NoticeThis document is an excerpt translation of the original Japanese document andis only for reference purposes. In the event of any discrepancy between thistranslated document and the original Japanese document, the latter shallprevail.

Presentation Material for
FY04/2023 Q1 Financial Results

September ９,2022
HEROZ, Inc.（4382）

Contents
１．Financial Highlights
２．HEROZ Group Strategy
３．VarioSecure, Inc. becomes a consolidated subsidiary
４．StrategIT, Inc. becomes a consolidated subsidiary
５．First Quarter Financial Report for the Fiscal Year Ending April 30, 2023
６．Revision of the Forecast for the Fiscal Year Ending April 30, 2023

2

Financial Highlights

3

Financial Highlights
FY04/2023
First Quarter
Performance Summary

Building a basefor the development of
AI SaaS business➢ Net sales: 375 million yen (+5.8%), EBITDA: 41 million yen (-12.5%), Operating
income: 14 million yen (+56.4%) * ( ) is the comparison with the same period of the previous year
➢ In AI (B to C) services, Shogi Wars has 6.7 million users and over 700 million total
games played, contributing to stable growth➢ With the established of the sales organization, the AI (B to B) business is currently
exceeding the YoY level➢ To expand a more stable revenue base, we have begun full-scale development of SaaStype business, taking advantage of advanced AI development and implementation knowhow➢ Developing new services with our AI at VarioSecure (our affiliate company) and growing
our business through AI x SaaS.

➢ On August 31, 2022, the Company acquired 86.5% of StrategIT, Inc.

VarioSecure andStrategIT become
consolidated
subsidiaries.

➢ Capital and business alliance agreement signed with VarioSecure K.K. today; we will
underwrite a private placement of new shares by VarioSecure K.K. on September 27,
2022 (planned), making it a consolidated subsidiary of our company➢ The company plans to disclose consolidated financial results in the fiscal year. Revised
full-year forecast: consolidated net sales of 3.1 billion yen for the current fiscal year.
➢ Profits will be disclosed after an examination of the figures.

4

HEROZ Group Strategy

5

2022

Company Overview

Moved to the Tokyo Stock Exchange Prime Market

2021
Capital and business alliance with VarioSecure Inc.

Name

HEROZ, Inc.

Location

PMO Tamachi 2F, 5-31-17 Shiba, Minato-ku,
Tokyo

Established

April 2009

Representatives
Business

2019

Takahiro Hayashi/Tomohiro Takahashi

Listed on the First Section of Tokyo Stock Exchange (TSE)2018
Listed on Tokyo Stock Exchange (TSE) Mothers
Capital and business alliance with Netmarble Games Corporation

2017
Capital and business alliances with Takenaka Corporation and Koei Tecmo
Games

AI (B-to-B) services: AI Development

Data Analytics
Description AI (B-to-C) services: “Shogi Wars”, etc.
Membership Japan Deep Learning Association,

2016

JVA2016 Small and Medium Enterprise Award
Capital and business alliance with Bandai Namco Entertainment

2013

The Japanese Society for Artificial Intelligence

Shogi AI, developed by engineers who was member of HEROZ at that time
formerly with HEROZ, defeated a shogi professional

2012

Launched mobile app, “Shogi Wars”

Representative Director and Co-CEO

Takahiro Hayashi

Graduated from Waseda University
Joined NEC as a technology engineer
Experience at IT strategy division, business planning
divisionFounded HEROZ

Shogi Track Record
Amateur 6th dan (highest rank after becoming
national amateur champion)
7th dan, Shogi Wars
Amateur Kisen Champion (7-time title defender as national champion)
Played against Yoshiharu Habu (permanent 7 title holder)

Director and CTO

Representative Director and Co-CEO

Tomohiro Takahashi
Graduated from Waseda University
Joined NEC as a technology engineer
Experience at Business Planning Division, BIGLOBEFounded HEROZ

Keiichi Iguchi
Operating officer and CFO

Hiroya Mori
Operating officer and CSO

Kyota Seki

Graduated from Tokyo Institute of Technology
Joined NEC Central Research Labs

Graduated from Aoyama Gakuin University.Passed the CPA Examination
After joining an auditing firm and a consulting firm, served as General
Manager of the Finance Division of PERSOL HOLDINGS CORPORATION
Graduated with a Master's degree from the University of Tokyo
Joined Panasonic Corporation and Deloitte Tohmatsu Consulting G.K.
Involved in projects such as new business strategy development

6Our Vision

Creating the future throughartificial intelligence (AI)revolutions

7

HEROZ Group Strategy ➡

To HEROZ 2.0

Based on the knowledge gained from our experience in solving individual customer issues,
we will aim for SaaS-type business management driven by intelligence such as our data utilization and
AI in the future.（HEROZ 2.0）

HEROZ 1.0

HEROZ 2.0

×●● prediction AI

clientdata

HEROZ AIHEROZ Group
Individual issue resolution

More versatile issue resolution

We will expand AI to a wider range of society by realizing intelligent SaaS,
utilizing the core technology of algorithm and AI development cultivated through Shogi
AI, and the advanced know-how accumulated through solving individual problems.
8Overall Group Strategy：AI SaaS
We will evolve the products of our company and group companies into more intelligent data-driven
software by making the most of our accumulated expertise in advanced AI implementation and ourstrength as an engineering group.
Pillars ofBusiness

AI SaaS Products

Customized AI

Mind Sports

VarioSecure Security Services

StrategIT
iPaaS

データ

Advanced AI implementation
know-howUsing Deep LerningWorld’s Stongest Shogi AI

Engineers committed to"winning", cultivated by Shogi AI.

apply customer Big Data to business

Data analysis technology to

Preparation for the implementation of vision

HEROZ Group

Embodying the vision throughout the group9

Aspect of the SaaS market and our views of the major trends
While the SaaS market in Japan is expected to grow steadily, there is still room for further penetration.

To reach the approximately 10 trillion yen potential market, it is necessary to grasp thetrends in the Japanese SaaS market.
Enterprise Software
Market in Japan （SI)

SaaS Market in Japan

What we view as future trends
in the SaaS market

Diversification of needs
Diversifying market needs will accelerate SaaS
adoption,and increase demand for operational expertise

10 trillion yen
potential market
CAGR11%10.8

1.7
trillion yen

trillion yen

Integration with legacy systems
For the foreseeable future, the integration of onpremise and cloud systems is inevitable,
and the transition to zero-trust security will be donein phases.

1.1
trillion yen

Need for integrated management
Multiple SaaS deployments increase the burden ofsystem management and operations

2022

2026

(Source: IDC Japan Domestic Enterprise IT Market Forecast, Fuji Chimera Research Institute, Software Business New Market 2022 Edition)

10

Our perception of the challenges of implementing SaaS
By resolving trends that could be barriers to SaaS adoption through technology, we aim
to materialize a latent market.
Diversification of needs
Issue hypothesis
behind the trend• Rapid changes in the businessenvironment have led todiversification of issues andcircumstances faced by customers• Many high-level IT professionals are
unevenly distributed among SIersand cannot promote implementationand operation customized to thespecific needs of each company.

Integration with legacy
systems

Need for integrated
management• Traditional perimeter defenses arereaching their limits as remote workand cloud adoption accelerate• Handling multiple SaaS is becoming
the norm, and management costs
are becoming bloated• Especially, small and medium-sizedenterprises (SMEs), where "oneperson information systems" is an
issue, are unable to respond torecent security trends such as Zero
Trust.

• Therefore, there is a need for a
migration service to ensure
consistency and centralized
management of information
managed within each SaaS.

Security
Advanced AI implementation
know-how

iPaaS

Products of our group companies

Machine resources to increase the value of the product11

What we think AI SaaS should be like
We will support the provision of the ideal SaaS usage environment required by our clients by making
full use of our accumulated know-how and technology

clientCRM

HR

Automated and optimized
SaaS-to-SaaS collaboration

SaaS Big Data
accumulated through business activities

mail

Automated operations
and maintenance

HEROZ Group

Chat

MA

Advanced Security

Learning with AI
12

VarioSecure,Inc.
becomes a consolidated subsidiary
Please refer to VarioSecure's Q1 FY02/2023 financial results presentation for more information on thecompany. Please click on the link below.
https://www.variosecure.net/ir/library3/13

Overview of VarioSecure Inc.
Name

VarioSecure Inc.

Established

June 2001

capital330.25 million yen

Employees

76

Head Office
Location

Sumitomo Corporation Nishiki-cho Building 5F,
1-6 Kanda Nishiki-cho, Chiyoda-ku, Tokyo

Osaka Office Location

1-2-19 Kitahorie, Nishi-ku, Osaka-shi, Osaka

Osaka Office
Fukuoka Office

Fukuoka Office Location

1-12-17, Hakataekihigashi,
Hakata-ku, Fukuoka-shi, Fukuoka

Business

Managed Security Services
Integration Services

President and Representative Director
Director of Sales Div.
Director Technology Div.
Director of Administration Div.
Outside Director
Outside Director
Outside Auditor (Full-time)
Outside Corporate Auditor
Outside Corporate Auditor

Yoshihiko Inami
Yasufumi Kajiura
Satoshi Yamamori
Hideko Isoe
Masataka Shiba
Keiichi Iguchi
Kenji Sakai
Hideo Fukai
Hidetaka Nishina

Webhttps://www.variosecure.net/

Certification

ITSMS（ISO20000）、ISMS（ISO27001）、privacy markTokyo
Head Office(As of May 31, 2022 ）14

VarioSecure,Inc.
becomes a consolidated subsidiary
Today, we signed a capital and business alliance agreement with VarioSecure, IncWe will underwrite a third-party allotment of new shares to be conducted by
VarioSecure in the later half of September to make it a consolidated subsidiary
Last year's capital andbusiness allianceThis capital and business alliance
Becoming a consolidated subsidiaryby subscribing to a capital increase

・Underwrite a third-party allocation of new shares of・1,224,000 shares on September
10, 2021(32.31%)stock holdings
・ VarioSecure's products areequipped with our AI "Kishin
Monitor"

42.88％¥836 million to be conducted by VarioSecure(scheduled for September 27)
Appointment ofmajority board
members

・After the completion of the capital increase in late
September, the Company holds 42.88% of
VarioSecure's shares・6 out of 11 directors to be appointed by us

Contribution to consolidated PL will start in
3Q

・Became a consolidated subsidiary of the Company
from the second quarter of the fiscal year ending April
30, 2023.
(Only the balance sheet will be consolidated in thesecond quarter; contribution to the consolidated
income statement is scheduled to begin in the third
quarter.)15

Toward the Realization of an AI Security Company
Provide customers with new safety and security in the age of zero-trust through the power of AI by utilizing a variety ofcorporate data.
Supporting digital transformation by supporting corporate safety and security from the ground up
Automation of one-stop
service for customers

device data
Various hardware
usage data stored
in the company's
network✓ AI replaces complicated security
settings and operations✓ Anyone can easily implement
advanced security

transmission data
User behavior
data collected via
the network

Aggregation ofa wide variety of data

Insight Extraction

Advanced andsemi-automatedoperations

systemdevelopment

data scienceAIdevelopment

SaaS usage data
Usage data for
multiple SaaS
accounts

personalized data
Data varies by
individual andindividualcompany

Basic AI Technology

Turning Non-IT
Professionals into IT
Professionals✓ Setting up and maintaining asecurity environment on thesame level as largeorganizations

Reproduction of theprofessional skills of amaster craftsman✓ Identifying and handlingirregularities that only an
experienced veteran would
notice.

16

AI Security Company's Growth Strategy
We will promote the following items jointly with VarioSecure
to realize AI Security Company.
・ Mutual provision of management resources, including our AI

Realization of
AI Security Company

technology and VarioSecure's industrial domain knowledge anddata
・ Achieving an AI Security Company through Collaboration in
New Fields

Service expansion
into the zero-trust area

・ Promote the use of AI in our managed security services and the
expansion of our services into the zero-trust area

Business system innovation
through the utilization of AI.

・Promote the use of AI in the backyard (core systems)
・ Utilize AI technology for labor saving, efficiency improvement,
and sales promotion based on such utilization17

Investment breakdown of the capital increaseof VarioSecure, Inc.
In order to realize the strategy, we will promote investment in the following items withthe amount of VarioSecure's capital increase subscription by us

Specific Uses

AmountExpected time of
expenditure①

New service planning, development system,and sales department reinforcement258.38(millions of yen)

From March 2023
To February 2026②

Development of new services

100(millions of yen)

From March 2023
To February 2026③

Strengthen SoC (operation) services④

Funds for investment in companies that haveour peripheral technologies and services
Total

55
(millions of yen)400
(millions of yen)813.38(millions of yen)

From March 2023
To February 2026
From March 2024
To February 2026－

18

(Reference) Business Overview- Services provided by VarioSecure
Security Framework• AssetManagement• Vulnerability
Management• Access Control• Intrusion
Prevention

Services of
VarioSecure

Building
Systems

Network Integration Services

indentification

Vario Network Security Suite

Protection

VSR-VarioSecure Router(Integrated Internet Security Services)

VCR-Vario Communicate Router• Detect andmonitor security
events

Detection(Sales of integrated security equipment for SMEs)

Vario-EDR Services
SupportVSR-VarioSecure Router(Integrated Internet Security Services)

Recovery

VDaP-Vario Data Protect(Data Backup Service)
19

(Reference) Providing services
that make Internet use safe and comfortable
Service Category

Managed Security Services

Integration Services

Service Form

Installation support, operation and maintenance
24 hours/365 days, nationwide in Japan

Equipment sales and construction

Revenue Model

Recurring type (monthly charge)

one-time fee-type① Integrated Internet Security Services(Managed type)Protecting Internet Entrances
Dedicated equipment for managed security services

VSR—VarioSecure Router

Data retention in case of emergency② Data Backup Services
Service
Content

Dedicated equipment for data backup services

VDaP—Vario Data Protect① Sales of intefrated security equipment for SMEs
(Sales type)For organizations with less than
50 members
Integrated security equipment for SMEs

VCR—VarioCommunicate Router② Network Integration Services• Procurement and construction of network
equipment
Construction of company network(wireless LAN network)

Rogue Terminal Detection,
Vulnerability Management③ Vario-NSS(Network Security Suite)

Assists in detecting and responding to cyberattacks④ Vario-EDR Services
20

(Reference) VarioSecure's business model◼ Provided mainly as an adjunct to the Internet connection

Collective offer
Proposal and Sales

agency agreement(OEM/Distributor)
Sales Support

Internetconnection＋
Security
Services

Sales
Agent

Security
Services

Usage fees￥￥

Monthly fee

Monthly fee

Cutomers(Japanese
Companies)

supports
21

StrategIT Inc.
becomes a consolidated subsidiary22

Overview of StrategIT Inc.

Name

StrategIT Inc.

Establish

July,2019

Capital24 million yen

Employees

35(Includes outsourcing)

Location

11-14, Higashi-Kanda 1-chome, Chiyoda-ku, Tokyo
Tosin Higashi-Kanda Bldg. 5F

Our vision is to contribute to management improvement byintegrating "Strategy" and "IT“
And our mission is to bring the power of SaaS to all companies
We aim to be a company that promotes the utilization andvalue enhancement of SaaSNet sales (Millions of yen)
500

Buisiness

SaaS Solution Implementation Support
SaaS API Linkage Development Service
Operation of app store (SaaStainer)

400

President andFumie Kato

300

Representative
Director
Director and CTO
Director
Director
Director

Yuhei Kawamoto
Masaki Moriwaki（Part-time officer）
Takahiro Hayashi（Part-time officer)
Hiroya Mori（Part-time officer）

200

Web

https://www.StrategIT.jp/

1000FY06/2020
20/6期

FY06/2021
21/6期

FY06/2022
22/6期
23

StrategIT Inc.
becomes a consolidated subsidiary
On August 31, 2022, we acquired the shares of StrategIT from the two founders and the fund
Shareholding ratio after the acquisition was 86.5%, making the company a consolidated subsidiary
Dispatch of two part-time directors from the Company

2 founders

Shareholdings

Transfer ofsharesFund

86.5％
Dispatch of directors(part-time)

Shareholding President andRepresentative Director

President Kato

Shareholding
Dispatch of directors(part-time)

Business Company
24StrategIT’s Business Overview
Develop various APIs (linked systems) for SaaS vendors to improve the convenience of
SaaS, utilizing know-how gained through SaaS introduction consulting for BtoB.
Business model to sell developed APIs to general companies through our SaaStainer (appstore)
１）Existing Services● SaaS Implementation
SaaS Solution Implementation Support

・Main and high-growth/high-profitability business
・Focus on mid-size projects (from 30 million yen)・Incorporation of Microsoft Dynamics(NetSuite, freee, Microsoft Dynamics, etc.)●

Collaborative Development
API integration development
System integration, development of linked
applications

Official Apps

Apps for major SaaS solution functions●

SaaStainer
App store（SaaStainer）
Providing a platform for SaaS solution information

・Developed an API system for SaaS vendors to link SaaS
vendors by utilizing our know-how of SaaS
implementation
・ Have contacts with top SaaS listed companies ARR・Recurring Sales Model
・Number of registered SaaStainer accounts: 1,091
companies
・Number of listed apps: 60, Number of paid apps: 18
・Pillars of future growth２）New Products Development
MasterHub API Platform（MAPIP）
Collaborative Platform Application

・In-house development of API integration platform
application

・Provide customers with an environment that allows
them to develop their own API integration

25

Strengths and Features with StrategIT
Holds patent for "Master Hub," a development platform that brings together all theknow-how required for SaaS collaborative development
Operate "SaaStainer," an app store that provides SaaS-linked applications (recurring
monthly fee model)
・Patented ”Master Hub”
・Master Hub is a development platform that consolidates theknow-how required for collaboration
・Development by Master Hub can achieve high quality system
integration at less than half the cost of general contracted
development and ensure stable operations.

・App store for services that support the continued use of SaaS・Linked apps listed in the app store can be easily linked now,
without the need for API linking know-how
Official Website：https://saastainer.com/apps
Official Twitter：https://twitter.com/SaaStainer

26

FY04/2023

Q１ Performance27

Our Key Performance Indicator◼ We believe that EBITDA, as calculated below, is our key performance indicatorperformance indicator

EBITDA = Operating Profit +Depreciation/Amortization
Expenses◼ Growing AI-related business requires investment in servers for advanced machine learning, etc.,
and incurs various depreciation expenses.
◼ In addition, amortization of goodwill due to M&A implementation is expected to occur in the future.

◼ We aim to sustainably increase corporate and equity value through EBITDA growth without being
affected by various one-time amortization burdens.
◼ Depreciation of investments in servers for machine learning is mainly based on the decliningbalance method with a useful life of 5 years.
◼ The number of years for amortization of goodwill is determined for each investment individually inconsultation with the audit firm.
28

Peformance Overview (May 2022-July 2022)◼ Our sales peaked in FY04/2020 and continued to decline until the previous fiscal year, but we have once again made acommitment as management to shift to a growth path and realized a 5.8% increase in sales in the first quarter of
FY04/2023 compared to the same period of the previous year
◼ As for costs, we have continued to make upfront investments for growth until last year, but now that theseinvestments have run their course, costs have been restrained to last year's full-year level◼ Operating Profit also exceeded last year's results

Actual to
Forcast(%)

FY04/2023 Q1
Actual（Reference）
FY04/2022 Q1
ActualNet Sales

375

354

+5.8%

1,700

22.1%

EBITDA*41

47-12.5%

200

20.8%

EBITDA Margin

11.1%

13.4%

－

11.8%

－

Operating Profit

14

9+56.4%

50

28.8%

Operating Margin

3.8%

2.6%

－

2.9%

－

Ordinary Profit

4

6-37.3%

100

4.1%

Net Inocme

7

3+117.9%60

13.0%(Units: JPY millions)

YoY
(%)

FY04/2023
Forcast* EBITDA = Operating Profit + Depreciation Expenses + Amortization of Lease Deposits* * Non-Consolidated Earnings Forecast
29

Net sales and EBITDA Trends◼ Sales of AI (BtoB) services increased 6.4% YoY as a result of a newly established sales andmarketing organization and strengthened customer acquisition activities◼ Sales of AI (BtoC) services increased due to the effects of event and additional functions in themainstay "Shogi Wars," and in May 2022, "Kishin Analytics," which supports professional Shogi AI
research using Shogi AI, was released and As a result of its contribution to sales, revenue
increased by 5.5% YoY.
1,544
1,377
30.9%

727

872

828

908

1,482

23.5%

918

523

470

357

（ Units: JPY millions ）

33.9%
34.2%

1,155

1,556

817
549

12.7%
366
683

564 188

234

247
FY04/2018

11.1%
375

141
FY04/2019

Net Sales(BtoB)

FY04/2020

Net Sales (BtoC)

FY04/2021

FY04/2022

EBITDA41

FY04/2023 Q1

EBITDA margin
30

COGS and SG&A Trends◼ Until the previous fiscal year, the company had invested aggressively in cost of goods, general and administrative
expenses, including depreciation associated with the purchase of servers and other equipment for machine learning,
an increase in personnel hiring expenses, and an increase in R&D expenses, but the investments have run their course,
and costs in Q1 of this fiscal year are on last year's basis (Q1 361 million yen x 4 = 1,444 million yen (full year basis))◼ In FY 04/2023, grow sales of AI (BtoB) services by developing customers, establishing sales marketing organizations,and by strengthening cooperation with VarioSecure and StrategIT

1,262(Units: JPY millions)

1,085
956
800
8

37

338

372

417
21
201
63

215
235

305

381

FY04/2018
FY04/2018

FY04/2019
FY04/2019

FY04/2020
FY04/2020

labor costdepreciation cost

495
427

191
49

2

1,448

Full year basis(Q1×4)

app commission fees

42
244
70
476
FY04/2021
FY04/2021

56
233
152
508

FY04/2022
FY04/2022

advertisement expenses

361

20

112
61
142

26

FY04/2023,Q1
FY04/2023
１Q
others(COGS/SG&A)
31

Balance Sheet (as of July 31, 2022)◼ We plan to use the cash and deposits we currently hold for investments to realize our mid- to long-term growthstrategy.
◼

As part of this effort, the company invested approximately 1.1 billion yen in the acquisition of StrategIT shares andthe underwriting of a capital increase through a third-party allocation of new shares by VarioSecure.
Units: JPY millions

Current Assets

As of 7/30/2022

As of 4/30/2022

3,949

3,959

3,694

3,660

2,673

2,675

Property, plant andequipment

234

260

Intangible assets

37

25

Investments andother assets

2,401

2,390

6,623

6,635

Current Liabilities

174

194

Fixed Liabilities

－

－

6,448

6,440

Cash and deposits
Fixed Assets

Total Assets

Net Assets

32

Revision of Earnings Forecast FY 04/2023

33

Transition to Consolidated Financial Results◼ With the acquisition of StrategIT's shares on August 31 and the subscription to a third-party allotment of new shares
by VarioSecure on September 27 (planned), we will shift to a consolidated financial statement◼ In the consolidated financial results for the second quarter of the fiscal year ending April 30, 2023, the twocompanies that became consolidated subsidiaries were consolidated only on the balance sheet◼ Contribution to the consolidated income statement is scheduled to begin in the third quarter of the fiscal year ending
April 30, 2023.

This Financial Results
Q1
HEROZ

Non-Consolidated
Financial Results

Q2

Q3

Q4

Transition to consolidated accounting

StrategITー

Only the balance sheet
is consolidated

Both Profit and Loss statement
and balance sheet are consolidated

VarioSecureー

Only the balance sheet
is consolidated

Both Profit and Loss statement
and balance sheet are consolidated

34

Revision of Full-Year Earnings Forecasts for the Fiscal
Year Ending April 2023
◼ Full-year sales are expected to be 3.1 billion yen on a consolidated basis, compared to our initial forecast of 1.7 billion
yen on a non-consolidated basis and 1.48 billion yen in last year's results◼ Consolidated operating income, consolidated ordinary income, net income attributable to the parent company, and net
income per share forecasts are currently being reviewed and disclosed on an undetermined basis due to the need to
examine various consolidation-related journal entries in conjunction with the transition to consolidated financial
statements◼ To be disclosed as soon as the scrutiny is completed

Forecast of Consolidated Financial Results for FY04/2023 (May 1, 2022 - April 30, 2023)(JPY millions)

Net sales

Operating
ProfitOrdinary
ProfitNet Income

Net income
per share（JPY）

FY 04/2023

3,100

Under
Reviewing

Under
Reviewing

Under
Reviewing

Under
Reviewing（Actual）
FY 04/2022

1,482

34

87

49

3.29

※ Actual non-consolidated results for the fiscal year ending April 30, 2022.
35

Reference Materials

36

Global Leader in Mind Game AI

Chess AI

Shogi AI

Go AI

Deep Blue (’97) defeated aprofessional Chess player

AI developed by our engineers who
was member of HEROZ at that time
defeated a professional Shogi(Japanese Chess) player (’13)

Google acquired Deep Mind (’14)
AlphaGo, developed by Deep Mind,
defeated a professional Go player
(’16)

IBM

Google37

AI SaaS （AI Software as a Service)
Developing our AI construction capabilities cultivated through machine learning using
deep learning of vast Shogi game data in the construction, finance, entertainment, andother fields
Shogi game records

Structural design data,
financial data, etc.

AI SaaS for deep learning and other machine learning（AI Software as a Service）

ShogiAI

Construction AI
Finance AI etc

AI SaaS：AI Software as a Service is“Business model that provides models built by machine learning/deep learning as a service”

38

Profitability of AI SaaS
Research/develop Shogi AI
Standardize AI technology accumulated
through shogi AI
AI SaaS（AI Software as a Service）

Client’s data sent to HEROZ
Kishin/model developed bymachine learning

Output after machinelearning throughdeep learning, etc.

Output applied inbusiness settings

Establish an infrastructure which allows
HEROZ to provide AI services efficiently
to solve various challenges in various
industries just by changing input data
Provide comprehensive AI services withmassive servers
Achieve stable, sustained earnings andhigh switching costs

Accumulated data to be used forfurther machine learning

Output precision increases throughrepeated machine learning

Earning structure: initial setup fee
and ongoing fees
39

Potential demand for AI in the construction domain(one of our focus areas)◼ We believe there is also significant potential demand for enhancing operational
efficiency through AI in the construction industry, which is one of our areas of focus◼ There will be a shortage of 110,000 construction technicians by 2025
(source: Human Touch Research Institute, “status quo” scenario in the
Proprietary Analysis Monthly Report, December 2017)

Challenges
faced by theConstruction
Industry

Chronic
Shortageof Manpower

Soaring
Materials
Prices◼ Over 1/3 of first-class registered architects are over 60 (average: 56.2 years old)(source: Report on Construction-related Administration Aimed at Securing Safetyof Architecture, Social Infrastructure Council, August 2006)◼ The number of construction and mining industry workers is expected to decrease
from 5.05 million in 2014 to 4.16–4.24 million in 2030, with some variability
depending on future economic growth and labor market participation trends(source: JILPT, 2015 Estimated Labor Supply/Demand)◼ The national construction materials price index has increased by 17% since 2010(source: Economic Research Association)◼ We entered into a capital and business alliance with Takenaka Corporationin 2017 and became a member of i-Construction. We aim to create theindustry standard AI for the construction industry, enhancing productivity
and creating a new, attractive construction site
40

Japan:Potential AI Demand is Among the Largest Worldwide◼ Potential AI demand in Japan can be expected to be among the largest worldwide, as
the working population is expected to decrease significantly going forward
Projection of Population Age 15-64(Median Prediction Interval, 2020=100)
140
120
100
80
60
40

20
0

◼ When defining the working population as those
aged 15-64, the world average is forecasted toincrease by about 12% from 2020 to 2035 andby about 21% from 2020 to 2055. On theother hand, the working population is expected
to decrease by about 11% and about 28%
during the same periods, respectively

About 28%
decrease ◼ Based on such forecasts, the Japanese working
population will show the largest decrease
among leading GDP nations
2021
2025
2030
2035
2040
2020年
2025年
2030年 2035年
2040年 2045
2045年 2050
2050年 2055
2055年
全世界
中国
日本
米国

Source: Prepared by HEROZ based on United Nations, World
Population Prospects, The 2019 revision
41

Use of Our AI in DX◼ Domestic DX (digital transformation) is expected to accelerate due to the future
decrease in the working population as well as the impact of the COVID-19 pandemic◼ AI allows for DX of a wide variety of operations including those involving decisionmaking, which were previously considered difficult to automateStandard Decision- Creative
Tasks
making Tasks, etc.
Structured
data◼ DX will begin with standard tasks based on
structured data and is expect to expand to decisionmaking and tasks which utilize unstructured data
◼ Our AI can automate a wide variety of operations
including those requiring decision-making. We havealso achieved DX for unstructured data, which weretraditionally considered difficult for DX

Unstructured
data
TraditionalIT

Our AI◼ We are promoting DX and building a track record inareas including construction, finance, andentertainment
42Notes◼ The forward-looking statements contained in this material are based on information
currently available to the Company, but are not guarantees of future performance andare subject to various risks and uncertainties. Actual results may differ from theforward-looking statements contained or deemed to be contained herein due to changes
in the business environment and other factors.

◼ This document contains information about our company and other companies, etc., andwe make no representations or warranties as to the accuracy or completeness of theinformation contained herein.

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