XNET Corporation

Medium-term Management Plan
- Review of the 1st Fiscal Year Ended March 2023 The company aims to be an excellent Company
that can continue to grow while collaborating with its clients

Copyright ⓒ 2023 XNET Corporation

INDEXXNET Corporation ｜ Review of Medium-term Management Plan ｜June 2023
Reference Data
1 Overview

1

Overview of Fiscal Year Ended March 2023

2 Financial
Results for
Fiscal Year
Ended March
2023

1

Results for Fiscal Year Ended March 2023

2

Key Financial Performance Indicators

3

4
3 Initiatives
undertaken in
the Fiscal
Year Ended
March 2023

1

1

Business Overview

2

Overview of service offerings

3

Value proposition

4

Corporate Profile and History

Trends by Sales Mix

5

Corporate Philosophy

Factors for change in operating income

6

Mission & Vision

7

Business Area

8

Service Format
Characteristics of our services

Development in the medium- to long-term- AMO & SO Expansion -4 About XNET

2

Application Service Expansion

93Medium-term Growth Strategy

10 Software Application- Core sales expansion -4

Human Resource Strategy

5

System Investment

6

Shareholder Initiatives- New Shareholder Benefits Program -7

Dividend Policy

Copyright ⓒ 2023 XNET Corporation2

１
Overview

Copyright ⓒ 2023 XNET Corporation3

1. Overview of Fiscal Year Ended March 2023
Progress as of March 2023 toward management goals
Core Sales

Operating Income Margin

ROE

FY3/26 Target 5 Billion Yen

FY3/26 Target 15.0％

FY3/26 Target 8.0％

4.44 Billion Yen

17.7％

8.9％

(+1.3% YoY)

Major Initiatives in FY3/23
１. Service development for the medium to long term

２. Application Service Expansion

SO services are in place to a second

Released "Future Earnings

life/non-life insurance company

Simulation Service (basic function)"
Several other services are under development

３. Expansion of Core Sales

４. Human Resource Strategy

５. System Investment

Corporate loan
management services toPromote recruiting method

Support OS upgrade &life/non-life insurance industry

wage and training

and improve employee

UI* Update*UI = User Interface

Copyright ⓒ 2023 XNET Corporation

4

２
Financial Results for
Fiscal Year Ended March 2023

Copyright ⓒ 2023 XNET Corporation5

2-1. Results for Fiscal Year Ended March 2023
Sales and profit in the AMO service showed a reactionary decline from the previous year. Both operating
income ratio and ROE exceeded the initial target with actuals of 17.7% and 8.9%, respectively.

Financial Results of Fiscal Year ended March 2023 (M: in million yen)

SalesCore Sales
Operating
IncomeOperating
Income Ratio

FY3/22

FY3/23

Change5,419 M

5,357 M（▲

4,383 M

4,438 M

968 M

950 M

（＋

1.1％）

1.3％）

（▲

1.3% YoY+

1.8％）+2.7pt17.9 ％

17.7 ％（▲

0.2 pt）>target of 15.0％+0.9ptROE
Copyright ⓒ 2023 XNET Corporation

9.8 ％

8.9 ％

（▲

0.9 pt）>target of 8.0％

6

2-2. Key Financial Performance Indicators
XNET has generated stable revenues in recent years. Although the revenue and profit of AMO service in
FY3/23 showed a reactionary decline, the operating income ratio exceeded the original target with actual
17.7%.

Trends of Sales, Operating Income, EBITDA（%）(in million yen)

6,000

Full-scale AMO
launched

25.0%

Full-scale SO
launched

5,419

Operating
Income Ratio

5,039
5,000

19.4%

4,670

19.1%
4,041
15.5%

4,000
3,157

3,005

17.9%

4,204

15.7%

17.5%

17.7%

15.2%
15.0%

13.8%

16.1%

3,161

20.0%

4,435

16.1%
3,586

5,357

3,000
Sales

10.0%
2,000
1,549

1,000

808

956
670

1,049

1,128

1,212

1,279

1,288

1,468
5.0%

737
EBITDA

0

0.0%
13/3期
FY3/13

14/3期
FY3/14

Copyright ⓒ 2023 XNET Corporation

15/3期
FY3/15

16/3期
FY3/16

17/3期
FY3/17

18/3期
FY3/18

19/3期
FY3/1920/3期
FY3/20

21/3期
FY3/21

22/3期
FY3/22

23/3期
FY3/237

2-3. Trends by Sales Mix
Although total revenue is down, core revenue source, which is our key management indicator for XNET, ison the rise.

Trends of core and spot sales(in million yen)

6,000

5,419

5,357

1,036

919

【Core】

5,039
5,000

4,670

Spot sales

856

Segment with stable sales
through subscription model637▶ Our stable revenue base

4,000

3,161

Target services Applications,
AMO (monthly)・SO

3,000

4,033

2,000

4,183

4,383

4,438

Core Sales

3,161
Core sales
account for 80% of
the total sales

・・・

1,000

15/3期
FY3/15・・・. . .

Copyright ⓒ 2023 XNET Corporation

20/3期
FY3/20

21/3期
FY3/21

22/3期
FY3/22【Spot】
Revenues from one-time transactions, althoughnecessary to maintain core sales
Service Line ：AMO (spot) * New installation, infrastructure
renewal

23/3期
FY3/238

2-4. Factors for change in operating income
Gross profit decreased approx. 15 million yen due to a reactionary decrease in AMO service sales, while
operating income decreased approx. 18 million yen due to an increase in SG&A expenses of approx. 3
million yen.

Change in Operating Income from FY3/22 to FY3/23(in million yen)

968
950

Decline in sales:

Increase in Supplies：

Reactionary
decline in sales of
AMO

Purchased PCs to improve
office environment andenhance security

Decrease in depreciation

Gross profit decrease ▲15

FY3/22

Sales

Operating Income

Copyright ⓒ 2023 XNET Corporation

Supplies Exp.

Depreciation(cost)

Other COGS

SG & A

FY3/23Operating Income

9３
Initiatives undertaken in the
Fiscal Year Ended March 2023

Copyright ⓒ 2023 XNET Corporation10

3-1. Development in the medium- to long-term- AMO & SO Expansion New application offerings will always be bundled with AMO (monthly) service, which consists of core sales,
thereby increasing the total amount of core sales segment.
SO services are in place to a second life/non-life insurance company, and is expected to increase.
AMO (monthly) ： Application software bundled offer
AMO：System operation outsourcing, where XNET’s experts
take care of the application, implementation, operation,
maintenance and updating for the client.

SO ：Installing to a second life/non-life insurance company
SO: Business process outsourcing, where XNET’s
professionals handle accounting and reporting for the client.

〇〇Management System
life/non-life insurance company

XNET’sexpert staff△△Management System

XNET’s application

Want to focus resourceson developing products

Advances in IT technology
will drive demand for morevalue-added insurance
products

AMO (monthly)

Application bundled with AMO (monthly) services allow
customers to focus their resource on other important matters

Growing demand in the industry is likely the factor behindthe new installation to a second life/non-life insurancecompany

BPR (Business Process Reengineering:)
In addition to the above, "BPR" has been increasingly discussedwith our customers in recent years, and there is growing interest in
our SO as a tool for achieving BPR.

Copyright ⓒ 2023 XNET Corporation11

3-2. Application Service Expansion
In November 2022, XNET released a future earnings simulation service (basic function) for the life and nonlife insurance industry for the fiscal year ending March 2023.

(Background)The burden of managing bonds in the life/non-life Insurance industry

Life and non-life insurance companies invest in many
bonds and hold them for long periods of time.
Calculating future returns on these bond investments is doneusing spreadsheet that is troublesome to use and manage.

XNET’s future earnings simulation service
XNET’s Future Return Simulation Service relieves
clients of the complexities of bond management byusing original data from each company managed by
XNET.

Characteristics of XNET’s
future earnings simulation service？

Copyright ⓒ 2023 XNET Corporation▶

Interest, principal and dividends (CF)▶

Financial close processing (valuation,amortized cost method...)▶

basis data creationn (at middle office)▶

Balance calculation (book value,
receivables, net unrealized
gains/losses)

123-3. Medium-term Growth Strategy- Core sales expansion -By acquiring new customers for its system services, XNET is steadily expanding its core revenue.

Significant Transaction in the Fiscal Year Ended March 2023
Meiji Yasuda Life
Insurance Company

The Johnan ShinkinBank

The Juroku Bank, Ltd.

THE BANK OF
NAGOYA,Ltd.
Mitsubishi UFJ Trustand Banking
Corporation

Core sales development▶ Loan Management service launched
4,383（Actual)
4,438

FY3/22
22/3期

FY3/2323/3期(Estimate)
5,000▶ Back Office for Securities service launched▶ Trust Management for Individuals

service launched
Trust Management for Individuals▶“Lifetime annual gifting trust with testamentary trust”

service launched▶ Stewardship Solutions service launched

Copyright ⓒ 2023 XNET Corporation

・・・ 26/3期
FY3/26・・・

13

3-4. Human Resource Strategy
In the fiscal year ended March, 2023, XNET struggled to retain talent as the environment for hiring new
graduates intensified. We will focus more on recruitment activities by implementing measures such as (1)multiple recruitment methods and (2) improving employee wages to strengthen the recruitment of *secondtime entrants.
*Second-time entrants refers to individuals who are recent college graduates with less than three years of work experience.

１

Recruiting✓ Multiple recruitment methods✓ Improve employee wages(increase base + increase startingsalary)✓ Encourage the hiring ofexperienced industry
professionals

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２

Human resource✓ OJT ：
Apprenticeship learning fromveterans✓ OFF JT ：Collaboration with external experts
and CE, external training, andinternal training

３

Retention✓ Employee Stock Ownership
Plan (20% incentive）✓ 1on1 Interview(Regular individual meetings withmanagers)✓ President 1on1 interview✓ Promote maternity leave,
including for male employees

143-5. System Investment
In the fiscal year ended March 2023, XNET completed the OS renewal support in May 2022 to maintain its
services as our defensive investment, in addition to the development of the application for securities (newasset) management. XNET will continue our efforts to maintain and continue our services.

Moreover, XNET is redesigning the user interface of about 79% of its applications to improve and enhanceexisting applications.

Defensive
Investment＝ System update to ensure quality service✓ System upgrading associatedwith OS* updating*OS：Operating System

XNET applications migrated to
Red Hat Enterprise Linux 8
in May 2022

Copyright ⓒ 2023 XNET Corporation

Aggressive
Investment＝ Improve the existing applications✓ Develop new solution
services✓ Improve convenience forcustomers

UI updates for approximately

79% of our applications15

3-6. Shareholder Initiatives - New Shareholder Benefits Program As announced on June 28, 2022, XNET has established the new shareholder benefit program.

XNET’s Shareholder Benefit Program
PeriodApril 1, 2022 to March 31, 2026 (in accordance with the medium term management plan period)

Eligible Shareholders

Shareholders who are registered or entered in the share register as of the last day of
September and March and who hold one unit (100 shares) or more of the Company's
stock during the above-mentioned.

Benefit to be offeredQUO Cards

Time of distribution

Copyright ⓒ 2023 XNET Corporation

Number of shares held

Benefit to be offered1unit (100shares) or more

500 Yen QUO CARD

• For shareholders as of September 30: To be enclosed in the "Interim Report" anddelivered in late November or early December• For shareholders as of March 31: To be enclosed in the “Notice of resolutions of theGeneral Meeting of Shareholders" and delivered in late June16

3-7. Dividend Policy
XNET’s policy is to return earnings to shareholders through stable, long-term dividends. Our dividend payout
has been maintained, including the fiscal year ended March 2015, when an impairment charge was recorded.
For the fiscal year ending March 2024, we plan to increase the dividend to 30 yen per share.
*¹ Dividend - Actual / projected (in Japanese yen)
Dividend
Payout Ratio

60.7%

78.4%

454.2%

50.8%

44.3%

49.7%

47.7%

44.8%

40.1%

32.2%

35.7%

86

84

40.6%

100
Earnings per share
一株当たり利益

Dividend
per share (annual)
一株当たり配当金（年間）

80

73

69

63
60

55

62

58

56

46
40

35
28

28

28

28

28

28

28

28

28

28

FY3/14

FY3/15

FY3/16

FY3/17

FY3/18

FY3/19FY3/20FY3/2130

30

FY3/22

FY3/23(est.)

20
60
FY3/12

FY3/13*¹ As XNET has conducted stock splits, calculations and descriptions are based on the current number of shares
Copyright ⓒ 2023 XNET Corporation17

４
About XNET

Copyright ⓒ 2023 XNET Corporation18

4-1. Business Overview
XNET provides comprehensive support through a set of asset management operations that serve as an
infrastructure. The services fall into three categories which are (1) Front, (2) Middle, and (3) Back operations.

XNET’s Service (a single business segment)
Investor
Entrust money

Institutional Investors
Buy and Sell Securities(Front)⚫ Ordering and receiving
securities

Check status of operations(Middle)⚫ Performance Analysis⚫ Reporting

Maintain books and recordsof transactions (Back)⚫ Accounting (including IFRS.)⚫ Deposit / withdrawals⚫ Asset physical custody⚫ Exercise of voting rights

serves as an infrastructure

Copyright ⓒ 2023 XNET Corporation19

4-2. Overview of service offerings
XNET’scustomers, most of which are institutional investors, use dedicated system to handle theirfront/middle/back-office operations. XNET provides not only (1) applications software,
but also (2) AMO, system operations outsourcing and (3) SO, business process outsourcing services.
① Application
Software tailored to thecustomer’s needs②AMO：Application Management Outsourcing
The system operation is outsourced to
XNET, where our experts handle theapplication, implementation, operation,
maintenance and updating for the customer.

③SO：Smart Outsourcing
Business processing is outsourced to XNET,
where our professionals handle accounting andreporting for the customer.

ClientApplication

Application

Front office operation

Front office operation

Front office operation

Middle office operation

Middle office operation

Middle office operation

Middle office operation

Back-office operation

Back-office operation

Back-office operation

Back-office operation

Product development

Product development

XNET’sApplication

XNET’sProfessionals

ClientClientApplication

Application
Entrusted

ClientFront office operation

Product development
・・・

XNET’s support for the front/middle/back-office operation allows
customers to focus their resources on other important matters.
Copyright ⓒ 2023 XNET Corporation20

4-3. Value proposition
XNET creates high added value by providing high quality “applications”, “know-how” and “support” as anintegrated service.

The added value XNET offers
Application◆ No initial investment required◆ Fixed monthly fee

Application◆ No maintenance fee required◆ Freely combined from over 4000 applications(object-oriented)

Know-how◆ Attentive support system by customers andour customer representatives (CE)
◆ Accumulated know-how to keep yourapplication up-to-date with latest features

Know-how

SupportSupport◆ Attentive support by our customer
representatives (CE)
◆ Knowledge of professionals in the asset
management industry

Copyright ⓒ 2023 XNET Corporation

21

4-4. Corporate Profile and History
XNET has been a specialist in securities management systems and support since its inception more than 30
years ago. Its customer base consists of more than 180 institutional investors, including life/non-life
insurance companies, investment advisors, trust banks and banks.
Corporate Profile

HistoryName

XNET Corporation

Address

Sumitomo Fudosan Yotsuya Bldg 4th Floor.
13-4 Araki-cho, Shinjuku-ku, Tokyo

1991 Founded (by three former employees of Nomura Securities and Nomura
Research Institute)1997 Started “Back office” service

Representative Takehiko Motani, President
Established

June 3, 1991

Capital

783 in million yen

Number ofpeople188 (As of March 2023)

Services• “XNET” service: Outsourcing service of asset
management application)• Portfolio data distribution service• STP service(electronical instructions sent to a managing
trust bank)

Customers

Institutional investors broadly defined, including
banks

Copyright ⓒ 2023 XNET Corporation

1998 Started “Front office” service
2000 Listed on NASDAQ JAPAN as its first stock issueStarted the center-type “STP” service
2001 Added “Contract basis accounting” in Back-office operation service
2003
Listed on the Second Section of the Tokyo Stock Exchange

2004
2007

2009
2015
2017

Started “Accounting service for investment trust management” service
Started shareholder voting rights management (Stewardship Solutions)
Listed on the First Section of the Tokyo Stock Exchange
Added “Back office” operation to “Accounting service for investment trust
management” service
Became a consolidated subsidiary of NTT DATA Corporation
Started “Trust management service for individuals” (for regional banks)
Started Japan’s first “Japan-domiciled foreign-currency investment trusts
management” service
Opened Sapporo office as SO service base2021 Expanded the head office to strengthen SO service2022 Listing market changed to the Standard Section of Tokyo Stock Exchange224-5. Corporate Philosophy
What XNET aims for

The company aims to be an

eXcellent Company
that can continue to grow while collaborating with its clientsAs an eXcellent Company, XNET will strive to
1. become a “One-Stop Solution Company” in asset management.
2. continue to make efforts to bring smiles to customers’ faces by transforming “Impossible” into
“Possible.”
3. create a better society by developing “new frameworks” and “new value.”
4. implement management practices while being mindful of the well-being of employees andtheir families and the profit returns to shareholders.

Copyright ⓒ 2023 XNET Corporation23

4-6. Mission & Vision
XNET aims to become an "ecosystem orchestrator" in the asset management industry, providing solutions
that customers need.
In addition, XNET will contribute to helping Japanese people accumulate wealth by adopting the "Four-Way
Satisfaction" mindset.
VisionMissionFrom “Sampo-yoshi” to “Shiho-yoshi”
becoming amaster of asset
management industry
operations

Further reduce asset
management costs✓ Focus on core business✓ Reduce operational cost

1
Good for Buyer

As an “ecosystem orchestrator* in the asset management industry”,
XNET aims to create a symbiotic environment by connecting it with any *service orsystem that the customer requires without owning all the solutions.

✓ Earn revenue✓ Enhance intellectual/ human capital✓ revitalize market/economy✓ Create national assets

In assetmanagement
industry

2
Good for Seller

3Good for Society
Economy/peopleof Japan✓ Human resource
shifting to earn
investment income✓ Asset building suitablein the so-called"100-year life period".

Client (institutional investor)

4✓ Becoming theplatform in the asset
management industry

Good for the future*Includes those provided by third-party companies

Copyright ⓒ 2023 XNET Corporation24

4-7. Business Area
XNET has increased its market share by specializing in the asset management industry (institutional
investors) and by attracting the largest corporations as customers, with continued delivery of customized
services as a growth driver.
Market share focus on asset management industry

Service offerings aligned with industry needs
1.

Rapidly changing industry environment
Product trends and regulatory requirements change quickly and requiresignificant investment to keep up.
XNET offers subscription-type services (detailed later).
▶ Our services eliminate large capital investments for our customers.

2.

Industry-specific situation (1) Mainstream: Insurance
Many insurance companies tend to outsource their asset management
operation to focus more on their core business.
XNET provides an integrated asset management services that serve as an
infrastructure.
▶ Our services allow customers to focus their resources on their key
services.

3.

Industry-specific situation (2) Increasing burden of system investment on
small businesses.
Many investment advisors and mutual funds are small businesses, and it isdifficult for them to afford large system investment.
▶ Our subscription business model eliminates the need for large investments(detailed later)

4.

High barriers to system deployment and outsourcing
Asset management operations require a high level of stability and reliability,
so regardless of in-house or outsource, decision making is very challenging.
We have a solid track record and the trust of the largest companies.
▶ Our track record lowers the barriers for customers to deploy or outsource.

Focusing on the asset management
sector (institutional investors)

Market share in the asset management sector(institutional investors)
Life
Insurance

Non-Life
Insurance

Investment
advisor82% *¹96% *¹

50% *²

Investment
Trust

Regional
Banks

8% *²

8% *²

*¹ The share is calculated based on total assets under management. (as of 2022)*² The share is calculated based on our simplified estimates. (as of 2022)

Copyright ⓒ 2023 XNET Corporation25

4-8. Service Format- Subscription model -XNET’s business model pioneered the subscription-based model and is an advanced service format that helps
us differentiate ourselves.

Our “Service-type” system is an application service with a fixed monthly fee and no additional costs.
Pioneer of subscription-based business model
Since its inception (1991), XNET has developed asubscription model with a fixed monthly fee.

XNET “Service-type” systems
Advantage of XNET service-type system

1. No initial investment required
2. Available at a fixed monthly fee
3. No maintenance fee required

Recurring subscription fee

4. No additional cost for functional changes andupdatesCompared to our competitors’ system＜ In-house type＞
ClientUp-to-date application• Because it is custom made, all costs and risks
are borne by the customer.
＜Package type＞• Package-type is less expensive, but additionalcosts can be high if the system needs to change
functionality.

Copyright ⓒ 2023 XNET Corporation

26

4-9. Characteristics of Services - Evolving service capabilityXNET delivers the latest and best applications through continuous improvement efforts.

We always have the latest needs and know-how, reflecting the voice of our customers and CEs (employees)

ClientResponsive to various
customer requirements

XNET’s application
Improvement

Additional
function

System change
resulting fromoperational changes

System change
due to regulatorychanges

The ownership of application
copyrights allows XNET toaccumulate a variety of know-how.
(knowledge sharing)

Reflect the latest customer needs
obtained directly from our CE in theactual workplace

！
CE

CE

XNET’s commitment to the "latest and best" allows us to deliver
applications that will never be obsolete.
Copyright ⓒ 2023 XNET Corporation27

4-9. Characteristics of Services - Customer-focused approach XNET assigns expert CEs (Client Executive) to each customer to provide attentive, knowledgeable support.

Competitors’ call center

XNET’s support structure

Telephone support
customer

Call centercustomer

multiple CEs*
respond directly• Customer makes inquiry by phone only

• CEs in charge are available• Not sure if support is available in case of
emergency• CEs are also available in case of emergencies• Cannot provide prompt professional
support• CEs provide attentive response appropriate toeach customer's unique situation• CEs provide prompt professional support(Request may be handled by outsourced resource)• Policy manual based, inflexible handling*CE (Client Executive) is a full-time employee of XNET who hasa wealth of expertise in asset management.
Multiple CEs are assigned to each customer to ensure complete
support.

Copyright ⓒ 2023 XNET Corporation28

4-10. Software Application
XNET generates significant value (cash flow) from its 4,000 latest and best applications.

Applications owned by XNET
Usually costs several million yen
in development costs per application.

〇〇Management System

We develop single-function applications
and constantly update themto the latest and best state.

Over 4,000
We can freely combine applications
to suit our clients’ business needs.

Applications△△ Management
SystemApplication

Copyright ⓒ 2023 XNET Corporation

Our applications are used continuously ona daily basis under a subscription model.
creating significant and stable value (cash flow)

System combining applications(image)29(Disclaimer)• This material contains forward-looking statements regarding futureplans, projections, strategies, policies and outlooks.
• These forward-looking statements are based on judgments made inaccordance with information available at the time this material was
prepared and on certain assumptions and are subject to change inthe future as a result of economic trends and market conditions,trends in XNET’s related industries, and other internal and external
factors.
• Therefore, XNET does not guarantee the accuracy of the information
contained in this material.
• This information is subject to change without notice.
• XNET assumes no obligation to update the information in thismaterial.

The company aims to be an excellent Company
that can continue to grow while collaborating with its clients

Copyright ⓒ 2023 XNET Corporation