Computer Engineering nsulting : Consolidated Financial Results for the Fiscal Year Ended January 31, 2023

Consolidated Financial Results for the Fiscal Year Ended January 31, 2023

March 10, 2023

Company Name:

Computer Engineering & Consulting Ltd.

Stock Listing: Tokyo Stock Exchange

Stock Code:

9692

URL https://www.cec-ltd.co.jp/en/

Representative:

(Name)

Takashi Himeno

(Title) Representative Director & President

(Title) General Manager,

Any Inquiry to:

(Name)

Yoshiyuki Nakamura

Accounting & Finance

Tel.: [phone]

Division

Scheduled Date of the General

April 25, 2023

Scheduled Date of

April 26, 2023

Meeting of Shareholders:

Dividend Payments:

Scheduled Date of Filing of

April 25, 2023

Annual Securities Report:

Supplemental Materials Prepared for Yes

Financial Results:

Briefing Held for Financial Results: Yes (for institutional investors and analysts)

(Figures are rounded down to nearest million yen.)

1. Consolidated Performance for the Year Ended January 31, 2023 (February 1, 2022 to January 31, 2023)

(1) Consolidated Operating Results

(Percentages indicate year-on-year increase/decrease.)

Net sales

Operating income

Ordinary income

Net income attributable to

owners of parent

Million yen

%

Million yen

%

Million yen

%

Million yen

%

FY ended Jan. 2023

48,206

6.6

4,374

4.0

4,413

3.1

5,179

70.4

FY ended Jan. 2022

45,220

(5.8)

4,206

(16.7)

4,282

(17.0)

3,039

(24.7)

(Note) Comprehensive income	FY ended Jan. 2023	5,128 million yen	88.1%	FY ended Jan. 2022 2,727 million yen	(38.4%)
	Net income per share	Net income per share		Return on equity	Ordinary income-	Operating income-
		after dilution		to-total assets ratio	to-net sales ratio
		Yen		Yen			%		%		%
FY ended Jan. 2023		151.97		151.45			14.2		9.6		9.1
FY ended Jan. 2022		86.85		86.19			8.7		9.6		9.3
(Reference) Equity in earnings of affiliates FY ended Jan. 2023 - million yen	FY ended Jan. 2022	- million yen

(Note) The Company has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) from the beginning of the first quarter of the fiscal year ended January 31, 2023, and the figures relating to the fiscal year ended January 31, 2023 represent the amounts based on the aforementioned accounting standard and other relevant regulations.

(2) Consolidated Financial Position

	Total assets	Net assets		Equity ratio		Net assets per share
		Million yen	Million yen		%		Yen
FY ended Jan. 2023		46,333	37,379		80.5		1,111.48
FY ended Jan. 2022		45,147	35,736		78.7		1,015.48
(Reference) Total shareholders' equity	FY ended Jan. 2023 37,309 million yen	FY ended Jan. 2022	35,534 million yen

(Note) The Company has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) from the beginning of the first quarter of the fiscal year ended January 31, 2023, and the figures relating to the fiscal year ended January 31, 2023 represent the amounts based on the aforementioned accounting standard and other relevant regulations.

(3) Consolidated Cash Flows

Cash flow from

Cash flow from

Cash flow from

Cash and cash equivalents

operating activities

investing activities

financing activities

at the end of FY

Million yen

Million yen

Million yen

Million yen

FY ended Jan. 2023

2,494

1,930

(3,559)

23,302

FY ended Jan. 2022

3,151

(340)

(1,411)

22,430

2. Dividends

Dividends per share

Total dividends

Payout ratio

Dividends-to-

net assets ratio

1Q-end

2Q-end

3Q-end

FY-end

Total

(for the entire FY)

(Consolidated)

(Consolidated)

Yen

Yen

Yen

Yen

Yen

Million yen

%

%

FY ended Jan. 2022

－

20.00

－

20.00

40.00

1,399

46.1

4.0

FY ended Jan. 2023

－

25.00

－

20.00

45.00

1,518

29.6

4.2

FY ending Jan. 2024

－

25.00

－

25.00

50.00

43.7

(Forecast)

(Note) Breakdown of dividends at the end of the second quarter of the fiscal year ended January 31, 2023: Ordinary dividend 20.00 yen, special dividend 5.00 yen

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3. Forecasts for Fiscal Year Ending January 31, 2024 (February 1, 2023 to January 31, 2024)

(Percentages indicate year-on-year increase/decrease.)

	Net sales		Operating income	Ordinary income	Net income attributable	Net income per
		to owners of parent	share
	Million yen		%	Million yen	%	Million yen	%	Million yen	%	Yen
First half	24,800		5.6	2,550	29.5	2,560	28.7	1,770	(49.4)	52.73
Full year	51,000		5.8	5,550	26.9	5,570	26.2	3,840	(25.9)	114.40

*Notes

1. Significant changes in subsidiaries during the FY ended January 2023 (Transfer of particular subsidiaries following a change in the scope of consolidation): None
   Additions: None, Deletions: None
2. Changes in accounting rules, procedures, or method of presentation relating to the preparation of the consolidated financial statements:
3. 1. Changes based on revision of accounting standards: Yes
   2. Changes other than 1) above: None
   3. Changes in accounting estimates: None
   4. Restatements: None

(Note) For details, please refer to "(5) Notes to Consolidated Financial Statements (Changes in accounting policies)" in "3. Consolidated Financial Statements and Major Notes" on page 15 of the accompanying material of the report.

(3) Number of shares issued and outstanding (common stock)
1) Number of shares issued and outstanding		FY ended Jan. 2023 37,600,000 shares	FY ended Jan. 2022 37,600,000 shares
(including treasury stock)
2) Number of treasury stock						FY ended Jan. 2023	4,032,960 shares	FY ended Jan. 2022 2,606,760 shares
3) Average number of shares for each period		FY ended Jan. 2023 34,080,884 shares	FY ended Jan. 2022 34,993,255 shares
(Reference) Non-Consolidated Financial Results
1. Non-Consolidated Performance for the Year Ended January 31, 2023 (February 1, 2022 to January 31, 2023)
(1) Non-Consolidated Operating Results								(Percentages indicate year-on-year increase/decrease.)
	Net sales				Operating income			Ordinary income			Net income
	Million yen		%				Million yen	%			Million yen	%			Million yen		%
FY ended Jan. 2023	36,659		6.5				3,136	5.6				3,518	3.2			4,678		81.1
FY ended Jan. 2022	34,429		0.0				2,969	(22.3)				3,409	(21.2)			2,583		(28.5)
	Net income per share	Net income per share after
				dilution
			Yen					Yen
FY ended Jan. 2023			137.28					136.80
FY ended Jan. 2022			73.82					73.25
(2) Non-Consolidated Financial Condition
	Total assets				Net assets			Equity ratio		Net assets per share
			Million yen					Million yen				%					Yen
FY ended Jan. 2023			38,209					31,048				81.1					922.87
FY ended Jan. 2022			36,780					29,732				80.3					843.88
(Reference) Total shareholders' equity	FY ended Jan. 2023	30,978 million yen	FY ended Jan. 2022	29,530 million yen

• The financial results are not subject to audit by certified public accountants or auditing firms.
• Proper use of forward-looking statements and cautionary statement: (Matters to be noted regarding statements about the future)
  Forecasts are made based on information available as of the release date of this document. Actual results may vary from forecasts due to a variety of factors. Please see page 6 in the accompanying material for the underlying assumptions for forecasts and related information.
  (Method of obtaining supplementary briefing material on financial results)
  The Company will hold a financial results briefing for institutional investors and analysts on March 15, 2023 (Wednesday) in the form of a web conference. The materials to be used at the financial results briefing will be posted on our company website. The video of the financial results briefing is scheduled to be released on March 17 (Friday).

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• Table of Contents for Accompanying Material

1. Summary of Operating Results	4
(1)	Summary of Operating Results for the Fiscal Year Ended January 2023	4
(2)	Summary of Financial Conditions for the Fiscal Year Ended January 2023	5
(3)	Summary of Cash Flows for the Fiscal Year Ended January 2023	5
(4)	Future Prospects	6
(5)	Basic Policy Regarding Profit Distribution and Dividends for This Fiscal Year and Next Fiscal Year	6
2. Basic Philosophy on Selection of Accounting Standards	6
3. Consolidated Financial Statements and Major Notes	7
(1)	Consolidated Balance Sheet	7
(2)	Consolidated Statement of Income and Consolidated Statement of Comprehensive Income	9
	(Consolidated Statement of Income)	9
	(Consolidated statement of Comprehensive Income)	10
(3)	Consolidated Statement of Changes in Equity	11
(4)	Consolidated Statement of Cash Flows	13
(5)	Notes to Consolidated Financial Statements	15
	(Notes to going concern assumption)	15
	(Changes in accounting policies)	15
	(Segment information, etc.)	16
	(Notes to information per share)	18
	(Significant subsequent event)	18

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1. Summary of Operating Results

(1) Summary of Operating Results for the Fiscal Year Ended January 2023

During the current consolidated fiscal year (from February 1, 2022 to January 31, 2023), the Japanese economy showed signs of moderate recovery as economic activities normalized due to the effects of measures taken against COVID-19 and various government policies. However, the future remains uncertain mainly due to the ongoing depreciation of the yen as a result of global monetary tightening, rising domestic prices, supply constraints, and fluctuations in financial and capital markets.

In the information service industry, while there were concerns about soaring raw material prices and geopolitical risks, with the "2025 Digital Cliff" issue also at hand, companies needed to enhance productivity and competitiveness in order to reform their operations, business models, and business structure accompanied by system reforms, and therefore DX-related investment remained strong. Furthermore, many companies are investing in security measures as a management issue in order to respond to the ever-growing sophistication of cyber-attacks, and demand for cyber security products and services continues to grow.

Under these circumstances, the CEC Group announced a new medium-term management plan for three years from the fiscal year ended January 2023 to the fiscal year ending January 2025 with a goal of aiming to become "a company that creates the future with ICT technologies." In the current fiscal year, the first year of the new medium-term management plan, we have been working to solve social and industrial issues through our business activities, aiming to "realize a sustainable society" and achieve "sustained growth" based on the basic policies of "strengthening business capabilities," "strengthening human resources and technical capabilities" and "strengthening the management foundation." In the area of "strengthening business capabilities," we shifted to an autonomous division system, creating a system of invested capital that is autonomous and utilizes human resources, while enlarging the areas of focused businesses from two to six to evolve into a flexible business structure that is resistant to changes in the environment. In addition, in the area of "strengthening human resources and technical capabilities," the Company took a major step toward increasing the number of employees by promoting both personnel system reforms and strengthening the recruitment of new graduates and experienced personnel. Additionally, in the area of "strengthening the management foundation," we have been promoting ESG activities, such as transitioning to a company with an audit and supervisory committee, establishing a nomination and remuneration committee, expressing support for TCFD recommendations, and increasing the number of ISO 14001 certifications.

As a result of these efforts, our business performance during the current consolidated fiscal period show that ICT investment recovered mainly in the manufacturing industry, which is our main customer base, and that both focused business areas*1 and core business *2 showed solid overall performance, resulting in net sales of 48,206 million yen, an increase of 2,985 million yen (6.6%) from the previous period. In terms of profit, the Company recorded additional provision for loss on orders received in the fourth quarter of the current consolidated fiscal year in order to improve the situation of unprofitable projects that have continued since the previous fiscal year due to failures that occurred after the transition to a production environment. However, the business environment remained favorable, with operating income increasing 167 million yen (4.0%) from a year earlier to 4,374 million yen, and ordinary income increased 130 million yen (3.1%) from a year earlier to 4,413 million yen. In addition, net income attributable to owners of parent was 5,179 million yen, an increase of 2,140 million yen (70.4%) from the same period of the previous fiscal year. This was due to a gain on sale of investment securities recorded in extraordinary income for the second quarter.

*1 The Company defines its six focused business areas as:

1. Production and logistics solutions, (2) Mobility services, (3) Services in cooperation with Microsoft Japan,

1. Migration services, (5) Security services, and (6) DX cloud platform.

*2 Core business: The Company defines its core business as the stable and foundation business that supports the Company, including commissioned development, which is our revenue base, provision of ICT infrastructure using data centers, construction and operations business, development of car-mounted and built-in devices, and verification business.

The following sections show the financial results of respective segments.

(Digital Industry Business)

In the focused business area of production and logistics solutions, despite the delay in the semiconductor supply, DX-related business negotiations at customers' factories are on the increase, and sales progressed steadily. In mobility services, smartphone application development progressed steadily. In addition, in our core business, system development in the chubu and nishinihon districts went well, against the backdrop of active ICT investment in the manufacturing area, our major customer. As a result, net sales increased 936 million yen (5.9%) from the same period of the previous fiscal year to 16,834 million yen. In terms of profits, operating income came to 3,857 million yen, up 704 million yen (22.3%) from the same period of the previous fiscal year. This was because of the profit increase due to stronger net sales and further closing of highly profitable business negotiations.

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(Service Integration Business)

Migration services and security services, one of our focused businesses, performed well due to the increasing need for migration to the cloud environment and security enhancement against the backdrop of DX promotion. In addition, services in cooperation with Microsoft Japan also remained solid with an increasing number of inquiries regarding CRM and Power Platform business negotiations. Furthermore, in our core business of ICT infrastructure construction, the semiconductor supply system normalized, contributing to sales. As a result, net sales increased 2,049 million yen (7.0%) from the same period of the previous fiscal year to 31,372 million yen. In terms of profits, operating income came to 4,573 million yen, up 26 million yen (0.6%) from the same period of the previous fiscal year. This was due to the increase in profits resulting from higher sales, despite the continued impact of unprofitable projects that occurred in the previous fiscal year.

1. Summary of Financial Conditions for the Fiscal Year Ended January 2023 (Total assets)
   Total assets as of the end of the fiscal year ended January 2023 were 46,333 million yen, an increase of 1,185 million yen from a year earlier. This was mainly due to an increase of 871 million yen in cash and deposits.
   (Liabilities)
   Total liabilities amounted to 8,954 million yen, down 457 million yen from the end of the previous fiscal year. This was mainly due to a decrease of 464 million yen in long-term accounts payable-other.
   (Net assets)
   Net assets increased 1,642 million yen from the end of the prior fiscal year to 37,379 million yen. This was mainly due to an increase of 3,666 million yen in retained earnings, an increase of 1,841 million yen in treasury stock, and a decrease of 190 million yen in remeasurements of defined benefit plans.
2. Summary of Cash Flows for the Fiscal Year Ended January 2023

Cash and cash equivalents ("funds") as of the end of the fiscal year ended January 2023 were 23,302 million yen, an increase of 871 million yen from a year earlier.

(Cash flow from operating activities)

An increase in the funds from operating activities was 2,494 million yen (a decrease in income of 657 million yen from the previous period). This was mainly due to income before income taxes of 6,675 million yen, an adjustment of 2,265 million yen for gain/loss on sale of investment securities, and income taxes paid of 1,742 million yen.

(Cash flow from investing activities)

An increase in the funds from investing activities was 1,930 million yen (an increase in income of 2,271 million yen from the previous period). This was due mainly to proceeds of 2,295 million yen from the sale of investment securities.

(Cash flow from financial activities)

A decrease in the funds from financial activities was 3,559 million yen (an increase in spending of 2,148 million yen from the previous period). This was mainly due to purchase of treasury stock of 1,999 million yen and dividend payment amount of 1,546 million yen.

(Reference) Changes in indicators related to cash flow

	FY ended Jan. 2021	FY ended Jan. 2022	FY ended Jan. 2023
Equity ratio (%)	78.1	78.7	80.5
Equity ratio based on market value (%)	112.4	82.5	109.3
Cash flow-to-interest-bearing liabilities ratio (annual)	0.1	0.1	0.2
Interest coverage ratio (times)	1,657.4	1,070.3	894.8

(Notes)1. The calculation method for each indicator is as follows. Equity ratio: total shareholders' equity / total assets

Equity ratio based on market value: market capitalization / total assets

Cash flow-to-interest-bearing liabilities ratio: interest-bearing liabilities / cash flow from operating activities

Interest coverage ratio: cash flow from operating activities / interest payments

1. Each indicator is calculated using consolidated financial figures.
2. Market capitalization is calculated using the following formula: stock price at end of fiscal year × (number of shares issued and outstanding at end of fiscal year - number of treasury stock at end of fiscal year).
3. Operating cash flow is cash flow from operating activities as reported in the Consolidated Statement of Cash Flows.
4. Interest-bearingliabilities are all liabilities reported on the Consolidated Balance Sheet for which interest is being paid. Furthermore, interest payments are "interest expenses" reported on the Consolidated Statement of Income.
5. • 5 -