center, Manager of the ISMS Promotion Office, General Managerof the CSR Promotion Department, General Manager of the General Affairs Division, andManager of the Internal Audit Office, he assumed his current position in 2015. He brings
a wealth of experience gained from working in the Company’s administrative and internal
audit divisions, as well as a deep insight into the Company’s business to his audits.

Keiichi Horii was registered as a lawyer in 1979. He is a Partner at South Toranomon Law
Offices and a member of the Operating Committee of the Arbitration Center of the DaiIchi Tokyo Bar Association. He assumed his current position in 2016. He brings a broad
knowledge and experience in the field of corporate legal affairs he has garnered to date as
an attorney to his objective and neutral audits of the Company’s management.

After serving as President of Fujikura Development Co., Ltd. and Corporate Auditor of
Fujikura Ltd., Hideki Suda assumed his current position in 2016. He makes full use of his
broad knowledge and experience in the field of information and communications businessand his experience as a corporate manager in his objective and neutral audits of theCompany’s management.

Sachiko Iizuka was registered as a Certified Public Accountant in 1998. She is currently
serving as Representative Director of LAULEA CORPORATION, Outside Auditor of
KORAKUEN HOLDINGS CORPORATION, and Outside Auditor of BeeX Co., Ltd., andassumed her current position in June 2020. She makes full use of her broad knowledge
and experience in finance and accounting developed as a certified public accountant andher experience as a representative director at other companies in her objective and neutral
audits of the Company’s management.

Annual Report 2020

Key Data

In charge of Customer Satisfaction
Improvement Committee
In charge of Diversity Steering Committee

After serving positions including Vice President in charge of Western Japan Sales Headquarters of
Cisco Systems K.K. (now Cisco Systems G.K.), Takuya Tanaka joined the Company in 2009 andwas appointed Vice President, in charge of Western Japan Sales Headquarters of Net One Partners
Co., Ltd. Then, after serving positions such as Executive Director and Vice President of Net One
Partners, he became the President & CEO of Net One Partners and assumed his current position in
2018. He has been in charge of Investment and Financing of the Corporate Planning & Management
Division since April 2020. He has a wealth of experience and a proven track record through many
years of practical experience in sales operations. Since assuming the position as Vice President at
one of the Company’s subsidiaries, he has led and made every effort to develop subsidiary.

Independent Executive Office

After serving as an Executive Officer of Mitsubishi Corporation, Representative Director,
Executive Officer, President and COO of IT Frontier Corporation (now Tata Consultancy
Services Japan, Ltd.), President and Representative Director of INTEC Inc., and Director of
TIS Inc., Shigeki Kusaka assumed his current position in June 2020. He makes full use of
his extensive knowledge and experience in the information and communications businessfield and his experience as president and director at other corporations to oversee theCompany’s management.

Review of Operations

Senior Vice President
In charge of Investment and
Financing, Corporate Planning &Management Division

Outside Executive Director

Shigeki Kusaka

Ryugo Hayano is currently a Professor Emeritus at the University of Tokyo, a Councilor of
the Radiation Effects Research Foundation, President of the Talent Education ResearchInstitute (Suzuki Method), Science Fellow of Hobonichi Co., Ltd., Representative of OfficeHayano LLC, Director of Shigeta Education Foundation, and Director of International
Physics Olympiad 2023 Association, and assumed his current position in 2018. He makes
full use of his extensive knowledge and experience as a university professor specializing inphysics and his insights he attained through practical experience at various organizations tooversee the Company’s management.

Sustainability

Senior Vice President
In charge of Corporate Planning& Management Division

Independent Executive Officer

Rieko Nishikawa is a Professor Emeritus at Faculty of Law at Keio University. After serving
as Visiting Researcher at Harvard Law School, Visiting Foreign Scholar at Fordham
University, School of Law, Visiting Scholar at the George Washington University Law School,
Professor of the Faculty of Law at Keio University, and an outside consultant of the InterAmerican Development Bank, she assumed her current position in 2015. She makes full useof her extensive knowledge and experience as a university professor specializing in legal
studies to oversee the Company’s management.

Growth Strategy

Shinji Hirakawa

Annual Report 2020

Independent Executive Officer

Toru Arai

Executive Vice President
In charge of East Japan
Business Unit 1

39

Outside Executive Director

Rieko Nishikawa

Value Creation

Takayuki Yoshino became an Advisor of the Company in 2007 after serving positions including Senior
Managing Director of Cisco Systems, K.K. (now Cisco Systems G.K.). He was appointed President & CEOof the Company in 2008 and Chairman & CEO in 2018, before assuming his current position in June 2020.
He has a wealth of experience and a proven track record in a wide range of fields, including
management experience as Executive Director at an industrial company. In addition, upon assuming theposition of President & CEO of the Company, he led the Group based on his strong leadership. Moreover,since assuming the position as Chairman of the Company, he has supervised the entire management of
the Company from a broad perspective to strengthen the management base under the new management
system of the Company.

President’s Message

https://www.netone.co.jp/english/company/executives/40

3 Sustainability

Board of Directors: Number of meetings and discussion topics
Fiscal 2019

Fiscal 2020
Governance structure:

Company with
an Audit &Supervisory Board

7

year

Number of
Outside Executive Directors:

10

4

Number of
Audit & Supervisory
Board Members:

Number of
Outside Audit &Supervisory Board Members:

Advisory Committee

Attendance

Number of
Board ofDirectors meetings:

15

3

Vice President System

Jun

Jul

Aug

Sep

Oct

Nov

Dec
Dec
(1st mtg) (2nd mtg)

Jan

Feb
Feb
Mar
Mar
Total
(1st mtg) (2nd mtg) (1st mtg) (2nd mtg) （Average）

Executive Directors

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

11/11

─

Audit & Supervisory
Board members

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

4/4

─

Attendance rate

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

No. ofproposals

Resolutions

8

8

16

6

1

0

3

0

1

2

3

3

1

6

4

Reports

3

2

3

7

3

4

3

5

0

3

2

1

3

1

6

62
（4.1）
46
（3.1）

*In addition to the above, three written resolutions were passed that were deemed to have been approved by the Board of Directors.

* In FY2019

Details of main proposals discussed by the Board of Directors in fiscal 2019

Number of
Audit & Supervisory
Board meetings:

13• Medium-Term Business Plan

Growth Strategy

Number of
Executive Directors:

4

May• Report on the process of investigations on fraudulent acts and discussion of measures to prevent recurrence• Assessment of board effectiveness* In FY2019

Assessment of Board of Directors effectivenessAccounting Auditor

Deloitte Touche
Tohmatsu LLC

Basic approach and implementation and assessment methods

Composition of corporate bodies and committees

Specifically, executive directors and Audit & Supervisory Board members are asked to complete named questionnaires based
Fiscal 2020

Name

Execution Board ofof duties Directors

Toru Arai

President & CEO〇

ChairmanShinji Hirakawa

Executive Vice President

〇

〇

〇

Takafumi Takeshita Senior Vice President

〇

〇

〇

〇

Takuya Tanaka

Senior Vice President

〇

〇

〇

ChairmanFumihiko Shinoura Senior Vice President

〇

〇

〇

〇

Chairman

Observer

Rieko Nishikawa

Outside Executive Director〇〇

ObserverRyugo Hayano

Outside Executive Director〇〇

ObserverShigeki Kusaka

Outside Executive Director〇〇

Observer

Toru Matsuda

Full-time Audit & Supervisory
Board Member
Outside Audit & Supervisory
Board Member
Outside Audit & Supervisory
Board Member
Outside Audit & Supervisory
Board Member

AttendChairman〇

ObserverAttend〇〇ObserverAttend〇〇ObserverAttend〇〇ObserverHideki Suda
Sachiko Iizuka

Annual Report 2020

(5) Relationship with stakeholders
ObserverIn charge(6) Summary
In charge

Results of the fiscal 2019 analysis and assessment and the future response
The results of the questionnaire confirm that the measures that have been taken are having an effect on (3) Contents of discussions
by the Board of Directors and (4) Supportive structure for the Board of Directors above, which were pointed out as issues in the

ObserverObserverpast questionnaires. Specifically, in fiscal 2019, we discussed terms of office of the members and compensation at the Advisory
Committee and conducted officer training, primarily for Inside Executive Directors and future senior management candidates.
Meanwhile, a questionnaire survey conducted in 2020 for the Board of Directors in fiscal 2019 revealed that further
enhancement of the oversight function was needed in response to the discovery of transactions with no actual deliveries. As

ObserverObserverObserverKey Data

Outside Executive Director(2) Management of the Board of Directors(4) Supportive structure for the Board of Directors

Chairman

Mitsuo Imai

(1) Composition of the Board of Directors(3) Contents of discussions by the Board of Directors〇

Chairman〇on the following points, which are analyzed and evaluated, and then used to determine future policies.

Review of Operations〇

Takayuki Yoshino

Keiichi Horii

41

Position

Investment
Risk
Compliance
Advisory Management& Financing Management
Committee
Committee Committee
Committee Committee

Sustainability

To realize a more effective Board of Directors, we assess the effectiveness of the Board of Directors in accordance with Article
6 of the Corporate Governance Guidelines.

Audit &
Supervisory
Board

Value Creation

1

Apr

Number of independent
executives:

Term of office for
Executive Directors:

President’s Message

Key elements of corporate governance structurestated on page 46, the Company has announced measures to prevent the recurrence of transactions with no actual deliveries
and the progress of these measures, and the Board of Directors will continue to monitor the progress of these measures. The
Board of Directors will continue to make further improvements to realize a more effective Board of Directors based on the resultsof the above analysis and evaluation.

Annual Report 202042

3 Sustainability

Total amount of remuneration, etc., by executive classification, total amount by type of remuneration, etc.,
and the number of applicable executives
Fiscal 2019

Basic approach and characteristics of the executive remuneration system

Total amount by type of remuneration, etc., and the number of applicable executives

For its executive remuneration system, the Company adopts basic policies to continue its growth and enhance the corporate
value of the Company continuously by strengthening the link between executive remuneration and the Company’s businessperformance, and to ensure fairness and objectivity in the process of determining executive remuneration, etc. Note that the

Executive classification

Remuneration, etc., for the Company’s executive directors (excluding outside executive directors) is set based on their position.
Remuneration consists of a basic remuneration, which is fixed; bonuses, which is corporate performance-linked compensation
over the short term offered annually based on performance; and stock compensation-type stock options, which is corporate
performance-linked compensation over the medium to long term. Remuneration, etc., of outside executive directors and Audit &Supervisory Board members consists only of the basic remuneration, from the perspective of securing their independence.
Fiscal 2020

398

8

225

6

136

7

36

Audit & Supervisory Board
members (excluding outside Audit& Supervisory Board members)

26

1

26

—

—

—

—

Outside executives

86

7

86

—

—

—

—

Percentage split of remunerations for executives
Rank as executive director or rank asvice president
Basic remuneration

Performance-linked compensation
Bonuses

Stockcompensation-type
stock options

63%

27%

10%

President & CEO

63%

27%

10%

Senior Vice President

63%

26%

11%

Vice President

63~66%

25~26%

9~11%

Initiatives by Vision Inculcation Committee
100%

In April 2020, we re-established the Vision Inculcation Committee, which was established in 2009 and dissolved in 2015, with(Notes) 1. The percentages in the table above represent the percentage split of remunerations by title/position when the performance targets are 100% achieved.
2. For vice presidents, the percentages vary from position to position, even if they hold the same title, as the remuneration table differs depending on positions.

Targets and results for indicators related to bonuses

Company-wide consolidated
performanceof employees from all divisions and Group companies, including outside executive directors. The Committee continuously
implements activities that emphasize engagement with the goal of having all employees participate, based on the theme of how
one should act as an employee of the Net One Group.

Target (Million yen) Results (Million yen)

Productivity per employee in terms of
consolidated revenue

71.7

76.6

Productivity per employee in terms of
consolidated operating income

5.7

6.8

Productivity per employee in terms ofbookings accepted by the division

115.3〜154.2

127.7〜178.5

Productivity per employee in terms ofrevenue earned by the division

114.8〜152.8

122.5〜169.4

Productivity per employee in terms ofoperating income earned by the division

7.6〜16.7

10.3〜16.7(Notes) 1. Productivity per employee for each management indicator is calculated by dividing each management indicator, by the number of employees at the
beginning of the fiscal year for the target, and, by the number of employees at the end of the fiscal year for the actual results.
2. The reason for different performance targets is that each executive director has a different scope of responsibility.

Re-editing the vision book and inculcation activities
We established the Group’s vision book in 2009 to clarify our mission and actions toward our stakeholders. By the end of
September 2020, we reviewed the Principles of Conduct in this book to bring it in line with current conditions and re-edited thebook to ensure that the lessons learned from fraudulent acts would not be forgotten and that all employees would continue totake action with a sense of ownership.
Furthermore, we will position the new vision book as a tool for improving our corporate culture, disclose the Vision Code of
Conduct Declaration to all executives and employees, provide one-on-one feedback on the implementation status, and conduct
quarterly reviews on officers and executives. In addition, we will hold interactive workshops with the management team andgeneral employees as well as employees from different divisions and evaluate inculcation activities with reference to the results

Key Data

Performance of business division
responsible for

Fiscal 2019the aim of improving our corporate culture. The Vision Inculcation Committee is chaired by an executive director and consists

Review of Operations

Indicator

Re-establishment of the Vision Inculcation Committee

Sustainability

Chairman

Total(Notes) 1. Although the Company has eleven (11) executive directors as of the end of fiscal 2019, the number of persons paid, and amount paid shown above
includes one (1) executive director retired at the conclusion of the 32nd Annual Shareholders Meeting on June 13, 2019.
2. Stock compensation-type stock options states the amount recorded as expenses in fiscal 2019.

Growth Strategy

Percentage split of remunerations for executive directors by title

Executive directors (excluding
outside executive directors)

Value Creation

basic policies are determined, after deliberation at the Advisory Committee, by resolution of the Board of Directors.

Total
Stock compensationBasic remuneration
Bonusesamount of
type stock options
remuneration,etc.
Number of
Total
Number of
Total
Number of
Total(Million yen)applicableamountapplicableamountapplicableamountexecutives (Million yen) executives (Million yen) executives (Million yen)

President’s Message

Executive remuneration systemof employee awareness and customer satisfaction surveys as part of ongoing improvement efforts.

Stock compensation-type stock options are performance-linked in the sense that an indicator of the market price of the stockis used to determine the amount of remuneration. However, because there is no target indicator for calculating the amount of
remuneration, targets and results are not stated.
43

Annual Report 2020

Annual Report 202044

3 Sustainability

Measures to prevent recurrence

Started: February 13

Bundled projects with no item breakdown prohibited (physical verification)

Started: February 13

Only direct transaction projects allowed (verification of actual goods, services, suppliers)

Started from May

Closure of Kasumigaseki Office, which only handled central government agency projects

Moved: April 1

Takafumi Takeshita

Strengthen project screening using a Process Management System (PMS)

Started from May

Senior Vice President,
in charge of Corporate Planning &Management Division
Chief Risk Officer (CRO)
Chief Compliance Officer (CCO)

Clarify role of Chief Risk Officer (CRO) (risk identification, risk response, evaluation of risk
management activity effectiveness and ongoing improvements, responsible for other risk
management processes)

Adopted: March 27

Eliminate the risk offictitious transactions

Fundamental review
of risk management
activities

Strengthenriskmanagement
systems
Identify and evaluate

significant major risks
in each division
Strengthen internal
audits

Review authority ofsales divisions

Split the Risk & Compliance Committee into the Risk Management Committee (responsible
for evaluation and control of risk management activities) and the Compliance Committee
Implemented: April 22(responsible for evaluation and control of compliance activities).
CRO to chair both committees and members to include outside executive directors toprovide objective opinions and feedback
Clarify which departments are responsible for risk management

Implemented: April 9

Develop risk management action plans

Implemented: April 22

Strengthen risk management with risk survey sheets

Started: May 27

Introduce additional audit methods (hearings and identification of parties involved insuspicious cases)

Started to beaddressed from April

Increase scope of audits (internal audits as separate actions to accounting audits,
procurement activities and checks of preventive measures)Started to beaddressed from April

Remove authority for order placement and customer acceptance inspections from sales
divisionsStarted to beaddressed from April

Revise operational regulations (update rules and processes)
Overhaul ICT systems in line with revised operational regulations

Make purchasing function independent by establishing Group Procurement Department
Strengthen purchasing (currently performed by the Group Procurement and Logistics Department)functionsRedefine and strengthen procurement processes and functions related to equipment
procurement and acceptance

Implemented: April 1
Started to beaddressed from June

Improve effectivenessEstablish a Sales Supervisory Office (reports directly to the President, responsible forof measures to prevent
leading unified Group approach to revising and monitoring all rules to prevent recurrence)
recurrence

Implemented: April 1

Prevent overrelianceon certain individuals

Implement personnel rotations (prevent lack of clarity in operational processes andmanagement failures)

Implemented: April 1

Revise operation ofwhistleblower system

Overhaul whistleblower system (split system into harassment and misconduct streams and
Implemented: June 1
give responsibility for each to the relevant division)Develop compliance activity plans (conduct quarterly and year-end reviews, formulate
plans for next fiscal year)

Implemented: May
Implemented
throughout the year

Run compliance training (hold workshops for each division, review e-learning programs,
formulate annual plans)Started to beaddressed from July

Reconvene the Vision Inculcation Committee (implement continuous dialogue-focused
activities for all employees, including outside executive directors)

Implemented: April 22

Update the Group’s vision book (formulate a new Code of Conduct Declaration linking theGroup’s seven missions, businesses and SDGs, review the Principles of Conduct)

Implemented:
September

Implement activities to promote the Group’s vision (one-on-one feedback with executives andemployees, quarterly reviews by Board of Directors or Management Committee, workshops
for management and ordinary employees run by the Vision Inculcation Committee)

Implemented
throughout the year

Remuneration system validation and improvements (assess need for incentives in sales
divisions or areas for improvement)

Implemented: July

Create new corporate
cultureAnnual Report 2020

Key Data

Strengthen compliance Compliance activity declaration (Board of Directors or Management Committee to review
every quarter)awareness

Review ofcomplianceactivities

Review of Operations

Enhancebusiness
controls

Started to beaddressed from June
Started to beaddressed from July

Sustainability

Annual Report 2020

Review ofbasic policy
on business
transactions

Growth Strategy

Provision of Group’s added value (unique services, solutions, etc.) to be confirmed

Companies face dramatic changes in the operating environment. Rapid advances in technology, market globalization,
increasingly diverse customer needs, and now the impact of COVID-19, mean risks are becoming more complex andsophisticated. In that environment, risk management and compliance are key issues for companies.
Despite reinforcing internal controls after an incident of fraudulent acts in 2013, transactions without the physical deliveryof goods recently came to light in the Group. A special investigative committee that was set up to look into the fraudulent acts
has issued its final report and we take its findings and advice very seriously. In April 2020, I was appointed Chief Risk Officer(CRO) and Chief Compliance Officer (CCO) to ensure measures to prevent any recurrence are thoroughly enforced and tostrengthen the Group’s management structure. My mission is to exhaustively identify and prioritize risks then rigorously
implement and establish effective risk mitigation measures across the Group.
In its final report about transactions without the physical delivery of goods, the special investigative committee made two
key recommendations – management and executives need to have a clearer picture of transactions within the business, andrisk management, internal control and compliance activities need to be overhauled. In order to strengthen business controls,
we are rapidly reforming organizational structures to segregate areas of authority and to prevent employees from staying toolong in certain organizations. We are also digitizing risk management mechanisms as part of Work Style Innovation 2.0/DX,
one of the basic strategies in the current Medium-Term Business Plan.
At the same time, we need to recognize that we had a false sense of confidence in our existing framework of controls
to prevent fraudulent acts, which was focused on rules and systems, as well as a lack of controls to rapidly detect andaddress issues based on the assumption that this kind of fraudulent act would occur. In response, we are making a numberof improvements. Each division now has to prepare a risk survey sheet, which is submitted to the Risk Management Office.
Using the sheets, the office identifies material risks and reinforces mitigation measures. We are also using training and otherapproaches to give all our employees more knowledge about and sensitivity to fraud risk. Most importantly, we have to foster
an organizational culture where employees are free to speak their minds. We want to create an environment where every
single employee has the confidence to speak out responsibly based on a clear understanding of what their role entails, basedon the Group’s vision.
We plan to provide quarterly updates about progress with the implementation and validation of preventive measures.
We will also look into setting KPIs for risk management activities and disclose information about our initiatives on an ongoingbasis in the coming fiscal years.
Some customers have upbraided us for the fraudulent acts, which was painful to hear for a Company that is expected to be
their strategic partner. Our employees are now trying hard to ensure we meet those expectations. Harnessing all the experienceand trust I have built up over the years, I will do everything in my role to ensure even higher levels of trust in Net One Systems,
while also working to maintain a close relationship between management and employees on the front line of our business.

45

Preventive measures based on the findings of the special investigative committee and current status
Value Creation

Rigorously implementing risk
management and compliance tocontinue meeting the expectationsof customers as a trusted strategic
partner

Updates about measures to prevent any recurrence of fraudulent acts will be disclosed on a regular basis.
The information below is accurate as of September 30, 2020, but the Company has continued to take steps since that date.

President’s Message

Message from the CRO / CCO

46

3 Sustainability

President’s Message

Promoting compliance

Basic approach to reinforcing risk management

Basic approach to compliance

We believe that it is our social responsibility to appropriately identify changes in the business environment surrounding the

Our management vision is to be a company trusted and supported by all stakeholders (an admired company). However, without

Company and to conduct stable and continuous corporate management based on our internal control system in a way thatcompliance, we have no hopes of becoming even a surviving company, let alone an admired company. Compliance is not justsatisfies our customers, shareholders, and other stakeholders. We implement risk management activities through mutual

about being on the defensive by preventing fraud and misconduct; it is also an essential element of an offensive approach tocooperation with Group companies based on this approach.

enhancing corporate value and continuing to be the brand of choice for many customers. Our basic approach to true complianceis to take seriously the expectations and trust of the many stakeholders who support the Group, and to respond to their

Risk management framework

expectations and trust with integrity.

Board of Directors
Instructions

Value Creation

Reinforcing risk management

Compliance promotion framework

Reports

Management Committee
Instructions

Net One Systems

Reports

Secretariat (risk supervision department)(Supervised by: CRO, Chairman: Director of the Risk Management Office)Approves the assessment and analysis of individual risks, reports on and approves the
Operates the Risk Management Committee, formulates annual risk management
completion of response to risk. In addition, every year, the committee identifies priority
policies and plans, and selects priority management risks for the fiscal year.
management risks that could have a significant impact on the survival of the Company
and the continuation of its business, and monitors these risks on a monthly basis.
Coordination

Instructions

Reports

Instructions

Responsible for designating a department tasked with response activities for eachrisk, and formulates and implements risk management plans.

Reports

Risk management action department

Responsible for risk response activities, such as formulation and implementation of risk
management action plans and reporting on progress to the department responsible forrisk management.

Fundamental review of risk management activities

Awards and Penalties Committee

Responsible executive: Executive Director and General Manager of Corporate Planning & Management Division (CCO)
Chairman: Director of Legal & CSR Office
The Company’s members
Group company members

Compliance Officer

Coordination

Department responsible for complianceEngagement
The Company Whistleblowing
and consultation
Employees
Dispatchedemployees,
etc.

Whistleblowing
and consultation

the Risk & Compliance Committee, and designating the Risk Management Office as the department responsible for general risk

Revise operation of whistleblower systemrisk assessment and improvement measures for all departments. In addition, we have introduced a system in which risk survey
sheets are distributed to each department. Operational risks and fraud risks in a department’s own operations are identified on aquarterly basis using these risk survey sheets, and the status of recognition and initiatives for these risks is reported on. The Risk
Management Office verifies the risk management activities of each department based on these risk survey sheets and reports its
evaluation to the Risk Management Committee, which then provides guidance as necessary.

Compliance Officer

To further enhance the effectiveness of the whistleblower system, we separate the contact point for reporting harassment fromthe contact point for reporting fraudulent acts, and continue to provide education and raise awareness on the protection of users
and the purpose and necessity of the whistleblower system.
Strengthen compliance awareness
Each department prepares a compliance activity plan and reviews the implementation status of the plan on a quarterly basis.
The CCO and the Legal & CSR Office review the contents of these plans, and the Compliance Committee discusses the statusof plan implementation and provides necessary guidance.
In addition, all executives and employees are required to make a declaration on their own compliance-related activities
and disclose them internally. Regarding these compliance activity declarations, executives and employees give feedback to

From fiscal 2020, in addition to audits focusing on systems and evidence up until now, the Internal Audit Office will confirm witheach other on the status of implementation through one-on-one meetings and supervisor evaluations by employees. Eachthe relevant departments and suppliers any suspicious projects including doubts or disbelief raised as a result of interviews withdepartment holds workshops on compliance activities to exchange opinions in order to encourage active compliance awarenesssales personnel and their superiors, in order to ensure the effectiveness of audits.

and activities by employees on their own.

In addition, from fiscal 2020, we will determine the scope of internal audits in accordance with the Company’s standards,

Create new corporate cultureof checks and balances on drop ship transactions and the existence of such transactions, we will conduct audits of purchasing

We are verifying the activities of the Vision Inculcation Committee as well as the remuneration system. We have examined theoperations, which had not previously been conducted, and monitor the implementation of various measures to prevent recurrencechange in the percentage of incentives for sales personnel going back about 10 years, and confirmed an improvement fromas a key audit item in the internal audit plan.

the past.

Annual Report 2020

Key Data

Strengthen internal audits

regardless of whether the transactions are subject to audit by the accounting auditor. Furthermore, in order to audit the status

Review of Operations

We are formulating risk management action plans for operational risk assessment and improvement measures, as well as fraud

Coordination

Engagement
Whistleblowing Group companies[Group-wide] External whistleblowing and consultation contact pointand consultation
Employees
Whistleblowing[Group-wide] Internal whistleblowing and consultation contact pointand consultation Dispatchedemployees,(established within the Company)
Whistleblowing
Whistleblowing and consultation contact points of each company
etc.
and consultation

Key measures

Identify and evaluate significant major risks in each division

Department responsible for compliance

Reports anddiscussions

Whistleblowing and consultation contact point

We are conducting a fundamental review of risk management activities, including clarification of the role of the CRO, splitting
management activities, including risk of fraudulent acts.

President & CEOAwards and Penalties Committee

Sustainability

Key measures

Group companies

Compliance Committee

Reports anddiscussions

Reports are primarily on actions taken by each department(monitoring, risk prevention, and risk mitigation measures)

Department responsible for risk management

47

President & CEO

Growth Strategy

Risk Management Committee

Annual Report 2020

48

3 Sustainability

President’s Message

Focusing on reinforcing the businessbase of Net One Systems and achieving
sustainable growth

Value Creation

Nishikawa: We used this incident as an oppor tunit yto participate in the Risk Management Committee, theCompliance Committee, and the Vision Inculcation Committee
as observers. While it is important to educate employees oncompliance, our challenge going forward is to go beyond
legal compliance, and instill in each and every employee afundamental axis for making judgments regarding right andwrong.

Discussion with Outside Executive Directors

Outside Executive Director

Outside Executive Director

Outside Executive Director

Outside Executive Director

Ryugo Hayano

Mitsuo Imai

Rieko Nishikawa

Shigeki Kusaka

Views on fraudulent acts and points to focus on to prevent recurrence

Hayano: As you said, it is true that personnel transfers were not active in some areas, and I think it is highly likely that thesefraudulent acts could have been stopped sooner if personnel rotation had been implemented. In addition, the Company has a
Vision Book. Through this Vision Book, it is possible to share the value of the Company, as well as the joy of working together.
If both your value and the value of the Company increase, and this makes you happy, then you will always take care not todamage the value of the Company. This kind of corporate culture is important.

49

Annual Report 2020

Strengthening the corporate governance of Net One Systems / The role of outside executive directors
Hayano: The diversity of the Board of Directors is important. Outside executive directors are called upon to express theirviews from a perspective that is not available to inside executive directors.
Imai: Even before the introduction of the Corporate Governance Code in 2015, Chairman Yoshino actively worked to create
an organization that incorporates external opinions, including the appointment of multiple outside executive directors.
Meanwhile, while we are making every effort to learn about the situation at the Company as much as possible, such as byattending meetings of the Management Committee, where management activities are deliberated and decided upon, as
observers, it is also true that we have felt limits in our ability to understand the actual situation, when considering better
policies. Given these limitations, the creation of a mechanism for stopping the president from making decisions continues toremain an issue.

Annual Report 2020

Key Data

Nishikawa: I believe that the reason for the occurrence of the fraudulent acts was the fact that there were insufficientcountermeasures based on the assumption that fraudulent acts can occur. At the Kasumigaseki Office, where the fraudulent
acts occurred, it was difficult to get a good view of the situation from the head office. In order to prevent this kind of situation,
regular personnel transfers should have been carried out. In addition to preventing fraudulent acts, I believe that personnel
rotation is also essential from the perspective of management education, as they allow employees to experience various
departments, and obtain a deeper understanding of the Company and its industry.

Imai: Perhaps it is necessary to have direct interviews with employees on site. The most important element in preventing
fraudulent acts involves the eyes of the surrounding people. Because management cannot observe everything that occurs in
the field, the key to preventing fraudulent acts is to create a corporate culture that allows employees to speak up about what
they are seeing and hearing.

Review of Operations

The roundtable discussion this time focused on fraudulent acts and measures to prevent recurrence as well as measures tostrengthen governance with a view toward enhancing corporate value over the long term.

Kusaka: Because I was appointed to my post after the occurrence of the fraudulent acts, I would like to offer my comments
based on my experience thus far. The operation of a whistleblower system alone is insufficient to ensure the early detectionof fraudulent acts. At other companies, I have heard that senior management periodically visits work sites and conducts
direct interviews with employees, and in some cases, fraudulent acts are discovered during these visits. Furthermore, when afraudulent act occurs, the objective often becomes to simply formulate measures to prevent recurrence, so that subsequentmonitoring is neglected. The formulation of measures is the starting point, not the goal. What is important is the continuous
implementation of measures afterwards.

Sustainability

Imai: It is necessary to review risk management from the bottom up. Although a certain level of success has been achieved
through countermeasures in response to an incident involving a fraudulent act in 2013, the recent fraudulent acts occurredin an area that was outside the scope of these countermeasures. Measures to prevent recurrence alone are not sufficient todeal with unprecedented risks. All possible risks should be identified and managed comprehensively under the responsibilityof the executive in charge. In addition, while the intrinsic motive of the former employee who committed the fraudulent acts
has not yet been determined, it would be better to be able to delve into the motivational causes of these acts. Gaining an
understanding of the motivations behind employee actions should lead to the prevention of recurrence.

Growth Strategy

Hayano: In addition to enhancing management, as mentioned
earlier, it is necessary to create a corporate culture that allows
employees to feel a sense of unity between the improvementof corporate value and their own growth. This is also one
focus of the Vision Inculcation Committee. Reviewing asystem does not eliminate fraudulent acts, and it will also
have an impact on motivation. The key is to design a system that truly encourages employee growth.

50

3 Sustainability

Imai: I believe that we have laid the foundation andset the direction for the future with this Medium-TermBusiness Plan. We will further develop human resourcesthat our customers can rely on, and provide solutions
to their problems. If we can continue to strengthen ourorganizational structure to manage these initiatives,
we should be able to grow in the wake of the impact of
COVID-19. I look forward to the future growth of Net One
Systems.

Key Data

Nishikawa: We are making good progress in our Medium-Term Business Plan, and our employees are also proactively
involved. The renovation of the existing Solution Briefing Center and its launch as the netone Briefing Center to strengthen DX
support is a representative strategy of the Company for converting existing technologies into new added value.

Kusaka: While Japanese companies have been reluctant to embrace ICT in the past, relying instead on human resources
to manage their businesses in an analog manner, a growing number of companies are likely to reconsider ICT as the core ofcorporate management in the future. Against this backdrop, we can expect to see an increase in subscription-based services
that offer greater convenience to businesses, without the need to purchase ICT assets. Although we may be entering an era
where traditional business models may not work, sensible management could bring us great opportunities.

Review of Operations

Medium-Term Business Plan of Net One Systems / Achieving sustainable growth

Nishikawa: Something that we have learned from COVID-19 is the magnitude of external risks, and the importance of
preparation and BCP to respond to these risks. If we can draw on this experience, we will be able to strengthen not only ourown risk management, but also our services in response to these types of situations.

Sustainability

Kusaka: The governance challenges of Net One Systems could stem from the way the business model has worked, until
now. For many years, the core business was to sell products from global blue-chip companies to the Japanese market.
However, the Company is now moving in the direction of proactively creating its own services. Management must set a
firm management direction and strengthen the organization to prepare for possible risks, and the role of outside executive
directors will become increasingly important in this regard. I myself would like to contribute to a strengthening of governanceby drawing on my many years of experience in the ICT field and in launching new businesses.

Hayano: Yes, I agree. How do you create high added value when you are not an agency like the trading companies of thepast, or when you do not aim to be a manpower agency with a large number of engineers? In a rapidly changing market, theCompany should develop a unique strategy that is strong enough to adapt to changes, and rethink the future of the Company
as well as its approach toward the allocation of human resources and their roles.

Growth Strategy

Nishikawa: In order to strengthen governance, in addition to
oversight by outside executive directors, the Company mustalso gain more insight into governance. For example, even
if the Board of Directors and the Management Committee
are handling the same topic, the viewpoints of the Board of
Directors, where we are engaged in exercising management
and oversight functions, and the Management Committee,
which is responsible for running the day-to-day operationsof the Company, are different. We attend meetings of theManagement Committee as observers to understand thebusiness. Even though the discussions should differ for thisreason, explanations are sometimes omitted, as they involvethe same explanations. The internal awareness of the state ofcorporate governance is still not sufficient.
I believe that strengthening governance essentially means establishing the ideas and guidelines on which the governanceof the Company is based, and continuing to strive to find the best form of governance. I think that an organization needs
to have a core; however, because the organization here changes every year, we are still trying to find the best approach to
governance.

Kusaka: While most companies in the ICT industry haveannounced a shift to service provision to some degree, thevast majority of the Company’s current services rely on
the products of other companies. Whether we are able toestablish services that are truly driven by the Company andmake these services a major source of revenue represents
a medium- to long-term challenge for the future. However,the number of employees we have now presents limits whenit comes to creating services that are driven by the Company. It is important to develop human resources, whether ourapproach involves scaling up or building a new business model that is not an extension of the current one.

Value Creation

Kusaka: I feel that many Japanese companies are often managed based on the belief that human nature is fundamentally
good, and there are many managers who believe, or who would like to believe that fraudulent acts are special cases.
Although mutual trust between management and employees is essential for efforts to improve corporate value, this may be
one reason why management is hesitant to take the initiative to introduce measures that call into question the assumption oftrust with employees. However, by strengthening governance, both management and employees can feel more secure in theirwork, which leads to a strengthening of the business foundation. I believe that it is the role of an outside executive director todare to focus on such hesitation by management, and encourage them to take action.

President’s Message

Hayano: Business per formance has been strong, andemployees seem to be motivated toward profit. The Company
has improved its performance even under large-scale remotework. By continuing to accelerate netone DX, and returningthat experience to our customers, we will be better able tomeet their expectations than ever before.

Nishikawa: For an outside executive director, it’s not so much about how much we know about what's going on inside theCompany, but rather, how we can maintain an appropriate distance from the Company. I believe that the role of an outside
executive director is to point out what they feel is wrong from the outside, and to put the brakes on management, and alert
them when the need arises.

Imai: While ambitious targets have been set in both the previous Medium-Term Business Plan and the first year of thecurrent Medium-Term Business Plan, we have generally achieved these targets. The service menu has also been enhanced topromote the proactive provision of services, and the groundwork is being steadily laid for a further shift to service provision.

51

Annual Report 2020

Annual Report 202052

3 Sustainability

Basic approach

Human resources services through Employee Service Center (launched in March 2020)

Net One Systems has been active in the ICT field since the dawn of networks. That has given us early access to the latest
technologies, which has enhanced our expertise and our unique role in connecting various types of networks, while also
supporting the Group’s own innovation.
We define the innovation we are currently undergoing as Net One’s own experiences in digital transformation (netone DX),
and aim to provide it as a solution for our customers by structuring the process. At the same time, we will create new value withfor the Implementation of Work Style Innovation 2.0/DX as a service. The service provides mobile support for six services,
including the issuance of certificates of employment and social security, and inquiries, as well as online manuals. It eliminates
email operations and allows for analysis of person-hours and tendencies for each task.
netone DX is being pursued through both short-term, implementable initiatives and long-term initiatives. We began bystructuring our human resources services as an area that is independent of others, both in terms of operations and data, and as
an ideal area for training engineers through practice.

Initiative (1): Promotion of netone DX
Our DX promotion framework is characterized by the fact that we use a single common system for all internal and customerfacing operations, along with an ICT service that aims to improve efficiency and focus on customers through the establishmentof three digital platforms (Service Center), depending on the recipient.
Under the strong control of the management team and program owners, and an organizational structure of cross-company

We provide support for the overall conceptualization and demonstration of cutting-edge technology to meet the needs ofboth management and information systems departments to promote effective DX. We are expanding our points of contact forengagement with customers and are working together to create new value.
netone Briefing Center (opened in June 2020)

netone DX promotion framework

This is a facility to visualize the elements required for DX, design the architecture of the customer’s overall system, and tointeract with the customer for value co-creation. We help customers to clearly identify their DX policies, study the necessary ICTManagement Committee
CIO* Liaison Committee

Program owner

Growth Strategy

organizations, the entire Group is working to promote netone DX and develop services for customers.

Initiative (2): Helping customers accelerate their DX

Value Creation

our customers by deepening our relationship with them and improving customer engagement.

This is the first service from the netone DX initiatives to create a common platform with customers and then provide a reference

President’s Message

Key Issue (5) Provide New Value

platforms, formulate plans, and conduct demonstrations.
AdvisorThrough dialogue between the customer, the person in charge who has a deep understanding of the customer’s ICT
environment and status of utilization, and the person in charge of each DX theme, we aim to gain an accurate understanding of
the needs and challenges of customers and work together to create specific solutions.
Lab as a Service (opened in June 2020)

Program manager
Service owner

Service owner

Service owner

Customer Service Center

Business Service Center

Employee Service Center

This is a multi-cloud verification facility to jointly demonstrate the functionality and operability of new ICT platforms designed for
DX in a virtual environment. It enables the verification of functionality, security, cost management and other factors in multi-cloudand hybrid cloud environments in accordance with the technical requirements of DX that have been embodied through dialogue
Our goal is to strongly support the acceleration of DX by customers, by implementing the requirements of customers as an
ICT platform with highly effective utilization.

System Core
* Chief Information Officer

53

Annual Report 2020

Key Data

Customer Service Center:	Provides applications that centralize business collaboration with our customers, for operations ranging fromcontracting to project implementation
Business Service Center:	Provides database information on everything ranging from customer management to employee skills to two Service
Centers
Employee Service Center:	Provides applications for various operations, such as human resource training and application filing, for the use by
employees
Operation Service:
Provides operations management that integrates system and business operation
System Core:
Provides the core architecture and data structure for the three Service Centers

Review of Operations

at the netone Briefing Center, and specifically confirm the operational stability and operational procedures, etc.
Operation Service

Sustainability

Secretariat

Annual Report 202054

3 Sustainability

Basic approach

Initiatives to reduce environmental impact of Net One’s business operations

The Net One Group is committed to environmental protection as part of its corporate social responsibility, underscored by oneof the Group’s stated missions – “Contributions to the Global Environment.”

Reducing environmental impact at data centers
Net One Systems has introduced an electricity monitoring system (temperature based) at its data center. Electricity flow is monitored

through various measures in its daily business activities designed to create an environmentally friendly society. Specifically, weon an individual outlet basis and alerts are displayed when electricity usage exceeds set values. The system also allows us to

aim to prevent global warming, reduce energy consumption, eliminate the use of paper and reduce industrial waste and CO2

manage power use in the whole data center by remotely controlling power sources. Verification equipment, which accounts foremissions. We are also utilizing ICT – our core business – to provide and drive the uptake of environmental solutions.

roughly 70% of all power usage in the data center, is automatically shut down when not in use, helping to save energy.

Basic policy

Reducing environmental impact of business operations• Reduce CO2 emissions with green ICT technologies• Implement activities to reduce energy and resource use

Related indicators• Comply with all environmental regulations

Medium- to long-term environmental target: Reduce unit energy consumption by an average of 1% each year over five fiscal years• Maintain and improve the environmental management system

Target achieved, with average change in unit energy consumption below 99.0; average change for fiscal 2014-18 is 93.8
Growth Strategy• Conduct environmental training

Energy usage, CO2 emissions and unit energy consumption• Disclose environmental data

Energy usage (kl)（kl）

Implementation structure

CO2 emissions (t-CO2)（t-CO2）

6,000

6,000

4,000

4,000

Value Creation

As a global corporate citizen, Net One Systems aims to ensure the world’s rich environment is preserved for future generations

President’s Message

Key Issue (6) Utilize ICT to Reduce Environmental Impact

In addition to establishing an EMS* implementation structure, we have acquired ISO14001 certification, an international
standard for environmental management systems.

3,076

5,980

3,161

5,952

3,094

5,646

2,973

5,564

2,910

5,326

2,000

Internal Audit Leader

Environmental Affairs Department

Internal Audit Team

0

0
2014

2015

Unit energy consumption(energy usage / revenue)
Environmental Management
Department Officer

Environmental Management
Department Officer

Environmental Management
Department Officer

Environmental Management
Department Administrator

Environmental Management
Department Administrator

Environmental Management
Department Administrator*All departments have an environmental management officer and administrator

2016

2017

2018

(FY)

FY2014FY2015FY2016FY2017FY20180.02163

0.02255

0.020210.019390.01664

The approach and possibility of reducing environmental impact of customers and society through Net One’s services
Development of the refurbishment business - Supporting the realization of the 4Rs and the construction of sustainablesocial infrastructure through the use of refurbished products

Net One has been offering the NetOne “all in” Platform since 2017 as a service that allows customers to use products on
a subscription basis (pay-per-use) to help customers shift from ownership to use of ICT platforms. In 2019, we established
Refurbished products handled by Net One Next are used by a portion of the NetOne “all in” Platform. In addition, Net
One Next offers rental services for ICT assets, maintenance services that provide a product replacement service in the

Key Data

Net One Next to handle refurbished ICT platform products in an aim to expand the use of this service.
* Environmental Management System

Review of Operations

Environmental Management Officer

Sustainability

2,000

Chief Environmental Officer

event of failure, regardless of the manufacturer’s support period, and sales of refurbished products.
These initiatives lead to the realization of the 4Rs, which include the 3Rs of reducing waste (reduce), reusing products
and parts (reuse), and recycling resources (recycle), as well as recurring relationships with customers through better service
provision (recurring). The Group is committed to supporting the building of sustainable social infrastructure through ICT
utilization services.

55

Annual Report 2020

Annual Report 2020

56

4

Review of Operations
Enterprise Market

Our business is broadly divided into four segments based on the industry of customers they serve.

Business Overview

Revenue ¥55,376 million Operating income ¥6,294 million

In the enterprise, telecom carrier and public markets, we supply solutions directly to customers. In the partner business,
we sell products and services through our business partners. We support all aspects of ICT platforms, including cloudObjectives

Utilize ICT to expand the use of security measures, cloud systems and work style innovation

systems and cyber security measures. In all the markets where the Net One Group operates, we install efficient systems

Key markets / sectors

by optimally configuring networks, cloud systems and security measures. We also show customers how to get the best
provide new added value by working with customers to support their growth.

Share of revenue

System integrators

20.8％

29.7％

● Network● Cutting-edge ICT equipment andrelated solutions* Internet service providers¥186.1 billion

Telecom carrier market
Telecom carriers● Service platforms● Corporate business18.9％

Segment performance (reference only)
Bookings

Order backlog（Million yen）

（Million yen）

70,00030,00060,23360,00029,472
26,47258,00025,00049,96751,262

51,293

22,535
20,95350,000

Sustainability

29.9％

Key growth themes
Implement Work Style Innovation 2.0/DX
Smart factories
Solutions for MSP
Develop the refurbishment businessPrediction and detection of cyber-attacks and system failures

Focus market: Smart factories

21,49820,000

There are other business segments that are not included in the reportable segments shown above.
40,000

Impact of COVID-19 by market

Growth Strategy

Focus markets: School systems and healthcare

29.7％

Manufacturing / non-manufacturing /finance / ISP*

(fiscal 2019)

Central and local governments / education/ healthcare / social infrastructures● Cloud systems● Security measures● Campus networks● Work style innovation(fiscal 2019)

Enterprise market● Cloud systems● Security measures● Work style innovation

Revenue

Public market

Strengths and characteristics
T he enterprise business has built up a high level of trust withcustomers after many years of providing high-quality network
systems.
B acked by that trust, we share with customers the Group’s
knowledge and experience of utilizing ICT. Our approach allows
customers to use cloud systems, reinforce security and implement
work style innovation in a more flexible and practical way.

Value Creation

 arge enterprises in the financial, manufacturing, non-manufacturingL
and ISP sectors
Operating environmentS ustained strong demand related to security measures, cloudsystems and work style innovationout of their systems. Going forward, we will step up efforts to transform the Net One Group into an organization that canPartner businessPresident’s Message

Business Overview

15,00030,000

Risks

Opportunities

Telecom carrier market

Possibility of work delays is limited becauseof the limited number of customers and work
areas

Expanding cloud service platforms andsupporting value creation through MSP
business support

5,000

10,000

0

2016

2017

2018

Decrease in bookings and revenue due to the High demand for security measures, cloudincorporation of possibility of delays in thesystems, and work style innovation
Company’s work
Growing potential need for DX

2020(Estimate)(FY)

Revenue

0

2016

2017

2018

2019

2020

(Estimate)(FY)

Operating income / Operating margin（Million yen）

（Million yen）
60,000Public market

201955,37655,000

7,000

11.4

6,000

6,294

52,32950,00047,78849,680

(%)
12.0

6,294
2,117

40,000Partner business

6.3
4,000

6.0
3,000

20,000
2,000

3.7
3,145
1,752
282

10,000057

Annual Report 2020

6.2

30,000Key Data

5,000

Possibility of delays in the introduction of new Growing need for video conferencing andequipment by partners
other digital workplaces

Review of Operations

Enterprise market

Decrease in bookings and revenue due to theHigh demand for security measures, cloud
temporary curtailment of capital expendituressystems, and work style innovation
by customers and the possibility of delays in
Growing potential need for DX
the Company’s work

10,00020,000

3,263

494

1,000

2016

2017

2018

2019

2020

(Estimate)

(FY)

0

2016

2017

2018

2019

(FY)

0.0

Annual Report 2020

58

4 Review of Operations

Revenue ¥35,176 million Operating income ¥3,708 million

Business Overview

Business Results and Outlook

Performance in fiscal 2019

Objectives

Explore new business opportunities through collaboration with telecom carriers
Key markets / sectors
Leading domestic telecom carriers
Operating environment
Telecom carriers continue to invest steadily to expand theircorporate businesses
Carriers are shifting their focus to the installation of cloud systems
and other service platforms

Share of revenue

Outlook for fiscal 2020

Strengths and characteristics
Extensive track record in the design and installation of large-scale
networks
Strong position in multivendor product integration and automatedsystem operation, backed by advanced network design capabilities(fiscal 2019)18.9％

Key growth themes
Work with telecom carriers to strengthen their corporate businessSet up joint businesses in other markets and expand solutions for
MSP

Medium- to long-term outlook
Segment performance (reference only)
Bookings

Order backlog（Million yen）

（Million yen）

50,00020,00016,50840,00040,00037,372
34,27935,38635,442

15,00030,00014,407

14,241

14,508

2017

2018

2019

Sustainability

Because the needs for our focus areas of security measures, cloud systems, and work style innovation is expected tocontinue, our medium- to long-term goals remain the same. A common capital investment theme for customers in theenterprise market is DX that leverages ICT utilization to drive business innovation. In addition to the need to create granddesign for network systems and cloud systems, we are also seeing an increase in the number of consultations withcustomers regarding the development of their ICT human resources.
The utilization of data in manufacturing plants is showing progress in smart factories. We can expect to see advancesin IoT that will continue to improve the efficiency of entire factories, including data collection, visualization, analysis, andimprovement that will boost the utilization rate of production facilities.
Security measures is our basic approach for utilizing ICT. Net One Systems will continue to provide support for all areasof ICT platforms, including developing proposals for cutting-edge security systems that utilize AI (artificial intelligence) andDeep Learning (machine learning and deep learning).

10,97410,00020,000Information andcommunications
technology (ICT)
Data center

Secure connection between
ICT and OTSupport for use of IoT data

Operational
technology (OT)
Production line

10,000

0

2016

2017

2018

2019

2020

(Estimate)(FY)

Revenue0

2016（Million yen）

50,000

4,000

(%)
3,454

40,00035,55235,1763,000

9.7

Benefits of IoT data collected from connected production facilities /collected IoT data analyzed and utilized / predict andinstallation detect issues in facilities / reinforce product traceability / create and improve production documentation

Annual Report 2020

2,000

6.1

2,101
6.8

6.0

Key Data

30,000Robust network connections in
production facilities / IoT data collection,organization and formation

59

2,286

Production line

6,294
10.5
2,117

38,00037,231

12.0

3,708

30,846

Manufacturing IoT cloud(FY)

Operating income / Operating margin（Million yen）

Solutions area
Production line

2020

(Estimate)

Review of Operations

5,000

An accelerating digital revolution in manufacturing – centrally managing andvisualizing production activities to increase factory productivity

Growth Strategy

In fiscal 2020, we expect bookings and revenue to decline by 3.7% and 0.7% year on year to ¥58.0 billion and ¥55.0
billion, respectively, due to concerns such as the temporary curtailment of capital expenditures by customers and delaysin the Company’s work as a result of COVID-19.
On the other hand, the COVID-19 outbreak is expected to increase the potential needs for work style innovation and
DX. We will continue to focus on the expansion of the security measures, the installation of cloud systems including multiclouds, the smart factory market, and solutions for MSP, one of our new models.

Value Creation

Demand for security measures and cloud systems remained strong in fiscal 2019, and business related to work styleinnovation was firm. The smart factory business was also solid, resulting in growth in both bookings and revenue, withbookings rising 17.4% year on year to ¥60,233 million and revenue increasing 5.8% year on year to ¥55,376 million.
Operating income increased substantially to ¥6,294 million, up 92.9% year on year, and the operating margin improved to
11.4%, up 5.2 percentage points year on year, thanks to supporting lifecycle services and assisting in the formulation ofa grand design for future ICT platforms.

President’s Message

Telecom Carrier Market

20,0001,752
1,000
10,000

0

2016

2017

2018

2019

2020

(Estimate)

(FY)

0

282

2016

494

2017

2018

2019

(FY)

0.0

Annual Report 2020

60

4 Review of Operations

Business Results and Outlook

Revenue ¥55,609 million Operating income ¥4,304 million

Business Overview

Performance in fiscal 2019
In fiscal 2019, while bookings were ¥35,442 million, up 0.2% year on year, as the service platform business, including

Objectives

 rovide reliable and secure ICT platforms for public infrastructure to support the sustainable development of society andP
Net One Systems’ growth

those for MSP, remained strong, revenue decreased to ¥35,176 million, down 1.1% year on year, due in part to delays in
improved to 10.5%, up 0.8 percentage points year on year.

Operating environment
Strong demand for security measures and cloud systems

Outlook for fiscal 2020
With respect to telecom carriers, because the number of customers and work areas are limited, we expect that the

Share of revenue

potential for work delays due to the COVID-19 outbreak will be limited. We expect to continue to expand our service(fiscal 2019)

platform business and MSP business support in fiscal 2020. In addition to capturing demand for service platforms, there

29.9％

are projects carried over from fiscal 2019, and accordingly, we expect fiscal 2020 bookings of ¥40.0 billion, up 12.9% andStrengths and characteristics
Consulting services that help customers clearly identify the issues
they faceOptimization of the full ICT lifecycle, from design, installation andmaintenance to operation, optimization and in-field improvement of
ICT platforms

revenue of ¥38.0 billion, up 8.0% year on year.
for data centers, servers, storage equipment, virtualization software and automation systems. Product sales will also be
combined with design, installation and maintenance support as part of high-value-added services.

Medium- to long-term outlook
As telecom carriers have a large number of corporate customers and are continuing to step up efforts to reinforce theirbusiness with those customers, our medium- to long-term goals remain the same. We will further develop solutions for
MSP by providing the Group’s advanced technology to telecom carrier customers. In addition, the development of theBookings

Order backlog（Million yen）

（Million yen）
50,00070,00062,46962,48743,25560,00060,000However, 5G-enabled systems have the potential to create a range of new business opportunities and markets. Following
proposals to combine face recognition and access systems, we believe that the number of solutions will continue toincrease, and we will focus on providing services that use 5G networks.
Going forward, we will continue to develop proposals that win the trust of customers, helping to support the development

50,00044,98446,55531,37730,00040,00025,476
19,91430,00020,00020,00010,00010,000

0

Cloud service platform business – example

2016

2017

2018

2019

2020

(Estimate)(FY)

Revenue

0

2016

2017

2018

2019

2020

(Estimate)(FY)

Operating income / Operating margin（Million yen）

（Million yen）(%)

70,000

5,000

12.0

Review of Operationsof their businesses with cloud services, security and corporate services anchored by the Group’s technologies.

38,25540,000We are not actively expanding business in the 5G facility market, as we are currently putting priority on profit margins.

Sustainability

refurbishment business is an effective way to maintain and sustain the duration of service provided by telecom carriers.

Segment performance (reference only)

Growth Strategy

Key growth themes
Trend towards cloud-based ICT platforms and increased security
Growth in the healthcare market and school systems market

In cloud service platforms, we will sell optimized configurations of the latest products, such as network equipment

Value Creation

Key markets / sectors
C entral government agencies, local governments, universities,
research centers, public infrastructure companies such as
electricity and gas firms, and hospitalsdelivery due to COVID-19. Operating income increased by 7.4% year on year to ¥3,708 million, and the operating margin

President’s Message

Public Market

4,304
56,56960,00055,60955,000

3,842

4,000

42,60340,9933,000

40,0007.7
6.8

30,000Support installation ofcloud service platform

Telecom carriers provide
cloud services to corporate users

Corporate customer

2,000

20,000
1,000

1,605
1,752
3.8
282

61

Annual Report 2020

2016

2017

2018

2019

2020

(Estimate)

(FY)

0

1,167
2.8

10,0000

6.0

Key Data

50,000

2016

2017

2018

2019

(FY)

0.0

Annual Report 2020

62

4 Review of Operations

Revenue ¥38,727 million Operating income ¥3,093 million

Business Overview

Business Results and Outlook

Performance in fiscal 2019

Objectives

Explore the potential of new added-value collaborative businesses that utilize the latest technologies
Key markets / sectors
Specializes in business partner collaboration
Uses partner companies to increase the Group’s market coverage
Operating environment
Strong demand from system integrators

Outlook for fiscal 2020

Strengths and characteristics
Handles a wide range of products from overseasP rovides quality assurance, technology verification and valueadded services such as proposal support and system maintenanceIdentifies cutting-edge ICT equipment and solutions in overseas
markets and helps introduce them into Japan

Share of revenue(fiscal 2019)20.8％

Key growth themes
Expand the solutions business aimed at partner companies
Develop and launch solutions for MSPLeverage Group synergies with Net One Systems

Medium- to long-term outlook
Segment performance (reference only)
Bookings

Order backlog（Million yen）

（Million yen）

20,00050,00044,962

18,16545,00040,00014,16515,00030,78730,000

Sustainability

Because the needs for our focus areas of security measures, cloud systems, and work style innovation is expected tocontinue, our medium- to long-term goals remain the same. The Group’s business strategy of offering cloud-based ICT
platforms and improved security has gained the most traction in the public market. Customers are investing in “offensive”
ICT and DX to transform their business models. We aim to help them achieve that transformation with the use of AI, Deep
Learning and other new technologies.
We continue to see a range of possibilities in the healthcare market. The focus of optimization is moving away fromstandalone hospitals to cooperation between hospitals to maintain regional healthcare services. Pharmacy supply chainsand preventive healthcare are other areas where ICT can be applied in the healthcare market. In the school systems
market, we anticipate continuing demand for ICT in areas such as EdTech, distance learning and interaction between
students and teachers, as well as system operation services to address a shortage of ICT personnel in the sector.
In the public market, which covers public infrastructure, the Group can provide unique value that ensures the secureand reliable utilization of ICT and that also helps to revitalize Japan’s regions. That approach will support the creation of asustainable society, and also help to transform Net One Systems.

31,60725,29410,0007,930

20,000

6,352

2016

2017

10,000

Separation of networks between systems and integration of file servers managed by each school with remote backup
Education information system
School administration system

Virtual desktops
Data

Prefectural high schools or municipal
elementary and junior high schools

Learning system

2018

2019

Revenue

2020(Estimate)

(FY)

0

Operating income / Operating margin

Data

Transfer of screen only

Use by faculty andstaff only

(FY)（Million yen）

（%）

4,000

12.0

38,72740,000

3,093
3,000

30,98530,0288.0

30,000

7.1

24,9172,000

Data

Use by teachers andstudents

Isolation of the school administration system, which handles sensitive student information, from the network of other systems to enhance security
Consolidation of learning file servers that have been managed by each school to prevent data loss and leakage due to theft, damage, disasters, etc.
Remote backup system for disaster preparedness, business continuity, and information asset protection

Annual Report 2020

2020

(Estimate)

50,0006.0

2,117

20,000

4.6
1,426

1,000

10,00063

2019（Million yen）

Migration and consolidation of file servers from each school

Benefits

2018

41,000

Separation of network

Internet

2017

Key Data

Clerical system

2016

Transfer of screen only

Separation of network

Local government
administration
network

0

Review of Operations

6,550
5,000

An example of enhancing cybersecurity for school systems

Growth Strategy

In fiscal 2020, although we will continue to focus on security measures and cloud systems, and develop solutions for thehealthcare and school systems markets, because there is a risk of the Company’s work being delayed as a result of the
impact of COVID-19, we expect bookings to decrease 4.0% year on year to ¥60.0 billion and revenue to drop 1.1% year
on year to ¥55.0 billion.
In the public market, although the issues that must be resolved differ from customer to customer, there are strong
common needs for ICT utilization, including the trend towards cloud-based ICT platforms and work style innovation, andwe believe that we will be able to demonstrate the strength of our security services.

Value Creation

While performance was strong for security measures and the cloud systems businesses, mainly for local governments,
healthcare, and school systems, there was an impact from the dropping out of large projects booked in the previous fiscal
year and scrutiny of business for central government agencies as a result of fraudulent acts. As a result, bookings showeda slight increase year on year to ¥62,487 million, revenue fell 1.7% to ¥55,609 million, operating income increased 12.0%
to ¥4,304 million, and the operating margin improved 0.9 percentage points to 7.7%.

President’s Message

Partner Business

2.1
512

0

2016

2017

2018

2019

2020

(Estimate)

(FY)

0

2016

2017

2018

2019

(FY)

0.0

Annual Report 2020

64

4 Review of Operations

Medium- to long-term outlook
Net One Partners supports DX for partner companies.

Overview of the Partner BusinessWe have defined cloud platforms, networking, and digital security as base platform technologies, which are also
provided by Net One Systems, to support DX. On top of that, industrial IoT, data intelligence for solutions utilizing data,
and digital workplaces, including video conferencing, have been defined as the unique sources of added value of Net One
Partners.
The pillars of our partner business strategy are “Time to Market & Back to Core” and “Close to Customers.”
Time to Market & Back to Core is a short- to medium-term activity to promptly provide partners with cutting-edge
products to take advantage of market opportunities as well as to strengthen the core business of Net One Partners,
including network and security including network and security solutions.

Value Creation

Close to Customers is a medium- to long-term activity that aims to gain a deeper understanding of the strategies ofpartner companies and immediately share new product knowledge and utilization know-how to find added value in thecollaborative models.
We will collaborate with Net One Systems USA, Inc., the Group’s US subsidiary, to create new businesses by investingin overseas venture companies with promising technologies and human resources. To reinforce our organization, we areworking on organizational reform, and development and recruitment of personnel with unique skills. We will also strengthen
systems that allow us to rapidly identify cutting-edge ICT technologies, including new business formats, configure them
Takuya Tanaka

for the needs of the Japanese market and deliver them to partner companies as soon as possible. Our goal is to reinforce

President & CEO
Net One Partners Co., Ltd.

Net One Partners’ position as a “high-value distributor” that can quickly adapt to the latest technologies and shifts inbusiness models without being constrained by existing ICT business approaches.

quarter, resulting in a significant increase in bookings by 42.3% year on year to ¥44,962 million and an increase in revenue

Distribution

Education

Manufacturing

PublicHumaninfrastructure resource services

Healthcare

RetailEntertainment

Sustainability

Strategies of Net One Partners

Performance in fiscal 2019
In fiscal 2019, business for our major partners remained strong and we received bookings for 5G projects in the third

Growth Strategy

Net One Partners was founded as a Net One Group company in2008. In the year after it was founded, we concluded the world’s first“solutions distributor” contract with Cisco Systems, Inc., kicking off
our involvement in the provision of value-added network solutions.
Over the years, we have focused on working with partner companies
with strong positions in system solutions for specific industries andsectors, helping to expand the Net One Group’s reach into businessfields covering major companies and SMEs.
Our strength is the products and services, and technical backup
we provide to partner companies, who can select equipment from awide range of overseas products, and sell them with confidence totheir customers, as well as the support we give partner companies
right through to their end-users. Specifically, we ensure equipment
meets the quality assurance standards of Japanese end-users,
carry out technology verification, help partner companies market
products to their customers, and provide system maintenance. We
also rapidly identify and gain access to cutting-edge ICT equipment
developed by overseas venture companies and other suppliers,
configure it for the needs of the Japanese market and supply it
promptly to our partner companies.

President’s Message

Business Results and Outlook

by 29.0% to ¥38,727 million. Operating income increased 46.1% to ¥3,093 million, and the operating margin improved
0.9 percentage points to 8.0%.

In fiscal 2020, we will work to expand our solutions business with all types of partners and deploy solutions for MSP. We

Supply chains

GIGA schools

Talent management
systems

Wearables

Digitalmarketing

AR/VRe-sports

Partner companies

forecast bookings of ¥45.0 billion, up 0.1% year on year, and revenue of ¥41.0 billion, up 5.9%.
In the solutions business, we will roll out solutions that combine all types of products and equipment, from IoT and

Smart cities

Time to Market & Back to Core / Short to medium term

Close to Customers / Medium to long term

ICT platform to cyber-physical security systems. For MSP, we will target demand from SMEs by supplying partners withsolutions that allow their users to easily install and manage equipment.
However, due to COVID-19, we will need to monitor the impact on the timing of deployment, depending on the market

NOP DX Core

Industrial IoT

Data intelligence

Review of Operations

Outlook for fiscal 2020

Smart factories

Digital workplaces

Added-value components

characteristics of partner companies.

Digital security

Networking
Mobile & wireless

Key Data

Cloud platforms

SDN

Physical

Cyber

Platform technologies
Net One Partners

65

Annual Report 2020

Annual Report 2020

66

5

Key Data

Bookings(million yen)
210,000(million yen)
200,000

204,423

186,169

163,846

153,124

160,000(%)
10.0

Operating income
Operating margin

8.9

138,103

7.0

12,0008.0

3.6

60,00040,000

3,000

80

76

74

60

63
49

45

40

2.0

2

0
(FY)

0

2.0
2

1.4

2

2

20

20

0

0

2016

2017

2018

2019 (FY)2015

Net income attributable toowners of the parent

2016

2017

2018

2015

Earnings per share
(yen)
120

(million yen)
12,000

2016

2017

2018

2019

119.52

(yen)
45

2016

2015

Dividends per share

2017

0.0
2019 (FY)

2018

45.00

(No. of employees)

MaleFemale ratio

30

4,401

4,000

52.02

4,323

30.00

30.00

30.00

1,500

2018

2015

Total assets /Net assets / Equity ratio(million yen)
140,000

Total assets
Equity ratio

Net assets

(%)
80

54.7

56.3

60
50.2
48.8
66,67455,95454,398(million yen)
4,000

Capital expenditures

Depreciation

57,70859,614

(%)
20

2018

2019 (FY)

2,791

2,945
2,922

50
40

3,020
2,809

2,846
2,707

20

20,0000

0
2018

Annual Report 2020

16.5

16.4

16.8

17.1

353

376

380

399

403

2015

2016

2017

2018

2019 (FY)

8
40

28.6
26

32

13.0

35

2016

100.0

100.0

2,500

38

49

44

7.3

18

2017

2018

2019

0
2020 (FY)(%)

No. of engineers
Total number of registered employees
Ratio of engineers

2,000
57.4

54

60

1,500

20

40

1,000

10

20

500

2019 (FY)

7.28

7.14

1.8

2015

0
2016

2017

5
2015

2018

2019 (FY)*The number of employees who have taken leave
for multiple years is also included in the calculationfrom this year.
2015

2016

2017

2018

2019 (FY)

2016

2017

2018

2019 (FY)(%)

Satisfied
70
80

84.7

Somewhat satisfied
88.5

Overall satisfaction
89.4

2,246

2,276
1,269

57.8

58.1

57.3

55.8

50
2,321
1,331

1,378

60

51.1

2,353

2,372

1,361

30

47.2

43.2

40

20
2.0

2018

7.84

40
41.5

7.4

5.5

2017

8.16

8.05

60

5

2016

8.68

8.43
7.72

Customer satisfaction

98.1

80

38

14

(No. of employees)

100
100.0

17

0

1,289

6.5

2015

8.72

6

Ratio of engineers of
all employees*
(%)

40

30

10

0

9.27

8.55

7.63

7

34

11.3

0

9.39
8.83

31

20

0
2019 (FY)

50
97.4

2,306

1,000

35.8

20

No. of employees taking childcare leave
Ratio of employees returning to work after childcare leave

ROA*ROE: Net income attributable to owners of the parent / average equity during the period × 100
ROA: Ordinary income / average total assets during the period × 100

67

15.7

0

15

10

2017

40

(No. of employees)

ROE

2,618

2,000

36.7

34.7

Childcare leave ratio /Return to work ratio

16.1

3,000

61
61
43.5

60

7.8

40,0002016

2017

ROE·ROA

30

2015

2016

3,568

80,00060,00020152019 (FY)All

Key Data

54.6

2018

70

102,038 102,146

99,4172017

Capital expenditures /Depreciation

118,313120,000

100,000

136,111

2016

Male

9

20

0

2019 (FY)

1,9502019 (FY)

Review of Operations

2017

Female

8.21

5

0
2016

1,973

2018

20

500

12.01

2015

1,941

2017

(Years)Female ratio

60

40

20

0

1,900

1,000

15

1,015

1,893

2016

Average years worked at
Net One Systems

80

20

10
2,000

2015

2,000

42.38

40

3,584

51.07

Male

80

25
60

2019 (FY)(%)

Female

60
6,000

2018

Sustainability

80

2017

(No. of hires)

100
1,950

35

2016

New graduate recruits
by gender(%)

Female
2,500

37.00

100

8,000

2015

Employees* by gender40

10,12410,0002019 (FY)*Average ratio of paid leave used per employee0Growth Strategy

2015

0

68

3

1,927

0

69

68

66

64

58

40

5,565

30,000

89
81

4.0
4

100

97

60

5.5

4.0

7,256

100

80

6

6,000

100

6.0

4.7

80,000(%)

Use of remote working (all employees)
Use of remote working (employees on reduced
working hours for childcare)

8.7

6.0
9,000

90,000

Paid leave ratio

(%)

8.0

9.1

8

8

12,166

120,000

120,000

(%)

11.2

8.0

Remote working

10.0
Number of non-statutory
working hours
Ratio of employees working
excess hours

10

15,000

153,349(Monthly average; hours)
12

16,476140,170

150,000

Productivity

Value Creation

158,181(million yen)
18,000174,838

180,970

180,000

Operating income /Operating margin

Revenue

President’s Message

Non-financial Highlights

Financial Highlights

42.2
37.4

20

10
0

0

0
2015

2016

2017

2018

2019 (FY)0*Overall satisfaction: Total for satisfied/somewhat satisfied
2017

2018

2019 (FY)*Employees (registered at Net One Systems) excludes staff seconded from external partners,
includes employees seconded to subsidiaries and employees on short- to long-term leave
Annual Report 202068