fy2020 financial results & 3 medium-term management plan

FY2020 Financial Results &

3rd Medium-Term Management Plan

Friday May 14th, 2021

〔Ticker: 4743〕

ITFOR Inc.Tsunenori Sato

President & Representative Director

Copyright © ITFOR.Inc All Rights Reserved.

Today’s Agenda

1. FY2020 Financial Results

2. 3rd Medium-Term Management Plan (FY2021-FY2023)

3. FY2021 Forecasts

Copyright © ITFOR.Inc All Rights Reserved.2

1. FY2020

Financial Results

FY2020 Financial Highlights


Both net sales and earnings hit record high

Delivered results stronger than revised management guidance due to robust

growth in Financial Systems and BPO for local governments, in addition to

“iRITSpay”, multi payment terminals, selling higher than initially expected

Net Sales 16,289MM

YoY Up 6.9％

vs Revised guidance Up 3.1%

Operating Income 2,186MM

YoY Up 26.5％


Net Income 1,683MM

YoY Up 36.7％


ROE12.7%

YoY Up 2.8pt

vs Revised guidance Up 2.7pt

Attributable to owners of the Parent Co

Net Sales

5

Order backlog accumulated at the end of FY2019 contributed to

realizing strong sales

2,112 2,775 3,712

2,872 3,475

3,797

7,569

8,988 8,780

12,554

15,23916,289

FY18 FY19 FY20

System Solutions

Service Solutions

Infrastructure Solutions

• New large-scale projects for financial

institutions commenced operations

• Combined sales of “SCOPE”, personal

loans operation support systems, and

“WELCOME”, web-based reception

systems, performed well

• Sales declined YoY in Retail and CTI

systems due to COVID-19

• BPO services for our targeted

ordinance-designated and core cities

remained strong. Won contract from

prefectures, too

• Conversely, installing infrastructure and

investigation services for residence

verification at our subsidiary, were

negatively impacted by COVID-19

• Sales of “iRITSpay”, multi payment

terminals, surged YoY due to strong

shipment exceeding the original plan

(JPY MM)Net Sales


Operating Income

6

40.8%

37.4%34.8%

36.8% 36.4%

31.5%

27.9%

32.2% 31.9%34.1%

32.7% 33.2%

5.0%

11.3%10.4%

19.1%

7.0%

13.2%

5.6%

16.4%

8.4%

14.1%

11.9%

17.2%

Gross Margin SG&A Margin Operating Income Margin

Q1 Q2 Q3 Q4

FY18

1,637 1,728

2,186

13.0%

11.3%

13.4%

FY18 FY19 FY20 Q1 Q2 Q3 Q4

FY19

Q1 Q2 Q3 Q4

FY20

Operating Income

Gross margin bottomed out in Q3 FY2019 and recovered steadily since

SG&A expenses are under control by various initiatives, improving production efficiency and promoting work style reforms in particular

Quarterly Trends(JPY MM)


New Orders


2,451 3,248 3,891

4,140 4,387

5,075

9,737 8,333

9,492

16,329 15,969

18,459

FY18 FY19 FY20


Service Solutions

SystemSolutions

4,540 4,669

4,001

5,248

Q1 Q2 Q3 Q4

FY18 FY19 FY20

New Orders

Won a multi-year contract for BPO services from local governments

Systems for financial institutions remained strong. Secured new orders from non-banking financial institutions (“NBFI”) for system renewal at existing customers and introducing robotic calls and other new delinquency management systems

(JPY MM) Quarterly Trends (JPY MM)

Performance Overview by Segment


System Solutions

ServiceSolutions


Net Sales 8,780 JPY MM

3,797JPY MM

3,712 JPY MM

YoY Down 2.3％ Up 9.3％ Up 33.8％

Segmental Profits

2,282 JPY MM

503 JPY MM

835 JPY MM

YoY Up 27.0％ Down 18.6％ Up 39.7％

Segmental Gross Margin

33.4 ％

35.8 ％

29.4 ％

YoY Up 4.6pt Dow 3.7pt Down 2.3pt

COVID-19 led to declines in sales of System Solutions and

segmental profit of Service Solutions

System Solutions


1,323 1,666 1,252

1,444

2,074

1,507

407

715

687

4,395

4,5325,334

7,569

8,988 8,780

26.0%

20.0%

26.0%

FY18 FY19 FY20

(JPY MM)

Sales by sectors & operating income margin

Financial Systems

Public Systems

• As school lunch expenses shift to public

accounts, systems managing such expenses

draws attention. Increased new orders for

school admin support systems including

school lunch management systems, leading

to steady backlog that resulted in steady

sales

Retail EC Systems

• Sales fell due to rebound from irregular

demands for legal compliance in FY2019

• Furthermore, COVID-19 forced some

department stores and specialty stores to

re-consider or postpone investment

CTISystems

• Robotic calls remain sound

• Sluggish orders from call centers due to

COVID-19

• Combined sales of “SCOPE”, personal loans

operation support systems, and “WELCOME”,

web-based reception systems, performed

well. High level of order backlog contributed

to sales

• Large-scale system renewals of existing

NBFI customers also contributed

Service Solutions


1,423 1,530 1,359

1,449 1,944 2,438

2,872

3,475 3,797

17.7

%

17.8

%

13.3

%

FY18 FY19 FY20


Public BPO

• Orders built up from new contracts with our

targeted ordinance-designated and core

cities. Order backlog from the end of

previous FY contributed to sales boost

• Won new orders and new contracts through

efforts such as collaboration with core

system vendors and regional Slers

• Profitability of newly launched BPO service

projects declined due to start-up costs

• Contract research at our consolidated

subsidiary experienced declines in both sales

and earnings due to COVID-19

Technical Support

• Sales shrunk due to partial transition to

cloud

• Also, delays in installing infrastructure

related equipment due to COVID-19 led to

drops in sales

(JPY MM)



2,112 2,775

3,712

18.2%

21.5%22.5%

FY18 FY19 FY20


Payment

• “iRITSpay”, multi payment terminals,

remained strong

• Gross margin fell due to incurring sales from

strategic orders

Communication Infrastructure

• New installation of telecommunication

equipment for a major provider

• Operating income margin improved as SG&A

margin lowered as a result of extended

infrastructure construction work due to

COVID-19

(JPY MM)

0

10,000

20,000

30,000

40,000

50,000

60,000

FY18 FY19 FY20

Accumulated volume of orders

55,125

While some issues remained in the launch of new businesses, the key strategies set forth were largely accomplished

Review of the 2nd Medium-Term Management Plan: Key Strategies

12

Sustain competiti-veness in

strong business

1

• Enhanced engagement with existing customers, especially regional banks. Maintain leading position in credit management related business

• Sales grew steadily, but profitability declined slightly due to fluctuations in the business environment, such as alliances among regional banks

• New entrants in the BPO market are increasing competition, whereas our strength lies in our ability to provide a combination of systems and services

• Solid orders from ordinance-designated and core cities• Contribution to earnings slightly delayed due to unexpected external influences

2

Expand sales from strategic products

• Shipment volume of payment terminals was in line with plan• Speedy investment for further expansion was not sufficient

• Only able to cultivate specific users such as Ministry of Internal Affairs & Communications owing to our products’ spec being exceedingly high

Maintain growth of mainstay

financial business

Expand public sector business

Cashless Payment

RPA

• The delay in the release of the results of the FATF review combined with the inability to sufficiently motivate customers to adopt the product due to its high functionality and high unit price forced us to revise original plan

• Strengthened development division by acquisition of EeB• Unable to execute M&As to pursue business synergies due to delays in setting

up procedures for assessment

3Develop

new market

Launch AML systems

Promote M&As

• Steady orders mainly from NBFI and major regional banks• Successful example of cross selling among business units4 New tech

Expand “robotic calls”


Net sales exceeded the plan while earnings target was missed due to delays in earnings contribution from Public Sector businesses and launch of new

businesses

Review of the 2nd Medium-Term Management Plan: Financial Targets

13 Copyright © ITFOR.Inc All Rights Reserved.

12,554

15,239 16,289

14,000

1,637 1,728 2,186 2,300

9.4%9.9%

12.7%

10.0%

FY18 FY19 FY20 FY20 目標

売上高

営業利益

ROE

Net Sales (JPY MM)

Operating Income (JPY MM)

Target

Reaffirmed that our strength lies in our market-in approach, which embodies our “ability to be close to customers“.

Simultaneously identified issues that need to be addressed

Review of the 2nd Medium-Term Management Plan:Recap


Issu

es

Stre

ng

ths

Orders from financial institutions including mainstay regional banks steadily surged

Successfully entered into non-financial sectors such as public sectors and local companies leveraging our regional foothold

Competitive advantage comes from developing a wide range of products in multiple sectors in-house

High level of expertise in sales and development in each field

Ability to make timely and in-depth proposals, and respond to diversifying customer needs

Silo mentality that needs be broken down effectively (as it may lead to losing potential business opportunities)

Balance of orders and development needs to be improved as we experienced imbalance caused by solid orders (though efforts are already underway to optimize the development organization)

New business development being falling short of the plan though in part due to external factors

More “product-out” derived from “market-in”. “Culture of challenge needs to be rebuilt

Quantitative internal monitoring requires speed and comprehensiveness

Internal governance to solve all of the above

Quality of ESG management needs to be greatly improved

Our approach

2. 3rd Medium-Term

Management Plan

Where 3rd Medium-Term Management Plan Stands

This medium-term plan is positioned as a new stage for accelerating efforts to realize sustainable growth having resolved issues identified to date

16

NEXT STAGE 2023 - HENCA SINCA SOZO -

HENCA

SINCA

SOZO

変化 Be free from the past practices

返歌 Value “ability to be close to our customers”

深化Strengthen relationship with various stakeholders

進化 For something better

想像 With flexible thinking

創造To become a company that can create new values to the society


3 • Designate officer in charge of promotion• Significantly change the current approach

3rd Medium-Term Management Plan: Basic Guidelines

NEXT STAGE 2023 - HENCA SINCA SOZO -


1Reinforcing

management base

• Reform organization and systems• Strengthen internal collaborations• Promote internal DX• Strengthen HR• Strengthen development organization and quality

2Enhancing profitability

• Introduce ROIC based management• Reform methodologies to monitor divisional

earnings and expenses• Exit from unprofitable businesses• Further pursue synergies among business units• Actively invest in growing businesses and new

businesses for nurturing

Advancing ESGmanagement

Reinforcing Management Base①: Governance


Some already completed. Steadily implement measures, verify effectiveness and take actions for further improvement as necessary

Strengthening supervision function

Strengthening internal collaborations

Strengthening investment management

Changing President job scope ✓

Setting Nomination and Remuneration Committee

✓

President & Representative Director, Executive Officer, Head of Business HQ, GM of Business Mgmt

President & Representative Director

• Consists of 3 or more directors • Independent external directors

constitute majority• Chaired by independent external

director

New) External Director

Reorganizing Business Division Reorganization ✓

• Transferred NBFI sales division to Financial Business Division

Establishing investment rules

Setting investment committee

• Ms Waka Abe(currently Director of SK Electronics)Experienced in business development, corporate planning, IR, and overseas business

Strengthening Business HQ Function ✓

• Appointed Mr. Oeda, Director & Executive Officer as Head

• Integrated divisions within

Consolidating Back-office Function ✓

• Transferred the internal infrastructure department to the administration department

Reorganizing Technology & Development Group ✓

• Effective utilization of infrastructure engineers

Intensively invest in internal systems to attain growth over the next three years, and strengthen human resources in both quality and quantity for

growth as needed

Reinforcing Management Base ②: Internal Infrastructure


Promoting internal DX

Implement real-time monitoring of management indicators

Launch full-scale implementation of sales activity visualization system

Introduce support systems to strengthen security and improve business efficiency (promoting remote works)

Renew core system

Reforming HR and compensation policies

Introducing new policies

Strengthening HR

Revise training and development programs

Enhance recruiting diversified human resources

19

FY21 FY22 FY23

Reinforcing Management Base ③:Development Organization and Quality

Promote strengthening the development organization and quality, which is vital for our expansion


Increasing personnel Enhancing quality

Promoting internal collaborations

Obtaining new technologies and reskilling

• Diversify recruitment targets• Increase transactions with carefully

selected partner companies through deepened relationships

• Secure through alliances and M&As• Create a more comfortable working

environment

• Renew methods of managing projects• Visualize planning of engineering staff

Visualize quantitative evaluation of each step of the process

• Provide more training opportunities internally and externally

• No-code development• Infrastructure and network technology• More web coding qualified engineers• More management qualified engineers

• Agree on scope and development team before receiving orders

• Confirm items such as differences from orders after requirements definition

• Collaborate in quality evaluation and transition preparation before implementation

Enhancing Profitability

Set corporate ROIC target at 13%Aim to enhance profitability through companywide adoption of ROIC

management in this plan. Intend to elaborate by setting ROIC by business line and breaking down into ROIC tree over the long run


• Sold Snappy Communications, Inc., a wholly-owned subsidiary

• Sold Arrow series of products

Recent initiatives

• Robotic calls• WELCOME

• Introduced automatic ticket vending machines with cashless functions

• Sell or exit after a certain period of time if

• Stand-alone profitability not foreseeable, or

• Synergies with other businesses not anticipated

• Financial x CTI• Financial x EC• Financial x Public

Services• Financial x

Infrastructure

• Financial x Public Services x Payment

• Public Services x Payment• EC x Public Services x

Payment, etc.

Exiting from unprofitable businesses

Pursing synergies among business units

Investing in growing and new businesses

Advancing ESG Management

President himself will be in charge of promoting corporate wide sustainability, and we will expand and deepen current initiatives to

reach our goal of enhancing corporate value and contributing to society simultaneously


E S G

• Expand school aid-related products

• Reform working environment• Create jobs in regional areas• Expand non-contact

businesses

• Broaden businesses with local governments

• Reinforce internal governance• Collaborate with local

governments and regional banks

• Promote paperless • Promote sales of electronic

contracts and web-based reception products

• Systematize procedures for local governments in requesting financial institutions to investigate assets, etc.

FY2023 Financial Targets

Target to achieve operating income of JPY3.2bn in the final year by realizing both each business unit’s stand-alone growth and

potential cross-selling opportunities. Potential upsides from M&Aare excluded


(JPY MM) FY20 FY23 CAGR

Net sales 16,289 21,000 9％

Operating income

2,186 3,200 14%

ROIC Over 13%

ROE Over 13%

How we achieve targeted operating income (JPY MM)

23

Allocation of Management Resources and Shareholder Return Policy

Utilize cash on hand for investment over the medium term.

While maintaining current dividend per share, dividend payout

ratio is aimed at around 30% as our bottom line expands

Cash from OperationsTotal of 3 years


JPY 6.5bn

Internal investment (Tangible & Intangibles)

Slightly below 30%

Return to Shareholders

Dividend payout ratio

Over 30%

Carry out opportunistically M&As

Allocations of CapitalTotal of 3 years

Foundations of Corporate Strategies

25

Revitalization of

economies in

regional areas

DX in regional

areas

Our Business Environment

26

Digital Agency (to be

established on Sep 1) to lead nation-

wide digitalization

Digital Government

Execution Plan

Faceless, Contactless

under COVID-19 calamity

Country with natural

disaster risk (ranks 17th

out of 171 countries)

Achieving a decarbonized

society

Our Initiatives in light of the Business Environment

27

Key themes

To build and provide a platform for the local economy

To combine existing solutions with new technologies

To connect existing customers with new individual customers (in partnership with other companies)

To establish new partnership among existing customers

Company-wide targets of our

initiatives

Pursuing a completely paperless society

Making all procedures cashless

Collaborating with local corporations to address cyber security

Providing area-specific services (contents) through local 5G

Digitizing various types of issued documents

• Digitization from application to grant and issuance

• Continuation and offering of services regardless of location, such as in times of disaster

Ensuring the authenticity of issued documents by blockchain

• Linking providers and users with a certification authority

Strategies by Sector: Financial


Business Environment

■ Downsizing branches, faceless, contactless, labor-

saving

■ Consolidation and accelerated alliances among

regional banks

■ Shared systems

Key strategies

Expand cross-selling

■ Providing services to regional banks across Japan

through cross-selling

Specific targets

Expand market share of mainstay packages

■ Expanding unintroduced packages to existing

customers

■ Cultivating new customers

Measures to be taken

■ Continuous enhancement

■ Conversion to SaaS

■ Modification for

expansion to

non-financial

institutions

Communication Infrastructure

Data PF business (HUB), In-house cloud, support for migrating to a 3rd party cloud

Security Services

Cyber security

CTIInfrastructure

Cloud-based call center systems, Robotic calls

■ Emergence of new industry class

■ Cloud migration

■ Overall system investment expected to soar

2.8

4.35 4.75.55 6.05

10

FY16FY17FY18FY19FY20

Average # of our systems implemented at our regional bank customers

Strategies by Sector: Public Services



■ Digital government is driving the shift to ICT in local governments

■ New entrants into BPO business are becoming increasingly active

■ Difficult to differentiate BPO alone thus expect lucrative earnings

■ Trend of System Standardization Plan needs to be closely monitored

Key strategies

Expand cross-selling

■ To be jointly led by Public Services Division at

ITFOR and ICR

■ Creating track record and quickly rolling out

horizontally

Specific targets

Differentiate to expand orders and improve

profitability

■ Scope of services: BPO + Systems

■ Cost

■ Partnership


■ Expansion and cloudification of systems we offer

■ Cost reduction in BPO operations

■ Expansion of regional outsourcing centers

■ Strengthening collaboration with ICR (group

company) to generate synergies

■ Collaborating with core vendors

■ Exploiting partners in BPO operations (e.g.,

handling foreign nationals)

Payment Services

Payment terminals (iRITSpay)Cashless of public funds

Security Services

Cyber security

CTIInfrastructure

Voice transcriptionRobotic calls

Strategies by Sector : Retail/EC/Cashless



■ Cashless, faceless cand contactless transactions will continue to spread

■ Expecting total system investment remains strong despite of declining retail sales

■ Competition in EC-related businesses will intensify due to the rapid influx of new entrants

■ Moves ahead in anticipation of device-less payment will accelerate

Key strategies

Improve profitability Retail/EC

businesses

■ Redefining target customers

■ Developing EC using our knowledge

as a core system vendor

Expand cross-selling for retailers/EC

customers

Specific targets

Boost sales of payment

terminals

■ iRITSpay


■ Sales expansion with

existing acquirers as the

core

■ Value enhancement of

payment platform

■ Expansion of payment

brands

Expand non-terminal

businesses

■ Online payment

■ Collaboration on regional

internet malls


■ Advancement of

partnership with regional

banks

■ New product

development

Cross-selling to non-acquirors

Security Services

Cyber security

CTIInfrastructure

Cloud-based call center systems, Robotic calls

Communicati－on Infrastructure

Hardware, In-house cloud, support for migrating to a 3rd party cloud

3. FY2021 Forecasts

FY2021 Consolidated Financials Forecasts


Net sales are expected to remain unchanged, while operating income and other incomes are expected to fall due to an increase in expenses incurred in

strengthening the management base

(JPY MM)

FY2020 FY2021 (plan)

Amount Ratio YoY Amount Ratio YoY

Net sales 16,289 100.0% 106.9% 16,500 100.0% 101.3%

Gross profit 5,386 33.1% 111.3% 5,500 33.3% 102.1%

SG&A 3,199 19.6% 102.8% 3,500 21.2% 109.4%

Operating income

2,186 13.4% 126.5% 2,000 12.1% 91.5%

Ordinary income 2,317 14.2% 126.0% 2,150 13.0% 92.8%

Net income attributable to owners of the parent company

1,683 10.3% 136.7% 1,580 9.6% 93.8％

New orders 18,459 - 115.6% 18,700 - 101.3%

Order backlog 15,055 - 116.8% 17,255 - 114.6%

FY2021 Forecasts by Reporting Segment


FY2020Actual

FY2021Plan

YoY

SystemSolutions

New orders 9,492 10,000 105.3％

Net sales 8,780 9,000 102.5％

Segmental profit

2,282 2,300 100.8％

ServiceSolutions

New orders 5,075 5,000 98.5％

Net sales 3,797 3,900 102.7％

Segmental profit

503 530 105.2％

InfrastructureSolutions

New orders 3,891 3,700 95.1％

Net sales 3,712 3,600 97.0％

Segmental profit

835 790 94.6％

With our strengths as the backbone, we aim to achieve sustainable

growth while contributing to "regional revitalization”

Our Goals


Leveraging our “Ability to be close to customers” for

sustainable growth

NEXT

STAGE 2023

-HENCA SINCA SOZO-

• This document is not a disclosure document under the Financial Instruments and Exchange Act, and the

accuracy and completeness of the information is not guaranteed

• This document contains forward-looking statements that are based on management's assumptions and beliefs

in light of the information available at the time of the presentation and are not guarantees of future

performance.

• This document has been prepared for the purpose of providing an understanding of ITFOR Inc., and is not

intended as a solicitation for investment in the Company. Therefore, readers should refrain from making

investment decisions based solely on this document

• The Company assumes no responsibility whatsoever for any impact or damage caused by the information

contained in this document

• All rights reserved. No part of this document may be reproduced or reprinted in any form or by any means

without prior permission


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