エムケイシステム（3910） – [Delayed]Summary of Consolidated Financial Results for the Fiscal Year Ended March 31, 2022[JapaneseGAAP]

May 9, 2022 [Japanese GAAP] Summary of Consolidated Financial Results for the Fiscal Year Ended March 31, 2022 Listing: Tokyo Stock Exchange URL: https://www.mks.jp Company name: MKSystem Corporation Stock code: 3910 Representative: Noboru Miyake, Representative Director and President Masaki Yoshida, Executive Officer, General Manager of Business Administration Division Contact: Tel: +81-6-7222-3394 Scheduled date of Annual General Meeting of Shareholders: Scheduled date of payment of dividend: Scheduled date of filing of Annual Securities Report: Preparation of supplementary materials for financial results: Holding of financial results meeting: June 21, 2022 June 22, 2022 June 21, 2022 Yes None 1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2022 (April 1, 2021 – March 31, 2022) (1) Consolidated operating results (Percentages represent year-on-year changes) Net sales Operating profit Ordinary profit (All amounts are rounded down to the nearest million yen) Fiscal year ended Mar. 31, 2022 Fiscal year ended Mar. 31, 2021 Million yen 2,742 2,439 % Million yen 145 219 12.5 2.5 % Million yen 129 218 (33.8) (30.2) Note: Comprehensive income (million yen) Fiscal year ended Mar. 31, 2022: Fiscal year ended Mar. 31, 2021: 92 141 Basic earnings per share Diluted earnings per share Return on equity Operating profit to net sales Fiscal year ended Mar. 31, 2022 Fiscal year ended Mar. 31, 2021 Yen 16.84 25.41 Yen – – % 6.6 10.5 % 5.3 9.0 Reference: Equity in earnings of affiliates (million yen) Fiscal year ended Mar. 31, 2022: – Fiscal year ended Mar. 31, 2021: – (2) Consolidated financial position Reference: Shareholders’ equity (million yen) As of Mar. 31, 2022: As of Mar. 31, 2021: 1,364 Total assets Net assets Equity ratio Million yen 2,231 2,241 Million yen 1,424 1,402 1,417 Net assets per share Yen 261.17 251.47 % 63.5 60.9 Profit attributable to owners of parent % Million yen 91 138 % (33.8) (30.0) (40.8) (30.0) (down 34.4%) (down 26.9%) Ordinary profit on total assets % 5.8 9.8 Cash flows from operating activities Million yen 493 340 Cash flows from investing activities Million yen (472) (381) Cash flows from financing activities Million yen (177) (64) Cash and cash equivalents at end of period Million yen 461 617 As of Mar. 31, 2022 As of Mar. 31, 2021 (3) Consolidated cash flows Fiscal year ended Mar. 31, 2022 Fiscal year ended Mar. 31, 2021 2. Dividends 1Q-end 2Q-end 3Q-end Year-end Total Total dividends Payout ratio (consolidated) Dividend per share Fiscal year ended Mar. 31, 2021 Fiscal year ended Mar. 31, 2022 Fiscal year ending Mar. 31, 2023 (forecast) Yen – – – Yen 0.00 0.00 0.00 Yen – – – Yen 8.00 8.00 8.00 Yen Million yen 43 8.00 43 8.00 8.00 3. Consolidated Earnings Forecasts for the Fiscal Year Ending March 31, 2023 (April 1, 2022 – March 31, 2023) (Percentages represent year-on-year changes) Profit attributable to owners of parent Basic earnings per share Operating profit Ordinary profit Net sales First half Full year Million yen 1,418 3,115 % Million yen 37 272 14.3 13.6 % Million yen 42 282 25.9 87.6 % Million yen 22 175 343.9 118.3 % – 92.6 Yen 4.17 32.42 Dividend on equity (consolidated) % 3.3 3.1 % 31.5 47.5 – * Notes (1) Changes in significant subsidiaries during the period (changes in scope of consolidation): None (2) Changes in accounting policies and accounting-based estimates, and restatements 1) Changes in accounting policies due to revisions in accounting standards, others: Yes 2) Changes in accounting policies other than 1) above: None 3) Changes in accounting-based estimates: None 4) Restatements: None (3) Number of issued shares (common stock) 1) Number of shares issued at the end of period (including treasury shares) As of Mar. 31, 2022: 5,428,000 shares As of Mar. 31, 2021: 5,428,000 shares 2) Number of treasury shares at the end of period 3) Average number of shares during the period As of Mar. 31, 2022: 506 shares As of Mar. 31, 2021: 506 shares Fiscal year ended Mar. 31, 2022: 5,427,494 shares Fiscal year ended Mar. 31, 2021: 5,427,505 shares Reference: Summary of Non-consolidated Financial Results Non-consolidated Financial Results for the Fiscal Year Ended March 31, 2022 (April 1, 2021 – March 31, 2022) (1) Non-consolidated operating results (Percentages represent year-on-year changes) Fiscal year ended Mar. 31, 2022 Fiscal year ended Mar. 31, 2021 Net sales Operating profit Ordinary profit Profit Million yen 2,156 1,929 % Million yen 124 221 11.7 8.2 % Million yen 120 225 (43.6) (38.2) % Million yen 85 151 (46.6) (37.8) % (43.5) (38.3) Fiscal year ended Mar. 31, 2022 Fiscal year ended Mar. 31, 2021 (2) Non-consolidated financial position Basic earnings per share Diluted earnings per share Yen – – Yen 15.78 27.93 As of Mar. 31, 2022 As of Mar. 31, 2021 Total assets Net assets Equity ratio Million yen 2,279 2,281 Million yen 1,564 1,522 Reference: Shareholders’ equity (million yen) * The current financial report is not subject to audit by certified public accountants or auditing firms. * Explanation of appropriate use of earnings forecasts, and other special items As of Mar. 31, 2022: 1,564 Net assets per share Yen 288.31 280.54 % 68.7 66.7 As of Mar. 31, 2021: 1,522 Forecasts of future performance in this report are based on assumptions judged to be valid and information available to the MKSystem’s management at the time the materials were prepared but are not promises by MKSystem regarding future performance. Actual results may differ significantly from these forecasts for a number of reasons. MKSystem Corporation (3910) Financial Results for FY3/22 Contents of Attachments 1. Overview of Results of Operations, etc. (1) Results of Operations (2) Financial Position (3) Cash Flows (4) Outlook 2. Basic Approach to the Selection of Accounting Standards 3. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheet (2) Consolidated Statements of Income and Comprehensive Income (3) Consolidated Statement of Changes in Equity (4) Consolidated Statement of Cash Flows (5) Notes to Consolidated Financial Statements Going Concern Assumption Changes in Accounting Policies Segment and Other Information Per Share Information Subsequent Events 2 2 3 4 4 6 7 7 9 11 12 13 13 14 15 15 13 1 1. Overview of Results of Operations, etc. (1) Results of Operations MKSystem Corporation (3910) Financial Results for FY3/22 During the fiscal year ended March 31, 2022 (hereinafter “the current fiscal year”), the promotion of vaccination against COVID-19 continued to bring about a pick up in the Japanese economy; however, considering new threats from variants, semiconductor shortage, surges in resource prices stemmed from the Russian and Ukraine situation, and supply chain disruption, the impact of such factors on the domestic and foreign economies still remained unpredictable. In the domestic information service industry and the field of personnel and labor management, in which MKSystem Corporation and its group companies (hereinafter collectively “the Group”) are involved, the government has promoted the work-style reform, the rapid transition to teleworking as a measure against the COVID-19 infections, or furtherance of DX (digital transformation) to improve business efficiency. On these backgrounds corporate investment demand remained increasing, though companies are being cautious about investing and postponing new investment considering the impact of COVID-19 situation, which repeatedly worsens and improves, on corporate performance. Under these circumstances, the Group worked to further enhance our customers’ satisfaction, by actively utilizing online seminars and remote meetings so that customers could improve their operational efficiency and create added value. As a result, for the current fiscal year, the Group reported net sales of 2,742 million yen (up 12.5% year on year), cost of sales of 1,468 million yen (up 18.5% year on year), the ratio of cost of sales to net sales of 53.5% (up 2.8 percentage points year on year), gross profit of 1,274 million yen (up 6.2% year on year), operating profit of 145 million yen (down 33.8% year on year), the ratio of operating profit to net sales of 5.3% (down 3.7 percentage points year on year), ordinary profit of 129 million yen (down 40.8% year on year), and profit attributable to owners of parent of 91 million yen (down 33.8% year on year). In addition, the return on equity (ROE), one of the KPIs for the Group, was 6.6% (down 3.9 percentage points year on year) on a consolidated basis and 5.5% (down 4.8 percentage points year on year) on a non-consolidated basis. Results by business segment were as follows. The Shalom Business A growing number of companies as well as labor and social security attorney offices, our main customers, are motivated to introduce relevant systems from an increasing need for operational efficiency for the work-style reforms including teleworking. At the same time, we expect an intensified competition and pricing pressure as we witness active entries in the market. Under these circumstances, in the Shalom Business, we promoted quality improvement and function enhancement of the product lines, including Shalom, “ShaRobo,” an official Shalom RPA, and “Cloud Pocket,” an official documents distribution system. For services for labor and social security attorneys, the “Shalom” series, our mainstay service, saw an increase in the number of contracts for the House Plan. This is thanks to a campaign to discount the initial cost and the adoption of the subsidies under the Project to Support Introduction of IT for Improvement of Service Productivity, which lead to increased inquiries from potential customers every year. For corporate services, we boosted sales with an increase in new orders of “eNEN,” a web-based year-end tax adjustment system and a resulting increase of the number of employees using the system. At the same time, in addition to our continued action to publish an article about the Shalom Company Edition on “IT Trend,” we held small seminars to find potential demand for peripherals and related products, thereby striving for acquiring higher potential projects. As a result, sales of the cloud services, which consist of ASP services and system construction services, were 2,025 million yen (up 13.3% year on year). This was attributable to sales of ASP services amounted to 1,818 million yen (up 10.9%) due to accumulated monthly usage fees in line with increases in the number of IDs issued and the number of customers who use our main services of Shalom brand products, and sales of system construction services amounted to 207 million yen (up 39.3%) mainly due to an increase in the number of Shalom House Plan 2 MKSystem Corporation (3910) Financial Results for FY3/22 contracts. In addition, sales of system products were 99 million yen (down 3.5%). On the other hand, personnel and labor costs increased due to the active recruitment in conjunction with strengthening of sales and development systems. In addition, promotion expenses increased due to the strengthening of digital marketing aimed at increasing customer acquisition. Consequently, the segment recorded net sales of 2,156 million yen (up 11.7% year on year), gross profit of 1,083 million yen (up 7.7%) and operating profit of 124 million yen (down 43.6%). The ratio of operating profit to net sales, one of the KPIs for the Group, was 5.8% (down 5.7 percentage points). The CuBe Business We have been engaged in the contracted development of front-end systems, customized to needs of an individual company, for the personnel and general affairs divisions of large companies to improve their business processes. The CuBe Business also provides cloud services that bring the convenience to small- and medium-sized companies by leveraging our know-how gained through the contracted development of systems for large companies. In the contract development of front-end systems, customers of large companies and local governments have been actively investing in system renewal for the purpose of work-style reform, teleworking promotion, and personnel system reform. Responding to such a situation, we strengthened our sales system and stimulated our clients into ordering, which brought about several large-scale development projects that we have not seen in recent years and a significant increase in sales. In the cloud service business, on the other hand, we strove to develop new sales channels for “GooooN” and win new users. On the cost front, efforts to improve development efficiency and reduce the cost of sales ratio on a project-by-project basis have resulted in improved profit margin compared to that for the previous fiscal year. As a result, the segment recorded net sales of 615 million yen (up 11.8% year on year), gross profit of 194 million yen (down 0.2%) and operating profit of 9 million yen (compared with operating loss of 5 million yen for the previous fiscal year). Operating profit of the CuBe Business reflects amortization of goodwill of 38 million yen. Sales and composition by segment Amount (Millions of yen) Composition (%) Shalom Business Cloud service System product sale Other services CuBe Business Total (2) Financial Position Assets 2,136 2,025 99 11 606 2,742 77.9 73.9 3.6 0.4 22.1 100.0 The balance of current assets at the end of the current fiscal year was 1,056 million yen (down 9.9% from the end of the previous fiscal year), consisting primarily of 468 million yen in cash and deposits and 475 million yen in accounts receivable-trade. The balance of non-current assets was 1,174 million yen (up 9.9% from the end of the previous fiscal year), consisting primarily of 438 million yen in software, 174 million yen in goodwill, 162 million yen in guarantee deposits, and 124 million yen in buildings. As a result, the balance of total assets was 2,231 million yen (down 0.4% from the end of the previous fiscal year). Liabilities The balance of current liabilities at the end of the current fiscal year was 751 million yen (up 28.1% from the end of the previous fiscal year), consisting primarily of 197 million yen in current portion of long-term borrowings, 156 million yen in accounts payable-other, and 86 million yen in advances received. 3 MKSystem Corporation (3910) Financial Results for FY3/22 The balance of non-current liabilities was 55 million yen (down 78.0% from the end of the previous fiscal year), consisting solely of 55 million yen in long-term borrowings. As a result, the balance of total liabilities was 807 million yen (down 3.8% from the end of the previous fiscal year). Net assets The balance of shareholders’ equity at the end of the current fiscal year was 1,417 million yen (up 3.9% from the end of the previous fiscal year), consisting primarily of 219 million yen in share capital, 202 million yen in capital surplus, and 996 million yen in retained earnings. As a result, the balance of net assets was 1,424 million yen (up 1.6% from the end of the previous fiscal year). (3) Cash Flows The balance of cash and cash equivalents (hereinafter “net cash”) at the end of the current fiscal year decreased 156 million yen from the end of the previous fiscal year to 461 million yen. The details of cash flows during the current fiscal year from each activity and the major components of changes are as follows. Cash flows from operating activities Net cash provided by operating activities was 493 million yen. Major positive factors include profit before income taxes of 129 million yen, depreciation of 376 million yen and amortization of goodwill of 38 million yen. Major negative factors include income taxes paid of 76 million yen, a 32 million yen increase in inventories and a 7 million yen increase in trade receivables. Cash flows from investing activities Net cash used in investing activities was 472 million yen. Major positive factors include proceeds from withdrawal of time deposits of 20 million yen. Major negative factors include purchase of intangible assets of 441 million yen and purchase of property, plant and equipment of 48 million yen. Cash flows from financing activities Net cash used in financing activities was 177 million yen. Major positive factors include a 126 million yen net increase in short-term borrowings, while major negative factors include repayments of long-term borrowings of 233 million yen and dividends paid of 43 million yen. (4) Outlook The future situation is expected to remain unclear due to possible re-spreading of COVID-19 infection, uncertainty over how the Ukraine situation will turn out, global financial tightening, and other concerns. In the personnel and labor market, in which the Group provides services, demands for systems for corporate activities are predicted to keep expanding, given environmental changes and initiatives to reform work styles with an eye for post-pandemic transitions. With such prediction considered, investments in new equipment are forecast to continue for the purposes of addressing a variety of challenges including enhancing operational efficiency, though the scale of such investment will depend on the level of need. Under these circumstances, in the Shalom Business, we will strive to increase sales and earnings by steadily increasing revenue from accumulated monthly usage fees as well as by acquiring more users of Shalom products including Shalom House Plan and increasing the number of IDs issued. At the same time, through steady migration to NEW Shalom (Shalom V5.0), we will improve the quality and expand the functions of the products and further strengthen corporate sales and service development to accelerate our inroads into general corporate markets. With regard to profit, while expecting an improvement in profit margin compared to the previous fiscal year, we continue to anticipate an increase in costs due to the price increase in the licensing cost for each issued license (please refer to Notice on Price Revision disclosed on March 15, 2022), higher amortization cost associated with 4 the strengthening of the development structure, and other factors. MKSystem Corporation (3910) Financial Results for FY3/22 Meanwhile, in the CuBe Business, we will be actively approaching potential customers through various channels, such as social security attorneys and partners, with the aim of expanding the market for “GooooN” (Jinzai CuBe Cloud). As for contracted developments for CuBe products for large companies, we will be endeavoring to get them to make a stable contribution to revenue not only by developing and delivering large-scale products, but also by steadily carrying out improvement and maintenance work. As a result, for the outlook for the fiscal year ending March 31, 2023, we forecast net sales of 3,115 million yen (up 13.6% year on year), gross profit of 1,469 million yen (up 15.3%), operating profit of 272 million yen (up 87.6%), the ratio of operating profit to net sales of 8.8% (up 3.5 percentage points), ordinary profit of 282 million yen (up 118.3%), and profit attributable to owners of parent of 175 million yen (up 92.6%). Details of net sales, cost of sales and selling, general and administrative (SG&A) expenses for each business segment, year-on-year changes and major factors of the changes are presented as follows. Shalom Business Net sales Amount (Millions of yen) 2,500 YoY change (%) +15.9 Cloud service 2,371 +17.1 Major factors of change An increase in sales is expected due to higher monthly subscription revenue, the acquisition of new customers, and the introduction of new services. System product sales 100 +0.6 Sales are expected to be at the previous fiscal year’s level. Others 28 -8.0 Cost of sales 1,231 +14.8 SG&A expenses 1,004 +4.9 263 +108.8 Contract development sales and temporary/contract placement sales at Matsuyama Development Center are expected to be recorded. An increase in cost of sales is expected due mainly to an increase in licensing cost and an increase in software amortization expenses. Despite an increase in promotion expenses, an overall increase in SG&A expenses is expected to be at the previous fiscal year’s level with the intention of cost reduction. Operating profit CuBe Business Net sales Contracted development Cost of sales SG&A expenses Operating profit Amount (Millions of yen) 635 YoY change (%) +3.2 Major factors of change 580 +1.4 Sales are expected to be at the previous fiscal year’s level by strengthening our development and sales system and ensuring the implementation of collection and maintenance contracts. Cloud service 55 +27.8 An increase in sales is expected as we acquire new customers. +2.6 Despite an increase in outsourcing expenses, an overall cost of sales is expected to be at the previous fiscal year’s level. An increase in personnel-related expenses is expected due to an increase in the number of personnel. +11.4 431 206 (2) – Note: The difference between the sum of the forecasts of net sales, cost of sales and SG&A expenses of each business segment and the amounts of net sales, cost of sales and SG&A expenses of the consolidated earnings forecast is attributable to inter-segment transactions. – – – – 5 2. Basic Approach to the Selection of Accounting Standards MKSystem Corporation (3910) Financial Results for FY3/22 The Group prepares its consolidated financial statements in accordance with accounting principles generally accepted in Japan. This decision was made in consideration primarily of burdens for developing a system to prepare the consolidated financial statements in accordance with International Financial Reporting Standards. 6 3. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheet MKSystem Corporation (3910) Financial Results for FY3/22 FY3/21 (As of Mar. 31, 2021) FY3/22 (As of Mar. 31, 2022) (Thousands of yen) Assets Current assets Cash and deposits Accounts receivable-trade Merchandise Work in process Supplies Prepaid expenses Income taxes refund receivable Other Total current assets Non-current assets Property, plant and equipment Buildings, net Vehicles, net Tools, furniture and fixtures, net Total property, plant and equipment Intangible assets Software Software in progress Trademark right Telephone subscription right Goodwill Total intangible assets Investments and other assets Investments in capital Guarantee deposits Deferred tax assets Other Total investments and other assets Total non-current assets Total assets 644,492 467,416 7,054 3,261 77 37,741 – 12,879 1,172,924 135,248 1,737 85,789 222,775 397,537 40,416 1,316 1,218 213,740 654,229 60 161,362 30,495 98 192,016 1,069,021 2,241,946 468,147 475,057 35,267 7,096 155 60,730 5,300 5,229 1,056,984 124,164 866 118,476 243,507 438,283 124,583 1,086 1,218 174,878 740,050 60 162,956 28,285 98 191,400 1,174,958 2,231,942 7 Liabilities Current liabilities Accounts payable-trade Short-term borrowings Current portion of long-term borrowings Accounts payable-other Accrued expenses Income taxes payable Accrued consumption taxes Advances received Provision for retirement benefits for directors (and other officers) Provision for bonuses Other Total current liabilities Non-current liabilities Long-term borrowings Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Non-controlling interests Total net assets Total liabilities and net assets MKSystem Corporation (3910) Financial Results for FY3/22 FY3/21 (As of Mar. 31, 2021) FY3/22 (As of Mar. 31, 2022) (Thousands of yen) 45,006 233,304 98,889 37,730 45,235 11,841 42,880 64,113 7,684 586,685 252,851 252,851 839,536 – – 219,110 197,457 948,784 (499) 1,364,852 37,557 1,402,410 2,241,946 61,632 126,000 197,259 156,920 16,222 8,619 17,139 86,840 5,000 67,789 8,283 751,705 55,592 55,592 807,297 219,110 202,122 996,759 (499) 1,417,493 7,152 1,424,645 2,231,942 8 (2) Consolidated Statements of Income and Comprehensive Income Consolidated Statement of Income MKSystem Corporation (3910) Financial Results for FY3/22 FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) (Thousands of yen) Selling, general and administrative expenses Net sales Cost of sales Gross profit Operating profit Non-operating income Interest income Dividend income Subsidy income Royalty income Rental income Purchase discounts Outsourcing service income Other Total non-operating income Non-operating expenses Interest expenses Rental costs Compensation expenses Miscellaneous losses Total non-operating expenses Ordinary profit Extraordinary losses Loss on retirement of property, plant and equipment Loss on retirement of intangible assets Total extraordinary losses Profit before income taxes Income taxes-current Income taxes-deferred Total income taxes Profit Profit attributable to non-controlling interests Profit attributable to owners of parent 2,439,074 1,238,421 1,200,652 981,109 219,543 7 1 – 1,056 600 28,437 263 – 99 30,463 2,631 25,280 3,157 31,068 218,938 700 1,204 1,904 217,033 73,144 2,582 75,726 141,306 3,252 138,053 2,742,835 1,468,017 1,274,818 1,129,406 145,411 5 1 – – – – – – 42,804 155 4,800 55 47,821 1,960 38,028 23,700 63,688 129,544 129,544 34,680 2,209 36,889 92,654 1,259 91,394 9 Consolidated Statement of Comprehensive Income Profit Comprehensive income Comprehensive income attributable to Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests MKSystem Corporation (3910) Financial Results for FY3/22 FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) (Thousands of yen) 141,306 141,306 138,053 3,252 92,654 92,654 91,394 1,259 10 MKSystem Corporation (3910) Financial Results for FY3/22 (3) Consolidated Statement of Changes in Equity FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Non-controlling interests Total net assets 219,110 197,457 854,151 (466) 1,270,251 34,303 1,304,555 (Thousands of yen) Balance at beginning of period Changes during period Dividends of surplus Profit attributable to owners of parent Change in ownership interest of parent due to transactions with non-controlling interests Purchase of treasury shares Net changes in items other than shareholders’ equity Total changes during period Balance at beginning of period Changes during period Dividends of surplus Profit attributable to owners of parent Change in ownership interest of parent due to transactions with non-controlling interests Purchase of treasury shares Net changes in items other than shareholders’ equity Total changes during period Balance at end of period 219,110 197,457 948,784 (499) 1,364,852 37,557 1,402,410 – – 94,633 (32) 94,600 3,253 97,854 FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Non-controlling interests Total net assets 219,110 197,457 948,784 (499) 1,364,852 37,557 1,402,410 (Thousands of yen) (43,420) 138,053 (43,420) 138,053 (43,420) 138,053 – (32) (32) (32) 3,253 3,253 – – (43,419) 91,394 4,665 (43,419) 91,394 4,665 (43,419) 91,394 4,665 – (30,405) (30,405) Balance at end of period 219,110 202,122 996,759 (499) 1,417,493 7,152 1,424,645 – 4,665 47,974 – 52,640 (30,405) 22,234 11 MKSystem Corporation (3910) Financial Results for FY3/22 FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) (Thousands of yen) FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) 217,033 323,506 38,861 – 8,479 (8) 2,631 700 1,204 (47,267) (2,864) 17,986 (82,704) (8,636) (20,758) 448,164 (2,631) (105,355) 340,184 (195,275) (205,379) 6 – 10 – 19,527 (381,116) (10,000) 200,000 (211,084) – (32) (43,420) (64,536) (105,469) 722,818 617,349 129,544 376,903 38,861 5,000 3,676 (6) 1,960 – – (7,640) (32,124) 16,626 5,298 26,643 7,206 571,949 5 (1,960) (76,269) 493,725 20,049 (48,981) (441,948) (1,988) 394 (472,474) 126,000 (233,304) (27,000) – – – (43,243) (177,547) (156,296) 617,349 461,052 (4) Consolidated Statement of Cash Flows Cash flows from operating activities Profit before income taxes Depreciation Amortization of goodwill Increase (decrease) in provision for retirement benefits for directors (and other officers) Increase (decrease) in provision for bonuses Interest and dividend income Interest expenses Loss on retirement of property, plant and equipment Loss on retirement of intangible assets Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Increase (decrease) in accrued consumption taxes Increase (decrease) in accounts payable-other Other, net Subtotal Interest and dividends received Interest paid Income taxes paid Net cash provided by (used in) operating activities Cash flows from investing activities Proceeds from withdrawal of time deposits Purchase of property, plant and equipment Purchase of intangible assets Proceeds from divestments Payments of leasehold and guarantee deposits Proceeds from refund of leasehold and guarantee deposits Net cash provided by (used in) investing activities Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Purchase of shares of subsidiaries not resulting in change in scope of consolidation Purchase of treasury shares Dividends paid Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 12 MKSystem Corporation (3910) Financial Results for FY3/22 (5) Notes to Consolidated Financial Statements Going Concern Assumption Not applicable. Changes in Accounting Policies MKSystem started to apply the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) at the beginning of the fiscal year ended March 2022. Based on this standard, revenue expected to be received in exchange for the provision of goods and services is recognized when the control of the goods and services is transferred to customers. In addition, MKSystem applies the alternative treatment prescribed in Paragraph 98 of the Guidance on Accounting Standard for Revenue Recognition, and recognizes revenue at the time of shipment when the period between the time of shipment and the time when control of the relevant goods is transferred to the customer is a normal period for domestic sales of goods. For the application of the Accounting Standard for Revenue Recognition, in accordance with the transitional measures in the proviso to Paragraph 84 of this standard, the cumulative effect of the retrospective application of the new accounting standard, if it is applied prior to the current fiscal year, is added to or subtracted from retained earnings at the beginning of the current fiscal year. The new standard is then applied beginning with this amount of retained earnings. However, MKSystem has applied the method prescribed in Paragraph 86 of this standard and has not retrospectively applied the new accounting policy to contracts in which almost all revenue were recognized in accordance with the previous treatment prior to the beginning of the current fiscal year. In addition, MKSystem has applied the method prescribed in Paragraph 86, Article 1 of the Accounting Standard for Revenue Recognition, and accounted for contract changes made prior to the beginning of the current fiscal year 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 current fiscal year. This change has no impact on profit and loss for the current fiscal year or the beginning balance of retained earnings for the current fiscal year. 13 Segment and Other Information Segment information 1. Overview of reportable segment (1) Method of determining the reportable segments MKSystem Corporation (3910) Financial Results for FY3/22 The reportable segments of the Group are components for which discrete financial information is available and whose operating results are regularly reviewed by the Board of Directors to make decisions about resource allocation and to assess performance. The Group consists of business segments sorted by merchandise, products and services based on MKSystem and its consolidated subsidiaries. The Group has two reportable segments: Shalom Business and CuBe Business. (2) Products and services by each reportable segment The Shalom Business segment provides software to support the business processes associated primarily with social insurance and labor insurance as an application service provider (ASP). The CuBe Business segment provides consultation services focused on the business processes to the human resources and general affairs divisions of companies to customize, develop and provide front-end systems that help enhance efficiency of operations for each customer. 2. Method of calculating net sales, profit/loss, assets, liabilities and other items by reportable segment The accounting treatment methods for reportable business segments are generally the same as those listed in “Significant Accounting Policies in the Preparation of Consolidated Financial Statements,” except for the valuation of inventories. Inventories are evaluated by the amount before written down to reflect the effect of lower profit margins. Profits for reportable segments are generally operating profit figures. Profits on and transfer amounts of inter-segment transactions within the Group are based on current market prices. As stated in the Changes in Accounting Policies, MKSystem started to apply the Accounting Standard for Revenue Recognition to the consolidated financial statements from the current fiscal year and has changed the accounting procedures relating to revenue recognition. In line with this change, the method of calculating profit/loss by business segment has also changed. The change in the calculation method has no impact on the net sales and segment profit (loss) for the current fiscal year. 3. Information related to net sales, profit/loss, assets, liabilities and other items for each reportable segment FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) Reportable segment Shalom Business CuBe Business Total Adjustment (Note) (Thousands of yen) Amounts recorded in consolidated financial statements Inter-segment sales and transfers Net sales External sales Total Segment profit (loss) Segment assets Other items Depreciation Amortization of goodwill Increase in property, plant and equipment and intangible assets 1,897,373 541,700 2,439,074 – 32,606 1,929,979 221,597 1,654,510 282,437 388,594 8,758 41,364 550,459 2,480,439 (5,788) 215,809 593,458 2,247,969 41,069 38,861 16,886 323,506 38,861 405,481 – (41,364) (41,364) 3,733 (6,022) – – – 2,439,074 2,439,074 219,543 2,241,946 – 323,506 38,861 405,481 Notes: 1. The adjustment to segment profit (loss) is the elimination of inter-segment transactions. 2. The adjustment of segment assets is the elimination of inter-segment receivables and payables. 3. Segment profit (loss) is adjusted to be consistent with operating profit presented on the consolidated statement of income. 14 MKSystem Corporation (3910) Financial Results for FY3/22 FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) Reportable segment Shalom Business CuBe Business Total Adjustment (Note) (Thousands of yen) Amounts recorded in consolidated financial statements 2,136,196 606,638 2,742,835 Inter-segment sales and transfers Total Net sales External sales Segment profit Segment assets Other items Depreciation Amortization of goodwill Increase in property, plant and equipment and intangible assets – 20,055 2,156,252 124,891 1,625,639 346,989 491,491 8,643 28,699 615,282 2,771,534 9,538 134,429 613,387 2,239,027 29,913 38,861 40,611 376,903 38,861 532,103 – (28,699) (28,699) 10,982 (7,084) – – – 2,742,835 2,742,835 145,411 2,231,942 – 376,903 38,861 532,103 2. The adjustment of segment assets is the elimination of inter-segment receivables and payables. 3. Segment profit is adjusted to be consistent with operating profit presented on the consolidated statement of income. Notes: 1. The adjustment to segment profit is the elimination of inter-segment transactions. Per Share Information FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) Net assets per share Basic earnings per share Notes: 1. Diluted earnings per share is not presented since MKSystem had no dilutive potential shares. 2. As stated in the Changes in Accounting Policies, the Accounting Standard for Revenue Recognition is applied, which has no impact on the net assets per share and the basic earnings per share for the current fiscal year. 3. The basis of calculating basic earnings per share is as follows: (Thousands of yen unless otherwise stated) FY3/21 (Apr. 1, 2020 – Mar. 31, 2021) FY3/22 (Apr. 1, 2021 – Mar. 31, 2022) 251.47 25.44 138,053 – 138,053 1,402,410 37,557 [37,557] 1,364,852 5,427,494 (Yen) 261.17 16.84 91,394 – 91,394 1,424,645 7,152 [7,152] 1,417,493 5,427,494 5,427,505 5,427,494 (Thousands of yen unless otherwise stated) FY3/21 (As of Mar. 31, 2021) FY3/22 (As of Mar. 31, 2022) Profit attributable to owners of parent Amounts not available to common shareholders Profit attributable to owners of parent available to common stock Average number of shares of common stock during the period (Shares) 3. The basis of calculating net assets per share is as follows: Total net assets Deduction on total net assets [of which non-controlling interests] Net assets applicable to common stock Number of shares of common stock at the fiscal year end used in calculation of net assets per share (Shares) Subsequent Events Not applicable. This financial report is solely a translation of MKSystem’s Kessan Tanshin (including attachments) in Japanese, which has been prepared in accordance with accounting principles and practices generally accepted in Japan, for the convenience of readers who prefer an English translation. 15