TechnoPro : Integrated Report 2021 (For the year ended June 30, 2021)

.Inc Holdings, TechnoPro

2021 Report Integrated

Integrated Report

2021

For the year ended June 30, 2021

TechnoPro Holdings, Inc.

35F, Roppongi Hills Mori Tower

6-10-1 Roppongi, Minato-ku,

Tokyo 106-6135, Japan

TEL: [phone]

Corporate Philosophy

The TechnoPro Group's business activities are based on "Technology," "People," and "Customer." Through all of our activities, we will contribute to the realization of a society in which technology, people, and customers can develop in a sustainable manner, transcending all boundaries such as organizations, industries, regions, and national borders.

Our Purpose

Driving the Power of Technology and Talent

to Co-create Value Together with our Customers

for a Sustainable Society

Our Value

Technology is the driver that brings transformation to business, lives, and society.

- The challenges and needs of customers and society are diversifying, as dynamic changes occur faster than ever -

We provide solutions to unlimited challenges our customers face by:

 Delivering optimal service and	 Working squarely on new, evolv-	 Always meeting our customers'
solution through our talent, trained	ing domains and honing our capa-	expectations as value-creation
and nurtured well regardless of	bilities thoroughly.	partners.
gender, age, and nationality.

We continue to maximize the potential of engineers and researchers by:

 Providing the conditions and pro-	 Creating opportunities to not only	 Supporting our talent through
grams to encourage learning and	hone their expertise but also to	technology evolutions and envi-
skill development.	switch or acquire new skills.	ronmental changes to stay active.

We contribute to building a sustainable society by:

 Solving the challenges of our cus-	 Promoting a diverse array of talent	 Delivering results that have social
tomers and society as we connect	through continuous enhancement	impact through our business ac-
people to technology, and bridge	of capabilities.	tivities.
Japan to the world, across var-
ious industries and technology
domains.

Corporate Philosophy Framework

Our Six Commitments for Excellence

1	Act with initiative and accountability	4	Be an ultimate professional and
We work with the end goal in mind, selecting the	a trusted team player
	best course of action.		We work with other entities, incorporating various
			ideas and insights for superb results.
2	Strive to improve expertise and skills	5	Act with insight and speed for
We aspire to greatness in our profession, learning	the success of others
	new skills and knowledge every day.		We monitor trends in markets and technology, an-
			ticipating needs and offering superior solutions.
3	Communicate effectively and act	6	Be perfect in legal and
with sincerity	ethical compliance
	We treat everyone with respect, building relation-		We inspire trust and confidence through perfect
	ships of understanding and trust.		compliance with labor laws, information security
			statutes and practices, and ethics rules governing
			business in general and our industry in particular.

01

TechnoPro Holdings, Inc.

Integrated Report 2021

02

Contents

Operating Results

and Business

Environment

Message from Management

Initiatives Targeting Sustainable Growth

Enhancement of

the Management Financial Report

Foundation to

Create Value

05 Financial and Non-Financial Highlights

07 Engineering Professional Services Market in Japan

• Trends and Growth in the Engineer Staffing Market
• The Accelerating Shortage of Advanced IT Engineers

03 TechnoPro Holdings, Inc.

09 Message from the CEO

• My Aspirations as CEO
• A Purpose Driven Value-Creation Story
• Walking the Path of Evolution
• Build Competitive Advantage Through DX Strategy
• Aiming to Further Enhance Our Presence

13 Message from the COO

• My Aspirations as COO
• Looking Back on the Previous Medi- um-Term Management Plan
• New Pillars such as the Solution Busi- ness Under the New Medium-Term Management Plan "Evolution 2026"
• The Growth of Our Group Will Be Achieved Through the Growth of Our Engineers

15 Message from the CFO

• Numerical Targets in "Evolution 2026"
• M&A Strategy and Capital Policy
• Disclose the Progress of Our Strategies through KPIs

17 The Value-Creation Process

Through the evolution of our capabilities and the transforma- tion of our business model, we will steadily promote initiatives to address materiality and create value while pursuing our purpose.

19 Promoting Sustainability- Centered Management

• TechnoPro Group Sustainability Policy
• Signing the United Nations Global Compact
• Revisions to the TechnoPro Group Code of Conduct

21 Material Issues (Materiality) for the TechnoPro Group

• Material Issues
• Materiality Definition and Revision Process
• Examples of Materiality Initiatives

23 Quantitative Indicators (KPIs) and Targets for Material Issues (Materiality)

• Human Resources
• Technology
• Social Responsibility
• Governance

25 Risk Management

• Events that may affect the achievement of our strategies and business objectives (both positive and negative)

1. Business Domain
2. Management Interviews

1. Message from the Chairman
2. • Integration of Four Companies, Listing, Reinforcement of Finan- cial Structure, and Improvement of Governance System
   • Don't Be Afraid of Change
3. Corporate Governance
4. • An Enhanced Governance System
   • Designing Incentives to Promote Shared Value with Shareholders
   • Demonstrating Corporate Governance Functions

1. Interview with the Chair of the Nomination and Compensation Committee
2. Skill Matrix for the Board of Directors and the Audit & Supervisory Board

1. Total Shareholder Return (TSR)
2. Interview with the Outside Directors

43 Directors

1. Audit & Supervisory Board Members
2. Activities for Compliance, Social Responsibility and Environmental Issues

49 Management's Discussion and Analysis

1. Consolidated Statement of Financial Position
2. Consolidated Statement of Income and Consolidated Statement of Comprehensive Income
3. Consolidated Statement of Changes in Equity

54 Consolidated Statement of Cash Flows

1. Company Data

1. Stock Information

Editorial Policy

This report describes the corporate philosophy and management policies of TechnoPro Holding, Inc., the business strategy of our medium-term management plan, and our sustainability initiatives. Our business activities aim to provide value to customers and society, and we believe that this approach will deliver revenue and profits as a result. We sincerely hope that this report will help our stakeholders gain a fuller understanding of our value creation activities and medium- to long-term growth potential.

Organizations Covered

This report covers the entire TechnoPro Group, comprising TechnoPro Holdings, Inc., and its consolidated subsidiaries. In this report, "the Group" or "the TechnoPro Group" refer to the entire Group; "the Company" or "TechnoPro Holdings" indicate TechnoPro Holdings, Inc., only.

Reporting Period

This report covers the fiscal year ended June 30, 2021 (July 1, 2020 to June 30, 2021). The report also refers to certain important matters outside the scope of this fiscal year.

Disclaimer Regarding Forward-Looking Statements

This report contains forward-looking statements related to the Company and the Tech- noPro Group. Such statements are based on the information available at the time this report was published and involve assumptions, inherent in which are uncertainties that could affect future operating performance. Accordingly, such statements are not guar- antees, and actual results may differ substantially from these assumptions. Furthermore, business strategies and other topics that involve predictions of the future reflect the Com- pany's understanding as of the date of publication and incorporate certain risks and uncertainties. For this reason, the future outlook may not coincide with actual results.

Integrated Report 2021

04

Operating Results and Business Environment

Financial and Non-Financial Highlights

• Revenue grew 1.8% year on year, to ¥161.3 billion, while operating profit grew 23.4% year on year, to ¥19.4 billion
• Engineers employed in Japan numbered 20,330 (including 921 non-Japanese engineers), down 934 year on year
• The annual average utilization rate of engineers in Japan was up 0.5 percentage points, to 94.6%
• The number of newly recruited engineers (including new graduates) in Japan was 1,405, down 2,993 year on year
• Average monthly unit sales price per engineer at the two major subsidiaries in Japan was ¥634,000, up ¥4,000 year on year

TechnoPro Holdings, Inc. and its subsidiaries
Consolidated fiscal years ended June 30					Millions of Yen
	2017	2018	2019	2020	2021
Revenue	100,095	116,529	144,176	158,407	161,316
Gross profit	23,435	29,475	36,466	40,226	39,727
Operating profit	9,647	11,238	13,739	15,772	19,461
Profit before income taxes	9,559	11,163	13,727	15,843	19,472
Net profit attributable to owners of the parent company	7,717	8,498	9,683	10,825	13,245
Basic earnings per share*1 (yen)	225.58	244.81	266.86	299.97	368.88
Diluted earnings per share*1 (yen)	-	244.62	266.79	-	-
Cash dividends per share of common stock*1 (yen)	112.79	120.00	134.00	150.00	185.00
Total assets	70,119	88,201	93,771	107,967	117,989
Total equity	27,696	42,967	46,065	49,509	58,733
Cash flows from operating activities	8,634	10,798	11,270	18,059	22,081
Cash flows from investing activities	(2,864)	(5,361)	(4,429)	(1,498)	(1,374)
Cash flows from financing activities	(4,087)	2,826	(7,184)	(14,927)	(11,114)

Revenue	Operating Prot	Net Prot Attributable to Owners of the Parent
		Company/Basic Earnings per Share*1

(Millions of yen)					(Millions of yen)					(Millions of yen)				(Yen)
200,000					20,000					19,461	20,000					800
				161,316
			158,407					15,772
150,000		144,176		15,000			13,739			15,000					600
															13,245
	116,529					11,238								10,825
100,000100,095
			10,000	9,647					10,000		8,498	9,683		400
												7,717			368.88
50,000					5,000						5,000	225.58 244.81 266.86 299.97	200
0					0						0					0
2017	2018	2019	2020	2021		2017	2018	2019	2020	2021		2017	2018	2019	2020	2021
(Years ended June 30)				(Years ended June 30)				(Years ended June 30)

Up 1.8%		Up 23.4%		Net profit attributable to owners	Up 22.4%
		of the parent company (left scale)
					Basic earnings per share
CAGR of 12.7%		CAGR of 19.2%		Up 23.0%
		(right scale)

Unit Sales Price per Engineer at the Two	Operating Prot Margin	ROE*2
Major Subsidiaries in Japan*5
(Thousands of yen/month)	(%)	(%)
800	20	40

Gross profit margin (%)	23.4	25.3	25.3	25.4	24.6
Operating profit margin (%)	9.6	9.6	9.5	10.0	12.1
ROE*2 (%)	29.9	24.5	22.4	23.3	25.1
Number of engineers employed in Japan (fiscal year-end)	14,346	16,797	19,293	21,264	20,330
Utilization rate of engineers in Japan*3 (%)	95.3	95.7	95.5	94.0	94.6
Number of newly recruited engineers in Japan*4	2,684	4,151	4,512	4,398	1,405
Unit sales price per engineer at the two major	626	630	630	630	634
subsidiaries in Japan*5 (thousands of yen/month)

*1 Calculated based on the number of shares BEFORE a three-for-one common stock split conducted on July 1, 2021 *2 Higher ROE due to the effect from income tax deduction derived from losses carried forward until year 2018

*3 Utilization rate (%) = The number of engineers on assignment at the end of each month divided by the total number of engineers at the end of the same month (the total number of engineers includes engineers on standby, in training, and on leave)

*4 Including talent acquisition through M&A

*5 Calculated as [Total revenue of TechnoPro, Inc. and TechnoPro Construction, Inc.]/ ∑ [Number of assigned engineers at the end of the month]

626	630	630	630	634
600
400
200
0
2017	2018	2019	2020	2021

(Years ended June 30)

Up ¥4,000

/month

	29.9
15	30

				12.1	24.5		25.1
					22.4	23.3
10	9.6	9.6	9.5	10.0	20

5							10
0							0
2017	2018	2019	2020	2021	2017	2018	2019	2020	2021
(Years ended June 30)						(Years ended June 30)
					Up 2.1					Up 1.8
				percentage points				percentage points

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TechnoPro Holdings, Inc.

Integrated Report 2021

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Operating Results and Business Environment

Engineering Professional Services Market in Japan

Trends and Growth in the Engineer Staffing Market

The Accelerating Shortage of Advanced IT Engineers

Out of a whole worker staffing market of approximately	estimated at approximately ¥2.1 trillion ($19.0 billion)*2.
¥7.8 trillion ($70.5 billion)*1 (in 2019) in Japan, the engi-	Even though the TechnoPro Group is far larger than most
neer staffing market, which calls for workers with a high	companies in the sector, its market share is only 7%,
level of expertise such as engineers and researchers, is	which gives it plenty of opportunity for growth.

Even before the COVID-19 pandemic, it was feared that there would be a significant shortage of IT engineers in Japan in the foreseeable future. During the pandemic, however, it became evident that Japan has fallen behind in the adoption of IT. Investment in digital transformation (DX) is expected to further accelerate as society settles into a new way of life known as "the new normal" moving forward.

reskill rate [the rate at which conventional personnel are converted to advanced personnel]).

Further, the labor market for engineers in Japan is still facing issues such as relatively low compensation versus overseas markets and low worker mobility that makes it difficult for engineers to move between industries and companies. In addition, the supply of workers is beginning to decline due to the declining birthrate and

Engineer Stafng

The Japanese

Worker Stafng

Market

¥7.8 trillion

Others		Software
¥319 billion
	development
(15.0%)
	¥1.1 trillion
Researchers	The Japanese	(52.6%)
¥87 billion
Engineer Stafng
(4.1%)
Construction,	Market
civil, and	¥2.1 trillion
measurement
(10.4%)
¥219 billion
Manufacturing
¥379 billion
(17.9%)

The shortage of IT engineers is intensifying due to growing demand. According to a survey commissioned by the Ministry of Economy, Trade and Industry, while the shortage of conventional IT engineers who develop websites and applications will be eliminated gradually, the shortage of advanced IT engineers who work in AI, Big Data, IoT, and similar fields is expected to grow to more than 540,000 by 2030 (Assuming moderate growth in the IT market, 0.7% growth in productivity, and a 1.0%

aging population, and the shortage of IT engineers may become even greater in the future.

In addition to training and reskilling engineers, the TechnoPro Group is willing to acquire talent beyond domestic supply constraints and employment patterns. By expanding employment possibilities for engineers, who are one of society's important resources, we hope to improve their compensation while helping resolve the shortage of engineers.

Projected Shortage in Advanced and Conventional IT Engineers

*1, *2 TechnoPro Holdings based on "Results of Engineer Dispatching Business Report" and "Engineer Dispatching Business Status as of June 1, 2019," Ministry of Health, Labour and Welfare

Top Nine Firms in the Engineer Staffing Sector

Rank		Company		Revenue (Millions of yen)		Share*1
1		TechnoPro Holdings, Inc.	147,540	7.0%
	R&D Outsourcing, Construction Management Outsourcing
2		PERSOL HOLDINGS CO., LTD.		113,095		5.4%
	Professional Outsourcing SBU
3		OUTSOUCING Inc.	106,416	5.1%
	Domestic Engineering Outsourcing Business
4		BeNext-Yumeshin Group Co. *2	100,765	4.8%
	Machinery, Electronics and IT Software, Construction
5		Meitec Corporation	95,521	4.5%
	Engineering Solutions Business
6		WDB Holdings Co., Ltd.	44,126	2.1%
7		VSN, Inc.	35,907	1.7%
8		Altech Corporation	34,715	1.7%
	The Outsourcing Business
9		Forum Engineering Inc.	27,728	1.3%

*1 Reference figures based on 2019 market size as denominator

*2 Includes pre-merger revenue for YUMESHIN HOLDINGS CO., LTD.

Source: TechnoPro Holdings based on each company data disclosed by August 31, 2021

Assuming moderate growth in the IT market, 0.7% growth in productivity, and a 1.0% reskill rate (the rate at which conventional personnel are converted to advanced personnel)

(Thousands of people)		Shortage of advanced
Expansion of needs for digitalization	IT engineers by 2030
2,000		Shortage of Advanced IT Engineers	Over 540,000
		Shortage of Conventional IT Engineers	will lead to continued expansion of
		Supply of Advanced IT Engineers	the advanced IT related market
1,500		Supply of Conventional IT Engineers

1,000

500

0

-500	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030

Source: TechnoPro Holdings based on "Survey Report about Supply and Demand of IT Engineers" by Mizuho Information & Research Institute, Inc., commissioned by the Ministry of Economy, Trade and Industry

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TechnoPro Holdings, Inc.

Integrated Report 2021

08