Hope : Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending June 30,2021

Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending June 30, 2021

	(Nine Months Ended March 31, 2021)
		[Japanese GAAP]
		April 23, 2021
Company name: HOPE, INC.	Listing: TSE-Mothers/FSEQ-Board
Stock code:	6195	URL: https://www.zaigenkakuho.com/
Representative:	Takayasu Tokitsu, CEO
Contact:	Kensuke Ohshima, CFO	Tel: [phone]
Scheduled date of filing of Quarterly Report:	May 10, 2021
Scheduled date of payment of dividend:	-
Preparation of supplementary materials for quarterly financial results: Yes
Holding of quarterly financial results meeting:	None

(All amounts are rounded down to the nearest million yen)

1. Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending June 30, 2021 (July 1, 2020 to March 31, 2021)

(1) Consolidated results of operations				(Percentages represent year-on-year changes)
	Net sales		Operating profit	Ordinary profit		Profit attributable to
			owners of parent
	Millions of yen		%	Millions of yen	%	Millions of yen	%		Millions of yen		%
Nine months ended Mar. 31, 2021	21,810		-	(7,276)	-	(7,295)	-		(7,313)		-
Nine months ended Mar. 31, 2020	-		-	-	-	-	-		-		-
Note: Comprehensive income (millions of yen)	Nine months ended Mar. 31, 2021: (7,312) (-%)
			Nine months ended Mar. 31, 2020:	- (-%)
	Net income per share	Diluted net income
	per share
			Yen		Yen
Nine months ended Mar. 31, 2021	(1,196.57)		-
Nine months ended Mar. 31, 2020			-		-

Notes: 1. Diluted net income per share is not presented because net loss was posted although there were outstanding dilutive shares.

1. 2. Year-on-year changes and figures for the nine months ended March 31, 2020 are not presented because HOPE started preparing consolidated financial statements from the second quarter of the fiscal year ending June 30, 2021.

2. Consolidated financial position

	Total assets	Net assets	Equity ratio
	Millions of yen	Millions of yen	%
As of Mar. 31, 2021	7,352	(4,514)	(61.7)
As of Jun. 30, 2020	-	-	-

Reference: Shareholders' equity (millions of yen) As of Mar. 31, 2021: (4,533) As of Jun. 30, 2020: -

Note: Figures as of June 30, 2020 are not presented because HOPE started preparing consolidated financial statements from the second quarter of the fiscal year ending June 30, 2021.

2. Dividends

			Dividend per share
	1Q-end	2Q-end	3Q-end	Year-end	Total
	Yen	Yen	Yen	Yen	Yen
Fiscal year ended Jun. 30, 2020	-	0.00	-	15.00		15.00
Fiscal year ending Jun. 30, 2021	-	0.00	-
Fiscal year ending Jun. 30, 2021				-		-
(forecast)
Notes: 1. Revisions to the most recently announced dividend forecast: None

1. Breakdown of year-end dividend for the fiscal year ended June 30, 2020: Commemorative dividend of 15.00 yen
2. The dividend forecast for the fiscal year ending June 30, 2021 is to be determined.

3. Consolidated Earnings Forecast for the Fiscal Year Ending June 30, 2021 (July 1, 2020 to June 30, 2021)

(Percentages represent year-on-year changes)

Net sales

Operating profit

Ordinary profit

Profit attributable to

Net income per

owners of parent

share

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

Yen

Full year

34,084

-

(5,914) to (5,038)

-

(5,937) to (5,061)

-

(5,964) to (5,087)

-

(969.19) to (826.80)

Notes: 1. Revisions to the most recently announced earnings forecast: None

2. Year-on-year changes are not presented because HOPE started preparing consolidated financial statements from the second quarter of the fiscal year ending June 30, 2021.

• Notes
• 1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in chan ges in scope of consolidation): Yes

Newly added: 1 (HOPE ENERGY, INC.)

Excluded: -

1. Application of special accounting methods for presenting quarterly consolidated financial statements: None
2. Changes in accounting policies and accounting estimates, and restatements
3. 1. Changes in accounting policies due to revisions in accounting standards, others: None
   2. Changes in accounting policies other than 1) above: None
   3. Changes in accounting estimates: None
   4. Restatements: None
4. Number of shares outstanding (common shares)
5. 1. Number of outstanding shares as of the end of the period (including treasury shares)

As of Mar. 31, 2021:

6,302,800 shares

As of Jun. 30, 2020:

6,002,800 shares

1. Number of treasury shares as of the end of the period

As of Mar. 31, 2021:	24,981 shares	As of Jun. 30, 2020:	24,960 shares
3) Average number of outstanding shares during the period
Nine months ended Mar. 31, 2021:	6,112,400 shares	Nine months ended Mar. 31, 2020:	5,576,001 shares

• The current quarterly financial report is not subject to quarterly review by certified public accountants or auditing firms.
• Explanation of appropriate use of earnings forecasts, and other special items
• • Forecasts of future performance in these materials are based on assumptions judged to be valid and information available to the management of HOPE at the time these materials were prepared. Actual results of operations may differ from forecasts due to uncertainty involving these judgments and assumptions or to changes in business operations and market conditions. HOPE does not guarantee the certainty of any forward-looking statements.
  • Please refer to the section "1. Qualitative Information on Quarterly Consolidated Financial Performance, (3) Explanation of Consolidated Earnings Forecast and Other Forward-looking Statements" on page 4 of the attachments regarding preconditions or other related matters for the forecasts.

HOPE, INC. (6195) Consolidated Financial Results for the Third Quarter of FY6/21

Contents of Attachments
1. Qualitative Information on Quarterly Consolidated Financial Performance	2
(1) Explanation of Results of Operations	2
(2) Explanation of Financial Position	4
(3) Explanation of Consolidated Earnings Forecast and Other Forward-looking Statements	4
2. Quarterly Consolidated Financial Statements and Notes	5
(1) Quarterly Consolidated Balance Sheet	5
(2) Quarterly Consolidated Statements of Income and Comprehensive Income	6
Quarterly Consolidated Statement of Income	6
For the Nine-month Period	6
Quarterly Consolidated Statement of Comprehensive Income	7
For the Nine-month Period	7
(3) Notes to Quarterly Consolidated Financial Statements	8
Going Concern Assumption	8
Significant Changes in Shareholders' Equity	8
Additional Information	9
Segment Information	10

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HOPE, INC. (6195) Consolidated Financial Results for the Third Quarter of FY6/21

1. Qualitative Information on Quarterly Consolidated Financial Performance

(1) Explanation of Results of Operations

The COVID-19 pandemic severely restricted economic activity in Japan and other countries in the first nine months of the fiscal year ending June 30, 2021 and the outlook for the Japanese economy remains unclear.

All business activities are based on the HOPE corporate philosophy of "providing new forms of value to citizens through local governments and aiming for more growth of our business and our people." Since HOPE's establishment, cumulative additional local government revenue generated by the advertising business is about 8,440 million yen as of the end of the third quarter and the energy business has reduced expenses of local governments by about 32,000 million yen (estimate of saving during the entire length of all contrac ts received since the energy business started). These savings have made a significant contribution to local governments throughout Japan as well as the residents of these communities.

On August 11, 2020, HOPE announced HOPE NEXT 3, a three -yearmedium-term management plan beginning in the current fiscal year. To accomplish the goals of this plan, many business activities with the aim of medium-term growth are under way. Between the middle of December 2020 and late January 2021, the price of electricity on the Japan Electric Power Exchange (JEPX) was very high. This big increase in the cost of electricity had an enormous negative impact on the performance of the energy business, which is HOPE's largest business segment. A number of organizations made announcements concerning the probable causes of this sharp increase in the price of electricity. According to the Ministry of Economy, Trade and Industry, the primary causes are a big increase in demand for electricity due to several cold waves and limitations on the output of liquefied natural gas (LNG) power plants due to a decline in the inventory of LNG, which was partially the result of problems involving gas liquefaction plants. According to a Comprehensive Renewable Energy Regulations Inspection Task Force, the problem began with an unusually magnitude and length of restrictions on LNG and petroleum, which account for a large share of electricity generated in Japan. This situation created a big gap at JEPX between the volume of bids to buy and sell electricity, resulting in an unprecedented surge in the price of electricity.

Reference: "Examination of Electricity Supply and Demand and the Wholesale Electricity Market during the Past Winter" (March 26, 2021)

Agency for Natural Resources and Energy, the Ministry of Economy, Trade and Industry https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/pdf/032_07_00.pdf

Reference: "Opinion concerning Problems concerning the Output Capacity Market, Grid Restrictions and the Rapid Increase in Spot Prices" (March 29, 2021)

Comprehensive Renewable Energy Regulations Inspection Task Force, Cabinet Office https://www8.cao.go.jp/kisei-kaikaku/kisei/conference/energy/20210329/210329energy09.pdf

The high cost of wholesale electricity significantly raised the cost of e lectricity purchased by HOPE. As a result, January 2021 imbalance fees (see note) were about 6,500 million yen, including taxes, and there was a large operating loss in the third quarter. We are confident that we can continue to maintain sound relationship s with financial institutions, primarily our main banks, in order to continue receiving assistance. We plan to continue examining many ways to procure funds and will make an announcement promptly in accordance with disclosure rules if there is information that requires disclosure.

HOPE has several core strengths. One is the expertise to reproduce new businesses in a broad range of fields based on a large number of relationships with local governments established over many years of business operations and legal frameworks consisting of new and amended laws and regulations. Another is the expertise to easily reproduce business expansion in the local government business domain. Our objective is to use these two phases for growth of the three existing businesses and creation of new businesses. Making advertising a profit-generating business is one goal. We are continuing to improve profitability by making changes to achieve the proper size of this business and working on reducing over the next several years the h igh percentage of fiscal year earnings of this business in the fourth quarter. These steps are aimed at making this business more cost efficient and increasing the rates we charge for advertising services. In the energy business, which we position as a driver of growth, our goals are more growth in the scale of this business and consistent profitability. Our short and medium-term strategy has two elements. First is to continue existing measures for growth centered on using

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HOPE, INC. (6195) Consolidated Financial Results for the Third Quarter of FY6/21

competitive bids to capture new contracts. Second is to reduce vulnerability to the price volatility risk involving the cost of electricity we purchase. This involves achieving the most suitable combination of fixed -price procurement using one-to-one transactions and the purchase of electricity at current market prices on the JEPX. However, the sharp increase in the price of electricity on the JEPX forced us to alter this strategy. In the media business, the market for promotions targeting local governments still has much potential for more public-private sector collaboration and measures to become more competitive. Our goal is to position ourselves at the very top of upstream information flows in order to capitalize on opportunities involving this potential. This business is upgrading content, strengthening information dissemination capabilities and reinforcing the ability to keep up with the latest information. The objective is firmly establishing the value of the Jichitai Works brand in order to stimulate more growth of the market for promotions targeting local governments. In addition, we believe that these activities will make possible even more public -private sector collaboration based on government information circulation centered on HOPE as well as the use of local government informati on databases for strengthening, supporting and creating business activities. We will use many activities to accomplish these goals. These measures will include upgrading and expanding our content production capabilities , increasing B-to-G marketing activities and making extensive use of Jichitai Works HA×SH, which is an internet platform for supporting public-private sector collaboration.

In the first nine months of the fiscal year ending June 30, 2021, net sales were 21,810 million yen. The operating loss was 7,276 million yen, the ordinary loss was 7,295 million yen, and there was a loss attributable to owners of parent of 7,313 million yen.

Note: An imbalance fee is paid when a company selling electricity is unable to supply the required amount of electricity over any 30-minute period and must purchase electricity from a utility to cover the shortfall. This fee is included in the cost of sales of the energy business.

Business segment performance was as follows.

1) Advertising Business

In this business, the Smart Resource service purchases a variety of advertising space from local governments by submitting competitive bids and then sells this space to companies. The Machilet service jointly produces with local governments publications for residents at no cost and sells advertising space in these publications to companies. During the first nine months, there were measures to achieve the proper size of the Machilet service. Machilet, which is the primary medium of the advertising business, is operating in all areas of Japan while concentrating on six themes: marriage, raising children, senior nursing care, measures involving vacant houses, end-of-life messages, and condolence messages. There are also many activities for creating new media. In the third quarter, through a joint program with Ota ward in Tokyo, we issued in February 2021 Japan's first Residence Assistance Conference Guide. The goal of this publication is communities where apartment tenants, apartment owners and real estate companies can coexist in a mutually beneficial manner.

Segment sales were 1,030 million yen and segment profit was 82 million yen.

2) Energy Business

This business, which uses the Genewat brand for the retail of electricity, has the goal of reducing the expenses of local governments by providing new forms of value based on the concept of electricity as a generic product. On October 22, 2020, Hope Energy, Inc. was established as a wholly owned subsidiary of HOPE. Preparations have been largely completed for the transfer of part of the energy business to Hope Energy and this subsidiary was able to start business operations on April 1, 2021. As was explained earlier, the sharp increase in the cost of purchasing electricity due to the higher cost of electricity on the JEPX had a signi ficant negative impact on the energy business. In February and March, when this spike in the cost of electricity had largely ended, we established measures for the stability of energy business earnings, stronger governance and other revisions to the framework for operating this business. In addition, spring is customarily a season when JPEX prices are stable. Consequently, the energy business conducted business as usual from January to March. Furthermore, in part because there is normally a large number of electricity contracts submitted for bids in the third quarter of every year, the energy business added a record-high 426 new electricity supply contracts during the third quarter.

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