CUBE SYSTEM : Integrated Report 2021

Integrated Report 2021

March 2022

Management Philosophy

Companies thrive through the support of various people.

Business must continue in order to ensure people's well-being, including our employees.

The source of business continuation and development is profit, and profit is generated by customers.

Based on this philosophy, we go forward to create a globally acclaimed company.

Basic Policy

Company-wide

Customer first Clear prioritization sales-minded approach

Our Commitment in Our Name

Founded on the basic policy of placing "Customer first," demonstrate an advanced

"Brainpower (intelligence and knowledge)" in developing solutions that create "Excitement."

CU	B	E	SYSTEM
CUstomer	Brainpower	Excitement	"Synthesis of
"Customer first"	"Intelligence and	"create	CUBE elements"
	Knowledge"	Excitement"

This expresses our desire to "grow through utilizing our multi-faceted versatility,

symbolized by the shape of the CUBE (regular hexahedron)."

Innovativeness

Internationality

• Editorial Policy

CUBE SYSTEM believes in the importance of accurate, prompt and voluntary disclosure of information regarding its ESG-related initiatives in its business activities.

Founded on this policy, our financial data and non- financial data have been organized and systematized into an integrated report.

The objective of the report is to give greater clarity in information disclosure so that it is easier for our shareholders, investors and other stakeholders to understand how our group plans to achieve sustainable growth.

• Organizations covered: CUBE SYSTEM INC., and its consolidated subsidiaries in Japan and overseas
• Period covered: FY2020 (April 2020-March 2021)
  *Some information not related to the fiscal term may be included in the report.
• Date of publication: March 1, 2022
• Frequency of publication: Annual
• Information disclosure policy:
  We will disclose information accurately, promptly and voluntarily to build long-term relationships of trust with our shareholders, investors and other stakeholders.

• Reference guidelines:

International Integrated Reporting Framework, International Integrated Reporting Council (IIRC)

GRI Standards, Global Reporting Initiative (GRI)

• Important notes regarding forecasts

Business plans, forecasts and strategies in the report are founded on decision-making and assumptions made based on the data available at the date of publication.

Please accept that actual business performance may deviate significantly from forecasts as a result of changing circumstances.

¢ Publication Department:

Business Planning Dept.

Contents

Management Philosophy/

Basic Policy… ………………………… 01

The History of Value Creation

at CUBE SYSTEM… ………………… 03

Financial and Non-Financial Highlights… …………………………… 05

Message from the President……… 07

Sustainability Management at CUBE SYSTEM

Value Creation Model………………… 13

The Infrastructure that Supports

Our Value Creation… ………………… 15

Important Issues to Be Addressed

by Sustainable Management………… 23

Business Strategy

Review of VISION 2020, Our Medium- to Long-Term Management Vision… ……………… 25

New Medium- to Long-Term Management Vision,

VISION 2026………………………… 26

Highlights in Business Performance…………………………… 29

ESG Initiatives

Governance… ………………………… 31

As an independent systems integrator, we accumulate leading-edge technologies and knowhow in various fields.

Humanity

We engage in candid dialogue with customers through one- to-one interaction, and develop human resources with high level communication skills.

We are building a global and versatile business model, focusing on collaboration with overseas business partners and offshore software development.

Technology

We are acquiring a range of elemental technologies based on our wide-rangingin-depth knowledge and expertise.

¢ For further inquiries, contact:

https://www.cubesystem.co.jp/en/contact/

¢ IR Data:

https://www.cubesystem.co.jp/en/ir/

Society… ……………………………… 35

Environment…………………………… 44

Data/Corporate Information

Major Financial Data

(Consolidated)… ……………………… 45

Vitality	Youthfulness
As an independent business creator,	Through continuous reinvention, we
we take on challenges and pursue	are developing a youthful, adaptable
what is best for our customers, for our	corporate organization and culture by
partners, and ultimately, for ourselves.	valuing self-reliance and the initiative
	of our employees.

ESG Data… …………………………… 47

Corporate Information……………… 48

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CUBE SYSTEM Integrated Report 2021 02

The History of		Net sales		Operating income	2008		2020	Net	Operating
		Lehman Brothers	and non-contact communication.	sales	income
			Smile Share Product developed to
					(million yen)
					crisis		assist inter-employee engagement	15,000	1,500
Value Creation at					CUBE SYSTEM SHANGHAI
					Listed on theFirst
					2009		2014
CUBE SYSTEM			1999	Co., Ltd., established.		Section of the Tokyo
				Stock Exchange.
				Collapse of the IT
				2008
				bubble economy
					CUBE SYSTEM VIETNAM	2012
Since its establishment in 1972,					Co., Ltd., established.	VISION 2020
CUBE SYSTEM has relentlessly tackled			1991	2006	launched.	10,000	1,000
challenges in creating new value.				Collapse of the	Listed on the Second
			bubble economy
With change over time, we have moved			2002	Section of the Tokyo
			Listed on	Stock Exchange.
on to making contributions toward
			JASDAQ (OTC).
development of a sustainable society			1995
and implementing business changes.	1990
		Development and sales of
	• Company name changed to
		Swap Management System,
	CUBE SYSTEM INC.		a financial derivative trading				5,000	500
	• HOKKAIDO CUBE SYSTEM INC.		management tool.
1985	established.

Osaka Sales Office (currently

West Japan Solution Business

Division) opened.

0			0
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020	(Fiscal year)

July 1972

Customer Engineers Co., Ltd., established.

The company was established in Shinagawa-ku, Tokyo, for software development and system administration and management services.

April 1985

Osaka Sales Office opened.

The office was opened in Osaka City, Osaka to explore business in the Kansai region and boost the scale of business for the entire company.

October 1990		October 2002		May 2019
Company name changed to		Listed on JASDAQ (OTC).		Nagoya Office opened.
CUBE SYSTEM INC.		CUBE SYSTEM stocks were listed on JASDAQ.		An office was opened in Nagoya City, Aichi to expand
The company name was changed to bring greater clarity to				business in the Chubu region and expand its solutions
			service business.
its business field and management philosophy and to pursue
further business growth.		March 2014
		Listed on the First Section of the Tokyo
		Stock Exchange.
		Stock listing was changed to TSE First Section 12 years
		after JASDAQ listing.

Business expansion

June	Service agreement concluded with Fujitsu	March	CUBE SYSTEM VIETNAM Co., Ltd.,
1984	Limited.	2008	established.
	Systems engineering service agreement was		CUBE SYSTEM VIETNAM Co., Ltd. (currently a
	concluded with Fujitsu Limited. Systems integration		consolidated subsidiary) was established in Ho Chi
	service started under the agreement.		Minh City, Socialist Republic of Vietnam.

March	A basic agreement on a system	July	CUBE SHENYA SYSTEM SHANGHAI Co.,
1988	development service was concluded with	2009	Ltd. (currently CUBE SYSTEM SHANGHAI
	Nomura Research Institute, Ltd.		Co., Ltd.), established.
	A basic agreement on a system development service		CUBE SHENYA SYSTEM SHANGHAI Co., Ltd.
	was concluded with Nomura Research Institute, Ltd.		(currently a consolidated subsidiary, CUBE SYSTEM
	Systems integration and system outsourcing services		SHANGHAI Co., Ltd.) was established in Shanghai
	started under the agreement.		City, People's Republic of China.
December	HOKKAIDO CUBE SYSTEM INC., established.	August	Capital and business partnership agreement
1990	HOKKAIDO CUBE SYSTEM INC. (currently a	2018	concluded with Tripleize Co., Ltd.
	consolidated subsidiary) was established to		A capital and business partnership agreement
	strengthened business in the Tohoku and Hokkaido		was concluded with Tripleize Co., Ltd. for the
	regions.		development of new business and for business
May	Capital and business partnership agreement		growth utilizing AI, IoT and blockchain technologies.
August	Oracle Certification Award 2018
2005	concluded with Systemcreate Co., Ltd.
	A capital and business partnership agreement was	2018	The company placed first in the Oracle Cloud
	concluded with Systemcreate Co., Ltd. to expand the		Platform (PaaS/IaaS) category of the Oracle
	company's business operations.		Certification Awards 2018.

November	Partnership agreement concluded with
2020	Kinaxis Japan K.K.
	A business partnership was formed with Kinaxis
	Japan K.K., the Japanese subsidiary of Kinaxis Inc.
	(TSX:KXS), to bolster support in the Asia-Pacific
	region.

April	Partnership agreement concluded with
2021	ServiceNow Japan.
	A certified partnership agreement was concluded
	with ServiceNow Japan for transition into service
	operations founded on a unified platform, to achieve
	greater process efficiency and remote operation and
	to promote new workstyles in the age of the new
	normal.

Certification in management systems standards

• Quality

March 2001 ISO9001 certification acquired.

• Information security

December 2003 Certification was acquired under the information systems management system (ISMS) conformity assessment program and BS7799 standard.

February 2006 ISO/IEC27001 certification

acquired.

• Environment

July 2005 ISO14001 certification acquired.

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Financial and Non-Financial Highlights

Financial Highlights

Non-Financial Highlights

Net Sales

(million yen)

						(estimation)
16,000			14,325	14,708	14,788	16,000
12,899	13,559
12,800
9,600
6,400						8,060
3,200
0	FYE	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021	2022

Current Net Income Belonging to Parent Company Stockholders

(million yen)

						(estimation)
1,000					844	950
800
600	551	567	596	525
400						501
200
0	FYE	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021	2022

Cash Flows
(million yen)	CFs from operating		CFs from investing	CFs from financing	Free CFs
	activities			activities	activities
1,200	94						58
							984
800	842				46	25
400		28			727	721
936		360
	388	773	747	1,043
0
-400		-392			-339	-215
-610		-531

-800

FYE	FYE	FYE	FYE	FYE
2017	2018	2019	2020	2021

Operating Income/Operating Margin

(million yen)		Operating Income		Operating Margin	(%)

						(estimation)
1,400						1,400	10
				1,174
					(estimation)
1,120		855	921	959		8.8	9
	781
840					8
			7.9
					746
560				6.4		7
	6.1	6.3
		6.5
280					6
0	FYE	FYE	FYE	FYE	FYE	FYE	5
	2017	2018	2019	2020	2021	2022

Return on Equity
(%)						(estimation)
15					14.0	15.0
11.6	11.4	11.4
12
			9.6
9
6
3
0
FYE	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021	2022

• Interim at September 2021 (Profit×2 at September 2021)/((Equity at the beginning of April 2021+Equity at September 2021)/2)×100

Research and Development Expenses

(million yen)

100
80		83
		68
60
40	35			32	24
20
0	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021

Number of Employees (Group Total/Japan/overseas)

		Japan		Overseas
800				720	737		781
658	694		85	92
	82	93
640	90
480
320	568	612		627	652		689
160
0	FYE	FYE		FYE	FYE		FYE
	2017	2018		2019	2020		2021

Ratio of Female JP-A*/Ratio of Female Employees (non-consolidated)

(%)		Ratio of Female		Ratio of
		Employees		Female JP-A*

50
40			38.8	39.7
		29.9
30		25.7
20	16.9
10		18.0	17.5	18.3
10.9	14.1

0

FYE	FYE	FYE	FYE	FYE
2017	2018	2019	2020	2021

* Ratio of female employees in section manager posts

Employees Taking Annual Paid Leave (non- consolidated)

(%)

100
80
		61.1	67.0	56.6
60
40
20
0
FYE	FYE	FYE	FYE	FYE
2017	2018	2019	2020	2021

* No calculation results in FYE2017 and FYE2018

Employment (new hires and mid-career hires)

New hires

Mid-career hires

100
80
60
40	52	50 21	49 20	52	63
20
16			18	15
0	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021

Total Working Hours/Average Overtime Hours of Employees per Month (non-consolidated)

(hours)	Total Working		Average Overtime Hours (hours)
	Hours		of Employees per Month

600,000		27.84	26.88	30
				24.67
480,000				24
360,000				18
240,000		567,828	517,013	569,993
			12
120,000				6
0				0
FYE	FYE	FYE	FYE	FYE
2017	2018	2019	2020	2021

* No calculation results in FYE2017 and FYE2018

Employees Taking Childcare and Nursing Care Leave (non-consolidated)

Employees Taking Childcare Leave

10
8			7	8	7
		6
6
4	4
2
0	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021

* No Employees Taking Nursing Care Leave during FYE2017 to FYE2021.

Earnings per Share (yen)

(Yen)
80						(estimation)
					62.11	66.69
60
40	39.15	40.59	43.25	38.69
						(first term results)
20						37.00
0	FYE	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021	2022

Dividends per Share/Dividend Payout Ratio

(Yen)	Annual dividends	Interim dividends	Dividend payout	(%)
	(yen)		(yen)		ratio (%)
25						(estimation)	80
					23
20				18	20		64
	16	16
15	14	46.5			48
10	35.8	39.4		37.0	32.2		32
5				(interim)	(interim)	8	16
			8	8
0	FYE	FYE	FYE	FYE	FYE	FYE	0
	2017	2018	2019	2020	2021	2022

* Dividends implemented at the end of term during FYE2017 to FYE2019.

Customer Satisfaction

(points)

100

80
66.26	65.39	66.34	63.97	67.30
60
40
20
0
FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021

• Each evaluation point (quality, improvements of issues, comparison among competitors, etc.) is calculated to a 100-point maximum.

GHG Emissions (Scope 1 and 2) in Japan

(t-CO2e)
150	132.757	127.719	136.388	137.714	139.070
120
90
60
30
0	FYE	FYE	FYE	FYE	FYE
	2017	2018	2019	2020	2021

* Only for Head Office, Osaki Wiz Tower (non-consolidated)

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Message from the President

What I value in business management is Communication

• Mutual Respect. Our businesses are supported by a number of stakeholders, including our customers.
  For our sustainable growth, it is important to maintain an attitude that values each other's standpoints and ideas by holding thorough dialogues with stakeholders.
  It is also important to maintain a wide perspective. We are in a time when the business environment and social values are changing dramatically. It is important

for system engineers to keep their view wide to embrace the perspective of system users and end consumers, as well as their engineering viewpoint. Such an attitude is important not only in business but also in day-to-day tasks. We hope that our company is a group of people who can communicate actively, understand each work with a wide viewpoint, and think and act on their own initiative.

Promoting Sustainable Management

Masahiro Nakanishi

Representative Director

President & COO

CDO (Chief Digital Officer )

Looking forward, we are endeavoring to reform our business through implementation of our New Medium- to Long-Term Management Vision, V2026

CUBE SYSTEM Strengths

Our company has been continuously improving our corporate value by improving our financial and non- financial value. At the same time, we have been contributing to building a sustainable society. To define this approach, we established the Sustainability Basic Policy in November 2021. This Basic Policy was created to nurture understanding of each employee's duties and roles in social development, and to clarify our approach toward enhancing corporate value and solving social issues through our business and social contributions.

Based on this Basic Policy, our company formulated an exclusive value creation model as a framework to practice sustainable management.

This value creation model is a framework to improve our corporate value through contributing to building a sustainable society by driving forward our business toward our business vision, utilizing our solid financial

capital and diverse non-financial capital, both of which we have continued to build up to the present day.

We aim to achieve VISION 2026 (V2026) based on this model through capital increase and creating financial and non-financial value, while providing safe and secure systems to our customers that in turn contribute to their businesses. We are also actively working to achieve SDGs and reduce CO2 emissions to help minimize climate change.

Our company is also determined to address ESG issues from a medium- to long-term viewpoint. We plan to hold dialogues with stakeholders in the course of continuously improving the soundness and transparency of our business management. We continue running our value creation cycle model reflecting the opinions from stakeholders obtained through such dialogues to realize sustainable growth.

CUBE SYSTEM INC. was established in 1972, and will celebrate its 50th anniversary soon. The 70s, when the company started, was the dawn of the Information Technology (IT) era. Computers were available only to limited people and in certain fields, and its main use was merely to automate simple calculations. IT has advanced incredibly within a short period of time-having gone through changes brought about by technological development-such as conversion to open architecture and online operations-powering multiple technologies and usages today.

As the technological phases quickly changed, our company also grew along with them. Although there are many factors that support such growth, the most important factor that I recognize is our human capital.

Our company has constantly undertaken a range of active investments in human resources over the years. Our management philosophy starts with the words: "Companies thrive through the support of various

people." As demonstrated by this sentence, I believe that human capital is the driver behind our company's growth.

Under the banner of "Seek innovativeness and contribute to society with multi-faceted ideas driven dually by technology and creativity," all of our employees have been working hard to establish our corporate brand.

Also, our Management Basic Policy is "Customer first, Clear prioritization, and Company-wide sales- minded approach." Particularly with the Company- wide sales-minded approach, our system engineers themselves work on their projects maintaining direct contact with clients to fully grasp their viewpoint and potential requirements. Our engineers are encouraged to improve their human capabilities, such as communication and observation skills, to foster and carefully maintain a trusting relationship with their customers. This had led to our company's sustainable growth.

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