This Annual Report is also available on the Net One Systems website.
■ Annual Report 2021
https://report.netone.co.jp/en/index.html

https://report.netone.co.jp/ja/guide.html (Japanese version only)

Annual Report 2021

■ Positioning of the print and web editions

Net One Systems Co., Ltd. ｜Net One Systems Websites■ Annual Reports Archivehttps://report.netone.co.jp/en/archive.html■ Glossary
https://report.netone.co.jp/en/index/main/017/teaserItems1/03/link/AR21E_glossary.pdf

Please visit the following websites for more information about Net One Systems.
■ IR
https://www.netone.co.jp/english/investor-relations/
IR documents such as earnings release materials and research reports, as well as the latest IR news

■ CSR
https://www.netone.co.jp/english/company/csr/
Net One Systems’ basic approach to social and environmental issues and an overview of related initiatives■ Corporate Governancehttps://www.netone.co.jp/english/investor-relations/management-policy/corporate-governance/
Corporate governance basic approach and governance structure

JP TOWER, 2-7-2 Marunouchi, Chiyoda-ku, Tokyo 100-7024
ir@netone.co.jp
Investor Relations Office
Issued in: December 2021

Annual Report 2021

■ Highlights | Philosophy System

ICT Utilization Helps Us
Social Innovations andContribute toTransformations

Achieving Self-innovation to Support
the Transformation of Society
Our corporate philosophy embodies the unwavering mission of Net One Systems.
ICT technology has advanced dramatically in the 30 years since the Company was
founded. Likewise, the solutions we are required to provide and the values we

PHILOSOPHY
Corporate Philosophy

ICT Utilization Helps Us
Contribute to Social Innovations
and Transformations

offer are changing day by day. In response to these changes, we have formulated
a philosophy system to realize our corporate philosophy.
Through self-innovation, we will transform ourselves into a company that can
provide new value through our unwavering philosophy, firm vision, and the skills

VISIONand spirit of TAKUMI with regard to ICT utilization, thereby contributing to theManagement Vision

ADMIRED COMPANY
A company trusted and supported by all
stakeholders

transformation to a better next-generation society.

MISSION
Mission Statement

Responsibility to customers
Responsibility to partners
Responsibility to shareholders
Responsibility to employees

Skills and spirit of TAKUMINet One Systems is one of Japan’s leading companies involvedin the integration of systems for the information network
society. To address expected changes in our market, all ourengineers are enhancing their skills, aiming to transformthemselves from system integration professionals to experts
in all aspects of ICT utilization. We will remain focused on ourroles 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 the challenge of creating nextgeneration ICT platforms.

01

Annual Report 2021

PeopleI will proudly fulfill my duties honoring my loved ones

VALUE
Principles of Conduct

Governance
I will strive to take socially responsible behavior

SocialI will work with customers to create
and promote values for society

Environment

I will work to create a better future for all

Annual Report 202102

■ Highlights | Business Model“Connect,”“Communicate,” and“Change”

Achieving Customer Successthrough Unique Value Creation
Since its founding, Net One Systems has expanded its business model from

We are promoting an Integrated Service Business that maximizes value for our

network professionals to ICT infrastructure professionals, under the principles ofcustomers through lifecycle services from the standpoint of customer success, by“connect,” “communicate,” and “change.”leveraging our unique assets such as human resources and intellectual property.

Currently, as we enter the era of full-fledged utilization of cloud infrastructure, we

Our goal is to be a leading company in integrated services that changes society

are moving toward the next stage, in order to respond to increasingly sophisticatedby spreading the new value we have co-created with our customers through ripple

customer issues and needs.

effects, to our customers and beyond.

Connect
via
Networks

Connecting via reliablenetwork technology to
spread information

03

Annual Report 2021

Communicate
through
Information

Communication of information
establishes relationships andcreates new value

ChangeSociety
Change society as a whole, through communication between people,
as well as people and society

Annual Report 202104

■ Highlights | Sustainability

ADMIRED COMPANY
A Company Trusted and Supported
by All Stakeholders
We cannot become an admired company as stated in our vision, without
contributing to and fulfilling our responsibilities to all of the stakeholders who
support Net One Systems.

Partners

Responsibilities and contributions

Customers

Six Key
Sustainability
Challenges

We will grow sustainably with society by helping our customers overcome issues
in their operations, and contributing to their success through our solutions andservices. In addition, we will respond to the various risks that surround theCompany, society, and the global environment, in order to maintain sustainability.
With these opportunities and risks in mind, we have identified six key sustainability

ADMIRED COMPANY

challenges.
By confronting these key challenges and working diligently to address them, weTrust and support

will continue to strive tirelessly to earn the trust and support of our stakeholders,
and to become a truly admired company.
Employees

05

Annual Report 2021

Shareholders

Annual Report 2021

06

■ Contents■ Profile

Net One by the Numbers
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01

President’s Message

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07

09

Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08
President’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09

ROE

17.8%

Operating margin

9.7%

Chapter 1 Value Creation
Corporate History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Overview of the Value Creation Story . . . . . . . . . . . . . . . . . . . . 17
Our Value Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Our Created Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Our Strengths and Non-financial Capital . . . . . . . . . . . . . . . . . 23

CMO’s Message

31

Targeting Sustained Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Discussion with
Independent Outside
Executive Directors

Chapter 2 Growth Strategy
Overview of Fiscal 2019-21 Medium-Term Business Plan . . . . 27

41

Progress with Fiscal 2019-21 Medium-Term Business Plan  . . 28
Measures to Achieve the Targets in Our Medium-Term Business Plan . . . 30

Maintaining a high level ofcapital efficiency

High value-added business andimproved productivity

Service ratio

Customer satisfaction

42.2%

91.2%

CMO’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Chapter 3 Sustainability
Basic Approach and Key Sustainability Challenges . . . . . . . . . 35
Stakeholder Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Improve and Reinforce the Business Base . . . . . . . . . . . . . . . . 38

Auditor’s Message

44

Discussion with Independent Outside Executive Directors  . . . 41
Auditor’s Message  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Provide New Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Message from the Director
in Charge of Business Units

Message from the Director in Charge of Business Units . . . . . 47
Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Medium- to Long-term Outlook . . . . . . . . . . . . . . . . . . . . . . . . 53

07

Editorial Policy

Reference Guidelines

The Net One Group has been publishing an Annual Report since 2018, with theaim of providing all of our stakeholders with information regarding our approachand growth based on a medium- to long-term perspective.
In order to explain our strategies for sustainable growth and our businessactivities in an integrated manner, we have compiled key financial and nonfinancial information with reference to the Guidance for Collaborative Value
Creation provided by the Ministry of Economy, Trade and Industry.
In fiscal 2020, we fundamentally reviewed our corporate practices in
response to the issue of fraudulent transactions by a former employee of theCompany and their related parties. As such, in our Annual Report 2021,
we present the new organizational structure of the Group and the further
strengthening of our governance. Moving forward from Annual Report 2020, we
would like to convey our stance of continuing to evolve into a leading company
in integrated services, and we present an overall view of our value creation
process, an outline of our Integrated Service Business, and details regarding
our pro-motion of sustainability.
Please note that financial data for the fiscal years 2014 through 2019 hasInternational Integrated Reporting Council (IIRC):
The International <IR> Framework
Ministry of Economy, Trade and Industry:

Annual Report 2021

1.8pt increase year on year,
reaching a record highRatio of Independent
Outside Executive Directors

Use of remote working

42%

47

Chapter 4 Review of Operations

been restated to reflect revisions disclosed in December 2020.

Promotion of Integrated
Service Business

Guidance for Collaborative Value Creation

Forward-looking Statements
This report contains forward-looking statements that involve inherent risks anduncertainties and therefore may differ materially from actual results. Forwardlooking 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.

75%

Implementation of organizational
reforms to strengthen governanceImproving productivity throughwork style innovation

Return to work ratio

Ratio of female managers

100%
A workplace where employees canboth work and raise children actively

7.7%
Establishing an environment andculture in which women cancontinuously play an active role

Annual Report 2021

08

President’s Message

Building a solid platform to support sustained
improvement in corporate value bybalancing stronger governance with business growth

New President’s Mission

Balance “Governance / Corporate Culture Reforms” with “Sustained
Growth” through leadership and dialogue with employees
Sustained Growth

Governance / Corporate Culture Reforms

Chairman’s Message■Achieve targets in current Medium-Term Business Plan
Accelerate Integrated Service Business■Formulate and achieve targets innext Medium-Term Business Plan
Generate sustained growth by capturing market opportunities■Governance reforms
Board of Directors: Shift focus from business management tomonitoring
Internal control system: Embed three effective lines of defense
Three-way audit system: Reinforce remit, system, cooperation■Corporate culture reforms
Honesty and ethics, management messaging, human resources
development, promotion for the top emerging employees, newcode of conduct and values

Interaction

Value Creation

Increase corporate value
Business Environment and Progress with Medium-Term Business Plan

Provide value through our Integrated Service Business by
accurately identifying changes in customer needs and approaches

New Management Structure

09

Annual Report 2021

Medium-Term Business Plan KPIs
(bn)
250

■Revenue

Operating margin

Review of Operations

I was appointed President & CEO on April 1, 2021.
Since discovering transactions without the physical delivery of goods and other instances of previous misconduct wehave conducted a thorough investigation with external experts to identify the causes of the misconduct. Our investigation
identified weaknesses in the Group’s internal control system. The process also served to highlight issues in areas suchas operational effectiveness, financial integrity and compliance. To address those issues, in fiscal 2021, ending March 31,
2022, we began work on completely overhauling our management structure in order to rapidly build a truly effective internal
control system. After discussions by the Advisory Committee, I was selected to become Net One’s new President. The
committee cited my long track record as a dedicated employee of the Company since being hired in the first-ever groupof new graduate recruits, and my extensive experience in many areas of the business, from technology and services tomarketing and management. The Company believes I can have a positive impact on implementing reform because of myin-depth understanding of Net One’s history and the challenges faced by each part of the Group. Since 2020, as the headof the Corporate Planning & Management Division, I have led efforts to prevent any recurrence of misconduct and raiseawareness of compliance. I was also on the list of candidates in the succession plan developed by my predecessor. I think
another reason for my appointment was the work I have put into building close relationships with many employees, giving
them confidence to freely speak their minds. Honest and open dialogue with employees will be crucial to overhauling theGroup’s corporate culture.
My mission is to build a framework to support both business growth and stronger governance. I believe that process
will foster greater trust in Net One Systems. In fiscal 2021, we will push ahead with the completion of our Medium-TermBusiness Plan and implement a number of new measures to reinforce corporate governance. Over the next year, we will
also formulate our new Medium-Term Business Plan after identifying issues that need to be addressed and deciding thebest approach to solve them. From the first year of the plan, we will execute our strategies with a real sense of urgency.

Sustainability

Creating a truly effective internal control system
under our new management structure

Growth Strategy

Takafumi Takeshita
President & CEO
Net One Systems Co., Ltd.

<Medium-Term Business Plan: Fiscal 2020 Review>
In fiscal 2020, ended March 31, 2021, earnings were strong across the board, but the healthcare and smart factory markets
were weak due to the impact of the COVID-19 pandemic. We anticipate continued weakness in the healthcare market in
fiscal 2021, but with investment demand clearly recovering in the smart factory market, we expect to achieve our plantargets. In the public market, education boards are working to meet the requirements of the GIGA School Program, while
local governments are likely to be one of the main drivers of system upgrade demand in fiscal 2021 as they work to build
the next cloud-based security platforms and resilient systems. We are also seeing rising demand for remote working andlearning systems that are easier to use.
Under our new model for providing support for managed service providers (MSPs), we have completed a new platformthat allows our partners to leverage their individual strengths to create shared value together. New services developed
through this collaboration with partners, backed by our proprietary intellectual property, will support Japan’s broader shift
to digital transformation and also translate into growth in Net One’s market share. Our refurbishment business model isalso attracting increased attention. We aim to further boost market competitiveness in the refurbishment space while also
increasing the number of products with maintenance support add-ons. We expect to achieve our operating income andoperating margin targets by continuing to accelerate value-added business and improving productivity.

■ Operating income

Forecast

Fiscal 2018 Results

209.0

Fiscal 2021 Targets

202.1
200

Operatingmargin

6.8%

13.0%

186.3
174.8

10.5%

（Original plan 9.5%）

153.1
150

142.4

141.5

10.5%

153.3

11.0%

9.7%

140.1
8.9%

9.0%

Service ratio

42.6%

45.0%

（Original plan 50.0%）

6.8%

100

7.0%

4.5%

ROE

12.8%

2.2%

19.2%

5.0%

3.5%

50

2.7%

（Original plan 16.8％）

1.2%
3.1

3.7

2013

2014

0

1.6
2015

Business model transformation

5.3

6.9

2016

2017

11.8

16.4

3.0%

19.6

22.0

2020

2021 (FY)0

Sustained growth(Cloud and security)

2018

2019

Transformation for the next era(Integrated Service Business)

Annual Report 2021

10

President’s Message

Annual Report 2021

Review of Operations

11

Sustainability<Measures to Address Recommendations of External Investigative Committee>
The greatest risk facing Net One is loss of stakeholder trust. To avoid that risk and rekindle trust in our Group, we are
implementing the following measures in response to the recommendations of the external investigative committee.
Governance
To prevent internal controls from becoming formalities, we partially revised the Basic Policy of Internal Control System- the Group’s primary regulations governing internal controls - and updated related rules. We also stepped up efforts toincrease understanding and raise awareness of internal controls across the Group through messaging to our workforce
and communication between employees and the management team.
The Board of Directors will also adapt its role to focus more on monitoring activities such as business control andoversight instead of pure business management. Closer cooperation with independent outside executive directors will be
key to that change. We are currently discussing with independent outside executive directors about how to achieve a highlevel of cooperation, such as timely sharing of information, exchanging opinions with directors and carrying out dialogue
with executive officers. Looking further ahead, we plan to increase the ratio of independent outside executive directors
to 50% and select independent outside executive directors to chair management and advisory committees to create a
corporate governance system with powerful supervisory capabilities.
Business execution framework
To clearly separate control and oversight functions from business execution, we have appointed executive officers withoutboard positions to head all business divisions. And in a first for Net One, we are restructuring our organization along
defensive lines. We have incorporated three defensive lines (see page 40, Chapter 3: Establishment of the Internal Control
Enhancement Council, for more details), each with clear and specific roles: the first line is a sound business frameworkand the second is a robust supervisory, support and oversight system.
Three-way audit system
We are also radically overhauling the third defensive line: internal audits. The focus of internal audits will be shifted fromprocess audits to organizational audits, and the results will be shared with all employees in the Group. At the same time,
we are overhauling the role of the Internal Audit Office itself, including reflecting the recommendations of the external
experts in the office’s revised role. The Internal Audit Office will be staffed by a mix of people, including personnel withmarketing and engineering backgrounds and executive officers. Ultimately, we plan to include work experience in theInternal Audit Office and the Risk Management Office as part of employee career paths.
Furthermore, we have appointed a certified public accountant (CPA) as a full-time independent outside auditor &supervisory board member. By adding a CPA to existing business-focused audits, we aim to ensure trust in the Company’s
financial information. We have also replaced the Company’s accounting auditor. The new auditor has been selected to
conduct audits with an emphasis on regular communication with senior managers and frontline teams.

<Internal Reforms Based on Recommendations of External Investigative Committee>
The so-called fraud triangle of “rationalization,” “motivation” and “opportunity” accurately describes Net One’s recent
cases of misconduct. To eradicate this triangle from our business, we will implement a range of proprietary internal reforms
in parallel with the above measures that address the recommendations of the external investigative committee.
Eliminating “rationalization” will involve continuous communication about the importance of “personal discipline”
through direct messaging and the actions and stance of senior management. The goal is to encourage self-discipline inorder to foster an organizational culture where employees resist even the smallest irregularity. In the case of “motivation,”many investors have told us that Net One has perhaps focused too much on results-based performance. Our humanresources system and target-setting process are anchored by behavioral standards, but we do have an incentive system
as well. In some areas of our organization, that led to a downward spiral. Other areas of our organization work to achieve
steady growth while keeping a close eye on resources, so the approach has been inconsistent across the Group. The“opportunity” aspect of the misconduct arose from weakness in supervisory systems around the illegal activity. Awarenessof legal compliance is high in our organization, but the misconduct highlighted a disconnect between operational rules andlegal regulations.
The latest misconduct also suggests that measures to prevent any recurrence, released in March 2020, failed toadequately address the cause and effect of the illegal activity. We suddenly imposed strict rules on frontline employees
without asking some important questions, such as how did we get to this point, why were the employees’ actions wrong,
and why did changes need to be made? That approach risks creating inconsistencies that stop employees from doing theirjobs. To address those issues, in April 2021, we reopened dialogue with our employees to clear the air. We have not watereddown any “red line” rules, but we are making some targeted adjustments to make work processes smoother, while alsobuilding trust and fostering the corporate culture needed to support compliance. Instead of tying up employees in red tape,
we will create a flexible, truly effective rules-based framework that only comes into play when it is needed. I will continue toregularly update you about how all these reforms are progressing.

Growth Strategy

Acting on the recommendations of external experts and implementing
our own initiatives to restore and rekindle trust in Net One

Reforming corporate culture
We have been reforming Net One’s corporate culture since fiscal 2020. Specifically, we reinforced our Management
Philosophy to reposition it as our corporate philosophy and established a new Code of Conduct. Every employee isrequired to make a declaration they will adhere to the Code of Conduct. Adherence to the code is also reviewed on aregular basis. To ensure these measures have a lasting impact, we have to introduce a human resources system that
evaluates performance based on our Corporate Vision and Code of Conduct. We are currently conducting an assessmentof our human resources system, including using input from external experts who are taking an objective look at thehistorical goals and outcomes of the system. Based on the results of the assessment, we will foster a new corporate
culture by reforming all personnel systems and embedding our Corporate Vision across the Group, while also enhancing
communication with employees.

Value Creation

Reforming Governance and Corporate Culture

Chairman’s Message<Business Opportunities and Risks>
At the moment, many of our customers do not want to build new systems from scratch. Their real need right now is how to
get the best out of existing ICT platforms. Also, amid the current shift to digital technology, they increasingly see spending
on ICT as an investment, not as a cost. Accurately identifying and responding to these changing customer needs andapproaches will translate into new business opportunities for Net One. Our Integrated Service Business can handle allareas of corporate ICT investment plans, from planning and system installation to operation, allowing us to deliver complete
system optimization instead of linking up piecemeal system improvements. We believe this business model is well-placedto accurately meet current market needs.
To convert these business opportunities into growth, we have to increase and enhance the Group’s human resources.
Redeploying engineers to services is a particularly urgent task. We aim to leverage our engineers’ strong technical skills
to help customers solve ICT issues. Put another way, our engineers will need to acquire the ability to apply and adapt
their technical skills to services, which will be a major challenge. In recruitment, we will target qualitative and quantitative
improvements in human resources. Specifically, we will put greater emphasis on hiring people who can capture business
opportunities for the Group, aiming to cultivate distinctive Net One personnel who are committed to “customer success.”

Sustainability

Contributing to a sustainable society through a value creation story
that reflects Net Oneʼs unique business characteristics<Tackling issues faced by society>During our next Medium-Term Business Plan, we will continue to update Net One’s materiality while communicating ourroadmap, goals and message for tackling and solving issues faced by society. For example, on the face of it, our businessdoes not appear to have much connection with climate change, but virtualization technology can help customers reduceenergy consumption. By providing technologies and solutions that solve issues for customers, we also contribute to society
as a whole. This is one of the ways Net One can have a positive impact. We are currently trialing ways of using virtualization
technology to reduce energy consumption and we plan to present proposals to customers in the future. In addition toproviding ICT services and capabilities, we aim to partner with customers to solve social issues. This is a new way that Net
One can create value.

Annual Report 2021

12

President’s Message

These efforts will be anchored by a commitment to generating returns for three stakeholder groups: returns forshareholders who support our vision, strategy and business, returns for employees through opportunities for personal
development, and returns for the wider community. In this way, we aim to grow with stakeholders to create shared prosperity.

Chairman’s Message

Medium- to Long-term Vision

Transform Net One into a corporate group that generates steady growth,
while building our position as a professional team of experts
Value Creation

Our purpose is to help transform society through ICT proposals born out of repeated in-house real-world testing by aprofessional team of experts. All our employees, not just those in engineering divisions, contribute to Net Oneʼs value asa company. I believe that everybody who works at Net One should be part of our professional team of experts (TAKUMI
in Japanese) ‒ in sales, our people have the expertise to optimize costs while satisfying the needs of customers, while inback-office departments, our employees have the expertise to actively leverage the specific characteristics of their work inreal-world ICT system testing.
We will enhance this expertise to lift profits, while also building a governance system that ensures trust in Net One.
In this way, we aim to build a platform that supports sound growth. This is our vision for the medium and long term. The
ultimate goal is to transform Net One into a corporate group that generates stable profit growth and consistently increases
corporate value, instead of a cycle of instability with peaks and troughs. Over the next year, we will review Net Oneʼs pastbusiness strategies to carefully study and visualize their impact and outcomes. Based on the results of the review, we
will develop a new strategy to reinforce the Groupʼs position during the next Medium-Term Business Plan and lay out theroadmap for future growth. I hope we can count on your continued support as we work to realize this vision.

Growth Strategy
Sustainability<Enhancing human capital>
Human resources are one of the Group’s most important types of capital. We are working to reinforce human capital invarious ways, including work style innovation and skills training.
Human resources training
In our new human resources training strategy, we have added more programs and content related to complianceand accounting. Until now, our emphasis in training has been on frontline business, but we recognize that we have tofundamentally change our whole approach to achieve our aim of balancing governance with business growth. We alsoplan to add expertise in governance, internal controls and compliance to criteria for promotions. Furthermore, we will
invest in long-term training for new graduate employees, such as providing basic skills training every few years. Fromtheir tenth year with the Company, when they become mid-level managers, we want graduate recruits to be comfortablewith the common language of accounting and governance and be able to lead collaborative projects that drive businessgrowth. We have positioned personnel training based on a longer-term perspective as a key part of efforts to reinforce
the business base.
Targets and performance evaluation
We introduced a new job description system in fiscal 2020 to create clear, common expectations and roles in targetsetting. This visualization of the necessary skills and expertise for each job grade now allows employees to independently
build their own career paths. Due to the different nature of work in business divisions, there is some inconsistency about
expectations and roles between each division. We are closing these gaps in order to create an even fairer performance
evaluation system that is supported by employees. We also plan to introduce entirely new performance benchmarks.
Customers give positive feedback about our employees’ problem-solving abilities. But that alone will not be enough totake the Group to the next level. It is vital that Net One employees shift from “reactive” to “preventative” thinking. With
technology becoming more advanced each day, we will put greater emphasis on problem-prevention abilities in ourhuman resources strategy.
Work style innovation
We have upgraded tools and systems through work style innovation, but there is still room for improvement in integrating
analog and digital elements of the workplace environment. As remote working gains momentum, managing work processes
is becoming a wider social issue. The idea that “working hours” is the same as “time in the office” is losing ground inmodern Japan, but what is the best way of managing personnel and their activities as flexible working becomes morecommon? And how should we communicate with employees? Communication is vital to fostering corporate culture andsupporting the mental health of employees. Our customers also urgently need to answer these same questions. We plan
to explore and identify the best approaches to continue providing a reference point for customers.

Financial and Investment Strategy
Review of Operations

Rewarding shareholders, employees andsociety with rising returns, backed by an appropriate capital policy
We announced a new capital policy in May 2021. We lifted our consolidated dividend payout ratio target from 30% or more
to 40% and set out clearer goals for increasing shareholder returns and uses of retained earnings.
To continue generating growth under the next Medium-Term Business Plan, we will scrutinize operating costs as partof our shift to services. Until now, we have not invested that heavily in facilities or R&D, but as the shift to cloud-based
computing gathers pace and customers no longer require their own facilities, we will need to own and operate proprietary
facilities to support service provision. After governance issues severely impacted Net Oneʼs corporate value, we will invest
aggressively in measures to restore corporate value and adapt to changes in the operating environment. In terms of KPIs,
our current Medium-Term Business Plan uses ROE, and we plan to continue using that benchmark going forward. We arealso looking at adopting EPS, which has been suggested by many of our investors.
Meanwhile, we have appointed our new CFO. He will lead efforts to drive business growth and increase corporate value
through an appropriate capital policy. He has experience and expertise in corporate governance from his work implementing
measures to prevent any recurrence of misconduct, as well as strengths in the financial field. Under his leadership, we will
gather information to explore and develop our financial strategy to take the Group forward.

13

Annual Report 2021

Annual Report 2021

14

1 Value Creation | Corporate History

With networks as our core technology since the first days of
the Company, we have been working to enhance provided value
by expanding our business fields in response to the evolution of
ICT and changing customer needs.

2021

2020

ment and sale of routers, switches and other ICT equipment. Since then, we have continued to grow in response to theJune 2020
Established the “netone Briefing Center” and“Lab as a Service” to help customers accelerate DX

evolution of ICT and changing customer needs, using our advanced network technologies as a point ofJanuary 2019
Established Net One Next Co., Ltd. toprovide ICT functionality using
refurbished products

2019

difference, while extending our business reach from networks into all areas of ICT platforms, such as
cloud systems, security and IoT.

May 2013
Opened an Innovative Office in the newhead office building to give customers
first-hand experience of ICT
Showcases modern work practices withtools optimized to various environments

2013

Employees

September 1999
Certified as a gold partner
by Cisco Systems

2008

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

601

1,111

1,570

2,023

2,560

2000

2004

2007

2010

2020

85.2

44.9

billionYenbillion
Yen

2010

2020

34.3%

42.2%

Growth Strategy

1988

1999

Service sales ratio

Value Creation

October 2016
Opened a Security Operation Center(NetOne-SOC) staffed by a security analyst
team to provide 24-hour year-roundmonitoring services

2016

Revenue

Chairman’s Message

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

June 2021
Became the first company in Japan to acquire a Cisco
Systems Inc. Certification, the highest level of certification in
the field of customer experience

FoundedCustomerneeds

Wider use of
information systems
Sharing information between business sites

1988〜

15

Annual Report 2021

1992〜

Improvements in
ICT system efficiency

ICT utilization becomes central to business reform

Improving communication speeds

1995〜

ICT utilization

2008〜

2011〜

2016〜

Network systems

Internet

Virtualization

Cloud & Security

Digitalization

Began providing sales, design,and maintenance services for network equipment for limited communications within the premises,
such as computer-to-computerconne c tions, mainly to major
private sector companies, re search institutes, and universities.

With the rapid spread of the Internet, sales, design, installation,a n d m a i n te n a n c e of n e t wo r kequipment have increased. In
response, the Company has
expanded its business fields toinclude the network installation
business for telecom carriers andgovernment agencies, in addition
to our existing fields of major
private sector companies anduniversities.

The Company has focused on virtualization as a new technology for pursuing efficiency. By utilizing the characteristics of virtualization technology, which
presents various advantages including
the effective use of ICT assets, flexibilit y i n a d d i n g c a p a c i t y, a n d p owe r
saving, the Company strived to expand
its business to major private sector
companies, government agencies, andlocal governments.

By leveraging its network know-how,
the Company has shifted to a businessst yle that provides total solutions,
including the installation of servers andcloud systems for client companies.
The Company had also begun to focus
on security, such as countermeasures
to prevent information leaks throughnetworks.

ICT utilization has expanded rapidly,
and the Company has transformed
itself to play a central role in businessreforms. The Company is creating new
added value, in response to the growing importance of network technologies
that safely connect all kinds of products
and services as its business field continues to expand.

Review of Operations

Interconnection
Conventionally, computer networks have been connected only
according to each manufacturer’s
proprietary specifications. With
Changes inbusiness fields Net One’s proprietary equipment,
communication software development capabilities, and humanre source s, we have achieve dinterconnection regardless of
specifications and manufacturers.

Changes inprovided value

Internet uptake

Sustainability

Changes inmarketconditions

Fiscal Year

Strategy support
Systems optimization

Maintenance/Operations
Hardware sales

Annual Report 2021

16

1 Value Creation | Overview of the Value Creation StoryNet One Systems provides support for ICT utilization,
helping people and companies to “connect” and “communicate”
and ultimately drive “change” in society

Input

people to achieve their wills.
Net One Systems aims to contribute to social innovations and transformations by ICT utilization and to be an admiredcompany trusted and supported by all stakeholders.

Contribute to
and Transformations“Communicating” with Information

Value creation process

Strategies and key Challenges
2 Growth Strategy P.27

1 Value creation P.19

Output4 Review ofOperations P.47

Leading company inintegrated services
Share information on
demand trends

Gain an understandingof needs

Fiscal 2019-21 Medium-TermBusiness Plan

1 Value Creation P.21

Outcome1 Targeting Sustained Growth P.25

High-value-added
services to realize
strategic ICT utilization
EnterprisemarketProvidingsocial value

Three growth steps
Verification
Evaluation
Integration

×Provide expertisein ICT utilization

Increase productivity

Three basic strategies
Leading
overseas
vendors

Key Sustainability Challenges

Telecom carrier
marketDevelopment of
human resources

Customers /Business
partners

Gain an understanding oftechnology trends

Create added value

Powerful
verification
capabilities

Improve and reinforce
the business base

1 Our Strengths and Non-financial Capital P.23

Improvement ofcorporate valuePartnerbusiness

Security measures

3 Sustainability P.35

Value cycle

Annual Report 2021

Enhancing governance

Provide new value
Utilize ICT to reduce
environmental impact

17

PublicmarketReview of Operations

Financial
capitalTrusting
relationships
withvendors

AchievecustomerWork style innovation
success

Strengthen security
Build relationships withstakeholders

Expertise in
ICT utilization

Sustainability

Networktechnology
capabilities

Japanesecustomers

Growth Strategy

TAKUMI
human
resources“Changing” Society

Value Creation“Connecting” with Networks

By connecting people to people, and people to society with technology, we can propel “change” in the way ICT is used by

Chairman’s Message

ICT Utilization Help Us
Social innovations

Networks enable people to “connect” to exchange data and to “communicate” to convert raw data into useful information.

Reinvesting to strengthen capital

Annual Report 2021

18

1 Value Creation | Our Value Creation

We will evolve our business model to accelerate
the implementation of our Integrated Service Business bystrengthening our relationships with customers andexpanding our business fields.

about the needs of the Japanese market, resulting in a shared technology roadmap with a horizon of several years. Net
One Systems does much more than providing solutions for customers’ technical issues. To address diverse needs, we run
a program that allows customers to see first-hand the benefits of fully deployed cutting-edge technologies, giving them aninsight into how ideal ICT environments will look in the future.

Becoming a strategic partner

Customer strategy
support services

Shift to cloud computing

Applications

Applications

Applications

Servers

Servers

Servers

Storage

Storage

Storage

Applications

Applications

Applications

Virtualservers

Change innetwork boundary

Virtualservers

Virtualservers

System maintenance services
Network
Product maintenance services

Complete ICT platform

Network system

Expansion of service areas

Supporting the formulation of ICT
infrastructure strategies and becoming
a strategic partner for our customers

Transforming from a network specialist to
an expert in all areas of ICT platforms,
including cloud systems, security, and IoT

Integrated Service Business

Combine products from vendors to create solutions andservices optimized to Japan’s quality requirements

We are leveraging the unique intellectual property we have accumulated to evolve our service platform, while
simultaneously expanding and linking our lifecycle services from the standpoint of customer success. By building anddelivering an engagement model that maximizes value for our customers, the new value that we have co-created with ourcustomers will create ripple effects for our customers, and beyond.

Customers

Feedback of market needs tovendors’ head offices

Interacting with customers
who are proactive in ICT utilization

Vendors

Share information on
demand trends

Gain an understandingof needs

Growth Strategy

Networks enable people to “connect” to exchange data

Value Creation

into a partner that supports our customers’ business strategies by providing higher value-added solutions and services.

Existing

New operations services

Responding to the needs of our customers will raise their expectations, and their needs will become increasingly sophisticated. In response, we will expand our business fields by accelerating our Integrated Service Business, and evolve

Expansion of our business fields

Chairman’s Message

ing overseas vendors, we access the latest information about the global network industry and provide feedback to vendors

Evolution of relationships withour customers and provided value

Deepening relationships withcustomers

Net One Systems focuses on communication with both customers and ICT vendors. Through close cooperation with lead-

Evolution of our business model

Information

Value Interaction(Mutual value ripple effect)

Business partners

Knowledge and experience
Sustainability

Quality
Japanesecustomers

Verification
Evaluation
Integration

×

Leading
overseas
vendors

Engagement model

Lab asa Service

netoneBriefing Center
Optimize
Operates
MaintainCreate added value

Providing optimal solutions,services and utilization know-how,as well as cutting-edge technologies
from overseas

Gain an understanding oftechnology trends

Vendors improveexisting products,
develop new products
Shared technology roadmap

netone onnetonePlan
Consulting

Lifecycle services fromthe standpoint ofcustomer success
Project management

OperateReview of Operations

Provide expertisein ICT utilization“all in”
Platform

ProposeDesign / Install
Build

Unique service platform

Unique intellectual property• Net One Systems uses solutions and systems in-house• Accumulates expertise in how to use systems, as well as merits and pitfalls

19

Annual Report 2021

Creation, practice, and evolution

Annual Report 2021

20

1 Value Creation | Our Created Values

Net One will achieve customer success through“netone on netone” by creating our unique added value.

Net One provides value-added services that lead to the optimization of resources and minimization of risks, by first introducing next-generation ICT solutions and services in-house, and then accumulating know-how through utilization andevaluation, and providing the utilization methods to our customers. From the design of ICT platforms to their operation, Net
One creates unique added value while putting ourselves in customers’ shoes, in order to achieve customer success.

Reference for “netone on netone” utilization know-how

Creating added value with netone on netone
By providing solutions and services as well as the utilization know-how we have accumulated through netone on
netone, we can minimize trial-and-error processes for our customers, and enable them to launch projects promptly.
In addition, we can bring out high performance by providing the optimal combination of hardware and software that
efficiently utilizes resources. We maximize the value provided to our customers by utilizing verification dataobtained from a series of actual operations, in order to provide additional improvements and proposals.

1. In-house implementation

Implement next-generation ICT solutions
and services in-house

2. Data accumulation

Accumulate data on successes and failuresthrough utilization and evaluation

Plan / Propose

3. Generation of know-how

Generate utilization know-how with highfeasibility and realization

Solutions and services that support the entire lifecycle of our customers’ businesses

Work style innovation

Enhancing governance

Optimize
Resources

Design / Install

Minimizerisks

Maintain / Operate

Optimize

Maximize
providedvalue

netone on netone
Provide best suited know-how inutilizing ICT solutions and services

Growth Strategy

Increase productivity

netone on netone maximizing provided value of solutions and services

Value Creation

High-value-added services to realize strategic ICT utilization

Chairman’s Message

Networks enable people to “communicate”
to convert raw data into useful information

Security measures

Utilization know-how based on in-house implementation experience

Sustainability

Examples of netone on netone proposals

Generate a reference through the enhancement of
the operational quality of our internal systems

Achieving performance

Customers
お客様Maximize
providedvalue

Sharing our future visions with customers

Achieve customer success21

Annual Report 2021

2. Accumulation of utilization know-how
We have introduced cutting-edge ICT
services and systems in our information
systems departments, and areaccumulating know-how throughrepeated trial and error by implementing
them in our internal systems andoperating them in-house.
3. Provision of services to customers
We propose highly concrete and feasible
operational know-how that has beencultivated in 1. and 2. to our customers,
as a reference.

netone on netone: System operations quality improvement through internal collaboration
Propose quality improvement ofinternal systems

ICT services
Feedback

Customer Success
Department

Information systems
departments

Accumulate
expertise inutilizing ICT

Review of Operations

Improving system efficiency

Minimizerisks

Optimize
Resources

1. Verification for quality improvement
The Customer Success Department
supports assessment, design, andmigration of internal systems to enhance
operational quality by treating theinformation systems departments as its
assumed customer.

Our employees

Our intellectual property

Reference

ProposeCutting-edge solutions+
Practical operational know-how

Customers

Annual Report 2021

22

1 Value Creation | Our Strengths and Non-financial Capital

We support ICT utilization by leveraging our human resources,
technologies, and customer/partner base with a high level ofdemonstration capabilities based on our extensive track record,
experience, and know-how

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 devising combinations of the best products fromvendors in Japan and overseas, through various collaborations and exchanges based on relationships of trust with vendors.
We also independently assess new technology at our technology research facility – one of Japan’s largest. Using thosepowerful 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
Chairman’s Message

solutions and services that incorporate ideas about potential applications after installation.
We believe that the non-financial capital that supports these three strengths is our human resources instilled with our
TAKUMI expertise – the ability to leverage advanced technologies to meet the demands of customers, our strong bonds
with our customers and business partners, and our accumulated technical capabilities, which are based on our network
technology as a pioneer in the industry.
We aim to continue growing together with our customers by further enhancing our three strengths and non-financial
capital, based on our shared values of the skills to utilize ICT and the spirit of ICT professionals, to provide high-quality,
high-value-added optimized solutions.

TAKUMI

Non-financial capital that supports the three strengths andthemes to focus on the Medium-Term Business Plan
Non-financial capitalThree strengths
Expertise in
ICT utilization

Expertise
Advanced
technical
knowledge

Ability
to execute
plans
Experience
Abundant
Skills toexperience

TAKUMI
human resources

Trusting
relationships
with vendors

Characteristics and strengths

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

utilize ICT

The spirit of ICT
professionals Spirit
SoulCommitment
Challenge

Smile
Enjoyment

Characteristics and strengths

Powerful
verification
capabilities

Non-financial capital

Networktechnology
capabilities

Core technologies that
support unique value
creation, and design andoptimization that enables awide range of responses

Customers /Business
partners
Characteristics and strengths

A unique position to create
ecosystems that leverageeach company’s strengths
from the customer’s
perspective

Our elite, multi-skilled and flexible
thinking human resources underpin our
productivity and quality improvements.
The Group’s average GAIT score rate,
which measures comprehensive ICT
knowledge, was 486.9 (fiscal 2020),
significantly higher than the industry
average (413).

Number of engineers
Because we specialize not in applications,but in ICT platforms that are critical to
every company, engineers are able toapply their skills laterally, regardless of
the industry. In fiscal 2020, there were1,441 engineers, which is 59.2% of all
employees.

Share of top organizations in ourrevenue
The top 100 companies account for justunder 80% of our revenue (fiscal 2020),
and our customer base is primarily madeup of leading Japanese corporations
and public institutions. Among thesecompanies, we are in a position thatcan create new systems that leverage
our strengths with customers whoare proactive in transforming theirbusinesses through ICT.

Growth of employees:
Initiative
We are accumulating knowledgeof new ICT utilization throughthe implementation of Work
Style Innovation 2.0/DX,
and developing and runningeducation programs designed
to enhance creativity andadaptability.

Growth of the company:
UniquenessWe have implemented
fundamental reforms to improve
productivity and are using thisexperience to a large extent inproposals to existing markets aswell as “focus markets and newmodels.”Growth of customer /partner: Value co-creation
We create new value together
with our customers throughour “Integrated Service
Business,” which contributes toimprovement in productivity.

Key Challenges

Developmentof
human
resources
Improve andreinforcethe businessbase

Provide newvalue

Strengthen
security
Review of Operations

Customers /Business
partners

GAIT* score rate

Focus themes

Sustainability

Networktechnology
capabilities

Indicators

Growth Strategy

Execution

Value Creation

human
resources

Build
relationships
withstakeholders
Utilize ICT
to reduce
environmental
impact* GAIT: Global Assessment of Information Technology: A globally universal assessment tool for accurately and quantitatively assessing the skills of ICT
engineers in seven key areas required in the cloud era (DB, OS, applications, storage, security, network, and virtualization).

23

Annual Report 2021

Annual Report 2021

24

1 Value Creation | Targeting Sustained Growth

We aim to provide social value and enhance corporate value by
promoting our Integrated Service Business and contributing to
the resolution of social issues

Net One Systems has created new value by integrating cloud systems and providing network security services. Goingforward, we will further evolve our business to ensure the Group is capable of providing new added value that supports
the growth of customers. Through the three growth steps and three basic strategies set forth in the current Medium-TermBusiness Plan, which is centered on promotion of the Integrated Service Business, we will realize customer success andcontribute to social innovation.
In addition, Net One Systems has identified a number of key sustainability challenges related to its business activities:
development of human resources, strengthen security, build relationships with stakeholders, improve and reinforce the
Chairman’s Message

business base, provide new value, and utilize ICT to reduce environmental impact. We plan to address those challenges asa matter of priority, in order to respond to changes in the ICT market and to ensure the Group grows in a sustainable mannerwith society. In each category, we aim to contribute to the resolution of social issues, and be an admired company trusted
and supported by all stakeholders.

Evolving into a leading Integrated Service Company“Changing” society

Three growth steps
Optimize

Plan

Consulting

Growth ofcustomer / partner
OperateGrowth ofthe company

Three basic strategies

Engagement modelthat maximizes
value forour customers

Design /Install

Maintain

Expand focus markets
and new models
Drive the Integrated
Service Business

OperateProjectmanagement

Build

netone onnetoneEnhancing
corporate value

Review of Operations

Implement Work Style
Innovation 2.0/DX

netoneBriefing
CenterAchievecustomersuccess

Sustainability

Focus on creating high added value

Lab asa Service

Propose

Lifecycle services fromthe standpoint ofcustomer success· Improving work efficiency· Enhancing information security· Promoting globalization· Developing digital humanresources· Reducing environmental
impact“all in”
Platform

Growth Strategy

Become an attractive company
that can provide new value

Growth ofemployees

Value Creation

Providingsocial value

Medium-Term Business Plan

Medium-TermBusiness Plan indicators· Revenue / Operating income· Operating margin· Service ratio· ROE

Key sustainability challenges
Pursuing sustainable growth with society through our business and maintaining sustainability
as a company for preparing against risks
Development of
human resources

25

Annual Report 2021

Strengthen
security

Build
relationships
with stakeholders

Improve andreinforcethe businessbase

Provide newvalue

Utilize ICT toreduceenvironmental
impactAnnual Report 2021

26

2 Growth Strategy | Progress with Fiscal 2019-21 Medium-Term Business Plan:
Review of Fiscal 2020 and Future Initiatives

We are transforming into a company that creates
new added value together with our customers

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

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

By strategy: Review of Fiscal 2020 and future initiatives

Chairman’s Message

2 Growth Strategy | Overview of Fiscal 2019-21 Medium-Term Business Plan

Reforms to adapt to new era

Generally on track

Expand focus markets andnew models

Three growth steps

We will continue to accelerate proposals for network systems, security
measures, and cloud utilization thatmeet the needs of our customers,
with customer success as the primary focus in each market andmodel. We will also continue to verify
and evaluate advanced technologies
and develop solutions based onmarket trends, such as the fusion ofvirtual and real worlds in offices andfactories.

Va r i o u s i n i t i a t i v e s m a d e s t e a d y
progress, including the expansion ofoperation and optimization services
to provide high-value-added services,
proposals from the grand design
stage of increasingly sophisticated
ICT platforms, and the developmentof facilities for having a dialogue withcustomers regarding value creation.

In addition to the introduction ofhigh-quality ICT platforms, we willp r ov i d e c o n s i s t e n t s u p p o r t f o r
the acceleration of utilization to
maximize the provided benefits, andestablish our position as a partner indigitalization. In addition, for projects
with common specifications, suchas municipal information security
clouds, we will improve quality andproductivity by unifying the solutions
we provide.

In response to COVID-19, we realized
new work styles and digitalization,centering on telework. In addition, in
digital platforms, we made progressin detailed design for the realizationof data visualization and automationof operations, as well as preparations
for compliance with the new revenue
recognition standards.

We will proceed with the study ofof f ice s that combine the vir tualwith the real world that acceleratecollaboration in new work styles.
In addition, with regard to netone
DX, we will prioritize the addition of
governance enhancement functions
as a measure to prevent recurrence.

Become an attractive company that can provide new value

Growth of customer / partner
Value co-creation

Growth of employees
Initiative

StrongGrowth of the company
UniquenessDrive the Integrated Service
BusinessThree basic strategies
Focus on creating high added value

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,
and in two new business models (support for MSP and development of therefurbishment business) that capture
the growing demand for the shift fromownership to use.

We define all of our activities for ourcustomers as Integrated Ser vice
B u s i n e s s t h a t c r e a te s h i g h a d d e dvalue and provides lifecycle services
to support the series of activities that
include planning, building, operation andoptimization for the future of ICT.

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

As planned

Implement Work Style
Innovation 2.0/DX

Progress of the Medium-Term Business Plan
Performance highlights for Fiscal 2020

Operating margin: 9.7%
Forecast for the Final Year (Fiscal 2021) of the Medium-Term Business Plan
Operating margin: 10.5%

Service ratio: 45.0%

ROE: 19.2%(Target: 9.5%)(Target: 50.0%)(Target: 16.8%)(Up 0.8 pt YoY)

Service ratio: 42.2%(Down 0.6 pt YoY)

Operating income: ¥19.6 bn(Up 19.2% YoY)27

Annual Report 2021

Review of Operations

Initiatives to promote digitalization
accelerated, such as the GIGA schools
concept in school systems, expansionof telework, and the use of the cloud,while network-based infrastructuredevelopment and security measurescontinued to be strong.
On the other hand, healthcare remained sluggish due to the impact of
COVID-19.

Sustainability

Future initiatives

Growth Strategy

Review of Fiscal 2020

Value Creation

Our customers are currently placing digitalization at the heart of their business strategies and investing in ICT utilization.
At the same time, the recent spread of COVID-19 is raising awareness of the need to fundamentally rethink our work style.
In order for us to continue to grow in this environment, we need to create high added value that enables our customers toachieve ICT utilization they require and deliver a clear return on their investment. We also believe that in order to provide
consistent services, from design proposals to system installation and stable operations, to support the 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.

Review of Fiscal 2020

Outlook for FY2021 (final year of theMedium-Term Business Plan)

Although the service ratio declined
due to the impact of increased sales
in the equipment product group,
mainly for the GIGA schools concept
project, profitability improved due toprogress in the Integrated Service
Business, and the operating margin
exceeded the target figure for the
final year of the original Medium-TermBusiness Plan.

Although the service ratio is expected
to be lower than the initial target, theoperating margin and ROE are expected to exceed the initial targets,due to the continued acceleration ofhigh-value-added business and expected improvements in productivity,
against the backdrop of strong progress in the Integrated Service Business.

Annual Report 2021

28

2 Growth Strategy | Measures to Achieve the Targets in Our Medium-Term Business Plan

We are accelerating the co-creation of new services
through collaboration and capturing solid needs for
digitalization

We are responding to changes caused by the COVID-19
outbreak, while implementing structural reforms

Focus markets

Response to the COVID-19 outbreak

Delay

Very strong

Target customer: Large hospitals

Smart factory

Target customer: Education boards

Target customer: Large manufacturers

FY2019FY2020¥4.0 bn¥6.0 bn¥3.8 bn

FY2021FY2018FY2019FY2020¥5.1 bn¥7.6 bn¥23.9 bn

Goal：＋¥5.0 bn

FY2021FY2018FY2019FY2020¥4.0 bn¥6.7 bn¥7.1 bn

Goal：＋¥5.0 bn

Goal：＋¥5.0 bn

FY2020 result

FY2020 result• The GIGA schools concept has led toa large increase in network developmentin schools• Digitalization efforts are accelerating despite
the impact of COVID-19

Assumptions and initiatives for FY2021

Assumptions and initiatives for FY2021

Assumptions and initiatives for FY2021• Expecting a gradual recovery in investment• Propose digitalization of work styleinnovation, telemedicine, cloud computing,hospital security, etc.

• Expecting a reactionary decline in GIGA
schools projects• Meanwhile, accelerate take-home learning
support for children and students,
work style innovations for faculty and staff,
and operation services• Expecting a steady increase in prospective
projects• Continue promoting edge cloud, security,
sophistication of operations, local 5G, etc.

StrongAs planned

Refurbishment business

Description: Providing solutions to support services
for MSP

Description: Providing highly profitable refurbishedproducts and third-party maintenance services

Bookings

We implemented the following structural reforms on April 1, 2021, to promote our growth strategy, establish a strong
management base, and strengthen internal control.

• Established Compliance Office as an organization reporting directly to the President

Strengthening andoptimizing corporate
functions• Reorganized the Corporate Planning & Management Division into the Corporate Planning Divisionand the Corporate Planning & Management Division• Established Business Control Division to strengthen internal control

Reorganization of
the Corporate
Planning Division• Merged the Finance Department and Accounting Department into the Finance & Accounting
Department with the aim of deepening expertise• The Capital Services Department was renamed as the Finance Services Department, with the aimof strengthening planning and promotion of business expansion using finance• The Investor Relations function was split from the Public Relations & Investor Relations Office andrenamed as the Investor Relations Office, and the Public Relations function was transferred to theGeneral Affairs Department of the Corporate Planning & Management Division• The legal function was split from the Legal & CSR Office and renamed as the Legal Office, and the
CSR function was transferred to the Compliance Office, which reports directly to the President

Reorganization of
the Corporate
Planning &Management
Division• Integrated the Human Resources Department and Human Resources Development Office into the
Human Resources Department, with the aim of strengthening human resources strategies• Integrated the Strategic Information Office and the Information Systems Department into theDigital Transformation and IT Department, with the aim of promoting DX• Established the General Affairs Department to strengthen internal and external public relations,facility management, and internal office management functions

Establishment of
the BusinessControl Division• Established the Business Planning Office, to strengthen functions related to the planning andimplementation of business rules• Transferred the Sales Supervisory Office from the direct control of the President, to strengthen
overall control of sales transactions•In order to optimize and strengthen control of sales management operations, the SalesManagement Offices, which had been located in each business unit, were transferred, merged,
and renamed the Business Management Department• Transferred the Procurement Department from Net One Partners, a consolidated subsidiary, tostrengthen control of overall purchasing

Strengthening
businessdevelopment
functions•
Reorganized the Business Development Division, and changed the Advanced Technology
Engineering Department 1, Advanced Technology Engineering Department 2, and Advanced
Technology Engineering Department 3 into two departments, the Advanced Technology
Engineering Department 1 and Advanced Technology Engineering Department 2

Bookings

FY2018FY2019FY2020¥3.7 bn¥4.7 bn¥8.6 bn

FY2021FY2018FY2019FY2020¥0.0 bn¥1.6 bn¥2.0 bn

Goal：＋¥5.0 bn

Goal：＋¥5.0 bn

FY2020 result

FY2020 result• Co-creation of new services for society in the COVID-19 era
accelerated✓Telecom carriers: Web conferencing, SD-WAN, security, etc.
✓Private sector companies: Group-wide zero-trust networks
Initiatives for FY2021• Accelerate co-creation of services with telecom carriers andpartner companies, with a focus on digitalization andgroup-wide security, and promote joint proposals to private
sector companies and public institutions

FY2021• New proposals were delayed due to the impact of COVID-19,
resulting in a slight year-on-year increase in bookings• On the other hand, profit progressed as planned
Initiatives for FY2021• Expand third-party maintenance services for telecom carriers,
for which demand is high• In addition to network equipment, expand the range of products
handled, including servers

Annual Report 2021

Review of Operations

Promotion ofcompliance by top
management

Sustainability

Managed Service Providers (MSP) support

Implementing structural reform

Growth Strategy

FY2020 result• Decrease in ICT investment in hospitals,
due to the impact of COVID-19

Annual Report 2021

Improvement in thebusiness continuity of
the Group

The Group had already established an environment that enabled employees to carry out theirwork through telework (Work Style Innovation 1.0), and was able to respond promptly and flexibly
when a state of emergency was declared. Subsequently, we optimized our human resource
system and shifted to a principally telework-based work style from October 2020.
In addition, the Contact Center, which is a maintenance and operation service facility for ICT
platforms, has been fully converted to telework-based operations by utilizing web conferencing,chat, virtual desktops, and mobile devices. In this manner, we have built a system in which theprovision of services to our customers is not affected, even in situations where it is difficult tocommute to work.

FY2021

New models

29

Our customers are implementing a drastic review of their work styles from the perspective of
business continuity, with an eye on telework responses in times of a state of emergency, andsociety in the COVID-19 era. The Group has supported its customers’ business continuity andwork style innovations by providing various systems for realizing a telework environment, suchas virtual desktops and web conferencing, as well as security measures to ensure security whileworking outside of the office.

Bookings

Bookings

FY2018Acquisition of new
business
opportunities

Value Creation

Bookings

In fiscal 2020, although some manufacturers, hospitals, and partner companies showed a tendency to reduce investment,
the Group worked to acquire new business opportunities by supporting business continuity and work style innovations ofcustomers, while enhancing our business continuity.

Slight delay

School systems

Healthcare

Chairman’s Message

2 Growth Strategy | Progress with Fiscal 2019-21 Medium-Term Business Plan:
Results in New Business Fields and Future Initiatives

30

2 Growth Strategy | CMO’s Message

Your strategic partner in ICT infrastructure
Striving to be the leading company in integrated services
by generating maximum value from minimum resources

Utilizing Our New Engagement Engine

Working on problem-solving and verification withcustomers delivers results, while also enhancing Net One’s IP

Chairman’s Message

Despite the COVID-19 pandemic, our Lab as a Service (LaaS) environment, launched in 2020, is being used more widely
than we expected (58 times, including 11 times by customers). Backed by vendors, we also expanded our LaaS menu.
One of the features of LaaS is that various ICT verification tests can be conducted in a real-world multicloud environment.
Normally, tests would have to be run in actual customer environments, but LaaS removes that requirement, reducing theimpact on customers.
In some cases, LaaS has helped us secure new contracts. One example is a project for a customer in the publishingindustry, where online subscriptions are increasingly common. The customer needed a cloud-based distribution systemwith better security, easier-to-use system management and operation functions and scalability. To address those issues,
we used our LaaS environment to verify proof of concept (PoC; process of assessing the feasibility and effectiveness of
new systems or technology in a test environment before the start of a project) to help the customer rapidly reinforce cloud
governance. We put forward a Software as a Service (SaaS)-based solution and used LaaS to accelerate the decisionmaking process. This limited the drag on the customer’s business and led to a rapid solution.

Value Creation

LaaS case study: Reinforcing cloud governance (publishing industry)
Customers’
Online document distribution system

Net OneLaaS

Replicate
お客様のシステム環境を再現
customer’s system environment

FY2020 Review

31

Annual Report 2021

Implement PoC

Enhanced security

Easier-to-use systemmanagement /operation, improved scalability

Easier-to-use systemmanagement /operation, improved scalability

Customerʼs system environment was replicated in LaaS,
allowing us to verify security,
system management & operation and scalability

Use of LaaS verification helped to achieve a rapid solution

We also launched the netone Briefing Center (nBC) in 2020. The center is used to develop and propose solutions forcustomersʼ DX issues, while also facilitating communication. Net One employees sit down with customers to define
project objectives, system architecture design, migration procedures and other concrete plans. Unlike conventional
ICT consulting companies, Net One focuses on developing achievable system proposals based on realities faced bycustomers. With the support of strategic vendors, we have introduced an outcome-focused approach (process ofproviding effective solutions for highest-priority project areas) and enhanced our facilitation capabilities, allowing us todevelop proposals that go beyond system construction to directly contribute to the success of customer businesses.
Despite the pandemic, we used nBC 14 times in fiscal 2020, with some system proposals already at the project initiation
stage.
LaaS and nBC both enable customers to finalize project guidelines and examine investment plans for ICT issues while
also giving Net One deeper insights into market needs and access to more technology IP. We call this our Integrated
Service Business “engagement engine.”

Annual Report 2021

Review of Operations

In fiscal 2020, we stepped up efforts to extend our Integrated Service Business both inside and outside the Group.
Inside the Group, employees in each division took the initiative in standardizing and automating business processes andaggregating intellectual property (IP) to support the development of integrated services, spurring Groupwide activities.
Some employees took a more advanced approach, exploring ways of leveraging and combining Net One’s proprietary IP
to realize true digital transformation (DX).
These internal changes also had a positive impact outside the Group. Improvements to marketing quality helped lift
expectations in our Integrated Service Business, with value interactions becoming more common, especially with local
government customers. Specifically, early projects in the business focused on system platform integration, but the scopeof projects has now expanded to include ways of using the platforms in a business context. Net One is becoming the hubof an ecosystem that creates opportunities for value creation through collaboration with various vendors. We can now
generate significant value for customers, as seen in the comprehensive alliances we have formed with vendors to help
local governments implement DX from every angle.
Our relationship with vendors is also changing as a result. In the past, system integrators typically developed
proposals based on vendor portfolios. However, by demonstrating complete business models through our Integrated
Service Business, that relationship has been reversed. Vendors are now increasingly asking us to incorporate theirthinking, not just products, into our business model ideas. We are also receiving more proposal ideas from vendors
because of our reputation for focusing on customer success. Some major overseas vendors only select Net One to trial
new products in Japan. Looking back over the past year, I get the sense that vendors see Net One as a more valuable
partner as they overhaul their business models, and that overseas companies understand that Net One is moving into a
new stage.

Enhanced security

SaaS realized

Sustainability

The “bigger picture” advanced by our Integrated Service
Business is raising customer and vendor expectations

Reinforce cloud governance

Growth Strategy

Fumihiko Shinoura
CMO
In charge of Business Development Division andCustomer Service Division32

2 Growth Strategy | CMO’s Message
Business Environment, Risks and Opportunities

Accelerating Net One’s transformation to tap into post-pandemic needs
and longer-term opportunities

Shifting to digital environments to generate more value
Net Oneʼs value
Net Oneʼs value includes ability to develop
various Production-Ready Designs＊1 related to Stable base of large customers
the customerʼs ICT lifecycle, backed by its
across multiple industries
diverse customer base and advanced
technological capabilities

×

Chairman’s Message

Advanced technologicalcapabilities“Production-Ready Design”≒netone IP＊2（Net Oneʼs intellectual property）
Accumulating IP assets to support customer ICT lifecycles with LaaS, nBC and GitLab
Customerʼs
ICT lifecycle

Promotion of
Net One’s digitalization

Build

Operation

Optimization

DigitalDigitize netone IP

Real× Embed in work processes

Growth Strategy

Promote shift to digital environments:
Clearly define inputs and outputs, shift todigital systems to facilitate information sharing
across the Group, and embed in actual work
processes to support sustained utilization andgrowth of IP

Plan

Value Creation

The COVID-19 pandemic has triggered major changes in our business environment. We are also seeing a major debate
in the global ICT sector about what kind of engagement and collaboration customers, vendors and their partners need topursue going forward. As face-to-face communication and negotiation declines, engineer work styles are also changing,raising questions about how they can provide dedicated support for customers’ entire business lifecycles. To overcomethat challenge, companies urgently need to digitize all aspects of their operations - from upstream through downstream
areas - by building systems that gather information in real time and support follow-up responses. In the last year, we
stepped up efforts to move LaaS and nBC online amid the pandemic. We are also progressively accumulating expertiseto help create a seamless digital society where there are no barriers between places, environments or systems.
Ten years from now, there will be no place in our industry for system integrators that fail to adapt their businessmodels. That is abundantly clear. As standardization and automation accelerates, companies where engineers simply
design, build and maintain systems are likely to fall by the wayside. At the same time, we see growing needs for moreadvanced security, technology and services amid the shift to multicloud environments, opening up business opportunities
for Net One. In other words, to stay competitive, we have to push ahead with our strategic switch to services and build ahigh-quality business model that supports customers’ entire business lifecycles. This transformation also represents thebest chance Net One has of delivering growth in the future. We are already taking the first steps down this road.
However, the speed of our transformation is a risk factor. Going forward, we need to automate system design
and installation, which is the most time-consuming phase of system development, and engineers will need to focus
on generating more value. Talented personnel are more likely to satisfy the complex requirements of customers, but
combining standardized components to create systems reduces the risk of system disruption and reduces costs. To
verify this approach, we will introduce a standardized menu of tariffs for system development in fiscal 2021. For projects
that require more customization, we will systemize efforts to prevent any issues before they occur by continually reviewing
system requirements and quality right from the project initiation phase. We also plan to transform employee thinking tofully support this approach.

the Digital Transformation and IT Department to accelerate the transformation of our business, including the integrated
management of IP. We also appointed a new Chief Information Officer (CIO) to oversee and lead Net Oneʼs technology
strategy.

Systematically utilize digital resources＊1 Specification and design data from verified Production-Ready Designs can be used in other projects＊2 IP：Intellectual property

Measures to Reinforce the Integrated Service Business

33

Annual Report 2021

Building stable, long-term relationships with customers to
reinforce our stock businessOur goal is to build a long-term, recurring revenue business model that handles all aspects of customer systems, from
optimization, maintenance and operation in multicloud environments to financial modeling. Human resources will be
crucial to that approach. The skills they need are likely to change on an almost daily basis. Net One will require engineers
who understand all areas of system archite cture but who can also par ticipate insales activities. A nd we will need sales
personnel who can think strategically from theperspective of customer success. We plan toredefine our criteria for human resources in
2021.
In the new Medium-Term Business Plan,
which starts from fiscal 2022, we will stepup efforts to implement netone DX acrossall areas of our operations and reinforce ourser vice-focused stock business to drive
forward the Integrated Service Business.

Annual Report 2021

Review of Operations

We have established GitLab to accumulate, centrally manage and reuse technology IP. Our employees use GitLab tosearch for and locate know-how, technology and other IP that matches their system requirements, helping to make work
processes more efficient. We are also securing rights to IP developed by Net One within customer projects to allow us toreuse the IP in the future. Our goal is to further expand GitLab to support the automation of code generation and otherprocesses. We have already completed automation testing for many processes.
We also implemented a number of structural reforms in April 2021. Under the new structure, the Business Development
Division and the Customer Service Division will now lead the development of the Integrated Service Business.
To prepare for future trends, such as the growing shift to multicloud environments, we are currently focusing on testingarchitecture to support the elastic infrastructure, which offers higher levels of automation and autonomy. The Business
Development Division is responsible for vendor relationships and for planning, developing and managing all the products
and service platforms that underpin data control and security in multicloud environments, as well as verification testing
using LaaS and other tools. The division was restructured in April to ensure the latest technologies are more rapidly
introduced into projects.
Also, the Customer Service Division has introduced cutting-edge infrastructure from vendors worldwide, in addition to
the latest technologies, to drive the standardization and automation of system operation. With this infrastructure, we havecreated a platform that automatically responds to low-level security alerts and escalates only high-level alerts to humanhandlers. We are also promoting internal skill transfers to increase expertise in teams responsible for system security.
Together, these measures are designed to reinforce our service provision framework, allowing us to respond to advanced
system operation needs without increasing headcount.
In another step, we combined the Strategic Information Office and the Information Systems Department to create

Medium- to Long-term Outlook
Sustainability

Standardizing, automating and autonomizing systems todeliver advanced services by an elite few

34

3 Sustainability | Basic Approach and Key Sustainability Challenges

We aim for sustainable growth with society throughour business and pursue our corporate sustainability

Key sustainability
challenges

・Cultivating personnel who
can put customers’ ideas
into practice・Creating a working
environment where all
employees can maximize
their abilities
・Implementing work-styleinnovations, and providing
services and knowledge

・Number of technicalqualification holders: 1,479
as of March 31 2021
・Average years worked at
Net One Systems: 9.24
years for fiscal 2020

Since its founding, the Company has
grown with networks as its coretechnology. In the modern highly
informatized society where cloudcomputing has advanced, theimportance of networks and security is
increasing and becoming more closely
related.

・Achieving safe and secureaccess to ICT networks
・Developing and providing
cyber security
technologies

・Major information security
incidents requiring externalreporting: 0・Information security
comprehension test:
Completed, with a perfectscore by all employees

Our management vision is to be “anadmired company trusted andsupported by all stakeholders”.
Moreover, we conduct our corporate
activities with support, trust andexpectations from many people,
including our customers. In addition tomeeting the expectations and trust of
our stakeholders, it is essential for us tocontribute to the society of this planet
as its citizens, in order to achievesustainable growth.

・Gaining an understandingof customers’ satisfactions
and changing
expectations throughcontinuous customersatisfaction surveys
・Verification of theCompany’s policies
through regular internalsurveys・Developing external
human resources in the
ICT field
・Conducting social
contribution activities as amember of civil society
・Visualizing managementand disclosing nonfinancial information

・The holistic satisfactionlevel of customersatisfaction survey(satisfied and somewhat
satisfied): 91.2%
・Internal opinionnaire:
employees’ satisfactionlevel (compared to theprevious year) increased by
0.19 points
・Adoption as the ESG index

Based on its management vision, theCompany advocates sustained growth
as its foremost priority. In order to attainthis objective and to enhance its
corporate value over the medium tolong term, it is essential to enhance andstrengthen corporate governance torealize transparent and fair decisionmaking in a swift and decisive way.

・Strengthening management
systems for governanceand risks・Promoting compliance・Inculcation of ourcorporate philosophy
・Promoting netone DX・Status of implementationof measures to prevent
recurrence of irregularities
・Progress of netone DX

We have enhanced our expertise andour unique role in connecting various
types of networks, while also supporting
our own innovation. Currently, we aim tostructure the process of netone DX andprovide it as a solution for ourcustomers, and to create new value
together with our customers

・Creating value co-creation
opportunities to promote
ICT utilization
・Providing services andknowledge to achievecustomer success that
contributes to theinnovation necessary torealize a sustainable
society

・Service bookings (fiscal
2020): ¥89.4 billion
NetOne Blog* Annual
number of posts (fiscal
2020): 89
・Number of references(actual number of cases infiscal 2020): 18
・Orders for support for
MSPs (fiscal 2020):¥8.6 billion

As a global and social citizen, it is our
corporate social responsibility to protect
Utilize ICT to Reduce the environment, thereby ensuring thatthe world’s rich environment isEnvironmental
preserved for future generations.
Impact・Reduction of energy
consumption and CO2
emissions in our businessactivities
・Developing therefurbishment business・Unit energy consumption:
Achieved a reduction of
average of 1% each year
over five fiscal years
・Refurbishment businessbookings: ¥2.0 billion(fiscal 2020)

Development of
human resources

Our corporate philosophy is “ICT utilization helps us contribute to social innovations and transformations”. We provide
our customers with our knowledge and expertise as well as state-of-the-art ICT platforms, which solve their outstanding
issues and lead them to success. We have defined key sustainability challenges from two perspectives: “a perspectiveof sustainable growth with society through business” and “a perspective of maintaining sustainability as a company for
preparing against risks.”
Strengthen Security

Digitalization / ICT Governance

Responsibilities and contributions

Optimal solution based on

to stakeholders

expertise in ICT utilization▼

Sustainable growth withsociety through our business▼

Achieve customer success

Eliminate risks that
impede sustainability

Maximize value provided
by customers

Strengthen governance

Key Sustainability
Challenges

Optimize customers’
resources

Minimize customers’
risks

Build Relationships
with Stakeholders

Promote compliance

Identify and eliminate
risks
Maintain our corporate sustainability

Improve andReinforce theBusiness BaseOperation of management system
We have obtained system certifications related to the management system for the promotion of key sustainability challenges.
• ISO/IEC27001: Information security management system certification standard• ISO/IEC27017: Security management system for cloud services• ISO14001: Environmental management system certification standard

Provide New Value• ISO9001: Quality management system (inspection and verification of computer network equipment at our Quality
Assurance & Management Center)• Privacy mark: Personal information protection management system esponse speed and quality in ICT platform maintenance and operation services• COPC® CX Standard CSP Version Release 6.1: R

Review of Operations

Human resources are the driving force
and imperative to corporate growth.
As we utilize the experiences of successand failure in our business as areference and provide solutions forcustomers, all the knowledge andexperience of our employees are linked
to the creation of value-added solutions
for our customers.

Sustainability

Indicators and results

Growth Strategy

Initiatives

Value Creation

Background

Chairman’s Message

Basic approach

Sustainable growth with society through our business*As a point of contact with new customers, the blog aims to increase awareness of Net One and strengthen engagement by building trust.

35

Annual Report 2021

Annual Report 2021

36

3 Sustainability | Improve and Reinforce the Business Base

Relationship between Net One and our stakeholders, society, and the environment

Basic approach to corporate governanceWe aim to contribute to our customers, partners, shareholders, and employees, as well as to society and the environment.

Our management vision is to be “an admired company trusted and supported by all stakeholders”. The Company believes it
can become an admired company by fulfilling its responsibilities to customers, partners, shareholders, and employees, andbeing committed to making a positive contribution to the ICT market, civic society, and the global environment. The Company
also believes that third parties should decide whether or not it is a truly admired company, and is therefore committed tocontinuing to work and improve so that it receives the highest rating as an admired company from all stakeholders.
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 to enhance and strengthen corporate governance to realize transparent and fair decision-making in a swift anddecisive way.

Customers
Business success

Environment
Society

Employees

Business partners

Enjoyment of happiness

Win-win relationships

Key sustainability
challenges

Progress in strengthening corporate governance

Net OneShareholders

Fair and transparent management

Continuous growth

Stakeholder engagement

Responsibility to customers- The success of our customers’ businesses We will contribute to customer success by optimizing ICT
utilization, with the aim of realizing a sustainable society together with our customers.

• One outside executive director
appointed (2004)2006• Term of office for executive
directors reduced from two years
to one20072009• Advisory Committee established• Vision Inculcation Committee
established (-2015)

We will work together with our partners to build fair relationships, while adhering to rules and social norms and supporting
the growth of our customers, with the aim of realizing asustainable society together with our partners.

We will promote sustainable business growth and solutions tosocial issues by implementing in-house innovation and providing
our experience and knowledge as services, with the aim ofrealizing a sustainable society.

Responsibility to employees- Pursuing the happiness of our employees We will provide a rewarding workplace where all employees canthrive, based on moral and ethical principles, and we will foster
an environment of mutual respect for each other’s character.

We disclose information and actively engage indialogue with market participants in accordancewith our disclosure policy. In fiscal 2020, theCompany’s Chairman and President held
meetings with investors in Japan and overseas
32 times, while the Public Relations & Investor
Relations Office held 235 investor meetings.
Net One has set up training programs to support
personal growth and development and ensure
equal opportunities for all employees. The
Company is also working to provide safe andcomfortable working environments that take into
account employees’ health. We are also
promoting the concept of RCT*. We conductedinternal awareness surveys in fiscal 2020 as well,to verify our measures.

2016• Female outside executive director
appointed• Compliance Committee andRisk Management Committee
integrated as the Risk &Compliance Committee•C orporate Governance Guidelines
published• Assessment of effectiveness ofBoard of Directors started• Audit & Supervisory Board
member contact point added tocompliance reporting and advice line

2017

2020

• Risk & Compliance Committee
divided into Risk Management
Committee and Compliance
Committee• Vision Inculcation Committee
reestablished• Sales Supervisory Officeestablished• Vision Book revised2021• V ision Inculcation Commit tee
renamed to Reform Committeeof Governance and Corporate
Culture• Internal Control Enhancement
Council established• Compliance Office established• Business Control Division andBusiness Planning Officeestablished

Review of Operations

Responsibility to shareholders- Continuous growth of the Net One Group -We have formulated the Partner CSR Guidelines
to share our philosophy and policies with our
suppliers. In fiscal 2020, we once again
conducted compliance questionnaires to gain anunderstanding of the situation of our partners
and build relationships based on mutual
understanding.

• Stock option compensation
system introduced

2012

Sustainability

Responsibility to partners- Maintaining a win-win relationship with our partners -• Vision Book published• Vice President system introduced

2011

2015

•G
 roup Compliance Manual
established (2003)•W histleblower system introduced• Risk Management Committee
established• Investment & Financing
Committee establishedDialogue methods and activities
We are engaged in customer satisfaction surveys
and dialogue with customers.
In the fiscal 2020 customer satisfaction survey,
91.2% of respondents were satisfied orsomewhat satisfied, an increase of 1.8
percentage points from the previous survey.

• Compliance Committee ∙established (2003)

Other

Growth Strategy

In order to achieve our goals, we will fulfill four responsibilities that we must carry out.

– 2005

Committees

Value Creation

Board of Directors / Audit &Supervisory Board

Mission statement

Chairman’s Message

3 Sustainability | Stakeholder Engagement* RCT (Respect, Communication, Teamwork）: A shared communication approach designed to create strong links between management and employees, share
our corporate philosophy, enhance workplace environments, and foster our corporate culture.

37

Annual Report 2021

Annual Report 2021

38

3 Sustainability | Improve and Reinforce the Business Base
Governance structure

Establishment of the Internal Control Enhancement Council

Independent outside executive directors and independent outside auditor & supervisory board members

Inside executive directors

Shareholders Meeting
Elect / dismiss
Determine cap for
remuneration
AttendBoard of Directors

Audit & Supervisory
Board
Elect /
dismiss

President

7 members

4 members

3 members

4 members

In March 2021, after receiving recommendations from the external investigative committee on an analysis of the causes offraudulent transactions and measures to prevent recurrence, the Company started the activities of the Council in April, withthe aim of strengthening its overall internal control system with a focus on the three (Defense-) lines model, which promotes
governance and risk management.
In its three (Defense-) lines model, the Company has established its own (D-) 1.5 line. In order to ensure active andsubstantial communication between the management departments and business divisions, which have experienced
problems with individual optimization, the Company has established a new Business Control Division, and ensures discipline
as well as the establishment of highly effective operation rules.
Board of Directors and Audit & Supervisory Board

Audit report
Exchange opinions

Appoint / oversee
Advise / report

Audit
Appoint / oversee

Accounting Auditor

Internal Control Enhancement Council

Instruct / report

President & CEO

Internal Audit Office

Risk Management
Committee

Management Committee

Compliance Committee

Internal Control
Enhancement Council

Vice Presidents
Business Operation
Organizations(responsible departments, subsidiaries, etc.)• Human Resource Council (HRC)• Diversity Steering Committee (DSC)• Customer Satisfaction
Improvement Committee• Reform Committee of Governanceand Corporate CultureFirst (Defense-) line (D1)(Defense-) 1.5 line (D1.5)

Second (Defense-) line (D2)

Third (Defense-) line (D3)Control risks as a risk ownerSupport, advice, andsupervision for monitoring
the status of D1 controls

Monitoring from a different
perspective than D1.5
Support, advice, andsupervision of D1 / 1.5

Reasonable assurance ofthe risk management function
and internal control system

Operation and history
management
Internal and operational
controls

D1 monitoring
Sales and procurement
management
History analysis
Operation rule formulation
Maintenance and improvementof the above

Financial and labor
management
Security
Internal systems
Compliance
Laws and regulations• Business units• Business Development Division• Customer Service Division• Business Control Division

Key elements of corporate governance structure
Fiscal 2021

Company with
an Audit &Supervisory Board
Number of
Executive Directors:

Number of
Audit & Supervisory
Board Members:

4

Vice President System

39

Annual Report 2021

Number of independent
executives:

1

7

year

Number of
Independent Outside
Executive Directors:

3

Number of
Independent Outside Auditor &Supervisory Board Members:

4

Advisory Committee

Number of
Board ofDirectors meetings:

15

Implementation system
The President & CEO is appointed as the supervising officer, while the Vice President and General Manager of the Corporate
Planning & Strategy Division is appointed as the implementation chief. The Company has appointed a person in charge foreach of the eight recurrence prevention measures, from among the Vice President and General Manager in charge of the
management divisions and General Managers of the organizations who report directly to the President. Under each person
in charge, a General Manager of the department or office responsible for implementing specific measures is assigned as
the implementation leader. Based on the above, measures to prevent recurrence are implemented on a company-wide,cross-sectional organizational level.
Board of Directors

Internal Control Enhancement Council(Supervising Officer: President & CEO)* In FY2020

Implementation Chief: General Manager of
the Corporate Planning Division

Number of
Audit & Supervisory Board:

13* In FY2020

Review of Operations

7

Term of office for
Executive Directors:• Internal Audit OfficeSustainability

Governance structure:• Corporate Planning Division• Corporate Planning &Management Division• Risk Management Office• Compliance Office

Growth Strategy

Investment & Financing
Committee

Value Creation

Evaluation and improvement of the effectiveness of the internal control system,
on a company-wide and continuous basis

Accounting audit
Exchange
opinions

Business Operation Organizations

Chairman’s Message

Advisory Committee

Advise /reportElect / dismiss
Determine cap for
remuneration

Overview of the Internal Control Enhancement Council

1. Reform and developmentof governance

2. Enhancement of risk
management system

3. Enhancement of systemfor business execution andinternal system

4. Thorough reexamination of
the audit system

General Manager ofCorporate Planning Division

General Director of
Risk Management Office

General Manager ofBusiness Control Division

General Director ofInternal Audit Office

7. Education on accounting
literacy and lessons learned
from past scandals

8. Continuation of
the monitoring system

General Manager of Corporate
Planning & Management Division

General Manager of BusinessControl Division

Accounting Auditor

Grant Thornton
Taiyo LLC

Specificmeasures (1)Specificmeasures (2)Implementation
leader

Implementation
leader…

Specificmeasures (5)Implementation
leader

5. A scheme where employees
can have a voice

6. Reform and cultivation oforganizational culture

General Director ofCompliance Office

General Manager ofCorporate Planning &Management Division

Annual Report 2021

40

3 Sustainability | Discussion with Independent Outside Executive Directors

Increasing the effectiveness of governance and reinforcing
organizational resilience to underpin long-term growth

Hayano: I was appointed as the Chairman of the Advisory Committee from fiscal 2021. Since becoming an independent
outside executive director in 2018, the Company has uncovered several cases of misconduct. This has motivated me towork even harder to increase Net One’s corporate value and restore trust in the Group. My track record in the ICT sector
goes back to before the term “internet” had even been coined. Leveraging that experience and my expertise as a university
lecturer, I intend to conduct detailed discussions with the Company’s executive directors and vice presidents about how
we should address customer needs as the Group pivots to services, and what skillsets our employees require to support
that shift.
Chairman’s Message

Improving the effectiveness of measures to prevent misconduct
Hayano : Under Net One’s previous management structure, it was hard to see a clear separation between the functions
and roles of the Board of Directors and the Management Committee. With the new structure, which has been overhauled
to ensure no further cases of misconduct, management and executive functions have been separated, clarifying the roles
and responsibilities within the organization and in the minds of senior managers. Directors are now clearly responsible for

Value Creation

business oversight, while vice presidents are focused on business execution.
Kusaka : We have implemented more than 80 targeted measures to prevent misconduct in the future, resulting in a
sophisticated business framework. These steps are undoubtedly necessary, but all we have done at this stage is build theplatform and tools to support sound business management. More importantly, we have to make full use of these tools andensure they are well-established within the Group. We implemented similar measures in the past in response to other casesof misconduct. However, we were too complacent and failed to check whether they were embedded in our organization.

Growth Strategy

So, what do we have to do to ensure the measures are effective this time? Put simply, there has to be enthusiasm for reformat the senior management level. I’ve heard some people say that the message from senior management is not reaching
employees. That has given the sense that senior management is ineffective, which has been reflected in employee behavior.
Senior managers now need to show how enthusiastic and committed they are to long-term reform.

Shigeki Kusaka
Independent Outside Executive Directors

Ryugo Hayano
Independent Outside Executive Directors

Maya Ito
Independent Outside Executive Directors

Hayano : It’s also important that we foster a corporate culture where every single person working in the Group “does theright thing.” Making rules and being aware of them is only the beginning. The next stage is to ensure everybody is sincerelycommitted to complying with the rules. Instead of squaring away the latest misconduct as an accounting issue, we need
Sustainability

to take a long, hard look across our organization to find signs of anything, however small, that could undermine Net One’s
We sat down with the Company’s independent outside executive directors to discuss their role in Net One’s new management

corporate value, report them without hesitation to managers and deal with them as an organization. Changing our corporate

structure, how to improve the effectiveness of measures to prevent misconduct, and issues that need to be overcome toculture will not be easy, but now is the time for every part of the Group to do just that.

achieve long-term growth.
Ito :have done in similar situations. Going forward, the active involvement of senior management will be crucial. Managers
unfortunately become more distant from employees when they are appointed to the board or other senior positions, but I

Review of Operations

The role of independent outside executive directors
in the new management structure

I agree with Mr. Kusaka. Net One’s measures to prevent misconduct go well beyond what other companies

think senior managers at companies in general increasingly need to communicate directly with employees to ensure theIto :I was appointed as an independent outside executive director from fiscal 2021. As a lawyer, I’ve helped to develop

effective internal whistleblower systems for corporate clients, including working as the primary contact for whistleblowers

workforce grows with the company. As an independent outside executive director, I aim to hit the ground running and offer
insights from various perspectives, including how to address the risk of misconduct.

and conducting employee questionnaires, with a focus on compliance. Using knowledge gained through that work, I hopeto help reinforce Net One’s organizational resilience to underpin future growth.

Kusaka : The Company is looking into creating opportunities for dialogue between independent outside executive directors
and employees. I think it’s a good idea, because one of the roles of independent outside executive directors is to offer a

Kusaka : I’ve now been in my position for a year and I feel that the functions of independent outside executive directors

different perspective from internal management in the evaluation of organizations and personnel to help the Company selecthave not yet been fully embedded in Net One’s organization. There still seems to be some sort of disconnect between inside

future business leaders. Until now, almost all this work has been carried out within the Board of Directors, which doesn’t

and independent outside executive directors. With the external investigative committee also recommending more input

give independent outside executive directors the opportunity to get a full and detailed picture of the candidates. I also thinkfrom external executive directors, I intend to be more actively involved in discussions under the new management structure

we should foster future leaders by giving employees involved in business execution more management experience. Thisto take a more prominent role in Net One’s future.

is something we need to do without delay. In particular, we have to deepen communication with employees who are being
lined up for future management roles to get a clearer picture of who they are, right down to their personality traits.

41

Annual Report 2021

Annual Report 2021

42

3 Sustainability | Discussion with Independent Outside Executive Directors

3 Sustainability | Auditor’s Message

Addressing risks and issues related to medium- to long-term growth

Creating an audit system optimized forchanges in society and business models

Ito :I used to work for one of Japan’s megabanks, which has a long and venerable history. At Net One, I’ve caught

some glimpses of vulnerability in its organization, when compared to more established companies. That probably reflects
the fact that Net One has expanded rapidly in a short time without putting solid foundations in place, such as complianceand internal control systems. I think Net One needs to proactively learn from other companies, even if they operate indifferent markets or have different business models. As an independent outside executive director, I want to support that

Kusaka : In the past, Net One had a very simple role: selling the latest communications
equipment and technologies to Japan’s leading telecom carriers. More recently, Net
One’s customer base has expanded to include conventional companies and local
governments, and its business model has pivoted away from pure equipment sales
to integrated solutions covering both services and equipment. Typically, when acompany changes its business, it also needs to overhaul its organization, including
and is rebuilding the relationship between corporate and sales divisions.
Hayano: Reinforcing research & development will also be key to Net One’s further
growth. Without doubt, technological capabilities have been Net One’s main strength
so far. To develop the Integrated Service Business, we have to work out which service
packages generate the most profits. To do that, we will need to level-up research &today’s world, where ideas and technologies rapidly become obsolete, we have tocreate services with long lifecycles. That will mean investing quite substantial amounts
in research & development.
Kusaka : Companies that achieve success in one business are usually slow to develop their next ones. Also, when acompany is overly dependent on its primary business, it can end up losing its initial market to new entrants from othersectors before it has worked out its strategy for secondary businesses. That’s why Net One has to add other strings to its
have to develop truly effective proposals that are almost strategic in nature, based on a clear understanding of industry
trends, market characteristics and conditions in customer businesses. To do that, we will have to improve the skills of
employees, and in some cases, explore M&A opportunities to bring in new blood.
Ito :Looking ahead, Net One might need to consider extending the scope of its target markets. For example,

Net One to utilize ICT in more fields, just as we are seeing with the GIGA School Program.
Hayano: To address those kinds of social needs, Net One will need to reinforce management from the perspective ofsustainability. We have to revisit the way we contribute to the environment based on the latest trends in society and within
the Group, as well as promote women to management level positions. The proportion of women in Net One’s workforce isrising, underscored by the higher ratio of new female recruits, so we need to put inplace training systems that give them the best chance of success.
Ito :Yes, human resources development will definitely need a framework that is

tailored to the needs of diverse human resources, including women. Diversity is a key
part of Japan’s revised Corporate Governance Code, so it’s a theme we should befocusing on. I believe I can contribute to Net One’s efforts in this area as somebody
who is directly involved in promoting diversity.
43

Annual Report 2021

We are radically overhauling Net One’s audit system as part of the package of measures to prevent any further casesof misconduct. The overhaul is far-reaching and elaborate. The Internal Audit Office is tasked with implementing someof the reforms, which are aimed at strengthening audit policies to ensure the Group has the ideal framework to support
sustained growth. My feeling is that the reforms are heading in the right direction. Implementing the system and measuresappropriately should also naturally lead to an improvement in dialogue between management and employees.
Looking at previous cases of corporate misconduct, some companies have continued to repeat their mistakes, despite
reinforcing controls and approval procedures after the original misconduct. In many cases, it turns out that “people” arethe reason for the problem, and of course, organizations are formed from people. Control systems only start to be effective
if we train people to speak out about any concerns they have, rather than using a top-down approach to compel them tofollow stricter rules. Net One employees are probably a bit on edge at the moment, but by continuing to follow the correct
procedures and make the right decisions, they should steadily acquire solid foundations for basic conduct. Net One is likely
to change as a company as these measures are implemented.
As a full-time independent audit & supervisory board member, I will personally assess controls in sales divisions andcarefully monitor operations to gain a deeper understanding of Net One’s frontline business. I will also conduct painstaking
checks of operational controls and financial reporting systems at consolidated Group companies. And to ensure there
are no gaps in our three-way audit system, we will improve communication between the accounting auditors and Internal
Audit Office to support substantive audits, while also joining management bodies and committees to clearly communicate
measures to our personnel, ensuring appropriate business operations.
Audit & supervisory board members are also responsible for overseeing the executive actions of directors. To ensure
oversight is effective, senior management needs to reflect our advice and insights in the decision-making process. My
feeling is that the current management team is fully committed to making the necessary improvements, which is driving real
progress in the Company’s audit system.

Review of Operations

expanding its presence in Asia, such as providing services to Southeast Asia’s growing companies, could support theCompany’s sustained growth. Similarly, the accelerating shift to digital systems and technology offers the opportunity for

Radically overhauling the audit system

Sustainability

bow to complement its existing technological strengths and support the next phase of development. In sales as well, we

Kazuhiro Noguchi
Full-time Independent Outside Auditor &Supervisory Board Member

Growth Strategy

development capabilities to meticulously analyze the outcomes of each project. In

Value Creation

reinforcing corporate divisions. Net One’s current management team understands thisIn my 34-year career as a certified public accountant at several
auditing firms, I have worked on audits of many listed companies
across different industries. Drawing on that expertise, my duty asa member of the Audit & Supervisory Board will be to conduct
appropriate audits under the Company’s new management
structure. In a previous role auditing a game software company,
I saw how value can be created through the accumulationof intellectual property assets. I therefore understand how
business practices in the ICT sector differ from those in theconventional manufacturing sector. Net One is also involved in
the relatively new industry of network infrastructure, so insteadof conventional audit approaches, we have to design auditsthat are optimized to the characteristics of its business, while
also ensuring accuracy and compliance.

Chairman’s Message

process by introducing better ways of doing things from outside the Company.

Audits tailored to the characteristics of
Net One’s businessContributing to Net One’s growth as an Audit & Supervisory Board Member
In addition to reforms to address cases of misconduct, the audit system also has to change to keep up with developments
in business models. Net One’s Integrated Service Business develops proposals based on the use of ICT assets over along-term cycle. That creates difficulties from an accounting standpoint, such as the timing of sales recognition and how
costs are apportioned. Customers also have a wide range of demands, which can change on an almost daily basis. Thatkind of business needs employees with a higher level of accounting literacy to help them develop cost estimates using
historical data, supporting decisions on whether to accept orders and enabling appropriate accounting procedures. Froman operational perspective, we will also need to continuously review budget and project cost analysis methods and projectapproval procedures to ensure monitoring and business process control systems continue to evolve.
Japan’s Corporate Governance Code was revised in June 2021, raising the bar for what is expected of Audit & Supervisory
Board members. As a full-time audit & supervisory board member, I will fulfill my audit duties while steadily adapting ourapproach to changes in Net One’s business and society in general.

Annual Report 2021

44

3 Sustainability | Provide New Value
Basic approach

Initiative 2: Accelerating the Integrated Service Business

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. The Company is currently aiming to transform itself into a service-oriented businessmodel in the digital age through the acceleration of both netone DX and the Integrated Service Business. By working on
netone DX, we will accelerate the digitalization of internal processes, and achieve improvements in productivity throughautomation and quantification. At the same time, we are supporting the acceleration of digitalization of our customers byimplementing the Integrated Service Business, and rebuilding our relationships with our customers. We will contribute to
the creation of value (outcomes) for our customers through ICT utilization, by creating mutual value ripple effects throughthe coordination of all of our intellectual properties.

In order to accelerate the digitalization of our customers, we are working on initiatives to increase customer contact points
and strengthen the provision of intellectual property, with the aim of strengthening customer engagement based on a morecustomer-oriented perspective. Specifically, we are working on measures to enhance the references provided to customers
through netone on netone, and utilizing and passing on technological intellectual property for enhancing the references.

Accelerate the digitalization ofinternal processes

Mutual value
ripple effects

Accelerate the digitalization ofcustomers

Intellectual
property

This is a facility to visualize the elements required for DX, to design the architecture of the customer’s overall system, andto interact with the customer for value co-creation. In addition to clarifying DX policies of our customers, examining thenecessary ICT platforms, formulating plans, and conducting demonstrations, we also conduct workshops that focus on theoutcomes of ICT utilization.

▪Lab as a Service
The Lab as a Service launched operations in 2020, as a multi-cloud verification facility to jointly demonstrate the functionality
and operability of new ICT platforms in a virtual environment, in order to accelerate customers’ DX. Currently, we are
accumulating verification knowledge for design and installation, and working on digitalizing the process for utilizing suchknowledge.

Value Creation

netone DX

Integrated Service
Business

Chairman’s Message

Intellectual
property

Strengthening customer engagement▪netone Briefing Center

netone on netone
In addition to introducing our ideas for business innovation in the digital age, work style innovations in response to the
COVID-19 pandemic, and our case studies on cloud computing and business systems to individual customers, we also
introduce many of our findings on our NetOne Blog.

▪ Annual number of posts on NetOne Blog: 89 (fiscal 2020)

Details of Initiatives

First half of FY2020• Established countermeasures against
COVID-19• Expanded the inquiries function of the
Employee Service Center• Started trial operations of a chatbot for inquiries regarding FAQs, for the
COVID-19 Countermeasures Headquarters• Implemented a request system for commuting to offices under the COVID-19
pandemic• Implemented a physical condition reporting system• Provided functional modifications of released services

October 2020
• Shifted to a personnel system that matches
work styles centered on telework• Changed operations to have employees who are commuting to offices submit
an application in advance, in accordance with the policy of teleworking inprinciple• Changed from a commuting allowance system, to a reimbursement system
for actual transportation costs• Established a new work-life balance allowance to support working from home
• Shifted to attendance management that matches telework, by introducing
performance-based work based on job descriptions and a deemed work system• Established a system for changing work locations (from April 2021)

From the second half of 2020
• Studied office concepts and work spaces• Reduced the number of office floors (from May 2021)• Created an environment to improve facility utilization through the use of ICT

Annual Report 2021

Building a Citizen Relationship Management platform to digitalize administrative services
We have built a Citizen Relationship Management (CRM) platform for connecting the local government of HigashiHiroshima City with its citizens, using ServiceNow’s Now Platform, a cloud platform for business use.
This platform provides guidance and service instructions that are tailored to the needs of users, by retaining theuser information of citizens. By combining this platform with Digital Garage’s message delivery platform, CONNECT
BAY, it can be linked to the LINE app while protecting personal information, thus realizing services with enhanced userconvenience. In addition, because the platform is capable of updating content and implementing services in a low-code
or code-less format, it allows for quick in-house responses to requests from citizens to add or improve functions, thereby
contributing to the enhancement of the city’s digital services, from the citizens’ perspective.

Review of Operations• Established a framework for personnel services. In addition to providing six
March 2020
services, such as the issuance of certificates of employment and social• Launched operations at the Employee Service
security, it also allows for analysis of person-hours and tendencies for eachCentertask.

Examples of initiatives

Sustainability

We are focusing on the digitalization of data and the operation processes necessary to provide lifecycle services to ourcustomers, and on strengthening the coordination of our corporate platform for data sharing. In implementing DX, behavioral
changes are also required, including a review of our organization and personnel systems, in addition to digitalization of ouroperation processes. In March 2020, we launched operations at the Employee Service Center, and subsequently during
fiscal 2020, with an eye on the COVID-19 era, we have been studying ways to improve the quality of work irrespective of timeand place under the theme of “work styles in the COVID-19 era and the acceleration of netone DX.”

45

Related indicators▪ Reference: Actual number of cases: 18 (fiscal 2020)

Initiative 1: Accelerating netone DX

Key initiatives

Growth Strategy

Contribute to customers’ value creation(outcomes)* The company names and product names mentioned above are trademarks or registered trademarks of their respective owners.

Annual Report 2021

46

Review of Operations | Message from the Director in Charge of Business Units

Steadily implementing the Medium-Term Business Plan by working
closely with partners to develop value-added proposals while
carefully monitoring developments in the business environment

Value Creation
Growth Strategy(East Japan Business Unit 1, East Japan Business Unit 2,
Central Japan Business Unit, West Japan Business Unit)*In May 2021, when the message was written,
Mr. Tanaka was also in charge of
the Corporate Planning & Strategy Division.

Chairman’s Message

Takuya Tanaka
Executive Director, Executive Vice President
In charge of business units*· Telecom carrier market
Our business was strong in this market, spurred by upgrades to communication networks related to growth in remote
working. In addition to service platform integration, we will continue to work closely with telecom carrier customers,
including providing support for enterprise businesses and MSPs, to facilitate the shift to digital systems and technologies
and enhanced security at private sector companies and public institutions. For communication facility-related business,
we will need to keep a close eye on the characteristics and profitability of each project but also carefully address customer
needs. We plan to actively participate in projects with good prospects for shared value creation while also monitoringmarket conditions.
· Public market
The school systems market expanded in fiscal 2020, driven by the government's GIGA School Program. Targeting business
opportunities from the program, we leveraged our ability to formulate high-quality proposals and the frontline capabilitiesof our engineers and sales personnel to improve order success. Those efforts, along with growth in direct business withlocal governments, led to higher sales and profits in the public market. However, in the healthcare market, ICT investment
by hospitals stalled due to the impact of the COVID-19 pandemic. We plan to step up our efforts in the healthcare market,
which will be part of our strategy in the next Medium-Term Business Plan.
We expect system upgrade demand to gain momentum in the public market, including increased investment by local
governments to create next cloud-based information security platforms and resilient systems. We aim to expand earnings
in the public market by providing value-added proposals. That will mean redeploying personnel, working closely withconsolidated subsidiary Net One Partners Co., Ltd. and building stronger relationships with partners that have close links
to public institutions and local customers.
· Partner business
Sales in the partner business were weak, reflecting the impact of COVID-19 on partner companies and a review of business
relationships with some partners after the discovery of cases of misconduct. However, our business relationships aregradually recovering and we expect the impact of the pandemic to ease somewhat in fiscal 2021. Going forward, weplan to rebuild our joint business model with partners and reinforce our position as a “high-value distributor.” We will
also extend our reach into new business fields, such as operation technology (control and operation of facilities) in the
manufacturing sector.

Developing New Models
Business Environment

Conditions in the Business Environment and Performance in Each Market· Enterprise market
After the declaration of the state of emergency in April 2020, growth in remote working supported firm demand for related
security measures and cloud platforms. In the manufacturing sector, demand was slightly weak due to reduced appetite
for investment and delays to some projects amid the pandemic. After a temporary lull, the shift to digital systems andtechnology continues to accelerate in the manufacturing sector, so we will continue to focus on the smart factory market in
fiscal 2021. We will also offer business life cycle solutions services that encompass solutions, services, finance and otherfields to support all areas of customers' corporate groups, which should also open the door to comprehensive “granddesign” proposals in the future.
Guided by these strategies, we plan to accelerate the Integrated Service Business by extending our customer basebeyond the ICT divisions of major companies that are our key customers to target all their divisions, as well as companies
in different sectors and with different business models.

47

Annual Report 2021

Under the current Medium-Term Business Plan, we are establishing new models, such as providing support for MSPs anddeveloping the refurbishment business.
In fiscal 2020, we booked a large rise in orders for MSP support, backed by the joint development of new services forthe remote working market. Businesses are being encouraged to switch to remote working that is independent of specificlocations, but only around 10% of Japanese companies, primarily large enterprises, have adopted that approach. Remote
working is expected to become more common at SMEs. Through the MSP model, which allows us to approach morecustomers, we expect to capture a greater share of the SME market and generate solid growth. The use of remote working
varies widely between regions and companies, so our solutions provided via MSPs will help companies close that gap.
In addition, our solutions should encourage companies to migrate to 5G technology, which will be a tailwind for Net One,and using the highly efficient MSP model to develop new proposals will also boost profit margins.
The refurbishment business is still seeing demand from customers who want to optimize their ICT investment andsystem operation costs. However, orders fell short of our target due to delays in new projects amid the pandemic. Despite
that, we achieved our profit target, thanks to high profit margins in the business.
In the MSP model, semiconductor shortages are leading to equipment delivery delays, which could restrict growth. We
think the refurbishment business is well-placed to solve this issue. Our service business, which is also struggling to procure
semiconductors, could also source and supply alternatives from the refurbishment business. One of the features of thebusiness is that it can add new capabilities to meet customer needs in various ways. We plan to explore this potential going
forward.

Annual Report 2021

Review of Operations

Accurately identifying risks and opportunities in each market todevelop high-value-added proposals

Aiming to provide remote working solutions to SMEs throughour MSP model

Sustainability

In fiscal 2020, ended March 31, 2021, we made steady progress towards the targets in our Medium-Term Business Plan,
despite dramatic changes in the business environment caused by the COVID-19 pandemic, which had only a modest
impact on the Group’s operations overall. However, we faced calls from some of our customers and partners to overhaul
our business relationships with them after the discovery of cases of misconduct. In fiscal 2021, ending March 31, 2022,
restoring trust in Net One Systems and rebuilding relationships with all stakeholders will be our priority issue.

48

Review of Operations | Message from the Director in Charge of Business Units
Outlook

Human Resources Development Policy and Personnel Training Strategy

Backed by a new management structure, the Net One Group will develop
a new strategy tailored to the latest market trends■Human Resources Development Policy■Personnel Training Strategy
netone Group Code of Conduct

Four core elements of the Personnel
Training Strategy

Chairman’s Message

Our main priority in fiscal 2021 is to achieve the final-year targets of the Medium-Term Business Plan. Also, we will step up
efforts in strong-performing markets to create shared value with customers who understand and recognize the value thatNet One provides.
Based on the assumption that the major changes in the market in 2020 are now here to stay, we will identify newopportunities and formulate a new strategy for the next Medium-Term Business Plan, backed by the Group’s new
management structure. We are also looking at updating the way we develop medium-term plans. Specifically, we want tolink top-down management thinking with bottom-up employee ideas to develop a well-defined strategy that represents
the whole Net One Group. Along with rapid messaging and promotion of the plan, we think this approach will increaseawareness of the strategy and encourage every employee to act more independently.

Help every employee grow and develop independently

Anchored by the netone Group Code of Conduct
and the Human Resources Development PolicyP

People1. Thoroughly implement basic training andcommon training programs

I will strive to take socially

2. Support independent career planning anddevelopment

I will work with customers to create
and promote values for society

3. Create a corporate culture that encourages
continued study and mutual learning

I will work to create a better

4. Cultivate digitally literate human resourcesto accelerate DX

G Governance responsible behavior

Human Resources

S

Society

We have launched a radical overhaul of human resources systems to prevent further cases of misconduct — a priority issue
for the Group. We have also formulated a new Human Resources Development Policy and revised the Code of Conduct
to encourage employees to grow and develop independently. We will build a corporate culture with bottom-up input inbusiness management and focus on strategic human resources who can grow with the company.

E

Environment future for all

Value Creation

I will proudly fulfill my duties
honoring my loved ones

New Human Resources Development Policy

Annual Report 2021

Net One Systems has one female independent outside executive director and one female independent outside auditor &supervisory board member, but we need to promote more women to senior positions. Some of our employees are currently
taking part in the Japan Women’s Innovative Network (J-WIN), an organization committed to cultivating female businessleaders, to independently map their career paths.
To create a truly diverse organization, we have to promote women to senior executive positions, while also increasing
the proportion of women and foreigners on the Board of Directors. To achieve that, we have to help employees build up
a wide range of experiences and provide our full backing to promising managerial candidates as part of a supportive andmotivating corporate culture. We will also explore other ways of ensuring greater diversity.
To put the recent cases of misconduct firmly behind us and reform Net One, employees will need to speak their minds.
Management will also have to create a framework that addresses their insights and opinions. We will build better systems
and relentlessly reform Net One’s culture to create an organization brimming with positive ideas that can take us to the nextstage.

Annual Report 2021

Review of Operations

49

Pursuing true diversity by focusing on promoting employees
at the business execution level

Sustainability

To prevent further cases of misconduct, we are revising regulations and guidelines, refreshing Net One’s corporate culture
and overhauling personnel systems. One of the issues with our previous human resources strategy was a lack of clarity
about which division was responsible for devising and executing strategy. The mission of the Human Resources Department
has been redefined to cover this role. Going forward, the Human Resources Department will lead the development andprovision of training programs for employees, monitor implementation and uptake, and make improvements as needed. The
goal is to reinforce and embed compliance in our organization and strategically train personnel.
From fiscal 2021, our new Human Resources Development Policy is to “help every employee grow and develop
independently.” In line with the four core elements of our Personnel Training Strategy, which is underpinned by the netone
Group Code of Conduct and the new Human Resources Development Policy, we will implement a range of training programs
to reinforce skill levels and expertise in areas such as accounting literacy, compliance and J-SOX regulations.
From my perspective as the executive director in charge of the Corporate Planning & Strategy Division (until June 22,2021), I want every employee to have the skills to make the right choice by themselves, without relying on others to guidethem. Our aim is to create an organization that continuously improves — where our employees, regardless of seniority
or position, can advocate and push through their best ideas, and where every person asks themselves whether current
approaches really are the best way of doing things. I am confident that our new Human Resources Development Policy andPersonnel Training Strategy will help us create that kind of organization. Becoming rich in human nature and personality, amore humane person can only come from within, but as an organization, we need to gain a clearer picture of the individual
differences and traits of each employee and think about how we can extend a hand of support to them to complement ourpersonnel systems.

Creating a Diverse Organization

Growth Strategy

Creating an organization of independent-minded employees
who always do the right thing50

Review of Operations | Business Overview
Business Overview

Segment performance and outlook

Our business is broadly divided into four segments based on the industry of customers they serve.
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
cloud systems and cyber security measures. In all the markets where the Net One Group operates, we install efficientsystems by optimally configuring networks, cloud systems and security measures. We also show customers how to get
the best out of their systems.

Enterprise market

CAGR (3 years): Revenue 3.2% Operating income 17.4%（Million yen）

■ Bookings ■ Revenue ■ Order backlog

18.1%

Public market

Partner business

34.5%

2017

19.7%

3,145

3,263

2017

2018

■ Operating income ■ Operating margin
10.5%

Revenue: ¥36,489 million
Operating income: ¥3,688 million

39,46435,38634,27935,55230,846

6.8%

Telecom carriers

3,454

17,481
14,407―――――――――――――――――――――――――――――

2017

2018

2019

2021
(FY)
(Outlook)

2020

Public market

2017

2018

■ Bookings ■ Revenue ■ Order backlog
71,255■ Operating income ■ Operating margin
72,00069,79571,00011.8%

62,67262,45656,556

8,260
55,793

7.8%

46,552

6.2%

40,99040,71539,71538,255

4,327
3,485
2.0%

835

2017

2018

2019

(FY)
2021
(Outlook)

2020

2017

2018

2019

2020 (FY)

Review of Operations

Annual Report 2021

2020 (FY)CAGR (3 years): Revenue 19.4% Operating income 114.7%（Million yen）

Revenue: ¥39,730 million
Operating income: ¥3,507 million
Key markets / sectors

System integrators• Specializes in collaboration with partner companies• Network• Cutting-edge ICT equipment and related solutions

Partner business

CAGR (3 years): Revenue 8.6% Operating income 35.0%（Million yen）

■ Bookings ■ Revenue ■ Order backlog■ Operating income ■ Operating margin

44,962
39,73038,727―――――――――――――――――――――――――――――
Operating environment• Strong demand from system integrators
Strengths and characteristics• Handles a wide range of products from overseas• Provides quality assurance, technology verification and valueadded services such as proposal support and system
maintenance* Revenue for external customers is used in revenue by segment section presented in Chapter 4.

51

2019

Sustainability

Operating environment• Telecom carriers continue to invest steadily to expand theircorporate businesses• Carriers are shifting their focus to the installation of cloudsystems and other service platforms
Strengths and characteristics• Extensive track record in the design and installation of largescale networks• Strong position in multivendor product integration and automated system operation, backed by advanced network design
capabilities

2,101

Growth Strategy• Cloud systems• Security measures• Campus networks• Work style innovation
Focus markets: School systems and healthcare―――――――――――――――――――――――――――――
Operating environment• Strong demand for security measures and cloud systems
Strengths and characteristics• Consulting services that help customers clearly identify theissues they face• Optimization of the full ICT lifecycle, from design, installationand maintenance to operation, optimization and in-field
improvement of ICT platforms

3,688

14,50814,241

Partner businessCentral and local governments / education /universities, research centers / social infrastructures

3,708

21,481• Service platforms• Corporate business

25,476

Key markets / sectors

10.1%

38,00036,48935,442 35,176

9.7%

Key markets / sectors

Revenue: ¥69,795 million
Operating income: ¥8,260 million

2020 (FY)CAGR (3 years): Revenue 5.8% Operating income 20.6%

31,377

Public market

2019

Value Creation* Internet service providers

(FY)
2021
(Outlook)

2020

6,294
5,089

42,000

Revenue: ¥54,547 million
Operating income: ¥5,089 million• Cloud systems• Security measures• Work style innovation
Focus market: Smart factories―――――――――――――――――――――――――――――
Operating environment• Sustained strong demand related to security measures, cloudsystems and work style innovation
Strengths and characteristics• The enterprise business has built up a high level of trust withcustomers after many years of providing high-quality network
systems.
• Backed 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.

2019

■ Bookings ■ Revenue ■ Order backlog

Telecom carrier market

Manufacturing / non-manufacturing / finance / ISP*

21,4982018

6.2%

33,20829,208

Telecom carrier market（Million yen）

Key markets / sectors

54,547
6.3%

22,535* Note that the sum of the above percentages does not add up to 100%, due to other business segments that are not included in the reportable segments(the Global business segment, etc.).

Enterprise market

52,3299.3%
58,000Chairman’s Message

27.0%

Telecom carrier market

57,281

55,376

26,472

Revenue (fiscal 2020) ¥202.1 billion
エンタープライズ
Enterprisemarket

51,29349,68011.4%

62,00060,23351,262■ Operating income ■ Operating margin

30,78730,98531,60739,00040,0008.8%
8.0%

33,865

3,507

7.1%

30,028

3,093
4.6%
2,117
14,165
1.426

2017

8,299

7,930

6,352

2018

2019

2020

7,299

2021
(FY)
(Outlook)

2017

2018

2019

2020 (FY)* CAGR (3 years): Average annual growth rate for the 3 years up to fiscal 2020

Annual Report 2021

52

Review of Operations | Medium- to Long-term Outlook
Public market

Demand for telework is increasing rapidly in anticipation of the spread and prolongation of the COVID-19 pandemic. As
such, continuous efforts are being made to improve business efficiency through work style innovations and collaboration
based on the cloud and Internet. In addition, with regard to security measures, reviews of the perimeter defense model,
in which communications with the outside world are consolidated in data centers and other locations, are also being
encouraged in response to the situation.
While next generation network environment (SD-WAN) is attracting attention in anticipation of the utilization of thezero-trust model, which confirms the safety of all access from inside and outside the company, we are proposing a highly
productive ICT platform that utilizes the Internet safely, by combining our expertise in networking and security measures.
In addition, our comprehensive proposals are gaining popularity as the importance of security measures in the supply
chain increases.
Operations that are free from external connections are becoming increasingly limited, and it is essential to takemeasures to achieve a balance between digitalization and a safe and secure work environment. With the increasing useof multi-cloud computing, we will strive to continue supporting the entire ICT platform through drastic security measuresand network reviews.

The Public market is the field where the most progress has been made in the strengthening of ICT platforms, in recent
years. The needs for digitalization are continuing to become stronger and increasingly specific, including the joint use ofcloud-based systems, comprehensive security measures, and work style innovations.
In the market of local governments, while drastic security enhancements were made in a short period of time in2016, there has been an increase in requests for ICT utilization, such as cloud computing proposed by the government,
online administrative procedures, and work style innovations centered on telework. In terms of new information security
measures, ICT platforms using the Internet are being reviewed in order to improve administrative services and clericalefficiency. It is expected that the demand for advanced operation services that combine the most suitable products andservices will continue due to their unique value, especially in key system designs, where a series of proof-of-concept (PoC)
experiments are being conducted to verify performance and operability.
We will continue to support our customers in their efforts to promote DX, by utilizing new technologies such as AI andDeep Learning. In February 2021, we signed a comprehensive cooperation agreement with Sagamihara City (in Kanagawa
Prefecture) for the purpose of promoting DX. We believe that this will contribute not only to the realization of a sustainable
society through participation in businesses with high social significance, but also to achieving a further transformation
within the Company through utilization of the knowledge cultivated through this project.

Asahi Kasei’s next-generation WAN environment for digitalization and zero trust- SD-WAN & Internet gateways for a safe and convenient operating environment centered on the Internet -Chairman’s Message

Enterprise market

Example of a review of information security measures for local governments- Strengthening of security measures that also takes into account improvements in efficiency and convenience -Cloud services

Connection
authentication

In-house system

Internet
Enhancement ofsafetyImprovement ofeffective speed

Basic resident
ledger network
systemInvestment
optimization

Internet gateway

Operation
monitoring

Local
government
wide area network
Separation

Closed network

Internet breakout

SD-WAN

Value Creation

テレワーク環境
Telework environment

Internet

Affairs using the individual number system

Separation

LGWAN connection system

Nextgeneration local
government
information
security cloudPublic cloud
Usage
monitoring

Internet connection system

Resident records

Information
sharing

Personnel
salaries

Personnel salaries

Information collection

Taxes

Disasterprevention

Financialaccounting

Financial accounting

Internet mailGroupware

Homepage(Automatically allocates communication destinations according to the systems used)Social security

Groupware

Growth Strategy

To be used by 300 and more domestic business bases andapproximately 30,000 people in domestic Group companies

Migration of major business systems to Internet-connected systems while protecting information

Partner businessIn the Telecom carrier market, we are working with our customers to achieve value co-creation through ICT utilization,
toward the realization of a safe and secure society.
In the corporate business, where customers are focusing their efforts, the risk of hidden cyber-attacks in the use ofcloud services via the Internet is increasing in line with the increasing use of cloud services. In response to this risk, ourcustomers are providing advanced security services combined with highly functional cloud-based firewalls.
In order to launch a new security service that utilizes the customer’s cloud system, we have started to install an
operational system for this service, and began providing comprehensive operation services. This new operation service
effectively unifies the monitoring of security operation systems and cloud systems, thereby improving quality and reducing
operational costs, in order to achieve stable system operations and reduce the operational load for the customer.
The MSP model created in this project will allow us to support the early launch of new services, and reduce planningand development costs. We will continue to expand our services for value co-creation, and continue to make proposals
that will earn our customers’ continued trust.

In order to meet the ever-changing DX needs of the market, Net One Partners has positioned the DX elements and values
to be provided to partner companies as “DX Core,” and aims to expand the value provided and establish its position as aleading IT distributor.
Under DX Core, the elements and values required to realize DX are divided into five categories: (1) digital workplaces, (2)mobile and wireless, (3) new-generation and next-generation networks, (4) cloud infrastructure and management, and (5)digital security. Through DX Core, we are providing products that achieve the co-creation of markets, in collaboration with
our partner companies.
Particularly in the field of digital security, we will respond to the rapid increase in cyber-attacks in terms of both cybersecurity and physical security, with an eye toward improving safety in preparation for the advent of a smart society where
virtual and real spaces interact. Specifically, in the field of cyber security, we will continue to differentiate ourselves bystrengthening our network security, while at the same time, promptly deploying new products and technologies thatenable us to support zero trust.
In the fields of mobile & wireless and new-generation and next-generation networks, it is expected that further
improvements to business efficiency and productivity will be made by utilizing data and connecting many devices using
advanced technologies such as local 5G, mainly in manufacturing plants.

Example of a cloud-based firewall and Internet accessSustainability

Telecom carrier market

Review of Operations- Realization of a safe Internet connection environment with high-performance security Corporate users

Wide area intranet service (KDDI WVS 2)
Cloud-based firewall

Business base A

Focus areas and business model of Net One Partners

Internet
Distribution

Education

PublicHumaninfrastructure resource services

ManufacturingPrisma Access for Clean Pipe
Business base B

Business base C

Closed connection(secure communication)

SSL
decryption

SandboxSaaS
visualizationand control

Intrusion
prevention

Anti-virus

Anti-spyware

URL filtering

DNS filtering
Supply chains

KDDI cloud systems

Added value

Centralized controller

Monitoring andmaintenance services

Customer: Enhance security by monitoring Internet access from user bases
Effective provision of security functions for safe and secure network usage

Smart cities

Smart factories

GIGA schools

Talent management
systems

Healthcare

Wearables

RetailEntertainment

Digital marketing

AR/VR
e-sports

Partner companies
Time to Market including New Core / short- to medium-term

NOP DX Core

Close to Customers / medium- to long-term

Digital workplace

Mobile & wireless

The Company: Provide a new service that reduces the operational burden of new services provided by the customer
Collaboration

New-generation andnext-generation networks

L5G

HR TechCloud infrastructure & management

Wi-Fi6

Digital Security(Intelligent
network)

SDN

IIoT

Cloud

Management

Cyber

PhysicalNet One Partners

53

Annual Report 2021

Annual Report 2021

54