I-NET CORP.
Q2 Financial Results Briefing for the Fiscal Year Ending March 2020
November 14, 2019

Event Summary[Company Name]

I-NET CORP.

[Event Type]Earnings Announcement[Event Name]

Q2 Financial Results Briefing for the Fiscal Year Ending March 2020

[Fiscal Period]

FY2019 Q2[Date]

November 14, 2019

[Number of Pages]

43[Time]

13:30 – 14:21(Total: 51 minutes, Presentation: 39 minutes, Q&A: 12 minutes)[Venue]Tokyo Shoken Kaikan, 9F Room 1,2
1-5-8 Kayabacho Nihonbashi, Chuo-ku, Tokyo, 103-0025[Venue Size][Participants]

45[Number of Speakers]

4
Mitsuru Sakai
Hiroshi Wanibuchi
Naokatsu Uchida
Mikio Ito

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Presentation
Moderator: Now we will hold I-NET CORP.’s financial results briefing for the first half of the fiscal year ending
March 31, 2020. First of all, we would like to introduce four people from the Company. First, Mr. Mitsuru
Sakai, Representative Director and Executive President.
Sakai: Sakai. Thank you very much.
Moderator: Mr. Hiroshi Wanibuchi, Representative Director and Senior Managing Executive Officer.
Wanibuchi: Wanibuchi. Thank you.
Moderator: Mr. Naokatsu Uchida, Director and Managing Executive Officer.
Uchida: Uchida, thank you.
Moderator: Mr. Mikio Ito, Executive Officer.
Ito: Thank you.
Moderator: Thank you. Mr. Sakai will give an explanation today. Finally, we will have time for questions andanswers.
Today's financial results briefing, including the question and answer section, will be posted and published.
Accordingly, I would like to ask anyone who wants anonymity not to identify oneself.
Sakai: Thank you very much for coming here today. I’m Sakai, Executive President. I would like to give you an
explanation based on the materials that you have on hand.
First of all, I would like to provide an overview of the Company, the financial results for the first half of thecurrent fiscal year ending March 31, 2020, the medium-term management plan, and the status of ourinitiatives. Finally, I would like to explain the financial results forecasts for the current fiscal year.

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First of all, I would like to explain the Company's outline to deepen your understanding. The Company wasestablished in 1971, and we are now in the 49th fiscal year. The capital amount is 3,203 million yen and thehead office located in Minato Mirai, Yokohama. The number of employees is 1,659 and 942, on a consolidated
and non-consolidated basis, respectively.

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3This is an overview of the I-NET Group. Software Control Co., LTD. was newly added in October last year.

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4This is a graph of sales during the period from the public offering on the over-the-counter market to thepresent.
Next, I would like to explain our business activities by service category. We have three service categories:
Information processing service, System development service, and System products sales. I will introduce theInformation processing service and System development service, which account for majority of sales.

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5Pages seven and eight explain the Information processing service. I will begin the explanation of theInformation processing service with the SS (service station) business at the top. At gas stations, there arevarious payment methods including cash, credit cards, and selling on credit. We offer credit card and sellingon credit services.
First, our data centers intensively process credit card payments. In addition, we calculate data of selling on
credit on behalf of gas stations, and issue and send invoices at the end of the month. Of 30,000 service stations
nationwide, around one-third, more than 10,000 gas stations, are our customers, and we have the biggest
market share in Japan.
As shown in the middle of page seven, we offer the printing of forms and enclosing and sealing services. In
addition to the printing and sending of invoices for gas stations, we are in charge of preparation of documents
closely related to everyone's daily lives, such as statements of credit card uses, tax notices, and election
notices.
Recently, there is a growing trend toward the online distribution of payroll statements, credit card usage
statements, and the likes, but demand for direct mail is still high, partly because notices in paper are more
impressive and effective. In addition, we provide BPO services, such as call centers, data inputting and theacceptance of applications for cards.

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6This page provides an outline of data centers and cloud services. We are focusing our most efforts on the data
center services and cloud services. We were among the first to focus on this business within the industry.
Please see Japan's map on the left. We have four in-house data centers in Yokohama. The photos show twocenters in Yokohama. In addition to the above, we have also partnering with data center companies in
Hokkaido, Nagano, and Osaka to provide mutual backup in preparation for disasters. The right column showspart of the cloud services that use our data centers. You can see that we are offering a variety of services.
Page nine shows our position as a data center operator. In the Cloud & Data Center Complete Guide publishedby Impress, I-NET is ranked 20th in terms of total floor space of data centers, shown in the lower right position.
While many data center operators are telecoms carriers or specialists in data center facilities, I-NET is ranked
second among independent SIers that operate the data center business. In this sense, I think we are a topclass company. You can see that we are one of the few companies that are strong in both data centers andsystem development.

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Next are the System development service. Based on the relationships of trust we have built over many years
in sectors including distribution, finance, manufacturing, construction, and healthcare, we design and build
systems for many customers in a wide range of fields. As an area with distinctive features, we were involvedin the weather satellite Himawari in 1977, and we develop artificial satellites and we are one of the operatorsof the International Space Station.

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8Next, I will explain our business model. This is a conceptual diagram of our business model. At the center ofthe screen is a cloud data center. With this as an axis, we combine various services to meet the diverse
business needs of our customers and develop a so-called stock business, a business with recurring revenue orthat based on a subscription model, which is in fashion.
By offering services to customers in a variety of industries and business categories, we help us stabilize ourmanagement. In other words, we were able to grow steadily without suffering a significant impact from rises
and falls of customers and the industry.
It is convenient for customers as we provide not only a single service but also a variety of services. From thestandpoint of the Company, sales and profits increase of course, and this also acts as a barrier to entry fromother companies. Our strength lies in providing various one-stop IT-related services to customers in a wide
range of industries and categories.
We are not a company that provides only system development or specializes in data center operations, but
we also construct and manage systems and provide a variety of cloud services. We also print invoices andvarious forms, enclose, seal and ship them. We differentiate ourselves from our competitors by engaging in
all IT-related processes from upstream to downstream and providing services with a high level of security.

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9Next, I would like to explain the Company's financial results for the first half of the fiscal year ending March
31, 2020. First, I show the income statement. This table compares our results in the first half of the current
fiscal year with those in the first half of the previous fiscal year. As you can see, net sales were 15.360 billion
yen, up 18.5% year on year, operating income was 1.257 billion yen, up 24.8%, ordinary income was 1.250
billion yen, up 24.7%, and profit attributable to owners of the parent was 827 million yen, up 23.3%. Bothsales and profits increased significantly year on year, and both marked new record highs.

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10This table shows the progress made during the first half of the current fiscal year against the full-year forecasts
announced at the beginning of the year. As shown on the right side of the table, the progress rates exceed
50% in terms of sales, operating income, ordinary income, and net income, performing very well. Later I will
explain the revisions to the earnings forecasts, which we announced the other day.

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11This table shows sales and operating income by service category. Information processing services posted net
sales of 5.396 billion yen, up 7.8%, and operating income of 549 million yen, up 14.4%. Both revenues andprofits increased due to the steady performance of high-margin data center services and cloud services,
including large-scale projects acquired in the previous fiscal year and a steady increase in the use of data
centers by existing customers.
In System development service, net sales totaled 9,264 million yen, up 24% year on year, and operating
income totaled 677 million yen, up 35.9%. In addition to robust sales to petroleum-related customers and ofsystem construction for distribution service operations, the acquisition of Software Control Co., LTD. as a
subsidiary in October of last year also contributed to the rises in sales and profits. Please see the results of
System product sales when you have time.

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12For reference, we introduce annual sales trends for the services we are focusing on. The graph above shows
the trends in sales of data center and cloud services, on which we have focused most in the last few years
among Information processing service. Over the past 10 years, the business has grown more than four times
in tandem with market growth. We plan to continue focusing on this business as a growth driver.
The graph below shows the trends in overall sales of System development service. Demand for software
investment from companies is stably high in order to strengthen their competitiveness, such as by improving
operational efficiency and addressing labor shortages, and we believe that sales have increased steadily. We
expect this trend will continue.

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The following is the balance sheet. The balance of current assets totaled 10.001 billion yen, up 4 million yen
from the end of the previous fiscal year. Noncurrent assets totaled 19.306 billion yen, an increase of 788
million yen. This was mainly due to an increase of 758 million yen in property, plant and equipment.
The balance of current liabilities amounted to 8.002 billion yen, an increase of 68 million yen from the end of
the previous fiscal year. Long-term liabilities were 6.451 billion yen, up 226 million yen from the end of theprevious fiscal year. The increase in liabilities was mainly attributable to an increase of 733 million yen ininterest-bearing debt associated with the expansion of data center facilities and a decrease of 487 million yen
in accounts payable-other associated with the acquisition of noncurrent assets.

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Next is the cash-flow statement. Net cash provided by operating activities was 1.471 billion yen. This was
mainly attributable to an increase of 2.096 billion yen in retained earnings due to income, depreciation andamortization of goodwill, an increase of 208 million yen in notes and accounts receivable-trade, and adecrease of 423 million yen in income taxes paid.
Net cash used in investing activities amounted to 2.123 billion yen. This was mainly attributable to 2.039
billion yen in payments for purchasing property, plant and equipment.
Net cash provided by financing activities was 262 million yen. This was mainly due to an increase in interestbearing debt of 733 million yen, repayments of lease obligations of 153 million yen, and cash dividends paidof 318 million yen.
As a result of the above, cash and cash equivalents at the end of the first half decreased totaled 2.909 billion
yen, down 613 million yen from the previous fiscal year.
I would like to explain our medium-term management plan that we announced for the first time in the current
fiscal year.

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15This figure shows the positioning of the medium-term management plan. The medium-term management
plan covers the three-year period from FY2019, the current year, to FY2021. The targets of our medium-term
management plan are the expansion of business scale and enhancement of corporate value. Our sales targets
are 33.2 billion yen in three years and 50 billion yen in 2024, six years ahead.
In the medium-term management plan, we formulated a business strategy plan, an investment strategy plan,an ESG action plan, and a performance plan. We will thoroughly implement the medium-term management
plan based on our management policy. I would like to explain our management strategy and importantcompany-wide measures.

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16This philosophy is the foundation of the Group's efforts to achieve further growth since I became President.
We position this as our management strategy.
Until now, our Group has been promoting a unique business model that leverages our strengths. As a result,
we have continued to grow steadily. Amid this tailwind, we believe that the key theme for the Group going
forward will be further expanding our business scale and accelerating the speed of growth.
In the 49th year since foundation, we now have more than 4,300 customers thanks to our accumulated
businesses. By creating solid bonds with the customers and reinforcing those bonds, I-NET can be further
trusted. This is an aspect of defense. In the other aspect of attack, I-NET develops other business domains forexisting customers, finds new customers, and creates new services. We would like to promote these two
aspects in keeping a good balance.
In addition, we require our employees to stick to the concept of always putting the customer first when they
make decisions on various matters and to make proposals that exceed customer expectations so that
customers highly evaluate I-NET.
We will also actively develop new products and services in response to the changing times and to the needsof the market and customers.
In order to accomplish these three objectives, it is essential for our employees to grow both fromtechnological and human perspectives. The Company will conduct investments in human resources, including
the recruitment of superior human resources, the development of human resources, and career development.

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Now, I will explain the company-wide priority measures that are being implemented specifically. The first is
our partner strategy and channel strategy. As the business environment continues to change drastically, it is
becoming increasingly difficult for us to do all businesses on our own. For this reason, we are strengthening
relationships and collaborations in system development with partners who have reliable strengths.
We are also increasing collaborations with cloud service partners, such as services like NEOJAPAN Inc. ofgroupware and business chat, which are operated on our data centers and cloud platforms and at the sametime sold by our sales staff.
Not only we sell these services and products by ourselves, but we also increase the number of sales partners
and OEM partners. We would like to expand our sales channels by forming sales partnerships with
manufacturers such as TOSHIBA CORPORATION and Hitachi, Ltd., which have rich customer bases, as well as
Fuji Xerox Co., Ltd. and Ricoh Company, Ltd., which have abundant sales capabilities.

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Now I move to the second priority measure. We have been providing an advanced cloud environment as an
IT platform. Using the strength as a platform provider, we provide cloud services by placing applications ofother companies, which are strong in their respective specialized fields, on our cloud platform.
In other words, we are transforming the on-premises model of packaged product business to a cloud-based
service model.
For example, AKTIO CORPORATION of systems for construction and design and PaperlessStudio co., ltd. of
BIM/CIM, Building Information Modeling and Construction Information Modeling, are systems on very highlevels. Providing them as our service makes them available to a wide range of customers. We also provide
UNIRITA Inc. of automated driving package in a service environment that can be used with minimal investment.
We will continue to work with alliance partners that specialize in a variety of fields to steadily increase thenumber of services we provide.

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The third point is, as part of our continuous efforts as one of our strengths, to respond to our customers with
one-stop solutions by combining various services.
When a customer considers systematization, we will cooperate from the planning stage, develop a system,
help the customer to operate it or our data center will operate it, separate operations that are suitable forcloud-based operations, and finish with enveloping and sealing operations if there is printing work. If
requested, data can be processed without going out of the data center. This is very important in terms of theprotection of security.
In this way, we will conduct a wide range of business activities regardless of the type or category of businessof our customers. As a result, we intend to further invigorate cross-selling between departments within the
Company. Cross-selling means that our 130 sales employees constantly think about our customers andprovide them with the best possible services.

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Finally, I would like to explain our performance plan. Here, we show the three-year medium-term
performance plan in a graph over time. The bars show sales figures by service category in different colors. Theline chart shows operating income. Overall sales, operating income, and ROE are shown below the screen.
The market is supported by a tailwind, and we plan to steadily increase sales of Information processing
services and System development services. Going forward, in line with our strategy of expanding into abusiness with recurring revenue based on data centers, which are our business model, we will continue toexpand our recurring revenue businesses, focusing on data centers and cloud services in order to ensurestable management.
ROE has been steady, reaching 10.9% in the previous fiscal year. Looking ahead, we will continue to focus
more on improving profitability with ROE as an important management indicator and will return profits toshareholders. That was an explanation of our medium-term management plan.

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Please see the next page. I would like to explain our business strategy plan in the medium-term managementplan.
We will conduct demonstration tests of bridge inspection using drones in cooperation with Kimitsu City, which
has an airfield for drone demonstration tests, and D Academy, a partner company. In the press conference
for the demonstration tests, the mayor of Kimitsu, the only female mayor in Chiba Prefecture, stands in the
middle.
Chiba are likely to rust unexpectedly as the prefecture faces the ocean and the sea wind is strong, so carefulinspection is needed. The bridge inspection used to be conducted by riding a special inspection vehicle, goingto the side of the bridge or going below the bridge, closing the roads, and the inspection was made by sight.
Inspecting bridges using drones is expected to reduce inspection costs and ease traffic regulations, so we areadvancing the demonstration experiments.
In addition to providing technical advice on drones and storing videos and data on drones, we consider ways
to utilize practical data and will verify its effectiveness in the future.
We have also signed a disaster prevention agreement with Kimitsu City, and the recent typhoon caused greatdamage there. We took pictures and videos of typhoon-hit areas by drones from the day after next, but mostareas were covered with blue sheets. In fact, there was a power outage, so it was not easy to fly drones
immediately. But by taking pictures in normal times, we will be able to compare them with those taken indisasters.

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Therefore, we take pictures and videos in normal times, rather than taking them after there is a problem. By
doing this, we are also able to use those materials for promoting tourism.

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Though Kimitsu is also a user of imaging materials for tourism, these are Yokohama City’s promotion images
for tourism.
This is an example of our drone business. We took video clips and pictures of attractive facilities in Yokohama,
together with TripodWorks CO., LTD, a business partner company, to promote the transmission of tourism
information. These are used by foreigners who visited Japan for the Rugby World Cup, whose final match washeld in Yokohama, and are highly expected to be used in next year's Olympic and Paralympic Games.
We believe that drone-based initiatives will continue to grow in the future. We have an IoT platform for drones
based on cloud data centers to process a large volume of data. Based on the technologies and achievements
we have gained through these initiatives, we would like to receive orders for video solutions from local
governments, companies, and various organizations.
We plan to store and accumulate 4K videos and flight data at our data centers and use them for analysis andother uses by way of very fast computers with GPUs that can process data with virtual desktops and otherdevices.

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24Following drones, we signed a joint research and development agreement with Professor Hashida of the
University of Tokyo on demonstration tests using safe and convenient PLR technology for the management of
personal information and AI/data analysis. PLR, or Personal Life Repository, is data of personal life only
managed by the individual in question and stored in an exclusive territory. If necessary, with the consent of
the individual, the data can be shared with others and used collectively.
Compared with conventional data management systems, which are subject to third-party management, the
PLR system can be established and managed far safer and cheaper. For example, it can be used in a variety ofways that are of great social significance: medical checkup and medical examination data can be managed on
one's own, and if necessary, the data can be provided to a hospital for a second opinion, or data from breast
cancer examination can be provided to a research institution for the purpose of analyzing the causes of cancer..
For those who have undergone surgery for breast cancer, we would like to use AI to provide a way for
analyzing the relationship between subsequent daily behavior and the recurrence of breast cancer or finding
what kind of behavior is better or what kind of food is better for them while they keep their personal
information secret. That's what we plan to use the PLR system for society.
In areas other than healthcare, some demonstration tests have begun for high-school students, who areallowed to manage their performance data and freely use the data for entering universities or businesscolleges or getting employed at companies.

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In the area of joint R&D, we will leverage the system development technologies we have cultivated over many
years to develop highly convenient applications that make use of PLR as well as body care analysis that utilizes
data obtained from PLR. We will use our data center and cloud services to do this.

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Next, we will introduce new initiatives in the space business. As I mentioned earlier, we have been involvedin a variety of satellite design, inspection, and operation businesses, starting with the weather satellite
Himawari in 1977 and leading to the asteroid exploration aircraft Hayabusa, which returned to the earth in2010.
Until now, most of Japan's satellites have been developed under the leadership of the government, such as
JAXA. Recently, however, with the impact of foreign countries such as the US and governmental support forthe space business, there has been a string of private-sector startup companies in Japan that have expanded
into the space industry.
We are one of few system development players involved in the space development business for over 40 years,
and at the same time, as a data center operator, we have many opportunities to collaborate with privatesector startup companies.
In the first half of the current fiscal year, we started collaborating with two startup companies, and in addition,
we invested in Japan's first space venture specialization fund. Our efforts in the space business were largely
posted in the Nikkei Shimbun on October 24.

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I would like to introduce the two startup companies that have started collaboration with us. One is SPACEWALKER INC, which will move forward with the space plane business with the aim of implementing Japan’s
first-ever manned space flight. Unlike space shuttles, a space plane flies in space alone like an airplane andreturn to the earth. The type of aircraft is shown on this page.
We will provide support for SPACE WALKER INC so that it can develop the spaceplane that enable anyone to
fly to the universe with ease, not only in terms of technical and operational aspects, but also from theperspective of security management systems, as a data center operator.

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The other is collaboration with Amanogi, a startup from the Tokyo Institute of Technology involved in satellite
component business and AI satellite data business. Amanogi develops and works to provide an apparatus
called Star Tracker, which is one of the common components for satellites. The Amanogi Star Tracker is shownon the right side of the screen.
The Star Tracker is used to judge where the earth is and where a satellite is directed by locating the positionsof stars in space.
By realizing a very short development period at a price of less than half those of conventional star trackers
made by foreign companies, Amanogi is expected to become an important vendor of components forsatellites not only in Japan but also overseas because it is believed that there will be a large number of small
satellite launches in Japan in the future.
In addition, Amanogi also aims to use edge computing technologies to screen data to be sent from satellites.
As a huge amount of data is sent from space, satellites screen the data and transmit only necessary data by
way of edge computing. This will make desired data from space available quickly and at low lost.
In addition to jointly developing satellite components and satellites, I-NET will jointly develop services such asa satellite sensor service and an AI analysis of satellite data using our data centers.

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As I have told, drones, AI, and space development seem to have no relations to each other. However, as shownin this illustration, there is an enormous amount of data put out from these new services. By collecting thesedata at our data centers, we can accumulate, analyze, and provide them as big data. This business is precisely
what our group has been promoting for many years. We link the various services to our customers' businesses,
integrate them into our data centers, and operate them safely. This is exactly our business model.
Going forward, we will continue to develop data centers and cloud services by actively taking in fields withfurther growth potential, such as the IoT, AI, and FinTech, and intend to steadily build up earnings.

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Next, I will explain our initiatives for the investment strategy plan. We believe that investing in humanresources is the most important investment in achieving our medium-to long-term goals of expanding thescale of our businesses and increasing corporate value, and we have strengthened this investment even morethan in the past.
On a non-consolidated basis, we had 48 new employees in the current fiscal year and expect 70 new
employees in April next year. We intend to continue to actively recruit new employees, who will play a keyrole in our growth.
As for mid-career recruitment, we will actively recruit highly skilled IT personnel who possess technologies in
new fields, such as AI and big data, as well as those who are ready to work in the field of space development,
which is one of our key businesses.
We focus on human resource development for our employees. We have training courses like six-monthtraining for new employees. In addition to training for younger employees, we have training courses for
department managers and section managers and have started a new program to foster potential executives,
who study management and consider measures for the growth of the company.

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I would like to introduce another initiative. On November 1, we opened a representative office in Singapore
as the first overseas base. As part of our overseas business strategy, we will aim at providing services using
cutting-edge technologies, such as the IoT, AI, and data analysis, based on the areas of our expertise, namely
data centers and cloud services, outsourced computation for gas stations that we have cultivated over many
years, and system development. In Singapore, the center of Southeast Asia, where the IT-related market is
rapidly growing, we will consider how to do overseas businesses. We plan to upgrade the representative office
to a business base within one year.

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Finally, I would like to explain our ESG initiatives. During the current fiscal year, we have worked to strengthen
corporate governance. Against the backdrop of various social issues and the evolution of IT, the pace ofchanges surrounding corporations is accelerating extremely. In order to respond swiftly to these conditions,
we have strengthened our governance with the aim of building an aggressive management structure.
Specifically, we have introduced the entrustedexecutive officer system. We have streamlined the number of
Directors to accelerate decision-making, strengthen supervisory functions, and clarify the responsibilities ofexecutives. We also introduced a remunerationsystem of restricted stock, with the aim of achieving sustained
growth in our corporate value and promoting the sharing of value with our shareholders.

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Since our founding, we have emphasized gratitude, continuity, and health as part of our guiding principles. In
order to realize our management policy of becoming an excellent company that realizes sustainable growth,
we believe that the mental and physical health of our employees is the source of our sustainable improvement
in corporate value. We will promote health management with the aim of becoming a company where all
employees are healthy.
We have also clarified our new promotion system with the aim of promoting healthcare management morethan ever before. As President, I myself serve as CHO, or Chief Health Officer. The Human Resources
Department, the Health Support Office, and industrial physicians all work together to discuss and implementa variety of measures related to health promotion.

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Next, I would like to explain our full-year earnings forecasts. With corporate IT investment demand on an
uptrend, the Group's key theme is to expand business scale and accelerate the pace of growth. Accordingly,
we are aggressively pursuing top-line improvements.
As a result, orders for Information processing service and System development service have been steady, andwe forecast that we will exceed the full-year earnings forecasts we disclosed at the beginning of the fiscal
year, which had expected record highs in both net sales and profits. As a result, we have revised up ourearnings forecasts. Please refer to the slide in front of you and material on hand for each value. Taking thisopportunity as a good chance, we intend to aggressively promote our businesses so that we can exceed ourrevised earnings forecasts even further.

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Page 41 compares the revised forecasts with the results in the previous fiscal year. As you can see, we exceed
the previous year’s results in all stages. Both sales and profits will post new all-time highs.

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Page 42 shows the revised earnings forecasts by service category.

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Page 43 shows our dividend policy. The dividend plan has not changed from the initial plan disclosed at the
beginning of the current fiscal year. Our policy is to continue focusing on shareholder returns. At the Board of
Directors meeting held in late October, the Company decided to pay an interim dividend of 21.50 yen per
share. We also plan to pay 21.50 yen as a term-end dividend for total annual payment of 43 yen per share.
This will be a dividend increase for the eighth consecutive year.
Finally, the entire Group will work together to achieve the figures we explained today, and we will make every
effort to earn even stronger trust from all stakeholders. We look forward to your continued support. Thankyou.
Moderator: Thank you.

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Question & Answer

Moderator: We would like to receive your questions.
Participant: Thank you for your detailed explanation. I have three questions. The first is about the results forthe first half of the current fiscal year. On page 13 of the slide, sales and operating income are delightfullyrobust. However, gross profit margin was slightly worse by about 0.6 points. I would like to ask you to explain
the reasons behind this.
In addition, please show the factors or prerequisites for the improvement of full-year gross profit to 23.8 yen.
Second, in your industry, SCSK Corporation recently announced a plan to acquire Minori Solutions Co., Ltd. I
would like to ask your Company’s, or President Sakai’s view on M&A or the reorganization of the industry.
Third, the consumption tax rate rose to 10% in October. Is there any change or no change in your order
receiving environment from late September to October?
Wanibuchi: I, Wanibuchi, would like to answer your questions. First, you mentioned that gross profit margin
is slightly lower in the first half of the fiscal year, but it in the second half. As Sakai explained earlier, we havethe three major business segments of System development service, Information processing service, and Salesof system products. Particularly, in our SS business, we sell value-added POS equipment. In the face of various
changes in the business environment, sales of the equipment used to show low profitability. However, theprofitability turned better in the current fiscal year, partly supported by the government and the industry andpartly as we were in a replacement period for POS devices. Its weight was somewhat heavier in our sales thisyear.
However, this is a one-time event, and if the replacement is over, there will be no specific change and theconventional situation will be back in the second half. In terms of gross profit margin, we will recover to theconventional level as we will return to our structure focusing on the System development and Information
processing service.
As for the third question on the consumption tax, we received a variety of orders for both system development
and information processing within the industry in October, and so far, we have been working without any
problems. There is no major problem. Both information processing and system are smoothly underway.
Sakai: Let me add something. I believe that one of your questions is about demand before the consumption
tax hike surpassing its peak and situation thereafter. However, we have suffered from a labor shortage since
October, so I don't think there will be a decline in our performance. As for the market, I believe that the
shortage of people will continue in the second half and the next fiscal year.
Therefore, I do not believe there will be a fall in the second half. There was also a question about M&A. We
are in the 49th fiscal year and will have the 50th anniversary next year, and there are many such companies
in the industry.
Companies that are not so large tend to hope for becoming bigger through the integration of some of themor such companies tend to increase their volumes not to depend on the scope of businesses or trends ofoperations. I believe that if we enter a business alliance and generate synergies, we may be able to form acapital alliance. I feel that this is exactly what our space business is all about. In order to accomplish themedium-term plan, I mentioned earlier, only organic growth would be difficult to achieve the sales growthfrom 33 billion yen to 50 billion yen. In this sense, I would like to challenge a variety of possibilities.
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39Moderator: Thank you. How about other questions?
Wakita: My name is Wakita from Shinwa Consulting. I am engaged in investment advisory business in the
Kansai region. As a standard for investing in a software development company, I would like to see a profit of
10%. I thought 10% would be difficult for your Company as you have to invest in data centers and others.
However, ROE of 11% is extremely high while you conduct capital expenditures. I would like to ask the
President about this point.
Sakai: We have worked hard on ROE and will continue to do our best. As you said, our target is 10% for thetime being. As there are multiple segments, some may be good and some may be bad sometimes, but wewould like to implement management that aims for a total result of 10%. It may still take some time.
Wakita: It has been said that data centers require various investments related to 5G. What do you think about
your future facilities for 5G?
Sakai: I think that data centers are not related to 5G directly, what is important is how to take in outside
networks. As the volume of data is very large in 5G, customers that handle the data will lead to big business
opportunities for us. We are currently working on various challenges and conducting surveys in order tocreate a framework for a platform that connects the mechanism from our front line with 5G as a cloud-based
service.
Wakita: I see. I thought that data centers need to upgrade their facilities in order to cope with 5G. What doyou feel about this?
Sakai: We need new facilities at the entrance of a network, but we have not made any specific progress sofar.
Wakita: This is a topic about the future, right?
Sakai: Yes, this is about the future.
Wakita: I see. I also have a question about drones. I think it is difficult to monetize or generate sales by using
drones. What do you think about the situation of your Company and what do you plan to do in the future?
Sakai: As you mentioned, we do not aim for earnings from the drone business itself, and we position drones
as one of IoT sensors. There is a huge volume of imaging data from 4K cameras attached to drones and 5K
cameras are becoming increasingly popular in the future. There is also an enormous volume of data on spacefrom satellites. AI-related data are also enormous.
I intend to expand the data center business by incorporating the enormous data into our system, so I thinkthat that drones are points for data entry. However, the business is still far from being commercialized. We
established a drone airfield called Dream Drone Flying Field in Kimitsu.
If there are visitors from companies and they use drones there and we can create a mechanism of how to usethem for some purposes, we will operate a business of storing the data on the back side, analyze and returnthe data to the companies. I believe this will be our main battlefield.
Many drones costs less than 100,000 yen a unit and you can buy a cheap one with 10,000 yen. Sales from a
promotion video clip is only around 1 million yen, so profit of 10% is only 100,000 yen. Rather than suchbusiness, we intend to focus on the backside data center business.

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Wakita: There will be various natural disasters like typhoons, and there will be much value to use drones fordisaster prevention. I think there will be a rise in work related to governments. Are you directly related tosuch moves?
Sakai: I think you are right. Yes.
Wakita: I see.
Sakai: We intend to expand that area as well.
Wakita: Thank you.
Sakai: Thank you.
Moderator: Would you like to ask other questions? So, we are ending I-NET Corp’s business results briefing.
Thank you very much for the explanation.
Sakai: Thank you.
[END]______________
Document Notes
1.
2.

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