都築電気（8157） – Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending March 31, 2022 (JGAAP)

Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending March 31, 2022 (JGAAP) January 28, 2022 Tsuzuki Denki Co., Ltd. 8157 Isao Emori, Representative Director, President and CEO Toshihiro Hirai, Director and Managing Executive Officer Listing Stock Exchange: Tokyo URL: https://www.tsuzuki.co.jp/ Company name: Stock code: Representative (title): Contact (title): Tel: +81-50-3684-7780 Scheduled date for quarterly report submission: Scheduled date for dividend payment: Preparation of supplemental explanatory materials: Results briefing to be held: (April 1, 2021, to December 31, 2021) (1) Consolidated operating results 1. Consolidated financial results for the Third quarter of the fiscal year ending March 31, 2022 February 4, 2022 — None None Millions of yen (rounded down), % figures are year-on-year change Net sales Operating income Ordinary income Quarterly profit attributable to owners of parent 80,941 1.4 1,339 389.6 % 1,545 268.4 % 941 367.0 % 79,858 (6.3) 273 (82.8 %) 419 (75.6 %) 201 (82.0 %) Note: Comprehensive income was 1,218 million yen (+62.1 %) in the third quarter of year ending March 31, 2022; 751 million yen (-39.2%) in third quarter of year ended March 31, 2021. Earnings per share (yen) Diluted earnings per share (yen) (2) Consolidated financial position Total assets (millions of yen) Net assets (millions of yen) Shareholders’ equity ratio Net assets per share (yen) Reference: Shareholders’ equity at the third quarter of year ending March 31, 2022; 31,288 million yen; in year ended March 31, 2021; 30,934 million yen. 31,587 31,171 42.6% 40.6% 1,767.53 1,760.87 53.38 11.53 73,409 76,200 — — 1 Third quarter, year ending March 31, 2022 Third quarter, year ended March 31, 2021 Third quarter, year ending March 31, 2022 Third quarter, year ended March 31, 2021 Third quarter, year ending March 31, 2022 Year ended March 31, 2021 2. Dividends Dividends per share for the fiscal year (yen) End of first quarter End of second quarter End of third quarter Year-end Total 15.00 — 31.00 46.00 23.00 — 24.00 47.00 Year ended March 31, 2021 Year ending March 31, 2022 Year ending March 31, 2022 (forecast) — — Note: Revisions to most recent dividend forecast: None 3. Forecast of consolidated financial results for the fiscal year ending March 31, 2022 (April 1, 2021, to March 31, 2022) Net sales (millions of yen) Operating income (millions of yen) Ordinary income (millions of yen) % figures are year-on-year change Profit attributable to owners of parent (millions of yen) Earnings per share (yen) Full year 122,000 1.7% 4,000 24.9% 4,050 20.5% 2,700 15.1% 152.94 Note: Revisions to most recent earnings forecast: None 2 *Notes (1) Changes in significant subsidiaries (which affected scope of consolidation) during the quarter: None Newly added ___ companies (names) No longer consolidated ___ companies (names) (2) Special accounting methods used in preparation of quarterly consolidated financial statements: Yes Note: For details, please refer to Attachment page 13 “2. Consolidated financial statements and notes (3) Notes to quarterly consolidated financial statements (Application of special accounting methods in the preparation of quarterly consolidated financial statements).” (3) Changes in accounting policies, changes in accounting estimates, and restatements 1. Changes in accounting policies due to changes in accounting standards: 2. Changes in accounting policies not due to changes in accounting standards: 3. Changes in accounting estimates: 4. Restatements: Yes None None None (4) Number of shares outstanding (common stock) 1. Number of shares outstanding at year end (including treasury stock) 2. Number of shares at year end (treasury stock) 3. Average number of shares over the period Third quarter, year ending March 31, 2022 Third quarter, year ending March 31, 2022 Third quarter, year ending March 31, 2022 20,177,894 20,177,894 2,476,163 2,610,056 Year ended March 31, 2021 Year ended March 31, 2021 Third quarter, year ended March 31, 2021 17,637,843 17,482,814 Note: The number of treasury shares includes those held in the Employee Stock Ownership Plan (ESOP) trust account (133,800 in the third quarter of year ending March 2022; 210,100 in year ended March 2021), Directors’ Compensation Board Incentive Plan (BIP) trust account (346,034 in the third quarter of year ending March 2022; 380,905 in year ended March 2021); and Stock-grant ESOP trust account (463,576 in the third quarter of year ending March 2022; 486,750 in year ended March 2021). *The financial information in this quarterly report is not subject to review by certified public accountants or auditing firms. *Appropriate use of earnings forecast and other special notes. (Note on forward-looking statements) The earnings forecasts and other forward-looking statements contained in this document are based on information currently available to the Company, and certain assumptions it considers reasonable, but are not intended to be a promise that the Company will make. Actual results may vary materially from forecasts due to a variety of factors. 3 Content of attachment 1. Qualitative information on quarterly results …………………………………………………………………………………. 5 (1) Earnings ………………………………………………………………………………………………………………………………………….. 5 (2) Financial position …………………………………………………………………………………………………………………………….. 8 2. Consolidated financial statements and notes ………………………………………………………………………………. 9 (1) Quarterly consolidated balance sheet ……………………………………………………………………………………………… 9 (2) Quarterly consolidated statements of income and comprehensive income …………………………………….11 (3) Notes to quarterly consolidated financial statements ………………………………………………………………………13 (Notes on premise of going concern)………………………………………………………………………………………………..13 (Notes on significant changes in the amount of shareholders equity) ……………………………………………….13 (Application of special accounting methods in the preparation of quarterly consolidated financial statements) ………………………………………………………………………………………………………………………………………13 (Changes in accounting policies) ……………………………………………………………………………………………………..13 (Segment and other information) ………………………………………………………………………………………………………15 4 1. Qualitative information on quarterly results (1) Earnings In the first nine months of the fiscal year ending March 2022, the Japanese economy showed signs of recovery from the impact of the COVID-19 pandemic, but the situation continued to be severe due partly to the spread of virus variants. The outlook remains uncertain, and downside risks to the economy posed by supply-side constraints must continue to be monitored closely. Our group belongs to the information and communications services industry. While we expect ICT demand to continue to grow driven by various digital transformation (DX) initiatives, including pandemic-induced changes in work practices, there is no room for optimism as some companies continue to constrain their ICT capex due to deteriorating earnings. The electronic device industry performed well as semiconductor demand grew further due to a shift toward electric vehicles in the automobile industry and growing investment in data centers. In these circumstances, our group is carrying out the initiatives outlined in our medium-term management plan ending in the year ending March 2023, titled Innovation 2023, as part of our aim to support the DX efforts of client companies and to be more competitive by becoming an innovation service provider. We see the COVID-19 pandemic as a turning point, and are continuing with initiatives aimed at sustainable growth and enhancing corporate value by reforming our business structure and strengthening our management base. During the third quarter of the current fiscal year, our group announced the Total SolutionService Framework (TSF), a new service framework aimed at helping customers rapidly achieve digital transformation. Under this new framework, we released three new services, including DagreeX, an integrated management service for electronic contracts and vouchers. In addition, we have started collaborations with JIG-SAW Inc. and Nextgen, Inc. In the first nine months of the fiscal year, the Group posted net sales of ¥80,941 million (up 1.4% year-on-year), operating income of ¥1,339 million (up 389.6 % year-on-year), ordinary income of ¥1,545 million (up 268.4 % year-on-year), and profit attributable to owners of parent of ¥941 million (up 367.0 % year-on-year). In the Information Network Solutions segment, the service business including cloud services grew steadily, while the development and construction business also remained firm. However, orders and net sales were below year-earlier levels as large projects and GIGA School Concept-related orders that contributed in the previous year dropped out, and computer orders declined as remote working related demand ran its course. Furthermore, delivery delays caused by semiconductor shortages dragged performance. Meanwhile, profit grew significantly year-on-year on improved cost of sales for development and construction projects and equipment orders as well as on profit from growing service sales. In the Electronic Devices segment, both orders and net sales significantly exceeded year-earlier levels. Following on from the second quarter, robust demand in the factory automation (FA) equipment, industrial equipment, and automotive industries continued to drive strong results. Demand was especially strong for semiconductors, as well as onboard automotive information devices and HDDs used in consumer electronics. Profit also rose substantially year-on-year due to sales growth and cost cuts. The following section discusses earnings by segment in the third quarter. *Note regarding quarterly earnings for the Group Many of the Group’s customers have business years from April through March of the following year. Further, fulfilment obligations for many transactions are judged to be satisfied at a certain point, so the Group’s sales and profit tend to be concentrated in September and March, the halfway and endpoints of the fiscal year. 5 Information Network Solutions In the Third quarter of the fiscal year ending March 31, 2022, the Information Network Solutions business booked orders of ¥71,335 million (down 4.0% year-on-year), net sales of ¥60,574 million (down 5.2% year-on-year), and operating income of ¥867 million (up 432.0% year-on-year). While orders and net sales were down on the year earlier, operating profit increased significantly. Results by business model Equipment: In the equipment business, we made progress in installing tablets and PCs for customers in the financial industry and public sector. However, the business was affected by the absence of large orders and GIGA School Concept-related orders seen in the same period a year earlier and lower orders for PCs used for teleworking, as well as some delivery delays due to the semiconductor shortage. As a result, both orders and net sales were down significantly from a year earlier, totaling ¥28,653 million (down 16.7% year-on-year) and ¥21,295 million (down 21.7% year-on-year), respectively. Development and construction: Although sales from large development and construction projects fell slightly compared to the same period a year earlier, network and speech recognition platform construction projects remained robust and demand for small- and medium-sized system development projects increased. Consequently, results were up substantially compared to the same period in the previous year, with orders of ¥11,484 million (down 8.0% year-on-year) and net sales of ¥9,833 million (down 6.3% year-on-year). There were also signs of lower sales due to the shift to the service model (LCM services) Service: Following on from the second quarter, the business posted significant growth from contracts for LCM services and growth in cloud-based contact center services. As a result, orders totaled ¥31,196 million (up 6.5% year-on-year) and net sales were ¥29,446 million (up 7.2% year-on-year). Profit increased significantly from year-earlier levels. In addition to improved cost of sales in development and construction projects and equipment contracts, increased service sales from cloud-based contact center and other services contributed to profit. Electronic Devices The Electronic Devices segment booked orders of ¥27,145 million (up 60.6% year-on-year), net sales of ¥20,366 million (up 27.7% year-on-year), and operating income of ¥453 million (up 310.9% year-on-year). Orders, net sales, and operating income all significantly surpassed year-earlier levels. Orders in particular grew sharply as efforts to secure components accelerated during the global semiconductor shortage following on from the second quarter. In the devices business, orders and sales were strong. In addition to strong demand in the factory automation (FA) equipment and industrial equipment industries in Japan and overseas, sales of custom LSIs, power semiconductors, and electronic components were robust thanks to expanding demand for electric vehicles. Furthermore, customers made progress in strategically securing components in response to the prolonged component shortage. In the systems business, orders and net sales grew significantly. Although the component shortage led to difficulties in securing server-related products, demand for LCD panels and SSDs for onboard automotive information devices and HDDs used in consumer electronics continued to increase. Profit grew sharply from the same period a year ago. In both the devices and systems businesses, there was a positive impact from higher sales as we worked to procure volume amid a tight supply of components. In addition, lower costs attributable to holding efficient online meetings with customers and suppliers in light of the pandemic, as well as teleworking among employees, contributed to higher profits. 6 The following tables show sales and orders by segment in the third quarter of the fiscal year ending March, 2022. Third quarter, year ended March 2021 Third quarter, year ending March 2022 Versus third quarter of previous year 63,908 27,182 9,246 27,479 15,950 79,858 60,574 21,295 9,833 29,446 20,366 80,941 (3,333) (5,887) 586 1,967 4,415 1,082 94.8 % 78.3 % 106.3 % 107.2 % 127.7 % 101.4 % Third quarter, year ended March 2021 Third quarter, year ending March 2022 Versus third quarter of previous year 71,335 28,653 11,484 31,196 27,145 98,480 (2,994) (5,746) 853 1,898 10,238 7,243 96.0 % 83.3 % 108.0 % 106.5 % 160.6 % 107.9 % Third quarter, year ending March 2022 Versus third quarter of previous year (375) (332) 44 (87) 8,189 7,813 98.5 % 98.0 % 100.9 % 97.8 % 226.5 % 124.3 % 25,345 16,183 5,282 3,878 14,661 40,006 (1) Net sales by segment (millions of yen) Information Network Solutions Equipment Development and construction Service Electronic Devices Total Note: Inter-segment transactions are offset and eliminated. (2) Orders by segment (millions of yen) Information Network Solutions Equipment Development and construction Service Electronic Devices Total Note: Inter-segment transactions are offset and eliminated. (3) Order backlog by segment (millions of yen) Third quarter, year ended March 2021 Information Network Solutions Equipment Development and construction Service Electronic Devices Total Note: Inter-segment transactions are offset and eliminated. 74,330 34,400 10,631 29,298 16,906 91,236 25,720 16,516 5,237 3,966 6,472 32,193 7 (2) Financial position Assets totaled ¥73,409 million at the end of the quarter under review, down by ¥2,791 million from the end of the previous fiscal year. The main factors were a decline of ¥6,995 million in trade notes and accounts receivable and contract assets, and an increase of ¥3,949 million in inventory assets. Liabilities totaled ¥41,822 million at the end of the quarter, down by ¥3,207 million from the end of the previous year. The main factor was a decline of ¥3,958 million in trade notes and accounts payable. Net assets totaled ¥31,587 million at the end of the quarter, increasing ¥416 million from the end of the previous year, and the shareholders’ equity ratio was 42.6% (40.6% at the end of the previous year). The main factors in the increase were the disposal of treasury stock for ¥189 million due to the transfer of shares under the stock-grant schemes for directors and employees, and an increase of ¥111 million yen in remeasurements of defined benefit plans. Due to the application of the Accounting Standard for Revenue Recognition, retained earnings at the start of the year increased by ¥76 million. (3) Consolidated earnings forecasts and other information concerning the outlook In the first nine months of the fiscal year, the Group’s business performance was largely in line with initial expectations, helped by changes in the environment such as lifting of declarations of state of emergency and quasi-state of emergency, which eased restrictions on sales activities. However, the outlook for the global economy remains uncertain owing to the spread of COVID-19 variants. As such, there is no change to the consolidated earnings outlook for the year ending March 2022 announced on May 14, 2021. The Company will promptly inform our stakeholders if material matters arise due to a change in the COVID-19 situation or other factors. 8 2. Consolidated financial statements and notes (1) Quarterly consolidated balance sheet (Millions of yen) As of March 31, 2021 As of December 31, 2021 Assets Current assets Cash and deposits Notes and accounts receivable – trade Notes and accounts receivable – trade and contract assets Inventories Income taxes receivable Electronically recorded monetary claims Other Allowance for doubtful accounts Total current assets Noncurrent assets Property, plant and equipment Buildings and structures Accumulated depreciation Buildings and structures (net) Machinery, equipment and vehicles Accumulated depreciation Machinery, equipment and vehicles (net) Accumulated depreciation Other (net) Land Lease assets Accumulated depreciation Lease assets (net) Construction in progress Other Total property, plant and equipment Intangible assets Goodwill Lease assets Other Total intangible assets Investments and other assets Long-term loans receivable Deferred tax assets Other Allowance for doubtful accounts Investments and other assets Total assets Total noncurrent assets Investment securities 9 15,944 27,948 － 3,817 7,619 98 1,390 (77) 56,740 1,696 (891) 805 7 (6) 1 1,769 5,777 (3,240) 2,536 821 1,006 (676) 329 6,264 226 549 2,191 2,967 4,766 34 4,131 1,377 (81) 10,228 19,460 76,200 16,008 － 20,952 4,158 11,569 － 2,027 (73) 54,643 2,132 (909) 1,222 7 (6) 1 1,804 5,740 (3,687) 2,053 121 1,151 (672) 478 5,682 158 951 2,108 3,217 4,447 33 4,181 1,257 (53) 9,866 18,766 73,409 (Millions of yen) As of March 31, 2021 As of December 31, 2021 15,875 4,894 161 1,428 241 2,415 5,020 30,037 4,443 1,921 7 7,959 26 548 82 14,991 45,029 9,812 2,581 21,150 (2,472) 31,072 1,485 (3) 52 (1,672) (137) 236 31,171 76,200 11,917 5,529 4,261 1,371 482 1,130 1 6,128 30,822 190 1,866 6 8,136 26 635 136 10,999 41,822 9,812 2,581 21,163 (2,284) 31,273 1,504 (16) 87 (1,560) 14 299 31,587 73,409 Notes and accounts payable – trade Short-term loans payable Current portion of long-term loans payable Lease obligations Income taxes payable Provision for bonuses Provision for loss on order received Other Total current liabilities Liabilities Current liabilities Noncurrent liabilities Total liabilities Net assets Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Accumulated other comprehensive income Long-term loans payable Lease obligations Deferred tax liabilities Net defined benefit liability Other provision Other Total noncurrent liabilities Long-term accounts payable – other Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Noncontrolling interests Total net assets Total liabilities and net assets 10 (2) Quarterly consolidated statements of income and comprehensive income (Quarterly consolidated statement of income) (Millions of yen) Nine months ended December 31, 2020 Nine months ended December 31, 2021 79,858 66,141 13,717 13,444 273 1 96 － － 123 47 269 93 14 15 123 419 13 36 49 4 0 107 112 356 119 237 35 201 80,941 65,927 15,013 13,674 1,339 3 103 33 58 67 50 317 94 － 16 111 1,545 － 62 62 1 0 28 30 1,576 510 1,066 124 941 Net sales Cost of sales Gross profit Selling, general, and administrative expenses Operating income Non-operating income Interest income Dividend income Foreign exchange gains Insurance income Dividends income of insurance Other Total non-operating income Non-operating expenses Interest expenses Foreign exchange losses Other Total non-operating expenses Ordinary income Extraordinary income Gain on step acquisitions Gain on sales of investment securities Total extraordinary income Loss on retirement of noncurrent assets Loss on sale of investment securities Loss on valuation of investment securities Extraordinary loss Total extraordinary losses Income before income taxes and others Income taxes Net income Profit attributable to noncontrolling interests Profit attributable to owners of parent 11 (Quarterly consolidated statement of comprehensive income) (Millions of yen) Nine months ended December 31, 2020 Nine months ended December 31, 2021 Net income Other comprehensive income Valuation difference on available for sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Other comprehensive income Comprehensive income Breakdown Comprehensive income attributable to owners of parent Comprehensive income attributable to noncontrolling interests 237 502 (3) (12) 28 514 751 716 35 1,066 18 (13) 35 111 152 1,218 1,093 124 12 (3) Notes to quarterly consolidated financial statements (Notes on premise of going concern) Not applicable. (Notes on significant changes in the amount of shareholders equity) Not applicable. (Application of special accounting methods in the preparation of quarterly consolidated financial statements) (Calculation of tax expense) Tax expenses are calculated by reasonably estimating the effective tax rate after applying tax effect accounting to income before income taxes for the fiscal year, including the third quarter, and multiplying quarterly income before income taxes by the estimated effective tax rate. Note: Income taxes – deferred are included in income taxes. (Changes in accounting policies) (Application of Accounting Standard for Revenue Recognition) The Company began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020, “revenue recognition standard” below) from the start of the first quarter. The Company recognizes revenue when control of promised goods or services is transferred to the customer, in the amount expected to be received in exchange for the goods or services. Previously, the Company applied the percentage of completion method for systems development contracts when the outcome was deemed certain. However the Company has changed its revenue recognition method. Now, when control over goods or services is transferred to the customer over a certain period, the Company recognizes revenue for that period as its obligation to transfer the goods or services to the customer is satisfied. To measure the progress toward fulfilling obligations for each reporting period, costs incurred until the last day of the period as a percentage of total expected costs are calculated. Also, when it is not possible to reasonably estimate progress in the initial phase of a contract, but the Company expects to recover costs incurred, the Company recognizes revenue under the cost recovery method. For contracts with a very short period from the start of the transaction until the obligation is expected to be fully satisfied, the Company applies an alternative treatment under which revenue is not recognized for a set period but only when the obligation is fully satisfied. The Company has applied the revenue recognition standard in accordance with transitional treatment prescribed in the proviso to paragraph 84 of the Accounting Standard for Revenue Recognition. The cumulative effect of retroactively applying the new accounting policy prior to the beginning of the first quarter was added to or deducted from retained earnings at the beginning of the first quarter, and the new accounting policy was applied from the opening balance at the start of the first quarter. However, the Company has followed the treatment prescribed in paragraph 86 of the Accounting Standard for Revenue Recognition, and did not retrospectively apply the new accounting policy to contracts for which almost all of the revenue was recognized under the previous treatment before the start of the first quarter. In addition, the Company has applied the treatment prescribed in proviso 1 of paragraph 86 of the Accounting Standard for Revenue Recognition and accounted for contract changes made before the beginning of the first quarter based on the contract terms after reflecting all contract changes, and added or subtracted the cumulative effect of such changes to retained earnings at the beginning of the first quarter. As a result, third quarter net sales increased by ¥1,276 million, cost of sales increased by ¥1,027 million, and operating income, ordinary income, and income before income taxes each increased by ¥247 million. Retained earnings at the start of the year increased by ¥76 million. Because the Company applied the revenue recognition standard, what was displayed as “Notes and accounts receivable – trade” under the current assets section of the previous year’s balance sheet is “Notes and accounts receivable – trade, and contract assets” in the current year. Further, in accordance with the transitional treatment prescribed in paragraph 89-2 of the Accounting Standard for 13 Revenue Recognition, the prior year’s consolidated financial statements have not been reclassified to conform to the new presentation. (Application of Accounting Standard for Fair Value Measurement) The Company applied the Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019, “fair value standard” below) from the start of the first quarter. In accordance with the transitional treatment prescribed in paragraph 19 of the fair value standard and paragraph 44-2 of the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, July 4, 2019), the new accounting policy prescribed in the fair value standard will be applied prospectively. There is no impact on the quarterly consolidated financial statements. 14 (Segment and other information) Segment information I Third quarter of previous year (April 1, 2020, to December 31, 2020) 1. Information on net sales and profit or loss by reporting segment Reporting segment Information Network Solutions Electronic Devices Total Adjustments (Note 1) Net sales Net sales from external customers Intersegment net sales and transfers 63,908 15,950 79,858 152 156 4 Total 63,912 16,102 80,015 Segment profit Notes: 163 110 273 0 273 1 Adjustments to segment profit are elimination of intersegment transactions. 2 Segment profit is adjusted with operating income in the quarterly consolidated income statements. II Third quarter in current year (April 1, 2021, to December 31, 2021) 1. Information on sales and profit or loss by reporting segment Reporting segment Information Network Solutions Electronic Devices Total Adjustments (Note 1, 2, 3) Net sales Net sales from external customers Intersegment net sales and transfers 60,574 20,366 80,941 25 122 148 Total 60,600 20,489 81,089 Segment profit Notes: 867 453 1,321 18 1,339 1 Adjustments to segment profit are elimination of intersegment transactions. 2 Segment profit is adjusted with operating income in the quarterly consolidated income statements. 2. Notes relating to changes in reporting segments, etc. As noted in the section on accounting policy changes, the Company changed its accounting policy and applied the Accounting Standard for Revenue Recognition from the start of the first quarter, and segment profit and loss calculation methods have changed accordingly. Due to the above changes, compared with the previous accounting treatment, Information Network Solutions net sales increased by ¥1,276 million and segment profit by ¥247 million. (Millions of yen) Amount recorded in quarterly consolidated financial statements (Note 2) － (156) (156) 79,858 － 79,858 (Millions of yen) Amount recorded in quarterly consolidated financial statements (Note 2) － (148) (148) 80,941 － 80,941 15