船井総研ホールディングス（9757） – Consolidated Financial Results for the Fiscal Year Ended December 31, 2021

February 4, 2022 Consolidated Financial Results for the Fiscal Year Ended December 31, 2021 (January 1, 2021 – December 31, 2021) Company name: Stock code: Representative: Contact: Funai Soken Holdings, Inc. 9757 Takayuki Nakatani, President & CEO Takahisa Okumura, Director and Senior Vice President, Head of Management Administration Divisional Headquarters Telephone: +81-(0)6-6232-0130 General meeting of shareholders: Scheduled date of payment of dividend: Scheduled date of filing Annual Securities Report: Supplementary materials compiled to explain financial statements: Briefing to be held to explain financial results: Stock Exchange listing: Tokyo Stock Exchange URL: https://hd.funaisoken.co.jp March 26, 2022 March 28, 2022 March 28, 2022 Yes Yes (For institutional investors and analysts) (Figures are rounded to the nearest million yen; fractions of one million discarded rather than rounded up or down) 1. Consolidated Financial Results for FY2021 (January 1, 2021 – December 31, 2021) (1) Consolidated Results of Operations (Percentages represent year-on-year change) Net sales Operating income Ordinary income Net income attributable to owners of the parent Year ended Dec. 31, 2021 Year ended Dec. 31, 2020 Notes: Comprehensive income: Million yen % Million yen % Million yen % Million yen % 28,813 25,027 15.1 (2.8) 6,349 4,982 27.4 (12.7) 6,439 5,091 26.5 (11.5) 4,373 3,498 25.0 (9.6) 4,436 million yen (up 32.4 %) in the year ended Dec. 31, 2021 3,351 million yen (down 15.2%) in the year ended Dec. 31, 2020 Earnings per share (basic) Earnings per share (diluted) Return on equity Ratio of ordinary income to total assets Ratio of operating income to net sales % 18.2 15.3 % 21.9 18.1 % 22.0 19.9 Year ended Dec. 31, 2021 Year ended Dec. 31, 2020 Reference: Equity method investment income (Million yen) Yen 88.57 70.32 Yen 87.50 69.52 Dec. 31, 2021: – Dec. 31, 2020: – (2) Consolidated Financial Position Year ended Dec. 31, 2021 Year ended Dec. 31, 2020 Total assets Net assets Equity ratio Net assets per share Million yen Million yen 30,884 27,951 25,687 23,688 % 80.7 82.4 Yen 505.04 465.60 Reference: Shareholders’ equity: 24,938 million yen in the year ended Dec. 31, 2021 23,041 million yen in the year ended Dec. 31, 2020 (3) Consolidated Cash Flow Position Net cash provided by (used in) operations Net cash provided by (used in) investments Net cash provided by (used in) financing Cash and cash equivalents at end of fiscal year Million yen Million yen 5,214 3,515 (219) 263 Million yen (2,547) (3,194) Million yen 14,675 12,216 Year ended Dec. 31, 2021 Year ended Dec. 31, 2020 2. Dividends Year ended Dec. 31, 2020 Year ended Dec. 31, 2021 Forecast for year ending Dec. 31, 2022 1Q-end 2Q-end 3Q-end Year end Total Dividend per share Total dividends Dividend payout ratio (consolidated) Dividend on equity (consolidated) Yen Yen 20.00 21.00 25.00 Yen Yen 25.00 27.00 Yen Million yen 45.00 48.00 2,232 2,370 28.00 53.00 % 64.0 54.2 54.5 % 9.8 9.9 3. Forecast for Consolidated Financial Results for FY2022 (January 1, 2022 – December 31, 2022) (Percentages represent year-on-year change, full-year figures represent change compared with previous year; first-half figures represent change compared with same period in previous fiscal year.) Net sales Operating income Ordinary income Net income attributable to owners of the parent Earnings per share First half Full year Million yen 12,300 25,300 % Million yen 3,600 7,100 % Million yen 3,600 7,150 9.9 11.8 % Million yen 2,400 4,800 8.6 11.0 % 6.4 9.7 Yen 48.60 97.21 Note: From the beginning of FY2022, we apply the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29). As such, the abovementioned consolidated earnings forecasts indicate amounts converted to reflect the application of this standard. As such, the above does not indicate a comparison of the change in net sales with the previous fiscal year or the same quarter of the previous fiscal year. Furthermore, estimates adding the impact amount on agent transactions, the main segment impacted by this standard, indicate a 11.0% increase in the full-year net sales forecast amount compared to the previous fiscal year. The impact on agent transactions is a 6,023 million yen decrease for FY2021 and a 7,700 million yen decrease for FY2022. There is no impact on operating income, ordinary income, or net income attributable to owners of the parent. (1) Changes in material subsidiaries during the fiscal year (changes in scope of consolidation): None (2) Changes in accounting policies; changes in estimates; re-statement of amendments 1) Changes in accounting policies caused by revision of accounting standards: None None None None None None None None Remarks No. of new companies added: Names of new companies added: No. of companies removed: Names of companies removed: 2) Other changes in accounting policies: 3) Changes in accounting estimates: 4) Re-statement of amendments: (3) Number of issued shares (common stock) 1) Number of shares issued at end of the period (including treasury stock) 2) Number of treasury shares at end of the As of Dec. 31, 2021 52,500,000 As of Dec. 31, 2020 52,500,000 As of Dec. 31, 2021 3,120,936 As of Dec. 31, 2020 3,011,772 period period 3) Average number of shares during the Fiscal year ended Dec. 31, 2021 49,383,914 Fiscal year ended Dec. 31, 2020 49,756,975 Note: This financial summary is excluded from audit by a CPA or auditing company. Statement Regarding the Use of Forward-Looking Statements Forecasts in these materials regarding future performance are based on reasonable judgments made in accordance with information currently available. Actual results may differ greatly from these forecasts for a number of factors. Please refer to “1. Results of Operations (4) Outlook” on page 6 of the appendix for further information concerning the conditions on which these forecasts are based and further cautions with respect to the use of forward-looking statements. Appendix Contents 1. Results of Operations …………………………………………………………………………………………………………………………………. 2 (1) This Fiscal Year’s Results …………………………………………………………………………………………………………………… 2 (2) This Fiscal Year’s Financial Position ……………………………………………………………………………………………………. 4 (3) This Fiscal Year’s Cashflow Position ……………………………………………………………………………………………………. 5 (4) Outlook …………………………………………………………………………………………………………………………………………….. 6 (5) Basic Policy Regarding Distribution of Earnings, Dividends for the Current and Next Fiscal Years ………………………………………………………………………………………………………………………………………………… 8 2. The Funai Consulting Group ……………………………………………………………………………………………………………………….. 8 3. Basic Approach to Selection of Financial Accounting Standards ……………………………………………………………………… 9 4. Consolidated Financial Statements and Notes ……………………………………………………………………………………………… 10 (1) Consolidated Balance Sheet ………………………………………………………………………………………………………………. 10 (2) Consolidated Statements of Income and Comprehensive Income ……………………………………………………………. 12 (3) Consolidated Statement of Changes in Net Assets ………………………………………………………………………………… 13 (4) Consolidated Cash Flow Statement …………………………………………………………………………………………………….. 15 (5) Notes on Consolidated Financial Statements ………………………………………………………………………………………… 16 (Notes on Going Concern Assumptions) ……………………………………………………………………………………………… 16 (Segment Information)………………………………………………………………………………………………………………………. 16 (Per-share Information) …………………………………………………………………………………………………………………….. 19 (Subsequent Events) …………………………………………………………………………………………………………………………. 20 5. Other Information ……………………………………………………………………………………………………………………………………. 21 (1) Orders and Sales ………………………………………………………………………………………………………………………………. 21 (2) Changes in Directors and Officers ………………………………………………………………………………………………………. 22 1 – 1. Results of Operations (1) This Fiscal Year’s Results During the current fiscal year, the Japanese economy was impacted by the COVID-19 pandemic at the beginning of the year, when we saw stagnant economic activity in the food and beverage industry and tourism industry, as well as restricted consumer activities due to policies calling for people to avoid leaving the home unnecessarily. Later, the number of new infection cases decreased significantly thanks to an uptake in vaccinations and corporate and consumer economic activities trended towards normalization as we headed into the end of the year. Capital expenditures by major corporations trended towards recovery but conditions remained severe for small-to-medium sized enterprises. Conditions on the employment market also remained severe due to the prolonged decline in the job opening-to-application ratio. On the other hand, consumer spending trended towards recovery thanks to an easing of restrictions on movement. In this situation, the Funai Soken Consulting Group (the “Group”) reinforced thorough infection preventions measures, both within and outside the company, offered workplace vaccination for employees, and proactively offered online seminars. In our consulting activities, we engaged in operations that flexibly combined in-person and web-based consulting based on client needs. The SMEs who make up the bulk of our Group’s clientele are addressing numerous operational issues, including adopting telecommuting and other diverse workstyles while also engaging in ESG initiatives to promote the realization of a sustainable society. Thanks in part to our Group’s united commitment to providing clients with solutions to these issues, we achieved record high earnings for the current consolidated fiscal year that even surpassed consolidated fiscal year earnings from two year ago, prior to the pandemic. Inquiries for our digital transformation (DX) consulting service, a core part of our Group’s business strategy, were strong throughout the year thanks in part to government stimulus in the form of business reconstruction subsidies and IT integration assistance funds. Customer DX consulting needs spanned across all aspects of business operations, from online sales solutions to manufacturing businesses and AI/robot automation and ERP solutions at manufacturing sites. We offer various management analysis programs as part of consulting services for mid-scale companies, and used those programs as an opportunity to establish new client contact points and offer customized solutions to address client issues. As a result, the Group posted 28,813 million yen in net sales (up 15.1% year on year), 6,349 million yen in operating income (up 27.4% year on year), 6,439 million yen in ordinary income (up 26.5% year on year), and 4,373 million yen in net income attributable to owners of the parent (up 25.0% year on year) for FY2021. Net income attributable to owners of the parent was 73 million yen above the upward revision to our earnings forecast announced when we released second quarter financial results. As for ROE, one of the financial goals outlined in our Mid-range Business Plan, we achieved 18.2%, which significantly surpassed our goal (15%). Net sales increased significantly for online advertisement agency services in the business consulting segment, our main business. We also recorded an increase in new orders received online, which resulted in increased sales for monthly consulting support services and logistics operation services in the logistics business. Consequently, net sales rose 15.1% over the previous fiscal year to 28,813 million yen. Looking at operating income, cost of sales was 19,512 million yen (previous fiscal year was 17,027 million yen), SG&A expenses were 2,951 million yen (previous fiscal year was 3,018 million yen), and marketing costs in online advertisement agency services increased. At the same time, expenses such as consulting activity travel expenses and venue hiring expenses decreased significantly. Consequently, operating income rose 27.4% over the previous fiscal year to 6,349 million yen and our operating margin increasing by 2.1 points compared to the previous consolidated fiscal year to 22.0%. 2 – Non-operating income was 131 million yen, compared with 147 million yen in the previous fiscal year, reflecting factors such as gains on sales of investment securities, while non-operating expenses were 40 million yen, compared with 38 million yen in the previous fiscal year. Consequently, ordinary income rose 26.5% over the previous fiscal year to 6,439 million yen. With income taxes totaling 2,041 million yen for the current fiscal year, compared with 1,677 million yen in the previous fiscal year, net income attributable to owners of the parent rose 25.0% year on year to 4,373 million yen. Consolidated performance for each business segment is outlined below. I. Consulting In the consulting business, orders received from the participants of online seminars and management study groups, channels for securing orders received, were favorable. Additionally, we secured orders received from client referrals and direct sales. As a result, we were able to achieve net sales and income exceeding the previous fiscal year. By industry sector, performance was firm for consulting divisions for the housing and real estate industries, our main business division, as well as the medical, aged care, and welfare industries, resulting in net sales exceeding the previous consolidated fiscal year. On a theme-specific basis, net sales grew significantly for consulting related to online marketing, business models, and finances. The solutions business is beginning to see diverse growth in DX consulting services across various industries. Some examples include DX for marketing using online sales targeting manufacturing businesses, DX for operational improvements using AI, robots, and RPA, and DX solutions for the housing and real estate industries and manufacturing industries. On the other hand, the personnel consulting market continues to face severe conditions due to constraints on aggressive recruitment activities by companies. Looking at income, income increased on higher net sales as well as online seminars and online workshops using online conference systems, as well as a large reduction in travel expenses and venue hiring expenses through the adoption of remote support. Consequently, net sales increased 16.8% year on year to 22,256 million yen, and operating income rose 21.8% year on year to 5,846 million yen. II. Logistics The logistics business saw new orders received online for the logistics operations increase thanks to new customer development and aggressive marketing activities targeting existing customers. As a result, net sales increased compared to the previous fiscal year. Logistics consulting services increased thanks to a return to investment activities by customers and favorable management study groups. Revenue in logistics trading operations also increased due to higher sales prices, although fuel sales volume shrank following a downturn in business and individual movements. Income increased thanks to favorable performance by the logistics operations services business. Consequently, net sales increased 25.5% year on year to 3,309 million yen, and operating income rose 8.7% year on year to 338 million yen. III. Direct Recruiting In the direct recruiting business, recruitment advertisements declined from a reduced level of hiring by companies since the previous fiscal year due to COVID-19’s impact. Net sales continued to struggle but operating losses 3 – decreased thanks to more efficient management of recruitment advertising and a review of marketing and other costs. Consequently, net sales shrank 16.2% year on year to 1,953 million yen, and we posted an operating loss of 115 million yen (previous consolidated fiscal year resulted in an operating loss of 174 million yen). IV. Other Businesses In other businesses, both net sales and income significantly grew year on year in the contact center consulting business due to the widespread adoption of remote channels for training and support services, and contributions from regular revenues from major accounts. In the system development business, net sales and operating income increased thanks to orders received from major clients and a recovery in new orders received from other businesses. Consequently, net sales rose 30.4% year on year to 1,272 million yen and an operating income of 82 million yen was posted compared with an operating loss of 88 million yen in the previous fiscal year. (2) This Fiscal Year’s Financial Position (Assets) Total assets increased 2,932 million yen year-on-year to 30,884 million yen at the end of FY2021. Current assets increased 2,692 million yen from the end of the previous fiscal year to 18,996 million yen. This was mainly due to increases in cash and deposits, trade notes and accounts receivable, and a decrease in short-term investment securities. Noncurrent assets grew by 240 million yen from the end of the previous fiscal year to 11,888 million yen. This was mainly due to an increase in investment securities. (Liabilities) Total liabilities increased 934 million year-on-year to 5,197 million yen at the end of FY2021. Current liabilities rose by 1,039 million yen from the end of the previous fiscal year to 5,037 million yen. This mainly reflects increases in trade notes and accounts payable, current portion of long-term bonds payable, and income taxes payable. Noncurrent liabilities declined by 105 million yen from the end of the previous fiscal year to 160 million yen. This was mainly due to a decrease in long-term loans payable. (Net Assets) Total net assets increased 1,998 million year-on-year to 25,687 million yen at the end of FY2021. This was mainly due to an increase in net income attributable to owners of the parent, and decreases in purchase of treasury shares and retained earnings as these were appropriated. As a result, the shareholders’ equity ratio as of the end of the previous consolidated fiscal year decreased 1.7% to 80.7%. 4 – (3) This Fiscal Year’s Cashflow Position Cash and cash equivalents increased 2,458 million year-on-year to 14,675 million yen at the end of FY2021. Trends in cash flow by activity are described below. (Cash Flows from Operating Activities) Cash flows from operating activities ended on a net gain of 5,214 million yen this year compared to a net gain of 3,515 million yen in the preceding year. This was mainly due to income before income taxes and other adjustments of 6,415 million yen; income taxes paid of 1,610 million yen; and income tax refunds of 540 million yen. (Cash Flows from Investing Activities) Cash flows from investing activities ended on a net loss of 219 million yen this year compared to a net gain of 263 million yen in the preceding year. This was mainly due to expenditures of 218 million yen on purchases of property, plant, and equipment, and intangible assets. (Cash Flows from Financing Activities) Cash flows from financing activities ended on a net loss of 2,547 million yen this year compared to a net loss of 3,194 million yen in the preceding year. This was mainly due to a net expenditure of 265 million yen on the sale and purchase of treasury stock, and 2,272 million yen distributed as dividends. The following table presents the historical movements of certain cash flow indices. FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 Shareholders’ equity ratio (%) Shareholders’ equity ratio based on market price (%) Interest-bearing debt to cash flow ratio (years) 83.3 498.8 82.2 309.8 79.4 434.6 82.4 80.7 446.3 418.3 0.2 0.2 0.1 0.1 0.1 Interest coverage ratio (x) 717.7 645.9 863.6 761.7 1,056.1 Notes: 1 Indices are calculated on a consolidated basis as follows: Shareholders’ equity ratio: Shareholders’ equity divided by total assets Shareholders’ equity ratio based on market price: Market capitalization divided by total assets Interest-bearing debt to cash flow ratio: Interest-bearing debt divided by operating cash flow Interest coverage ratio: Operating cash flow divided by interest payments 2 Market capitalization: Closing stock price at FY-end multiplied by the number of outstanding shares at period-end (after deducting treasury stock). Interest-bearing debt: All interest-bearing liabilities listed under liabilities on the consolidated balance sheet. 3 4 Operating cash flow and interest payments are taken from cash flows from operating activities and interest paid, respectively, as listed in consolidated cash flow statements. 5 – (4) Outlook During the current fiscal year, the Japanese economy saw economic activities begin to return to normal thanks in part to a significant drop in COVID-19 infections. Looking ahead, countries in North America and Europe are projected to see a rise in corporate and consumer prices due to higher crude oil prices and widespread supply chain constraints. In Japan, while we are seeing higher corporate prices, the environment does not support the transfer of costs onto consumer prices and we are seeing a rapid increase in infections from the latest COVID-19 variant. As a result, the various factors creating an unpredictable environment for SMEs are projected to continue. Our Group will continue to implement strategies outlined in our Mid-range Business Plan of meeting the DX adoption needs of SMEs and medium-sized enterprises by accelerating DX consulting services and consulting services for mid-scale companies. To resolve the shortage of digital human resources facing society, we concluded an exclusive business alliance agreement with ZOHO Japan Corporation for digital human resource development. Through this agreement, we will conduct digital human resource development for SMEs and medium-sized enterprises in Japan to produce numerous personnel capable of overseeing corporate digital innovation. Through our DX consulting service, we are working to resolve the issue of improving productivity at corporations. To further promote DX consulting services, in January 2022 we transferred a portion of operations at Funai Soken IT Solutions Incorporated into Funai Consulting Incorporated. And in July 2022, we will merge Funai Soken Corporate Relations, Inc. and Shinwa Computer Service Co., Ltd. to strengthen our DX-related services. As outlined above, we engage in business activities by effectively utilizing internal and external products, knowledge and human resources as well as engage in organizational restructuring. At the same time, we are committed to addressing new issues facing society, including realizing a carbon-free society, promoting diversity, investing in human capital, and the issue of sustainability facing both SMEs and medium-sized enterprises. We will continue working towards enhancing solutions to address these issues. Due to the application of the Accounting Standard for Revenue Recognition, figures outlined in our performance forecast for FY2022 reflect the application of this standard. The main impact of this application includes, net sales resulting from agent transactions from online advertisement agency services in the consulting business, recruiting advertising agency services in the direct recruiting business, and joint fuel purchasing services in the logistics business being changed from gross total to net total. Our performance forecast prior to and after application of this standard is as follows. Furthermore, we also revised FY2022 net sales figures indicated in our Mid-range Business Plan (2020 to 2022). 6 – Operating income Ordinary income Net income attributable to owners of the parent Operating income Ordinary income Net income attributable to owners of the parent Impact of applying the Accounting Standard for Revenue Recognition Performance forecast after application (Million yen) Category FYE Dec. 31, 2021 FYE Dec. 31, 2022 YoY FYE Dec. 31, 2021 FYE Dec. 31, 2022 YoY First half Full year Net sales 11,083 12,300 22,789 25,300 3,276 3,313 3,600 3,600 6,349 6,439 7,100 7,150 111.0% 109.9% 108.6% 111.0% 111.8% 111.0% 2,255 2,400 106.4% 4,373 4,800 109.7% Operating margin 29.6% 29.3% – 27.9% 28.1% – Performance forecast prior to application (reference) (Million yen) Category FYE Dec. 31, 2021 FYE Dec. 31, 2022 YoY FYE Dec. 31, 2021 FYE Dec. 31, 2022 YoY First half Full year Net sales 13,887 16,000 28,813 33,000 3,276 3,313 3,600 3,600 6,349 6,439 7,100 7,150 115.2% 109.9% 108.6% 114.5% 111.8% 111.0% 2,255 2,400 106.4% 4,373 4,800 109.7% Operating margin 23.6% 22.5% – 22.0% 21.5% – Impact amount (reference) (Million yen) First half Full year Category FYE Dec. 31, 2021 FYE Dec. 31, 2022 YoY FYE Dec. 31, 2021 FYE Dec. 31, 2022 YoY Net sales (2,803) (3,700) (6,023) (7,700) Operating income Ordinary income Net income attributable to owners of the parent – – – – – – – – – – – – Operating margin +6.0 +6.8 +5.9 +6.6 Note: The application of the Accounting Standards for Revenue Recognition mainly impacts agent transactions. As such, only those amounts are indicated. We are currently calculating the impact for amounts other than agent transactions but project that the importance of the impact of these amounts on performance is minimal. – – – – – – – – 7 – (5) Basic Policy Regarding Distribution of Earnings, Dividends for the Current and Next Fiscal Years Returning adequate earnings to shareholders is as important to us as strengthening our financial condition and management fundamentals. As such, we are determined to give back to shareholders through distribution of earnings and by buying treasury stock to an appropriate level in light of business performance. Our basic policy is to distribute surpluses in accordance with business performance, and as such, we will, with due consideration of factors such as market climate and capital efficiency, endeavor to maintain a return-to-shareholders ratio of at least 60% by using tools such as dynamic buy-backs of treasury shares. Retained earnings will be used to enhance capital through a balance of investments for the long-term growth of corporate value, and in strengthening the company’s financial condition to facilitate flexible capital policies. Based on these policies, we plan to distribute a year-end dividend for FY2021 of 27 yen per share, making a total annual dividend of 48 yen per share. In FY2022, we plan to pay an interim dividend of 25 yen per share and a year-end dividend of 28 yen per share, making a total annual dividend of 53 yen per share. Dividends per Share Interim Year end Annual total FY2021 FY2022 (forecast) 21 yen 25 yen 27 yen 28 yen 48 yen 53 yen 2. The Funai Consulting Group The group is comprised of Funai Soken Holdings and eight subsidiaries. Our core business is management consulting, and we also offer logistics, direct recruiting, and other services relating to those operations. The roles of the various Group companies in each segment are outlined below. Consulting The group is fully equipped to offer a comprehensive range of consulting services, and we focus mainly on management consulting. In addition to core management consulting solutions, we also provide industry-specific and solution-specific workshops and seminars. Group companies involved in this segment: Funai Consulting, Inc., Funai Soken Corporate Relations, Inc., Funai Consulting Shanghai, Inc. Logistics Our logistics services cover three main areas: consulting, designed to help clients reduce their logistics costs; operations, in which we design, build, and operate clients’ logistics frameworks; and trading, which helps clients reduce their purchasing costs through initiatives like joint purchasing. Group companies involved in this segment: Funai Soken Logistics, Inc. Direct Recruiting In this segment, we use IT to help clients solve the increasingly widespread problem of labor shortages, principally through recruiting advertising agency operations. Group companies involved in this segment: HR Force, Inc. 8 – Other Businesses Elsewhere, Funai Soken IT Solutions offers IT consulting services, Proseed offers contact center consulting services, and Shinwa Computer Service offers system development services. Group companies involved in this segment: Funai Soken IT Solutions, Inc., Proseed Corporation, 3. Basic Approach to Selection of Financial Accounting Standards Shinwa Computer Service Co., Ltd. The Funai Soken Consulting Group’s consolidated financial statements are prepared in accordance with Japanese financial reporting standards to provide for easier comparison of performance from year to year and company to company. Regarding whether or not to apply international financial reporting standards, we will continue to monitor the situation and act in accordance with Japanese trends regarding such accounting standards. 9 – FY12/20 (As of Dec. 31, 2020) FY12/21 (As of Dec. 31, 2021) 4. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheet Assets Current assets Cash and deposits Trade notes and accounts receivable Short-term investment securities Work in process Raw materials and supplies Other current assets Allowance for doubtful accounts Total current assets Noncurrent assets Property, plant, and equipment Buildings and structures, net Land Other property, plant, and equipment, net Total property, plant, and equipment Intangible asset Leasehold rights Software Other intangible assets Total intangible assets Investments and other assets Investment securities Assets related to retirement benefits Other investments and other assets Allowance for doubtful accounts Total investments and other assets Total noncurrent assets Total assets 16,304,701 18,996,734 (Thousand yen) 14,675,155 3,191,781 100,000 184,105 10,986 875,363 (40,657) 1,195,629 4,596,717 124,850 5,917,197 322,400 298,339 84,678 705,418 4,241,507 540,005 490,826 (6,929) 5,265,410 11,888,026 30,884,761 12,216,419 2,741,126 304,771 130,721 9,908 951,571 (49,817) 1,234,799 4,602,643 149,994 5,987,438 322,400 256,251 96,735 675,386 4,053,809 463,062 475,851 (8,258) 4,984,465 11,647,290 27,951,991 10 – FY12/20 (As of Dec. 31, 2020) FY12/21 (As of Dec. 31, 2021) Liabilities Current liabilities Trade notes and accounts payable Short-term loans payable Current portion of long-term loans payable Income taxes payable Other current liabilities Total current liabilities Noncurrent liabilities Long-term loans payable Retirement benefit liabilities Deferred tax liabilities Other noncurrent liabilities Total noncurrent liabilities Total liabilities Net assets Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustments Accumulated adjustments for retirement benefits Total accumulated other comprehensive income Subscription rights for shares Total net assets Total liabilities and net assets (Thousand yen) 535,623 200,000 100,000 1,325,288 2,876,104 5,037,015 69,872 43,657 47,050 160,579 5,197,595 3,125,231 2,946,763 22,664,750 (3,826,322) 24,910,422 76,859 23,992 (72,760) 28,090 748,651 25,687,165 30,884,761 406,535 200,000 － 841,931 2,549,217 3,997,683 100,000 68,088 56,128 41,673 265,891 4,263,574 3,125,231 2,946,634 20,565,065 (3,560,378) 23,076,553 75,241 17,074 (127,122) (34,806) 646,669 23,688,416 27,951,991 11 – (2) Consolidated Statements of Income and Comprehensive Income Consolidated Statements of Income FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) (Thousand yen) Net sales Cost of sales Gross profit SG&A expenses Operating income Non-operating income Interest income Dividend income Gain on sales of investment securities Gain on valuation of investment securities Insurance bonus income Other non-operating income Total non-operating income Non-operating expenses Interest expenses Loss on valuation of investment securities Investment partnership management expenses Foreign exchange losses Donations Other non-operating expenses Total non-operating expenses Ordinary income Extraordinary income Gain on sales of noncurrent assets Gain on sales of investment securities Total extraordinary income Extraordinary losses Loss on sales of noncurrent assets Impairment loss Loss on retirement of noncurrent assets Loss on revision of retirement benefit plan Total extraordinary losses Net income before income taxes and other adjustments Current income taxes Deferred income taxes Total income taxes Net income Net income attributable to owners of the parent 12 – 25,027,840 17,027,136 8,000,704 3,018,249 4,982,455 18,577 8,816 55,245 3,122 33,455 28,002 147,219 4,740 7,438 3,272 8,047 12,000 2,586 38,084 176 159,912 160,089 70,000 5,135 75,135 5,176,543 1,640,018 37,850 1,677,868 3,498,675 3,498,675 28,813,372 19,512,340 9,301,032 2,951,826 6,349,205 21,532 6,997 38,554 2,086 33,768 28,250 131,191 4,933 1,350 2,738 3,566 25,500 2,799 40,888 16 16 3,576 10,935 9,339 23,851 6,415,673 2,083,037 (41,236) 2,041,800 4,373,872 4,373,872 5,091,590 6,439,508 (3) Consolidated Statement of Changes in Net Assets FY12/20 (Jan. 1 – Dec. 31, 2020) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock (Thousand yen) Total shareholders’ equity Balance at start of fiscal year 3,125,231 2,947,675 19,731,165 (3,342,957) 22,461,115 (2,140,514) 3,498,675 (2,140,514) 3,498,675 (749,582) (749,582) (1,040) 4,793 3,105 6,859 (529,055) 529,055 – (1,040) 833,899 (217,421) 615,437 3,125,231 2,946,634 20,565,065 (3,560,378) 23,076,553 Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustments Accumulated adjustments for retirement benefits Total accumulated other comprehensive income Subscription rights for shares Total net assets Balance at start of fiscal year 211,575 16,146 (114,954) 112,766 591,243 23,165,126 – (2,140,514) 3,498,675 (749,582) 6,859 – Change Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Retirement of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the fiscal year Balance at end of current fiscal year Change Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Retirement of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the fiscal year Balance at end of current fiscal year 928 928 (12,167) (147,573) 55,425 (92,147) (12,167) (147,573) 55,425 523,290 75,241 17,074 (127,122) (34,806) 646,669 23,688,416 (136,333) (136,333) 13 – FY12/21 (Jan. 1 – Dec. 31, 2021) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock (Thousand yen) Total shareholders’ equity Balance at start of fiscal year 3,125,231 2,946,634 20,565,065 (3,560,378) 23,076,553 Change Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the fiscal year Balance at end of current fiscal year Change Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the fiscal year Balance at end of current fiscal year Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustments Accumulated adjustments for retirement benefits Total accumulated other comprehensive income Subscription rights for shares Total net assets Balance at start of fiscal year 75,241 17,074 (127,122) (34,806) 646,669 23,688,416 (2,274,187) 4,373,872 (2,274,187) 4,373,872 (266,079) (266,079) 128 134 263 – 128 2,099,685 (265,944) 1,833,869 3,125,231 2,946,763 22,664,750 (3,826,322) 24,910,422 (2,274,187) 4,373,872 (266,079) 263 6,917 6,917 54,362 62,897 101,982 164,879 54,362 62,897 101,982 1,998,748 76,859 23,992 (72,760) 28,090 748,651 25,687,165 1,617 1,617 14 – FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) (Thousand yen) (4) Consolidated Cash Flow Statement Net cash provided by (used in) operations Net income before income taxes and other adjustments Depreciation Impairment loss Amortization of goodwill Share-based compensation expenses Increase (decrease) in allowance for doubtful accounts Decrease (increase) in assets related to retirement benefits Increase (decrease) in liabilities related to retirement benefits Loss (gain) on valuation of investment securities Loss (gain) on sales of investment securities Interest and dividends received Interest expenses Loss (gain) on exchange Contributions Loss (gain) on sales of property, plant, and equipment Loss on retirement of property, plant, and equipment Loss on retirement of intangible assets Decrease (increase) in trade notes and accounts receivable Decrease (increase) in other assets Increase (decrease) in other liabilities Other cash provided by (used in) operations Subtotal Interest and dividends received Interest paid Income taxes paid Income taxes refunds Contributions paid Net cash provided by (used in) operations Net cash provided by (used in) investments Proceeds from sale and redemption of short-term investment securities Purchase of investment securities Proceeds from sale and redemption of investment securities Purchase of property, plant, and equipment Purchase of Intangible assets Other cash provided by (used in) investments Net cash provided by (used in) investments Net cash provided by (used in) financing Proceeds from short-term loans payable Redemption of bonds Repayment of lease obligations Purchase of treasury shares Proceeds from sale of treasury shares Dividends paid Net cash provided by (used in) financing Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at start of fiscal year Cash and cash equivalents at end of fiscal year 15 – 5,176,543 280,839 70,000 34,290 62,026 10,526 (2,033) 7,212 4,315 (215,158) (27,393) 4,740 511 12,000 (176) 2,427 2,708 128,977 (270,965) (296,173) 10,072 4,995,293 41,475 (4,615) (1,958,765) 454,299 (12,000) 3,515,687 1,000,000 (705,550) 192,231 (48,277) (175,138) 176 263,441 200,000 (500,000) (9,653) (749,988) 258 (2,135,581) (3,194,965) 1,702 585,864 11,630,554 12,216,419 6,415,673 240,553 － 23,442 101,982 (10,489) (22,580) 1,783 (735) (38,554) (28,530) 4,933 3,307 25,550 3,559 2,516 8,419 (449,762) (489,920) 475,826 5,078 6,272,053 42,901 (4,937) (1,610,671) 540,635 (25,550) 5,214,432 304,615 (724,985) 416,812 (63,237) (155,336) 2,366 (219,766) － － (9,103) (266,222) 263 (2,272,285) (2,547,348) 11,418 2,458,736 12,216,419 14,675,155 (5) Notes on Consolidated Financial Statements (Notes on Going Concern Assumptions) None to report. (Segment Information) 1 Overview of Segments Included in Reports The segments for which reports are compiled are those components of the group for which financial information can be obtained separate from other component units. Segments are reviewed periodically by the board of directors in order to make more informed decisions on how management resources can best be allocated, and in order to evaluate performance. We employ three main segments in for these reports. They are, in keeping with the categories of work performed by the companies within the group: consulting, logistics, and direct recruiting. Their activities can be defined as follows. • Consulting: Consulting services such as guidance, research, and diagnosis pertaining to company management; members-only workshops and seminars. • Logistics: Logistics services cover two main areas: consulting, designed to help clients reduce their logistics costs; and operations, in which we design, build, and operate clients’ logistics frameworks. • Direct recruiting: Using IT to help clients solve the increasingly widespread problem of labor shortages, principally through recruiting advertising agency operations. 2 Calculation of Net Sales, Income/Losses, Assets, and Other Accounts for Each Segment Accounting methods for the reported segments are largely the same as those used in the consolidated financial statements. Segment-specific income or losses are calculated based on operating income figures. Inter-segment sales and transfers are calculated based on current market prices. 16 – 3 Other Information About Net Sales, Income/Losses, Assets, and Other Accounts for Each Segment FY12/20 (Jan. 1 – Dec. 31, 2020) Consulting Logistics Others(1) Total Adjustment(2) Direct recruiting (Thousand yen) Amount listed in consolidated financial statements(3) Net sales Sales to external customers Inter-segment sales and transfers 19,058,420 2,638,029 2,331,930 975,837 25,004,218 23,622 25,027,840 123,014 236,656 4,450 8,246 372,366 (372,366) － Total 19,181,435 2,874,685 2,336,380 984,083 25,376,584 (348,744) 25,027,840 Segment income 4,801,998 311,619 (174,176) (88,501) 4,850,940 131,514 4,982,455 Segment assets 15,699,274 1,242,944 397,821 657,711 17,997,751 9,954,239 27,951,991 Depreciation 61,660 3,288 33,340 1,974 100,263 180,575 280,839 – 34,290 34,290 70,000 – 70,000 34,290 70,000 Others Amortization of goodwill Impairment loss Change in property, plant, equipment, and intangible assets – – – – 56,278 1,600 83,114 864 141,857 39,814 181,671 Notes: 1 The “others” category includes income from IT consulting, contact center consulting, and systems development. 2 Details of adjustments are as follows. (1) Adjustments of segment income or losses include elimination of inter-segment transactions and whole-group revenues and expenses that are not attributable to any segment. Whole-group revenues are comprised of outsourcing and consulting fees from group companies, property rental income and whole-group expenses are comprised of those incurred in group operations. (2) Adjustments of segment assets include elimination of inter-segment transactions and assets held throughout the group that are not attributable to any segment. Whole-group assets are comprised of assets relating to the operation of the group. (3) Adjustments of depreciation include elimination of inter-segment transactions and depreciation of assets held throughout the group that are not attributable to any segment. (4) Change in property, plant, equipment, and intangible assets includes elimination of inter-segment transactions and assets held throughout the group that are not attributable to any segment. 3 Segment income or losses are adjusted against operating income in the consolidated financial statements. – – 17 – FY12/21 (Jan. 1 – Dec. 31, 2021) Consulting Logistics Others(1) Total Adjustment(2) Direct recruiting (Thousand yen) Amount listed in consolidated financial statements(3) Net sales Sales to external customers Inter-segment sales and transfers 22,256,061 3,309,985 1,953,312 1,272,887 28,792,247 21,124 28,813,372 63,734 291,766 2,925 21,581 380,008 (380,008) – Total 22,319,795 3,601,752 1,956,238 1,294,469 29,172,256 (358,884) 28,813,372 Segment income 5,846,946 338,792 (115,021) 82,757 6,153,474 195,730 6,349,205 Segment assets 18,046,933 1,618,356 392,214 767,999 20,825,502 10,059,258 30,884,761 Depreciation 75,632 3,577 25,498 2,248 106,957 133,596 240,553 – 23,442 23,442 23,442 – Others Amortization of goodwill Change in property, plant, equipment, and intangible assets – – 120,927 12,347 30,152 7,331 170,759 58,938 229,698 Notes: 1 The “others” category includes income from IT consulting, contact center consulting, and systems development. 2 Details of adjustments are as follows. (1) Adjustments of segment income or losses include elimination of inter-segment transactions and whole-group revenues and expenses that are not attributable to any segment. Whole-group revenues are comprised of outsourcing and consulting fees from group companies, property rental income and whole-group expenses are comprised of those incurred in group operations. (2) Adjustments of segment assets include elimination of inter-segment transactions and assets held throughout the group that are not attributable to any segment. Whole-group assets are comprised of assets relating to the operation of the group. (3) Adjustments of depreciation include elimination of inter-segment transactions and depreciation of assets held throughout the group that are not attributable to any segment. (4) Change in property, plant, equipment, and intangible assets includes elimination of inter-segment transactions and assets held throughout the group that are not attributable to any segment. 3 Segment income or losses are adjusted against operating income in the consolidated financial statements. 18 – Note: 1. The basis for calculation of basic and diluted net income per share is as follows. (Per-share Information) Net assets per share Earnings per share (basic) Earnings per share (diluted) Earnings per share (basic) Net income attributable to owners of the parent (Thousand yen) Amount not attributable to common shareholders (Thousand yen) Net income attributable to common-stock owners of the parent (Thousand yen) Average number of common shares outstanding during the fiscal year Earnings per share (diluted) Adjusted net income attributable to owners of the parent (Thousand yen) Increase in common shares (Portion of increase made up of subscription rights) Summary of non-dilutive stock equivalents not used in calculation of earnings per share (diluted) Total net assets on consolidated balance sheets (Thousand yen) Deductions from total net assets (Thousand yen) (Portion of deductions made up of subscription rights) (Thousand yen) Net assets attributable to common shareholders (Thousand yen) Number of common shares used in calculation of net assets per share at end of year FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) 465.60 yen 70.32 yen 69.52 yen 505.04 yen 88.57 yen 87.50 yen FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) 3,498,675 4,373,872 3,498,675 4,373,872 49,756,975 49,383,914 – – – – 567,074 (567,074) – 604,170 (604,170) FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) 23,688,416 25,687,165 646,669 (646,669) 748,651 (748,651) 23,041,747 24,938,513 49,488,228 49,379,064 Note: 2. Basis for calculation of net assets per share is as follows. 19 – (Subsequent Events) (Absorption-type merger of consolidated subsidiary) At the Board of Directors’ meeting convened on February 4, 2022, the Company approved a proposal to merge consolidated subsidiaries Funai Soken Corporate Relations Inc. and Shinwa Computer Service Co., Ltd., and change the business name of the surviving company. 1. Company merger overview (1) Merger company names and business operations (Surviving company of absorption-type merger) Name: Funai Soken Corporate Relations Inc. Operations: SI & digital marketing services, BPO & consulting services, etc. (Eliminated company from absorption-type merger) Name: Shinwa Computer Service Co., Ltd. Operations: System development business (2) Corporate merger date July 1, 2022 (planned) (3) Corporate merger method (4) Company name following merger Funai Soken Digital Inc. (planned) Absorption-type merger with Funai Soken Corporate Relations Inc. as the surviving company and Shinwa Computer Service Co., Ltd. as the eliminated company. (5) Matters concerning a summary of other transactions Our main business is the provision of general business consulting services to SMEs. At the same time, we are expanding into DX consulting and general management consulting for medium-sized enterprises. As such, we position strengthening our hiring and development of digital personnel as a core issue. Merging Funai Soken Corporate Relations Inc., which specializes in online marketing and BPO consulting, and Shinwa Computer Service Co. Ltd., which specializes in digital human resource hiring and development, will enable us to further strengthen our Group’s digital services and provide one-stop solutions for DX services. As such, we made the decision to merge these two companies. 2. Summary of implemented accounting treatments We plan to treat transactions as transactions under common control in accordance with the Accounting Standard for Business Mergers (ASBJ Statement No. 21, January 16, 2019) and the Application Guidelines for the Accounting Standard Business Mergers and the Accounting Standard for Business Splits (ASBJ Application Guideline No. 10, January 16, 2019). 20 – 5. Other Information (1) Orders and Sales I. Orders Segment Consulting Logistics Other businesses II. Sales Segment Consulting Logistics Direct recruiting Other businesses Total Orders won by each operating segment in this consolidated fiscal year are as follows. (Thousand yen) FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) Orders received Orders outstanding Orders received Orders outstanding 12,669,210 6,320,999 14,780,162 6,736,205 400,524 318,818 185,498 77,945 671,852 514,368 282,858 86,023 Note: 1 Consulting orders above include only consulting revenues; membership fees and seminar fees are excluded as they are recurring revenues. 2 Logistics revenues include only that earned from logistics consulting activities. 3 Direct recruiting entails no consulting revenues and is therefore not included in the above table. 4 Other businesses only indicates sales from IT and contact center consulting. 5 The above amounts are based on sale prices. 6 The above amounts do not include consumption tax. Sales made by each operating segment in the current fiscal year are as follows. (Thousand yen) FY12/20 (Jan. 1 – Dec. 31, 2020) FY12/21 (Jan. 1 – Dec. 31, 2021) Amount % of total Amount % of total 19,058,420 2,638,029 2,331,930 975,837 76.2% 10.6% 9.3% 3.9% 22,256,061 3,309,985 1,953,312 1,272,887 77.3% 11.5% 6.8% 4.4% 25,004,218 100.0% 28,792,247 100.0% Note: 1 Sales amounts indicate sales to external customers. 2 The above amounts do not include consumption tax. 3 No single customer accounted for 10% or more of aggregate net sales. 21 – (2) Changes in Directors and Officers (Scheduled to take effect on March 26, 2022) 1) Legal representatives None to report. 2) Other directors and officers Scheduled resignations Name Takahisa Okumura 3) Executive officers Scheduled resignations Name Satoshi Oka New title — New title — Previous title Director and senior vice president, head of Management Administration Divisional Headquarters Previous title Executive officer, head of Business Development Office 22 – List of Directors, Auditors, and Executive Officers Funai Soken Holdings, Inc. (scheduled to take effect on March 26, 2022) Name Title Position Sakae Takashima Chairman Group CEO Takayuki Nakatani President & CEO Head of Business Administration Divisional Headquarters Head of Workforce Administration Divisional Headquarters Director and executive vice Tatsuro Ono president Nobuyuki Isagawa Outside director Miki Mitsunari Outside director Masahiro Hyakumura Atsushi Nakao Akihiro Kobayashi Director and standing member of the Audit and Supervisory Committee Outside director and member of the Audit and Supervisory Committee Outside director and member of the Audit and Supervisory Committee Akira Hamaguchi Executive officer Head of General Affairs Department Masaru Sumitomo Executive officer Head of Human Resources Development Department Tomoaki Mizoue Executive officer Head of Information Systems Department Eijiro Saito Executive officer Head of Corporate Planning Office Motoki Haruta Executive officer Head of Finance Department Funai Consulting, Inc. (scheduled to take effect on March 25, 2022) Name Title Position Yoshihito Sugahara Director and senior vice president Head of Administration Divisional Headquarters Head of Consulting Operations Divisional Headquarters Daisuke Shingai President & CEO Director and executive vice Kyohei Deguchi president Tomoyuki Murata Outside director Masahiro Hyakumura Auditor Isao Kikuchi Executive officer Head of DX Consulting Divisional Headquarters Noboru Sugiura Executive officer Headquarters & head of Consulting Divisional Deputy head of Consulting Operations Divisional Katsuya Kohira Executive officer Head of Improved Corporate Value Consulting Divisional Akiyo Koike Executive officer Head of Talent Development Center Headquarters I Headquarters 23 –