Slide 1: Presentation Material for FY04/2020 Full Year Financial Results
Notice 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. Presentation Material for FY04/2020 Full Year Financial
Slide 2: 1. Executive Summary
1. Executive Summary 2. Business Overview 3. FY04/2020 Full Year Performance 4. FY04/2021 Forecast 5. Growth Strategy
Slide 3: Executive Summary of FY04/2020
Executive Summary of FY04/2020 ◼ Net sales were ¥1,544 million (+12.1% year-on-year), consisting of ◼ AI (B-to-B) services: net sales of ¥817 million (+48.9% year-on-year) ◼ AI (B-to-C) services: net sales of ¥727 million yen (△12.2％ year-on-year) ◼ AI (B-to-B) services maintained a high growth rate
Slide 4: Initiatives to Prevent Spread of COVID-19
Initiatives to Prevent Spread of COVID-19 ◼ The following countermeasures have been implemented to prevent spread of COVID-19 Reduced Contact through Work From Home Other and Flexible Working Hours • Introduced a permit system for work from home and flexible hours in late February • Improved the wor
Slide 5: 2. Business Overview
1. Executive Summary 2. Business Overview 3. FY04/2020 Full Year Performance 4. FY04/2021 Forecast 5. Growth Strategy
Slide 6: Company Overview
Company Overview 2019 Listed on the First Section of Tokyo Stock Exchange (TSE) Name HEROZ, Inc. 2018 Listed on Tokyo Stock Exchange (TSE) Mothers Location PMO Tamachi 2F, 5-31-17 Shiba, Minato-ku, Capital and business alliance with Netmarble Games Corporation Tokyo 2017 Established April 2009 Capit
Slide 7: Our Vision
Our Vision Creating the future through artificial intelligence (AI) revolutions 7
Slide 8: Global Leader in Mind Game AI
Global Leader in Mind Game AI Chess AI Shogi AI Go AI Deep Blue (’97) AI developed by our Google acquired Deep Mind defeated a engineers defeated a (’14) professional Chess professional Shogi AlphaGo, developed by player (Japanese Chess) Deep Mind, defeated a player (’13) professional Go player (’16
Slide 9: B-to-B Services: Machine Learning by Replacing Shogi Game Records with Other Data
B-to-B Services: Machine Learning by Replacing Shogi Game Records with Other Data Structural design data, Shogi game records financial data, etc. HEROZ Kishin Deep learning and other machine learning: MLaaS (Machine Learning as a Service) Shogi AI Construction AI, Finance AI, etc. MLaaS： What is Mac
Slide 10: B-to-B Services: Profit Model and High Switching Costs
B-to-B Services: Profit Model and High Switching Costs Research/develop Shogi AI Standardize AI technology accumulated through shogi AI Establish “HEROZ Kishin”=MLaaS （Machine Learning as a Service） Establish an infrastructure which allows HEROZ to provide AI services efficiently Output after machin
Slide 11: B-to-B Services: Engines included in HEROZ Kishin and Examples of Applications
B-to-B Services: Engines included in HEROZ Kishin and Examples of Applications ◼ Create AI products by combining engines and achieve an efficient operating structure Know-how on AI-related technology development and and R&D capabilities service operations (deep learning, etc.) (massive servers, etc.
Slide 12: B-to-B Services: Areas of Focus and Examples of Services Provided
B-to-B Services: Areas of Focus and Examples of Services Provided ◼ Focusing on construction, finance, and entertainment for the foreseeable future ◼ Earning structure is initial setup fee and ongoing fees *Examples of clients served Construc Fi- Enter- -tion nance tainment Creation of high-quality
Slide 13: B-to-C Services: Fees from Application Users
B-to-C Services: Fees from Application Users Charging fees for B-to-C content which user AI ◼ Leveraging AI-related technology to provide mind games such as shogi, chess, and backgammon worldwide ◼ Shogi Wars has remained cash cow backed by increase of paid users on a YoY basis ◼ The governmental re
Slide 14: 3. FY04/2020 Full Year Performance
1. Executive Summary 2. Business Overview 3. FY04/2020 Full Year Performance 4. FY04/2021 Forecast 5. Growth Strategy
Slide 15: Our Key Performance Indicator
Our Key Performance Indicator ◼ We believe that EBITDA, as calculated below, is our key performance indicator EBITDA = Operating Profit + Depreciation/Amortization Expenses ◼ In AI-related businesses, server investments, etc. are required to engage in advanced machine learning, leading to various de
Slide 16: FY04/2020 Full Year Financial Performance
FY04/2020 Full Year Financial Performance ◼ In FY04/2020, net sales of 1,544 million yen (+12.1% year-on-year), EBITDA of 523 million yen (+11.2% year-on-year) and other profits were below our forecast because some of AI (B-to-B) projects were delayed compared with the original plan and SG&A/COGS in
Slide 17: Net sales and EBITDA Trends
Net sales and EBITDA Trends ◼ Net sales of AI (B-to-B) services, which is the core pillar of our growth strategy, increased by 48.9% compared with the previous fiscal year ◼ Net sales of AI (B-to-C) services, which terminated “Pokémon Duel” in October 2019, decreased by 12.2% compared with the previ
Slide 18: COGS and SG&A Trends
COGS and SG&A Trends ◼ Labor cost has increased on a year-on-year basis and is expected to keep growing to increase our engineering capacity, which will lead to our medium-to-long term growth ◼ Size-based business tax and one-time incurred expenses associated with the listing market change and capit
Slide 19: Balance Sheet (as of April 30, 2020)
Balance Sheet (as of April 30, 2020) ◼ Cash and deposits increases via public offering in December 2019 ◼ We plan to invest them in efforts to achieve the medium-to-long term growth strategy (e.g. hiring for AI engineers, in-house computing servers and external cloud computing services, expansion of
Slide 20: 4. FY04/2021 Forecast
1. Executive Overview 2. Business Overview 3. FY04/2020 Full Year Performance 4. FY04/2021 Forecast 5. Growth Strategy
Slide 21: COVID-19 Impact and Assumptions for Forecasts
COVID-19 Impact and Assumptions for Forecasts ◼ Materialized impact and potential risks relating to COVID-19 are as listed below. While decreased opportunities for sales discussions may slow down growth in the first half, COVID- 19 has not had a significant impact on our operations to date AI (B-to-
Slide 22: FY04/2021 Financial Forecast
FY04/2021 Financial Forecast ◼ We plan to invest approximately ¥4 billion, proceeds from public offering in December 2019, in hiring for AI engineers, in-house computing servers and external cloud computing services, etc. until 2022. While earnings will decrease for the foreseeable future as a resul
Slide 23: 4. Growth Strategy
1. Business Overview 2. FY04/2020 Full Year Performance 3. FY04/2021 Forecast 4. Growth Strategy
Slide 24: Japan: Potential AI Demand is Among the Largest Worldwide
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) ◼ When d
Slide 25: Use of Our AI in DX
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 decision- making, which were previousl
Slide 26: Potential AI Demand in Our Areas of Focus
Potential AI Demand in Our Areas of Focus ◼ 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 Tou
Slide 27: Medium-to-long term Growth Strategy
Medium-to-long term Growth Strategy ◼ We aim to achieve EBITDA growth by investing our cash flows and leveraging our know-how from our AI (B-to-C) services to our AI (B-to-B) services, which ・EBITDA are positioned as our key medium-to-long-term pillar of growth ◼ In our AI (B-to-B) services, we aim
Slide 28: Initiatives in Construction AI
Initiatives in Construction AI ◼ We commenced development of “AI learning engine for buildings and facilities” under a public call by New Energy and Industrial Technology Development Organization (NEDO) ◼ Takenaka Corporation’s “Development of a Next-generation Building Control System with Human Fac
Slide 29: Initiatives in Finance AI
Initiatives in Finance AI ◼ The diagnostic performance of “AI Stock Portfolio Diagnosis” (the “Service”) provided by SMBC Nikko Securities Inc. (“SMBC Nikko”) to date and the launch of additional functions for the Service were announced in March 2019 ◼ Capital gains (change in market cap) in “buy” r
Slide 30: Disclaimer
Disclaimer The contents set out in this material are prepared based on generally acknowledged economic, social and other conditions, and on certain assumptions deemed rational by HEROZ, Inc. and may therefore be subject to change without prior notice due to changes in the managerial environment or f