オロ（3983） – [Delayed] Medium-term Business Plan for 2022-2024

Translation This document is an excerpt translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese document, the latter shall prevail. Medium-term Business Plan for 2022–2024 ORO Co., Ltd. Source material (Japanese) https://contents.xj-storage.jp/xcontents/AS01398/53ee3537/52bb/475f/b57b/316c88f3a5a5/140120220328512339.pdf ———————————————————————————————————————- P.2 INTRODUCTION Purpose of Formulating the Medium-term Business Plan The Group believes that its corporate mission is to enhance its corporate value over the medium to long term while contributing to the development of sustainable society. This mission is built on the conviction that the Group should co-prosper with its stakeholders, including society and the environment, by delivering more happiness and joy to more people, as set out in its corporate philosophy. The Group discloses its Medium-term Business Plan this time for the purpose of presenting its earnings outlook over the next three years and its business strategies towards improving its corporate value over the medium to long term. Over the last three years from the fiscal year ended December 31, 2019 through the fiscal year ended December 31, 2021, operating profit grew almost in line with the set targets but the growth of sales has decelerated more than expected, which has given us a sense of crisis. Accordingly, in the current Medium-term Business Plan, we have placed emphasis on presenting how we will invest in the two core business segments going forward to achieve our business growth over the medium to long term. In addition to the disclosure of the Medium-term Business Plan this time, we will strive to achieve our management philosophy, seeing recent changes in the business environment as opportunities for growth. Specifically, we will restore the speed of our business growth over the next three years from the fiscal year ending December 31, 2022 through the fiscal year ending December 31, 2024. ———————————————————————————————————————- P.3 1. SUSTAINABILITY Key element 1: Pursuit of sustainability ORO is committed in its corporate philosophy to becoming a company that delivers more happiness and joy to more Under this philosophy, we believe it is important to both realize sustainable society and pursue the sustainable growth We will deliver new values to the world and contribute to realizing sustainable society by combining our technologies ———————————————————————————————————————- people. of the Company. and creativity. 1 P.4 2. HUMAN RESOURCES Key element 2: Investment in human resources and the environment Our medium- to long-term growth relies heavily on human resources. We will add higher values to our services through the discovery and creation of new ideas with sophisticated and diverse human resources. roles in the future. We will also proactively invest in human resources in a bid to nurture next-generation human resources with a view to developing new businesses, adapting to new technologies, and having the new generation take over management Ensuring diversity in the assignment of key personnel We will build a work environment receptive to various career paths and work styles so that people of diverse characters are able to achieve self-fulfillment and, as a result, ensure and enhance the growth potential and organizational diversity of the Group. Percentage of women in managerial positions 2021:5% → 2027:10% Initiatives for developing key personnel take up key roles in promoting our business. We will enhance our recruitment and personnel development system so we can foster superior personnel who can Policy on human resources and the environment for ensuring diversity Based on the Group’s policy on human resources, we treat our employees fairly in all our corporate activities, including the recruitment, evaluation, assignment, pay raise, and promotion, and eliminate unreasonable elements that are irrelevant to their aptitude/capability. Investments and initiatives for helping our employees manifest their abilities We will promote health-oriented management to enhance the physical and mental health of our employees so that they stay healthy and motivated at work. ———————————————————————————————————————- Notice on Voluntary Adoption of International Financial Reporting Standards (IFRS) Beginning in the fiscal year ended December 31, 2021, the Company discloses its financial information in accordance P.6 with IFRS. Please note that the financial information provided in the following pages is prepared under IFRS. ———————————————————————————————————————- 2 P.8 P.9 Summary of Medium-term Business Plan Making aggressive investments to significantly accelerate growth of existing businesses Cloud Solutions (CS) Business Strengthen marketing activities to drive the acquisition of new customers Increase value added of products by strengthening product development Digital Transformation (DX) Business Upgrade services in response to ongoing shift of consumers to digitalization Strengthen sales forces at overseas business locations Increase the variety and expand sales of tools produced overseas ———————————————————————————————————————- Summary of Medium-term Business Plan Consolidated Earnings Targets Fiscal year ended Dec. 31, Fiscal year ending Dec. 31, Fiscal year ending Dec. 31, 2021 2022 2024 Revenue 5,530 million yen 6,180 million yen 8,757 million yen Operating profit 2,027 million yen 2,050 million yen 2,486 million yen Operating margin 33.2% 28.4% 36.7% 23.3% 20% or more ———————————————————————————————————————- ROE P.10 Summary of Medium-term Business Plan Earnings Targets for Cloud Solutions Business Fiscal year ended Dec. 31, Fiscal year ending Dec. 31, Fiscal year ending Dec. 31, 2021 2022 2024 Revenue 3,133 million yen 3,530 million yen 5,364 million yen Operating profit 1,485 million yen 1,550 million yen 1,807 million yen Operating margin 47.4% 43.9% 33.7% ———————————————————————————————————————- 3 P.11 P.12 P.14 Summary of Medium-term Business Plan Earnings Targets for Digital Transformation (DX) Business Fiscal year ended Dec. 31, Fiscal year ending Dec. 31, Fiscal year ending Dec. 31, 2021 2022 2024 Revenue 2,397 million yen 2,650 million yen 3,393 million yen Operating profit 519 million yen 500 million yen 679 million yen Operating margin 21.7% 18.9% 20.0% ———————————————————————————————————————- Summary of Medium-term Business Plan Trend of Consolidated Earnings Graph on left Forecast Trend of Consolidated Revenue (millions of yen) Forecast trend of consolidated revenue:16.6% Graph on right Forecast Trend of Consolidated Operating Profit and Operating Margin (millions of yen) *Includes 22 million of other income (loss) not attributable to reportable segments. ———————————————————————————————————————- Cloud Solutions Business Introduction to Cloud Solutions Business Operating business dedicated to small- to medium-size knowledge-intensive service providers Since 2006, we have delivered cloud-based ERP dedicated to knowledge-intensive service providers*, including ZAC, a mainstay product, has built a unique market position as Vertical SaaS** for small- and medium-size IT/advertisement/consulting service providers. enterprises. ERP Positioning Map by Industry/Target Customers Size * Knowledge-intensive service industry: The type of businesses in which gold-collars (workers) provide tangible/intangible deliverables or highly professional services to customers In terms of cost structure, labor costs accounts for a significant proportion in overall costs. ** Vertical SaaS: SaaS dedicated to specific industries ———————————————————————————————————————- 4 P.15 making analysis) P.16 standard Cloud Solutions Business Introduction to Cloud Solutions Business Delivering vertically integrated solutions that instantaneously provide information useful for management decision-All ZAC-brand solutions are vertically integrated, and thus, are capable of timely providing the operators/managers of knowledge-intensive businesses with data necessary for knowledge-intensive services. These solutions also help improve their operational efficiency through unified systems. Positioning Map by Industry/Business Domain Vertically integrated system capable of outputting a management report combining the pieces of data spanning across multiple operational domains Example: P/L by project, profit/loss by the type of service or client, sales/profit forecasts by segment (forecast ———————————————————————————————————————- Cloud Solutions Business Introduction to Cloud Solutions Business Focusing on front office operations and meeting industry-specific requirements with the functions provided as Since 2006, the Group has recognized about 2,000 function parameters as assets, based on its solid track record of having satisfied unique operational needs of its clients. Most recently, more than 90%** of clients have introduced ZAC without any customization. * Function parameters: Standard functions available for use just by turning flags ON or OFF, without the need for development of additional functions (Reforma PSA is not provided with function parameters) **Actual results with clients that newly placed orders in 2020 and 2021 ———————————————————————————————————————- P.17 Cloud Solutions Business Introduction to Cloud Solutions Business Providing Periodic Version Upgrades While Maintaining Flexibility in Functionality While ZAC is a large-scale system providing approximately 2,000* function parameters, we periodically upgrade the system within the scope of its maintenance service, continuing to improve its functionality and design and add new functions to the system. Enhance customer satisfaction and lower Customer Churn rate through periodic version upgrades * For ZAC Enterprise, approximately 13,000 functional parameters are available. ———————————————————————————————————————- 5 P.18 P.19 2021 2022 Cloud Solutions Business Introduction to Cloud Solutions Business Linking Flexibly with Other Companies’ Systems, Drawing on the Unique Strengths of Cloud-Based Solutions The number of companies using SaaS has been increasing year by year. As such, we have enhanced the connectivity with other companies’ systems so that client companies can complement the areas they need to strengthen with ZAC/Zac Enterprise while continuing to use existing SaaS that they hope to continue to use. ———————————————————————————————————————- Cloud Solutions Business Medium-term Business Plan Medium-term Business Outlook: Action Plan for FY2022 While aspiring to transform the users of our solutions into companies that continue to be successful as our future vision, we will strengthen product development and marketing in pursuit of our basic policy to “realize sales growth at a CAGR 20% over the medium-term by driving the acquisition of new customers.” Specifically, we aim to record revenue of 5,364 million yen (CAGR* of 19.6%) and operating profit of 1,807 million yen in 2024 especially by boosting our investment in marketing. * Average growth rate from FY2022 to FY2024 (target) 2020 ZAC/Reforma PSA Cumulative total of 1,000 companies introduced the system. Commenced periodic version upgrades for ZAC Newly established Product Marketing Position Increase the budget for marketing, aiming to achieve sales growth of 15% or more Increase the budget for product development and commence the reconfiguration of the system with the aim of tapping into the enterprise market. Take on the challenge of further lowering Customer Churn Rate Promote the full-fledged implementation of health scores and the development of a menu of high-value added services Officially consider implementing sustainability initiatives, including the measures to address climate change 2024 targets Revenue 5,364 million yen Operating profit 1,807 million yen 6 Tap new demand from large-size enterprises by evolving the system configuration so it can even serve more than 2026 Launching ZAC overseas 10,000 users ZAC/Reforma PSA 2030 ZAC/Reforma PSA Introduce the system to a cumulative total of 1,500 companies Introduce the system to a cumulative total of 3,000 companies ———————————————————————————————————————- P.20 Cloud Solutions Business Medium-term Business Plan Setting KPIs Towards Achieving Earnings Targets for Fiscal Year Ending December 31, 2024 * Abbreviation for Average Revenue Per Account. For ZAC/ZAC Enterprise, ARPA is calculated as monthly revenue associated with “ZAC license fees, maintenance fees, and SaaS and other monthly fees” and “ZAC implementation support and customization fees” per client company. For Reforma PSA, ARPA is calculated as monthly revenue associated with “Reforma PSA” per client company. ** Customer Churn Rate: Monthly customer churn rate which represents the moving average over the last twelve months of “the number of customers who terminated their subscriptions during the month + the number of customers at the beginning of the month” *** Abbreviation for Net Retention Rate. For a client from which the Group has earned revenue in the period n–1, NRR is calculated using the following formula: ARR in the period n ÷ ARR in the period n−1. For ZAC/ZAC Enterprise, NRR is calculated solely on “maintenance fees, SaaS and other monthly fees.” For Reforma PSA, NRR is calculated on its monthly fees. ———————————————————————————————————————- P.21 Cloud Solutions Business Medium-term Business Plan Medium- to Long-Term Revenue Outlook drive our sales growth. Given the low churn rate for ZAC, we will increase sales from license purchases as well as existing subscribers to To this end, we will proactively reinvest in product development and marketing while continuing to increase profit. Revenues we expected to earn by FY2024 (millions of yen) 7 One-off revenues Revenues that will increase in line with the number of new orders received Prospective revenue from license purchases on a pro rata basis Prospective revenue from license purchases in 2022 and later The portion that we can grow by driving the acquisition of new customers Revenue from license purchases on a pro rata basis Definite revenue from new subscribers acquired before 2021 and from additional license purchases by existing subscribers Revenue from prospective subscribers Revenue from monthly fees by prospective subscribers being acquired in 2022 and later The portion that we can grow by driving the acquisition of new customers Revenue from existing subscribers Revenue from monthly fees by existing subscribers acquired before 2021 Given that NRR exceeds 100%, revenue will likely grow even if the potential termination of licenses are taken into Revenue from Reforma PSA We will acquire new customers and increase revenue while lowering churn rates by driving the success of our *Percentage of recurring revenues: the percentage of revenues that are not recognized as one-off revenues but on a recurring basis over a certain period of time in total forecast revenue ———————————————————————————————————————- Cloud Solutions Business Medium-term Business Plan Medium-term Forecasts for Expenses and Operating Profits On the premise of continuing to record increased revenues & profits and satisfying the Rule of 40%, we will expand our workforce and strengthen advertising and branding measures with the aim of securing more new orders by increasing the budgets for both S&M and R&D expenses. Estimated Expenses and Operating Profits (millions of yen) account. customers. P.22 8 G&M and other expenses R&D expenses S&M expenses Operating profit increase profits P.23 Continue to expand investments so we can remain competitive over the medium- to long-termAcquire new customers by strengthening efforts to hire talented engineers and enhance the competitive strength of our products Besides strengthening our sales and marketing structure by increasing sales forces, we aim to increase new inquiries and orders and enhance the value of our brands by investing proactively in advertisement. Make proactive investments to recover sales growth by temporarily holding down margins while continuing to ———————————————————————————————————————- Cloud Solutions Business Medium-term Business Plan Actions for the Current Fiscal Year Aimed at Achieving Sales and Operating Profit Targets 1. Strengthen product development and marketing 2. Build a structure whereby we can make proposals to companies with more than 10,000 employees 3. Start to enhance the lineup of high-value added services ———————————————————————————————————————- P.24 Cloud Solutions Business Medium-term Business Plan Actions for the Current Fiscal Year Aimed at Achieving Sales and Operating Profit Targets 1 Increase an advertising budget and recruit more talent to expand our organization We will increase an advertising budget to invest in advertising and branding to acquire more new clients. At the same time, we will recruit more talent for product development and marketing activities and expand our organization to achieve the targets set in the Medium-term Business Plan. Breakdown of estimated expenses (millions of yen) Other expenses Advertising expenses Other expenses include manufacturing cost such as server cost, and general and administrative expenses. We plan to invest in marketing channels that are expected to help boost revenue in the short term. At the same time, we also plan to invest in branding with a view to acquiring new clients in the short and medium term. 9 Personnel expenses (sales and marketing talent) We seek to expand especially our marketing organization to increase the numbers of inquiries and orders. Personnel expenses (implementation consultants) We promote streamlining work while recruiting more talent so as to respond to an increase in new orders. Personnel expenses (engineers) We recruit more talent mainly new graduates to constantly enhance the appeal of our products. ———————————————————————————————————————- P.25 Cloud Solutions Business Medium-term Business Plan Actions for the Current Fiscal Year Aimed at Achieving Sales and Operating Profit Targets 2 Start reviewing system configurations and target large companies As our sales force for large-scale projects has been put in place, we will start reviewing system configurations from FY2021 and get ourselves ready for making propositions to large companies with 10,000 employees as our target market by 2026. P.26 ———————————————————————————————————————- Cloud Solutions Business Medium-term Business Plan Actions for the Current Fiscal Year Aimed at Achieving Sales and Operating Profit Targets 3 Strengthen our organizational capabilities to reduce the customer churn rate and improve customer retention We established new positions at the end of 2021, namely service planning and health score. We will more actively make propositions of high value-added services to our existing clients and increase uses of This position is engaged in offering practical know-how about business analysis with ZAC data and planning high ZAC. Service planning position value-added services for clients Health score position This position is engaged in building a system that enables clients’ ZAC usage data to be used as a health score, and early detecting what clients find difficult and providing support, thereby preventing customer churn Product marketing position Reference: This position was established at the end of 2020 This position has responsibility for selling new features and is engaged in product development planning that meets market needs precisely in order to develop high ROI products 10 ———————————————————————————————————————- P.28 Introduction to Digital Transformation Business Support large companies with digital marketing Develop strategies / propose plans → Implement the strategies and plans and measure effects / conduct analyses → Operate → Identify issues Marketing / promotion Plan and promote a marketing strategy Plan and promote advertising and PR strategies Plan and promote promotions Plan and promote direct response marketing campaigns Plan and promote relationship marketing campaigns Measure the effects of data-driven campaigns and identify areas of improvement Operational support Provide managed services on an ongoing basis including constantly managing large websites System and website integration Support the development of marketing systems and platforms Support the building of campaign platforms such as a content management system and e-commerce website Plan and implement a marketing strategy for overseas markets with the same quality as that for the Japanese market Provide one-stop support for marketing activities in overseas markets in the same way as the Japanese market Distribute foreign-made tools as an agency Platform solutions Import, localize, and distribute foreign-made tools including Semrush as an agency, and deliver customer success ———————————————————————————————————————- Introduction to Digital Transformation Business 2022–2024 Medium-term strategy for DX Business 1 Upgrade services in line with ongoing shift of consumers to digitalization, such as media of online video and digital 2 Strengthen sales forces at overseas business locations with a view to expanding overseas business in the long term 3 Increase the variety and expand sales of tools produced overseas 11 Overseas P.29 audio ———————————————————————————————————————- 2022–2024 Medium-term strategy for DX Business 1 Upgrade services in line with ongoing shift of consumers to digitalization, such as media of online video and digital Video advertising market is expected to reach one trillion yen in 2025 In the online advertising market, especially video advertising has been increasing. Amid ongoing shift of media to digitalization, we will focus on service areas of next-generation, main battlefield media, aiming to enhance the quality of our services. Graph on the right was created by the Company based on the estimate made by CyberAgent, Inc. and Digital InFact, Inc. released on January 19, 2022 Characteristics of digital media include: the feature of quantifying effects Area in which we benefit from our strength, data analysis We will go through the cycle of verifying campaigns and measuring their effects based on data obtained from the campaigns, and plan more effective product/service promotions. We will maximize advertising ROI with data ———————————————————————————————————————- 2022–2024 Medium-term strategy for DX Business 1 Upgrade services in line with ongoing shift of consumers to digitalization, such as media of online video and digital Strengthen our internal structure in 2022–2024 1. Use public relations externally / Reinforce our branding 2. Increase proven media and media to offer ad placements 3. Recruit more talent for the positions of account*, strategic planner**, and media planner*** * Account: goes through the cycle of identifying, researching, analyzing, and resolving a client’s issues, and draws up an effective plan. and draws up a most effective advertising plan. ** Strategic planner: builds a client’s brand strategy based on data obtained from market analysis and user analysis, *** Media planner: manages the overall PDCA cycle of planning ads, designing and running tests, implementing data analytics, verifying test effects, and making improvements. The planner also chooses media that best fit for a client from a variety of media channels, and verifies the effects of ads. ———————————————————————————————————————- 12 P.30 audio analysis. P.31 audio P.32 to long term. 2022–2024 Medium-term strategy for DX Business 2 Strengthen sales forces at overseas business locations with a view to expanding overseas business in the medium In 2022–2024, demand is expected to recover to pre-pandemic levels, boosting a pickup in economic activity More effective ads and promotions are demanded especially in ASEAN and Greater China Strengthen sales forces by staffing overseas business locations to fully roll out excellent, high-quality products and services to Japanese companies located abroad and local companies, using experience and knowledge about advertising and promotional services in Japan Inbound tourism demand is expected to be on a recovery trend as the pandemic is on the way to being over. Get ourselves ready for a full recovery of inbound tourism demand from 2025 onward ———————————————————————————————————————- 3 Increase the variety and expand sales of tools produced overseas 2022–2024 Medium-term strategy for DX Business All-in-one competitive analysis tool that enables competitive research and analysis in SEO, ads, and social media As a general agency in Japan, we started offering Semrush In the Company, the Semrush sales business moved into the black on a monthly basis in FY2020 In March, SEMrush Holdings, Inc. went public on the NY NASDAQ exchange In the Company, the Semrush sales business became profitable in FY2021 In the Company, Revenue of the Semrush sales business is expected to almost double YOY The number of accounts registered in Japan has steadily increased to date since we started offering the tool. The customer churn rate has been low. In 2024, we will reduce the rate and get more accounts, aiming to increase the 2022–2024 targets revenue growth rate. Measures Strengthen workforce Spend advertising expenses for branding, website ads, an increase in brand awareness, etc. Enhance functionality by increasing and improving domestic data 13 P.33 History 2018 2020 2021 2022 Other P.34 P.35 2020 2021 2022 2024 2032 Get ourselves ready for expanding a range of foreign-made tools next to Semrush ———————————————————————————————————————- Medium-term Business Plan for Digital Transformation Business Changes in revenue, and revenue and operating profit targets in this segment 2024 targets Revenue 3,393 million yen Operating profit 679 million yen Recruit more talent and increase a marketing budget Continue to invest money to increase revenue ———————————————————————————————————————- Medium-term Business Plan for Digital Transformation Business Medium-term Business Outlook: Action Plan for FY2022 We will upgrade services in line with ongoing shift of consumers to digitalization, such as media of online video and digital audio, based on data analysis we excel at. We will also strengthen sales forces to expand sales of Semrush and overseas business. We aim to achieve revenue of 3,393 million yen (CAGR 12.3%) and operating profit of 679 million yen in 2024. We terminated unprofitable projects Overseas revenue moved into the black in the second half We improved operating margin by strengthening our project management structure Acquire largest clients that become pillars of revenue Increase a marketing budget and enhance our brand image Standardize operations and build a stable service supply structure Find marketing tools next to Semrush Achieve revenue of 3,393 million yen and operating profit of 679 million yen Make marketing tools next to Semrush profitable and expand their sales Increase the ratio of overseas revenue to total DX Business revenue to one-third 14 ———————————————————————————————————————- Disclaimer: This document contains outlook, future plans, management targets, and other information about the Company. These forward-looking statements are based on assumptions about future events and trends made at the time of this document’s preparation, and the Company makes no guarantee that such assumptions are always correct. These forward-looking statements are subject to various risks and uncertainties that could cause actual performance results to differ significantly from those expressed in or suggested by the forward-looking statements. Unless otherwise noted, financial data contained in this document is presented according to generally accepted accounting principles in Japan. The Company does not assume any obligation to change or correct any forward-looking statements whether as a result of future events or other findings, unless otherwise required by disclosure rules. Information on companies other than the Company is based on public information or sources. All rights regarding this document are reserved by the Company. No part of this document shall be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the Company’s permission. 15