Needs Well Inc.
Financial Results Briefing for the Fiscal Year Ended September 2019
November 29, 2019

Event Summary[Company Name]

Needs Well Inc.

[Event Type]Earnings Announcement[Event Name]

Financial Results Briefing for the Fiscal Year Ended September 2019

[Fiscal Period]

FY2019 Annual[Date]

November 29, 2019

[Number of Pages]

31[Time]

11:00 – 11:40(Total: 40 minutes, Presentation: 30 minutes, Q&A: 10 minutes)[Venue]Kabutocho Heiwa Building 3F
3-3 Kabutocho Nihonbashi
Chuo-ku, Tokyo 103-0026(Hosted by The Securities Analysts Association of Japan)[Venue Size]

145 m2[Participants]

20[Number of Speakers]

3
Kozo Funatsu
Yukio Kubota
Nobumasa Goto

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Presentation
Moderator: Now, we will start the financial results briefing of Needs Well Inc. for the fiscal year ended
September 30, 2019.
First of all, I would like to introduce three people from the Company. The President and CEO, Kozo Funatsu.
Funatsu: I am Funatsu. Thank you.
Moderator: The Executive Vice President, Yukio Kubota.
Kubota: I am Kubota. Thanks.
Moderator: Director, Nobumasa Goto.
Goto: I am Goto. Thanks.
Moderator: President Funatsu will explain today. After he gives the explanation, we will take time forquestions and answers.
In addition, the questionnaire is included in your material. Please fill in the form when you have time.
Then, let’s begin.
Funatsu: I am Funatsu, the President and CEO, who has just been introduced to you. I would like to thankyou for taking time out of your busy schedule to attend our financial results briefing today. I would like toexplain the financial results for the fiscal year ended September 30, 2019.

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As you can see, I would like to explain our financial results for the fiscal year ended September 30, 2019, ourgrowth strategy going forward, initiatives to support our growth strategy, and our earnings forecasts for the
fiscal year ending September 30, 2020.

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First, I would like to provide an overview of the financial results for the fiscal year ended September 2019.
In summary, we achieved record sales and profits for the eighth consecutive year. As you can see, sales areabout 5.5 billion yen and ordinary income is 505.01 million yen. The ratio of net sales and the ratio of
ordinary income are projected to grow by 7.3% and 8.1%, respectively. We have been able to achieve steady
growth.

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Next, as the second summary, we have focused on the solution business as one of our growth strategies,
and it is finally getting on a growth trajectory. It has been about two years since we started it, and we are ona steady growth track, with the year-on-year rate of 166.7%.
In this environment, we are handling security-related products as our proprietary solution business, and wehave also begun businesses such as AI-related Work-AI services, and these businesses are steadily growing.
In addition to our products, there is a movement to expand our solution business while handling othercompanies' solution products related to our business, such as those related to our operations. The typicalsolution that we handle is Concur, which is the expense management system by foreign-affiliated Concur. In
addition, we handle and provide WinActor, which was developed by NTT Research.
In other words, we are making proposals to improve the efficiency of business operations at the company
level. By combining our technologies with those of our competitors, and by differentiating ourselves fromour competitors and increasing our competitiveness in sales, we are promoting sales with a focus oncollaborative functions.

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Looking at net sales by service line, the overall sales of the company are approximately 5.5 billion yen, andwe have four service items.
Business system development, which is our main business, is 4.354 billion yen. The rest includes building
infrastructures, which mainly cover servers, and building networks, but this area has fallen slightly as wehave been suffering from a shortage of human resources.
For embedded system development, we are currently focusing on automobiles and medical equipment, but
this is an increase of 4.8%. We launched the solution business two years ago, and as I mentioned earlier, it
has steadily grown to 166.7%.

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Next is about our analysis of the factors behind an increase and a decrease in operating profit.
Operating income is 508 million yen, with a year-on-year increase of 31 million yen. Regarding the
breakdown, net income was 150 million yen due to sales and productivity improvement, as well as a
reduction in recruitment expenses, costs, et cetera. As a result, the situation has been positive, from 477
million yen to 508 million yen, as I mentioned earlier.

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8Next, the income statement page.
Sales growth is 7.3% and, as you can see, ordinary income is 505 million yen, with a sales ratio of 9.2%.

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9Here is the balance sheet.
As you can see, the total amount for the liabilities and net asset section is 2.688 billion yen. The Company
continues to maintain a stable financial position, with an equity ratio of 73.4%.

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Before explaining our growth strategy, I would like to explain our management philosophy.
Our management philosophy is to continue contributing broadly to the economy and society. As an IT
company, we want to contribute broadly to the economy and society through system development, while
continuously developing and growing.

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11Next, this is the growth trajectory.
The Company was established in October 1986, and is now in its 34th year. Growth declined slightly during
the Lehman Brothers bankruptcy, but then rapidly expanded, and in June of this year, the TSE First Section
was realized.
At present, the number of employees is increasing to 538 as of the end of September.

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12Next, I will introduce our basic policy.
Our basic medium-term policy is to move away from the temporary staffing business and become a system
integrator in a true sense. We have always rather focused on the task of dispatching human resources.
However, since this put us in a situation where we are just waiting, we ourselves would like to provide theusers with systems or solutions as early as possible, and address their needs, problems, and issues. We hopeto grow into a true system integrator that can solve these problems.

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Next, I would like to introduce our targets for the near future based on our growth strategy.
Our medium-term targets are a market capitalization of 25 billion yen and net sales of 10 billion yen.
Each year, the Company aims to achieve a sales growth rate of 20% and an ordinary income margin of 10%.
In terms of our management structure, we would like to maintain a gross profit margin ratio of 25% and an
SG&A expense ratio of 10%, even if sales grow, while ensuring an ordinary income margin of 10%.
By repeating this process every year, we hope to achieve the medium-term targets in the near future. At
present, we want to develop into a true system integrator, in accordance with the medium-term basic policythat I explained earlier.

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Next, our strengths.
In pursuing our growth strategy, we must leverage our strengths, and we have three priorities in terms of
our strengths.
First, because 50% of our net sales are from the financial sector, we have a strong financial systemdevelopment capability. Second, we have a high end-user transaction ratio. As a result, it currently accounts
for more than 50% of net sales, and we intend to maintain and expand this ratio. Our goal is to reach 60%.
In terms of our ability to propose and provide solutions, we intend to leverage these strengths to provide
our customers with services, such as the systems development capabilities we have built up to date, thesecurity systems that we have just started as a solution business, the security systems that we have received
during the 5G era, and AI or RPA to increase productivity.
Leveraging these three strengths, we intend to implement a growth strategy going forward.

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We have listed six key growth strategies.
One of them is to increase corporate value, and the others are: establishment of a business foundation, andfurther expansion of the solution business. We also want to maintain and expand transactions with end
users from just over 50% to 60%. In addition, there’s the launch of AI businesses and the start-up ofnearshore development.
We intend to promote these six items as priority items for the foreseeable future. I will explain each of themin detail.

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Our first growth strategy is to increase corporate value. We have thought of four items to increase ourcorporate value.
We believe that the most important thing is business performance. As I mentioned earlier, the Company
aims to achieve a market capitalization of 25 billion yen and sales of 10 billion yen in the future.
In addition, we would like to promote IR activities, such as IR for institutional investors like this time,
individual investors, and media-related companies while expanding our business results. At the same time,
we will promote CI and VI.
Also, there’s capital policy. We still have a low market capitalization, and there are still few securitizations.
Therefore, we would like to implement a capital policy through public offering, issuance of new shares,
share buybacks, or M&A.
In terms of sustainability, we would like to work on ESG, SDGs, and corporate governance, and thereby
increase our corporate value.

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The second point is establishment of a business foundation.
Regarding our four services, the first one is the development of business-related systems. This is because wehave development capabilities in the financial field, and in order to further expand it, we would like tocultivate and expand the number of engineers who can understand financial operations.
In terms of building a foundation, we intend to secure large-scale projects in conjunction with thedevelopment of business-related systems.
And there’s the embedded-system development. This is expected to expand in the future. This means that
we will focus orders in the automotive and medical equipment fields.

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The third point is in regards to how we are also expanding our solution business.
Of the aforementioned four services, this is the solution business most recently added. As I mentioned
earlier, this means differentiating ourselves through collaborative functions.
We are currently planning to focus on the security solutions field as a solution, and in the 5G age, where
there is a lot of upheaval and ongoing efforts, a variety of information may be attacked when data isreceived. Therefore, we are thinking of offering security solutions in the belief that there will be a demand
for such information.
In addition, there’s operational efficiency. The AI-based Work-AI or RPA-based WinActor are for improving
productivity, such as when there’s a shortage of human resources or a need to promote work style reforms,
as well as Concur's expense management system. We would like to differentiate ourselves by adding
collaboration functions to such a product. We would like to expand our solution business.

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Next, the expansion of transactions with end users.
This means that we would like to increase the current 55% to 60%. Regarding how we do this, we will
maintain and expand existing users, especially in the financial sector. While fostering engineers who can see
its upstream process, we will strive to increase the number of existing users. At the same time, we will
expand into similar industries. By expanding our solution business, we will increase the percentage of end
users.

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With regard to the launch of the AI business, we established the AI Group in July of this year.
The AI business we are thinking of now is to automate entry operations, such as RPA, WinActor, and toprovide users with services in collaboration with AI-OCR to avoid the need for manpower.
Data is organized from the stage before sending AI data through data analysis, or IoT, which is coming in.
This means creating data that can be passed on to AI in the form of eliminating unnecessary data from theequipment.
In addition, we would like to develop our own AI engine. Rather than being all-purpose, we would like tooffer AI engines that specialize in specific industries.
By doing this, we ultimately want to be able to provide solutions to companies in different industries, suchas banking, insurance, and other financial sectors, by analyzing their own data, and by developing andincorporating AI into their own value-added products. By doing so, we intend to expand our product lineup
of solution products.

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Next is our sixth item: the start-up of nearshore development.
We had been suffering from a shortage of human resources for many years until last year, and recruitment
is also continuing to face a difficult situation. As part of this, we opened the Nagasaki Development Center in
October this year.
The purpose of this program is to minimize the opportunity losses caused by the shortage of humanresources, which I mentioned earlier, in Nagasaki or Kyushu. The aim is to attract talented local personnel
and develop development projects in Nagasaki while utilizing nearshore.
We are currently making steady progress in development, aiming to have 100 employees by September
2024.

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The first initiative to support this growth strategy is human resource development.
We believe that the key to our growth strategy is the technological capabilities of our employees, so we aremaking efforts to improve our technological capabilities.
In other words, in terms of work style reform, we encourage employees to take paid days off and make useof paid days off as much as possible. We have also instituted a system that encompasses self-improvement
and how to make such time. In addition, we are striving to improve the productivity of our operations byutilizing RPA internally.
We have instituted a system, which includes training to improve skills, preparations for such training, andholding meetings to increase motivation. This is human resource development.

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Next, ESG/SDGs.
Now that we have achieved the First Section of the Tokyo Stock Exchange, we have also established acommittee to maintain our corporate philosophy of continuing to contribute broadly to the economy andsociety, and we are currently working on this initiative.
As you can see, here are some typical examples of our initiatives, such as holding seminars for thedevelopment of AI technologies for local students and raising the percentage of women in the workforce, in
the area of diversity and gender. Thanks to these efforts, the ratio of women is gradually rising.

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In conjunction with this, we will reduce the use of electricity, paper, and other wasteful items. By reducing
paper consumption, we will be able to digitize and link this to in-house meetings, shortened times, and soon.
In addition, while promoting cooperation with our partners, we have established a system, such as the core
partner program, to have a win-win relationship with our core partners.
We are also working to build a highly transparent governance system. As you can see, we are considering
the establishment of an advisory committee and an evaluation of the effectiveness of the Board of Directors.

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Next, I would like to introduce our earnings forecasts for the fiscal year ending September 30, 2020.
As a summary, we expect sales and profits to increase for the ninth consecutive year. The net sales
represent an 8.7% increase, or 6.0 billion yen, compared with 5.517 billion yen, and we would like to be inline with this as a minimum.
For ordinary income, we expect an increase of 8.9% to 550 million yen. The ordinary profit margin ratio is
the same as last year, but we would like to aim for 9.2%. We think it is still necessary to invest in R&D for
solution products, and I would like to maintain a high level of ordinary income while investing in such areas.

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In terms of profit and loss forecasts, we are forecasting an ordinary income ratio of 9.2% with respect to the
net sales of 6 billion yen, which means an increase of 8.9% to 550 million yen.

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In terms of dividends and shareholder returns, we are considering an increase of 2.5 yen per share from theprevious year to 16 yen per share.
Looking ahead, I think the dividend payout ratio will be at a high level of 35.8%. We would like to return
profits to shareholders while increasing profits as much as possible, and we would like to make efforts toincrease profits in the future as well.
That’s all from me. This material provides you with an overview of our company, an explanation of ourbusiness fields, press releases, comparisons with other companies in the same industry, and otherinformation. We would like you to see this for your reference.
Now, I’ll finish my explanation. Thanks.

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Question & Answer

Moderator: Thanks. Then we will start the question and answer session. If you have any questions, please
let us know.
The IR Meeting, including the Q&A session, will be transcribed and published in full. Therefore, if you give
your company name and your name when you ask questions, they will be disclosed as they are. If you wish
to be anonymous, you may omit your name.
Then, let’s start the session.
Kawazoe: I’m Kawazoe from Toyo Securities. Thanks for your explanation. This is the first time for me toattend your briefing, so this is very basic question, but I would like you to tell me.
On page 13, it is described that you want to move away from the temporary staffing business. What are
your thoughts on the problem with this temporary staffing business? I would just like to ask about this one
point.
Funatsu: The problem with the temporary staffing business is that it dispatches engineers to customers,
including high-level engineers, and there are some areas where the company cannot utilize such high-levelengineers. The company will be able to utilize them only for that project, so in the future, we would like toshift to a business in the form of in-house subcontracting, particularly for high-level engineers.
There is also another problem that young engineers and new graduates are still not wanted. I think it isnecessary to train employees as early as possible and utilize new graduates, but this is very difficult. In orderto solve these problems, we must change the path of the system integrator in order to resolve these
problems.
Kawazoe: Thanks. In other words, they are mostly stationed at the user's office.
Funatsu: Yes.
Kawazoe: I understood clearly. Thanks.
Moderator: Thanks. Please go ahead and ask your questions.
Murakami: I’m Murakami from SMBC Nikko Securities. Thank you very much.
First, I would like to know the current ratio of the financial sector and each ratio of banks, insurancecompanies, and so on. How do you think this will change in the future? In the near future, please let meknow what kind of image you have in the case of sales of 10 billion yen. Would you be able to tell me thistoday?
Funatsu: First of all, with regard to the ratio of the financial systems, system development accounts forapproximately 70% of the total business system development, and financial systems now account for 50% of
the total business system sales. The financial sector comprises life insurance companies and non-life
insurance companies, which account for half or 50% of the financial sector. The rest are banks, securities
companies, or credit card companies. Therefore, our strength is that we are strong in the field of life andnon-life insurance companies in the financial sector.

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In terms of the future structure, we would like to see further growth in the financial sector, as I mentioned
in our growth strategy. Nevertheless, because we are aiming to further increase profitability in the solution
business and other areas of excellence, the ratio of this is about 15% of the 10 billion yen. Currently, theratio is 2% to 3%, but we are aiming to further increase it. Therefore, I think the ratio for the financial
system will decline, although we are planning to increase it in percentage terms. We consider this to be thecase.
Murakami: What do you think about the current status of business systems and investment, and theindustry environment, such as life insurance companies, non-life insurance companies, and banks?
Kubota: Life and non-life insurance companies are currently the most favorable in the financial sector, andso-called new products and systems for overseas markets are becoming very active. Therefore, we believethat the growth of life and non-life insurance companies will be considerably higher in the future.
On the other hand, I believe that the banking sector will be very active in the life and non-life insurance andplus credit card sectors, although it is declining slightly. That is all.
Murakami: This is the second question. In the context of the long-term and near-term prospects, there is acapital policy for improving corporate value. Are there quantitative targets, such as setting ROE targets, or
capital policies and growth potential, in this area?
Funatsu: So far, we have not set such targets, but we believe that the actual results will naturally rise if we
implement the targets in the near future, as I mentioned earlier, in the growth strategy.
For the time being, we are focusing on achievements. I would like to raise our profit margin.
Murakami: Lastly, referring to the material, there are several words such as AI and RPA that will grow in the
future; however, the cloud is not mentioned. Since there are many financial institutions, I imagine that manyof them use on-premises services. I think it is easy to use the cloud for collaboration. Could you tell me what
you think about the cloud?
Funatsu: It does not mean that we are not considering the cloud. As for the cloud, of course we think it isimportant, and by providing solution products, such as those I introduced earlier, to our customers in thecloud, we will be able to provide services not only to one user but also to other users, and it is possible toprovide them at a low cost.
We also expect that this will be a recurring revenue business, and we will continue to promote it. Although
we have not referred to it as “the cloud”, we would like you to see the solution business as the cloud.
Murakami: Thanks.
Moderator: Thanks. Does anyone have any other questions? No one seems to have any questions, so wewill close today's briefing. Thank you very much.
[END]______________
Document Notes
1.
2.

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