Fuyo General Lease : Consolidated financial statements 2024

Independent Auditor's Report

The Board of Directors

Fuyo General Lease Co., Ltd.

The Audit of the Consolidated Financial Statements

Opinion

We have audited the accompanying consolidated financial statements of Fuyo General Lease Co., Ltd. and its consolidated subsidiaries (the Group), which comprise the consolidated balance sheet as at March 31, 2024, and the consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended, and notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2024, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters.

Ernst &Young ShinNihon LLC

Estimate of residual value of real estate under operating lease transactions

Description of Key Audit Matter	Auditor's Response
Fuyo General Lease Co., Ltd. and its consolidated	We performed the following audit procedures,
subsidiaries (the Group) is engaged in leasing,	among others, to evaluate the key assumptions
installment sales, commercial loan origination,	such as future cash flows and other inputs required
and other financial services. The Group recorded	to estimate the residual value of real estate under
assets for lease of ¥936,396 million in property,	operating lease transactions by selecting a sample
plant and equipment, at cost less accumulated	of transactions based on quantitative significance,
depreciation on the consolidated balance sheets	the remaining number of years, and the type of
for the fiscal year ended March 31, 2024. Real	lease payments:
estate lease assets with a carrying amount of	(1) Audit procedures performed for selected assets
¥563,759 million were recognized as described in
acquired in the current year
Note XIX, "Real estate leasing business," to the
consolidated financial statements. These assets	・ In order to evaluate the inputs such as rents
account for 17% of consolidated total assets.	and the occupancy rates of the properties,
As described in "4. Summary of significant	which form the basis for calculating future
cash flows used by the Group in estimating
accounting policies," "(2) Depreciation and
the residual value, we inspected external
amortization" under Note I, "Basis of presentation,"
evidence, including real estate valuation
assets leased under operating lease transactions
reports, by involving the real estate valuation
are depreciated to their residual value using the
experts from our network firm.
straight-line method over the lease term and the
depreciation cost is included in the cost of sales.	・ In addition, we evaluated the inputs such as
The residual value at the end of the lease term is	rents and the occupancy rates of the properties,
estimated at the inception of the lease and is revised,	which form the basis for calculating future
as deemed necessary, during the lease term. If a loss	cash flows, by comparing such inputs with
on disposal of the leased assets is expected, the	past results and available external data.
corresponding amount is recorded under cost of	・ Further, we recalculated the residual value to
sales.
As described in Note II, "Significant accounting	evaluate the Group's estimation process.
(2) Audit procedures performed for selected assets
estimates," the Group estimates the residual value
acquired in previous years
using future cash flows and discount rates, and the
significant assumption for estimating the residual	In order to evaluate the Group's estimate of the
value is future cash flows. The future cash flows of	residual value, we compared actual rents and
real estate lease transactions are estimated based on	occupancy rates with the original estimates to
considerations such as terms of contracts, rents,	analyze the cause of differences.
and occupancy rates. However, these transactions	(3) Audit procedures performed for selected assets
are highly individual in nature and the estimation
of the residual value requires complex judgment,	sold during the current year
and specialized knowledge and experience. In	In order to evaluate the effectiveness of the
addition, since the value of each property in real	Group's estimation process, we reconciled actual
estate lease transactions is significant and operating	sale prices with the sale agreements and compared
lease transactions are not full payout, an	these prices with the estimated residual values.
inappropriate estimation of the residual value can
have a considerable impact on profit or loss
calculations.
Based on the above, we have determined the
estimation of the residual value of real estate under
operating lease transactions to be a key audit matter.

Ernst &Young ShinNihon LLC

Determinations regarding impairment of goodwill

Description of Key Audit Matter	Auditor's Response
The Group acquires businesses with the aim of	We performed the following audit procedures,
further expanding and growing its business and	among others, to evaluate the Group's determinations
recorded goodwill of ¥23,256 million on the	regarding indications of impairment of the CGU to
consolidated balance sheets for the fiscal year	which goodwill belongs.
ended March 31, 2024, which consists of	･ In order to evaluate determinations by the
goodwill mainly related to the acquisition of
Group regarding the possibility of significant
Accretive Co., Ltd., INVOICE Inc., LN Holdings,
deterioration in the operating environment, we
Co., Ltd., Yamato Lease Co., Ltd., WorkVision
performed a comparative analysis between the
Co., Ltd., and Pacific Rim Capital, Inc.
initial business plan at the time of acquisition of
As described in "4. Summary of significant
each subsidiary and the actual financial results
accounting policies," "(9) Amortization method	through the end of the current fiscal year and a
and period of goodwill" under Note I, "Basis of	variance analysis on the differences identified
presentation," the Group estimates the useful life	between the business plan figures and actual
of goodwill and amortizes it on a straight-line	results.
basis over this period. However, if there are any	･ In order to evaluate determinations by the Group
significant changes having an adverse effect on
regarding the possibility of significant future
the entity and the recoverable amount of goodwill
deterioration in the operating environment, we
is assumed to decrease, the Group determines that
made inquiries of the responsible department
there is an indication that goodwill may be
about the basis for estimates of revenue growth
impaired. If the total amount of expected
rates and so forth of each subsidiary, performed
undiscounted future cash flows is less than the
trend analysis, and compared the revenue growth
carrying amount of the cash generating unit
rates of each subsidiary with external data,
(CGU), an impairment loss on goodwill must be
such as growth rates of the industry to which
recognized. Note that, as described in "*3
each subsidiary belongs.
Impairment losses" under "Notes for consolidated
statements of income," the Group recorded	･ In order to evaluate the Group's determination
impairment losses of ¥660 million for Human	of whether any changes have occurred or are
Centrix Co., Ltd. on the consolidated statements	expected to occur, which significantly reduce
of income for fiscal year ended March 31, 2024.	the recoverable amounts, we made inquiries of
The Group determines whether there are any	management and inspected related materials to
consider the consistency between the initial
indications of impairment by, for example,
business plan of each subsidiary and the Group's
comparing the initial business plan at the time of
overall business policy for the current and
acquisition of each subsidiary with actual results,
following fiscal years, and between the initial
analyzing factors related to the differences
business plan of each subsidiary and the Group's
between them, and considering the impact on
medium-term business plan.
future performance based on these factors. This
involves significant management judgment on the	Further, we performed the following audit
current and future business environment. In	procedures, among others, to evaluate the Group's
addition, the Group measures the recoverable	measurement of impairment loss on goodwill for
amount of the CGU to which goodwill belongs at	the CGU to which goodwill belongs.
its value in use, and value in use is calculated	･ Regarding the business plan that forms the basis
based on future cash flows and discount rates.
for the estimate of future cash flows, we inspected
This involves management judgment and
related materials and performed a comparative
expertise related to valuations.
analysis between the business plan and actual
Based on the above, we have determined the
financial results. In addition, we made inquiries
determinations regarding impairment of goodwill	of management and considered the consistency
to be a key audit matter.	of their answers with the business plan.
	･ We involved the valuation experts from our
	network firm to evaluate the basis for calculation
	such as discount rates and to perform
	recalculations.

Ernst &Young ShinNihon LLC

Other Information

Other information comprises the information included in disclosure documents that contain audited consolidated financial statements, but does not include the consolidated financial statements and our auditor's report thereon.

We have concluded that other information does not exist. Accordingly, we have not performed any work related to other information.

Responsibilities of Management, the Corporate Auditor and the Board of Corporate Auditors for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern and disclosing, as required by accounting principles generally accepted in Japan, matters related to going concern.

The Corporate Auditor and the Board of Corporate Auditors are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
• Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Ernst &Young ShinNihon LLC

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with accounting principles generally accepted in Japan.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Corporate Auditor and the Board of Corporate Auditors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Corporate Auditor and the Board of Corporate Auditors with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the consolidated financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied to reduce threats to an acceptable level.

From the matters communicated with the Corporate Auditor and the Board of Corporate Auditors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Convenience Translation

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2024 are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Fee-related Information

The fees for the audits of the financial statements of Fuyo General Lease Co., Ltd. and its subsidiaries and other services provided by us and other EY member firms for the year ended March 31, 2024 are 224 million yen and 39 million yen, respectively.

Ernst &Young ShinNihon LLC

Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan

Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Ernst & Young ShinNihon LLC

Tokyo, Japan

August 9, 2024

/s/Yuji Ozawa

Designated Engagement Partner Certified Public Accountant

/s/Toru Nakagiri

Designated Engagement Partner Certified Public Accountant

Ernst &Young ShinNihon LLC

Consolidated financial statements

Consolidated balance sheets

			Millions of yen	Thousands of U.S.
				dollars (Note I)
	Notes		As of March 31,		As of March 31,		As of March 31,
		2024		2023		2024
Assets
Current assets
Cash and deposits	3	¥	140,804	¥	121,227	$	930,018
Installment receivables	3, 9		50,984		53,491		336,754
Lease receivables and investments in leases	3, 9		858,731		890,802		5,671,942
Operating loans			339,872		328,697		2,244,862
Accounts receivable - other loans to	3, 7		132,002		118,529		871,877
customers
Operational investment securities	2		491,466		454,966		3,246,145
Other operating assets			31,967		33,210		211,144
Accounts receivable - lease	3, 9		28,620		26,172		189,041
Other			94,511		72,698		624,251
Allowance for doubtful accounts			(2,536)		(2,672)		(16,754)
Total current assets			2,166,425		2,097,123		14,309,282
Non-current assets
Property, plant and equipment
Assets for lease
Assets for lease	1, 3, 7		936,038		797,218		6,182,553
Advances for purchase of assets for			357		839		2,363
lease
Total assets for lease			936,396		798,057		6,184,916
Other operating assets	1, 3		38,796		29,407		256,253
Construction in progress			-		10,732		-
Own-used assets	1		3,386		3,872		22,370
Total property, plant and equipment			978,579		842,070		6,463,539
Intangible assets
Assets for lease			88		138		584
Other intangible assets
Goodwill			23,256		25,707		153,608
Other			14,290		15,278		94,386
Total other intangible assets			37,546		40,986		247,994
Total intangible assets			37,634		41,124		248,578
Investments and other assets
Investment securities	2, 3		158,182		125,286		1,044,800
Distressed receivables			26		439		173
Retirement benefit asset			2,176		523		14,373
Deferred tax assets			4,229		2,897		27,933
Other			42,551		41,740		281,056
Allowance for doubtful accounts			(1)		(231)		(13)
Total investments and other assets			207,163		170,656		1,368,322
Total non-current assets			1,223,378		1,053,851		8,080,438
Deferred assets
Organization expenses			3		4		22
Business commencement expenses			517		645		3,421
Total deferred assets			521		649		3,443
Total assets		¥	3,390,324	¥	3,151,624	$	22,393,164

The accompanying notes are an integral part of these statements.

- 1 -

Liabilities Current liabilities

Notes and accounts payable - trade Short-term borrowings

Current portion of bonds payable Current portion of long-term borrowings Commercial papers

Payables under securitization of lease receivables

Current portion of long-term payables under securitization of lease receivables

Lease liabilities Income taxes payable

Deferred profit on installment sales Provision for bonuses

Provision for bonuses for directors (and other officers)

Provision for share awards for directors (and other officers)

Provision for future lease payments Provision for loss on guarantees Other

Total current liabilities Non-current liabilities

Bonds payable Long-term borrowings

Long-term payables under securitization of lease receivables

Lease liabilities Deferred tax liabilities Retirement benefit liability

Provision for retirement benefits for directors (and other officers)

Provision for share awards for directors (and other officers)

Provision for maintenance costs Provision for loss on guarantees Asset retirement obligations Other

Total non-current liabilities Total liabilities

		Millions of yen	Thousands of U.S.
			dollars (Note I)
Notes		As of March 31,		As of March 31,		As of March 31,
	2024		2023		2024
9	¥	36,467	¥	33,916	$	240,870
		558,104		584,811		3,686,289
		35,000		45,000		231,176
3, 7		422,660		393,529		2,791,684
		276,000		306,000		1,822,985
8		13,000		24,200		85,865
3, 8		2,464		5,628		16,280
		5,841		7,500		38,580
		7,617		7,359		50,315
		1,078		699		7,122
		3,257		3,002		21,517
		224		210		1,486
		202		21		1,338
		6		4		45
		19		24		126
3		59,367		67,122		392,125
		1,421,313		1,479,030		9,387,803
		393,495		316,397		2,599,042
3, 7		976,080		829,614		6,447,032
3, 8		5,790		8,725		38,243
		151		272		999
		27,461		19,553		181,386
		2,271		3,122		15,006
		253		378		1,677
		638		606		4,219
		931		314		6,156
		285		365		1,884
		5,519		4,147		36,456
		78,804		78,898		520,508
		1,491,684		1,262,396		9,852,607
		2,912,998		2,741,426		19,240,410

- 2 -

		Millions of yen	Thousands of U.S.
			dollars (Note I)
	Notes	As of March 31,		As of March 31,		As of March 31,
	2024		2023		2024
Net assets
Shareholders' equity
Share capital		10,532		10,532		69,565
Capital surplus		1,902		1,902		12,569
Retained earnings		342,268		306,782		2,260,689
Treasury shares		(1,532)		(2,067)		(10,119)
Total shareholders' equity		353,171		317,149		2,332,704
Accumulated other comprehensive income
Valuation difference on available-for-sale		61,773		36,000		408,013
securities
Deferred gains or losses on hedges		(11,953)		(4,608)		(78,950)
Foreign currency translation adjustment		28,268		17,936		186,715
Remeasurements of defined benefit plans		415		163		2,743
Total accumulated other comprehensive		78,504		49,492		518,521
income
Share acquisition rights		289		541		1,909
Non-controlling interests		45,362		43,012		299,620
Total net assets		477,326		410,197		3,152,754
Total liabilities and net assets	¥	3,390,324	¥	3,151,624	$	22,393,164

The accompanying notes are an integral part of these statements.

- 3 -

Consolidated statements of income and statements of comprehensive income Consolidated statements of income

							Thousands of
			Millions of yen		U.S. dollars
							(Note I)
			FY2023		FY2022		FY2023
	Notes		(April 1, 2023 -		(April 1, 2022 -		(April 1, 2023 -
			March 31, 2024)		March 31, 2023)		March 31, 2024)
Net sales	1	¥	708,538	¥	688,655	$	4,679,909
Cost of sales	3		598,967		591,338		3,956,194
Gross profit			109,570		97,316		723,715
Selling, general and administrative expenses	2		49,524		45,755		327,109
Operating profit			60,046		51,561		396,607
Non-operating income
Interest income			259		78		1,715
Dividend income			2,925		2,357		19,321
Foreign exchange gains			-		437		-
Gain on investments in investment partnerships			76		252		507
Share of profit of entities accounted for using			6,660		6,028		43,990
equity method
Recoveries of written off receivables			61		95		409
Reversal of provision for loss on guarantees			86		81		568
Other			1,060		575		7,003
Total non-operating income			11,129		9,906		73,513
Non-operating expenses
Interest expenses			1,824		1,017		12,052
Bond issuance costs			58		78		389
Foreign exchange losses			198		-		1,311
Loss on investments in investment partnerships			92		100		609
Distributions of profit or loss on silent			589		458		3,893
partnerships
Other			56		114		376
Total non-operating expenses			2,820		1,768		18,629
Ordinary profit			68,355		59,699		451,491
Extraordinary income
Gain on sale of investment securities			737		64		4,872
Total extraordinary income			737		64		4,872
Extraordinary losses
Loss on sale of investment securities			47		-		312
Loss on valuation of investment securities			84		256		558
Loss on step acquisitions			-		85		-
Loss on liquidation of subsidiaries and	5		-		1,349		-
associates
Impairment losses	3		2,079		0		13,737
Loss on disposal of non-current assets	4		33		41		219
Total extraordinary losses			2,244		1,734		14,827
Profit before income taxes			66,848		58,029		441,536
Income taxes - current			20,376		16,658		134,588
Income taxes - deferred			(3,193)		494		(21,096)
Total income taxes			17,182		17,152		113,491
Profit			49,665		40,876		328,044
Profit attributable to non-controlling interests			2,446		1,936		16,161
Profit attributable to owners of parent		¥	47,219	¥	38,939	$	311,884

The accompanying notes are an integral part of these statements.

- 4 -