Inter Action : 【Delayed】A financial results briefing session was held for analysts and institutional investors

February 25, 2021

Company name: INTER ACTION Corporation Representative: Nobuo Kiji, CEO & President

(Code: 7725 First Section of the Tokyo Stock Exchange)

A financial results briefing session was held for analysts and institutional investors

On Wednesday, January 20, 2021, an online financial results briefing was held for analysts and institutional investors for the second quarter of the fiscal year ending May 31, 2021.

(Wednesday, January 20, 2021, 3:30 p.m. to 4:30 p.m.)

• 1. Explanation of the Summary of Financial Results for the First Half of the Fiscal Year Ending May 31, 2021 (Senior Manager, Accounting Group, Business Planning Div.)

• 2. Explanation of the Overview of Financial Results for the First Half of the Fiscal Year Ending May 31, 2021 and the Forecast of Consolidated Financial Results for the Fiscal Year Ending May 31, 2021 (Full Year)

  (Senior Manager, Accounting Group, Business Planning Div.)

• 3. Explanation of Business Expansion Going Forward

  (Nobuo Kiji, CEO & President)

• 4. Explanation of Other Topics of Interest (Nobuo Kiji, CEO & President)

• 5. Q&A

For further details of the discussion and the question-and-answer session, please refer to the attached materials.

Contact: Investor Relations Division

※The content of Q&A will be posted at a later date.

Business Administration Group Inter Action Corporation

10F, Sangyo Boeki Center Bldg.,

2 Yamashita-cho, Naka-ku, Yokohama, Kanagawa Tel: [phone]

Email:[e-mail]

Wednesday, January 20, 2021

Contents

• 1. Summary of the First Half of the Year Financial Results

• 2. Overview of Financial Results for the First Half of the Fiscal Year Ending May 31, 2021

  • 1) Internet of Things Related Works

  • 2) Environmental Energy Related Works

  • 3) Promotion Business of Industry 4.0

  • 4) Consolidated Balance Sheets and Consolidated Statements of Income

  • 5) Consolidated Statement of Cash Flows

  • 6) Amount of Orders Received, Net Sales, Backlog of Orders

  • 7) Forecast of Consolidated Financial Results for the Fiscal Year Ending May 31, 2021 (Full Year)

• 3. Business Expansion Going Forward

• 4. Other Topics of Interest

Appendix: Company Profile

1. Summary of the First Half of the Year Financial Results

1. Summary of the First Half of the Year Financial Results

(Millions of Yen)	FY 2020 First Half	FY 2021 First Half
Net sales	3,826	3,379
Operating income	915	877
Ordinary income	916	882
Profit attributable to owners of parent	605	586
EPS	55.45 yen	53.50 yen

Change YoY

(11.7)%

(4.1)%

(3.8)%

(3.2)%

-

➢

There were year-on-year losses in both sales and earnings. In the Internet of things related works segment, appetite for capital investment among Japanese customers remained sluggish, but this is believed to be temporary.

Overseas customers showed enthusiasm toward capital investment. We expect products for overseas customers to drive sales in the third quarter and beyond.

➢ In the environmental energy related works segment, we achieved year-on-year gains in both sales and earnings, but the downtrend in the amount of orders received and the backlog of orders suggest that customers have become more cautious about new capital investment.

➢

In the promotion business of Industry 4.0 segment, both sales and earnings declined year on year, and orders were soft, without full recovery from the slump following the pandemic.

2. Overview of Financial Results for the First Half of the Fiscal Year

Ending May 31, 2021

1) Internet of Things Related Works

• ➢ Regarding illuminators, Japanese customers' appetite for capital investment remained sluggish against a backdrop of social conditions framed mainly by trade friction between the US and China. Among overseas customers, orders and net sales were strong amid continued elevated appetite for investment.

• ➢ Japanese customers' demand for pupil lens modules remained firm. Overseas customers made steady progress in the adoption of pupil lens modules.

• ➢ With the growing popularity of smartphones equipped with multiple cameras, image sensor manufacturers will probably need to increase production capacity. We therefore expect market growth over the medium-to-long term to return to pre-pandemic levels, although such expansion may be slightly delayed.

[Main changes in the external environment]

(1) Market environment (+) Customers' investment trends improved. → Sales of illuminators declined in Japan and increased outside Japan. The competitive landscape in Japan was unchanged.
(2) Social situations (+) US-China trade friction → Among overseas customers, we believe demand for image sensors mainly for smartphone manufacturers in China to be increasing.
(3) End-user applications (+) Spread of ToF (LIDAR) sensors → included in iPhone 12 launched in October 2020 (+) Growing popularity of smartphones with multiple cameras → Increasing diffusion of smartphones with 2 or 3 cameras

[Main changes in the internal environment]

(1) Product and service lineup (+) Promotion of product sales expansion → Achieved new orders for illuminators from Chinese companies
(2) Research and development (+) Test sales and coordination of pupil lens modules overseas → Made steady progress in customer verification ahead of mass production

2) Environmental Energy Related Works Segment

• ➢ Sales and profits rose year on year due to the booking of orders received before the pandemic and large-scale construction projects related to equipment relocation.

• ➢ The downtrend in the amount of orders received and the backlog of orders suggest that customers have become more cautious about deciding on new capital investment.

• ➢ We plan to focus sales efforts on maintenance work by talking to customers about upgrades to existing facilities and other items, rather than expensive new facilities that present a high investment hurdle for customers.

[Main changes in the external environment]

(1) Social situations

(ー) Impact of the spread of novel coronavirus infectious disease

• → Cooling of interest in capital investment

• → Reconsideration of capital investment plans

• → Decrease in orders received

[Main changes in the internal environment]

(1) Sales approach

(+) Promotion of maintenance work projects → Focus on sales < profits, such as upgrades to existing facilities → No competition because it is maintenance of our own products

3) Promotion Business of Industry 4.0 Segment

• ➢ Sales and orders remained soft for the segment as a whole because appetite for investment in capital equipment across all industries remained depressed, without full recovery from the slump following the pandemic.

• ➢ Precision vibration isolation systems: It became difficult to secure net sales. As improvement measures, we will improve the performance of existing products and develop new products, and overseas we plan to develop human resources and improve technology.

• ➢ Gear testing systems: Net sales and orders declined. However, there were signs of a recovery in market conditions from the third quarter. We launched a new product: a gear-defect testing system.

[Main changes in the external environment]

(1) Social situations

(ー) Impact of the spread of novel coronavirus infectious disease

• → Implementation of production adjustments by customers

• → Appetite for capital investment not recovered yet

• → Travel restrictions

[Main changes in the internal environment]

(1) New businesses

(+) Promotion of the laser processing machines business → Proposed ceramic ablation processing technology to other companies

Received inquiries from multiple companies

(+) Promote development of FA image processing related equipment → Launched a gear-defect testing system

Has been well received by customers We will examine ways to expand sales.

(+) Development to improve performance of existing equipment is progressing smoothly.

4) Consolidated Balance Sheets and Consolidated Statements of Income

Consolidated statements of incomeConsolidated balance sheets

(Millions of yen)

As of May

31, 2020

As of November 30, 2020

Assets

Total assets

10,005 10,835

• Current assets 8,575 9,452

• Non-current assets 1,430 1,383

  Property, plant and

• equipment 682 668

• Intangible assets 327 301

  Investments and other

• assets 420 414

Liabilities

Total liabilitiesAs of May 31, 2020

As of November 30, 2020

2,132 2,387

• Current liabilities 1,645 1,759

• Non-current liabilities 487 628

  Net assets

• Total net assets 7,872 8,448

• Shareholders' equity 7,908 8,475

• Capital stock 1,760 1,760

• Capital surplus 3,352 3,352

• Retained earnings 3,870 4,253

Treasury shares Accumulated other comprehensive income

(1,074) (891)

(35) (26)

(Millions of yen)

Actual

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses (Note)

Operating income

Ordinary income

Extraordinary income

Extraordinary losses

Profit before income taxes

Income taxes - current

Income taxes - deferred

Total income taxes

Six months ended

Six months endedNovember 30, 2019 November 30, 2020

3,826 3,379

1,852 1,682

1,973 1,697

1,058 819

915 877

916 882

－ 0

－

7

916 874

251 279

59 8

310 288

Profit

605 586

Total assets

10,005 10,835

Total liabilities and net assets

10,005 10,835

Profit attributable to owners of parent

Note: Major expenses classified as selling, general and administrative expenses

Research and development expenses

605 586

66 26

Amortization of goodwill

26 24

5) Consolidated Statement of Cash Flows

1,385 million yen

(Millions of yen)

2Q ended November 30, 2019

2Q ended

November 30, 2020

Profit before income taxes

Decrease (increase) in notes and accounts receivable - trade

Decrease (increase) in inventories

Other increase (decrease)

916 874

667 392

166 111

12 124

Subtotal

1,762

1,503

Interest and guarantees paid

(513)

(118)

Net cash provided by (used in) operating activities

1,249

1,385

10 million yen

(Millions of yen)

2Q ended November 30, 2019

2Q ended

November 30, 2020

Net increase (decrease) in short-term loans payable

Proceeds from long-term loans payable

Repayments of long-term loans payable

Decrease (increase) in treasury shares

Cash dividends paid

30 40

30 293

(186) (129)

-22 million yen

(Millions of yen)

2Q ended November 30, 2019

2Q ended

November 30, 2020

Purchase of property, plant and equipment

Purchase of intangible assets

Other proceeds (payments)

(109) (49)

(3) (7)

1 35

Net cash provided by (used in) investing activities

(111)

(22)

Cash and cash equivalents at end of period

6,247 million yen

(Millions of yen)

2Q ended November 30, 2019

2Q ended

November 30, 2020

Effect of exchange rate change on cash and cash equivalents

(5) 0

464

Net increase (decrease) in cash and cash equivalents

1,374

(418)

－

Cash and cash equivalents at beginning of period

4,766 4,873

Cash and cash equivalents at end of period

5,231

6,247

(199)

(202)

Other increase (decrease)

76

9

Net cash provided by (used in) financing activities

(667)

10

6) Amount of Orders Received, Net Sales, Backlog of Orders

Business segment	Orders received 1H of FY21	Net sales 1H of FY21	Backlog of orders 1H of FY21
(Millions of yen)	Amount	Change YoY	Amount	Change YoY	Amount	Change YoY
Internet of things related works	2,272	10.5%	2,227	(13.3)%	1,418	108.0%
Environmental energy related works	278	(33.8)%	540	17.3%	132	(58.1)%
Promotion business of Industry 4.0	497	(23.7)%	611	(23.4)%	104	(41.3)%
Total	3,048	(2.6)%	3,379	(11.7)%	1,655	40.8%

Amount of orders received (cumulative)

(Millions of yen)

Net sales (cumulative)

Backlog of orders (quarterly basis)

(Millions of yen)

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

FY20 1Q FY20 2Q FY20 3Q FY20 4Q FY21 1Q FY21 2Q

IoTEnvironmental

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

FY20 1Q FY20 2Q FY20 3Q FY20 4Q FY21 1Q FY21 2QIndustry 4.0

IoTEnvironmental

3,500

(Millions of yen)

3,000

2,500

2,000

1,500

1,000

500

0

FY20 1Q FY20 2Q FY20 3Q FY20 4Q FY21 1Q FY21 2QIndustry 4.0

IoTEnvironmentalIndustry 4.0

7) Forecast of Consolidated Financial Results for the Fiscal Year Ending May 31, 2021

(Full Year)

[Internet of things related works]

Overseas customers are actively investing in capital, and we expect strong sales of illuminators. Since we foresee Japanese customers making capital investment mainly in pupil lens modules, which have lower unit selling prices than illuminators, we anticipate full-year sales to decline from the previous year. Appetite for capital investment is positive overall, including among Japanese customers.

[Environmental energy related works]

Orders for main units such as drying deodorizers have stalled due to the impact of the COVID-19 pandemic and the shrinking size of the printing machinery market. However, we expect sales to increase.

We plan to focus sales efforts on maintenance work by talking to customers about upgrades to existing facilities and other items, rather than expensive new facilities that present a high investment hurdle for customers.

[Promotion business of Industry 4.0]

In gear testing systems, we see signs that market conditions will recover, especially for automakers. However, for the segment as a whole, including precision vibration isolation systems, we forecast sales to decrease year on year due to decline in customers' appetite for capital investment due to the pandemic. We will focus on the development and sales of new products and on human resources development, leading to medium- to long-term growth.

3. Business Expansion Going Forward

3. Business Expansion Going Forward : Image Sensor Manufacturers' Capital

Investment Trends in the First Half (Forecast)

Short-term

Capital expenditure weak

• • The recovery in capital expenditure would be expected in the Second Half.

  • • Medium- to long-term increase in demand of sensors mainly for vehicles

  • • Investment trends are uncertain; needs to be kept our eyes on the market.

• • New production line would be expanded in Long-term.

• • Realization of multifunction devices

• • Changes in customer base due to US-China trade conflict.

• • Demands for pupil lens modules are strong.

Capital expenditure strong

• • Achievement of getting new orders from potential customer.

• • Investment trends are still uncertain; but keeping our eye on the market.

Medium- to long-term capital expenditure weak

• • Continuously strong capital expenditure would be expected.

• • Improvement of yield rate and production efficiency have been focused on.

• • Increase of demands of pupil lens modules would be expected.

China

short

3. Business Expansion Going Forward: Product Portfolio Overview

Product Portfolio (Internet of Things Related Works ）

Product Portfolio (Environmental Energy Related Works)

(Small)

Product Portfolio (Promotion Business of Industry 4.0)

(Small)

3. Business Expansion Going Forward: Portfolio (Entire business)

Death and Disruption Risk

Return (expected value)

Failure prediction monitoring business

(Large)(Small)

Innovation risk

(Small)

3. Business Expansion Going Forward: Image for Progress of New Business

(+)

(-)

Elapsed time

• • Unstable progress due to hypothesis and verification phase (repetition of progress and setbacks)

• • Possibility of project withdrawal

• • Progress stabilizes with reduced uncertainty

• • Continue verification and investment, aiming for a "pillar" of business

Hypothesis and verification phase (present)

• • Full-scale investment is not made due to high uncertainty in the early stages of new business planning.

• • As uncertainty is reduced through repeated verification, investment can increase proportionally.

Sales expansion verification and investment phase

• • Start full-scale investment after reducing uncertainty of the hypothesis and verification phase.

• • Aim to build and develop a business foundation through sales expansion verification.

(+)

4．Other Topics of Interest

1) Pupil Lens Modules for Overseas Customers: Progress and Future

• • There are signs that customers will shift from test item verification to mass-produced products. We expect demand to increase. (Phase 1)

• • Break away from phase (1) test products. Build a sales foundation for mass production. Aim to win stable orders. (Phase 2)

[Phase 1]

Step up from test products (present)

• • Verification for commercialization through repeated "test item provision → feedback → correction, test item provided again"

• • Significant progress from test items toward mass production by customers in the second quarter

Repeat

IA

Major customers overseas

Time

November to December 2020

[Phase 2]

Aim to win orders for products for mass production

(future)

• • Expect customers to make full-scale investment for pupil lens modules

• • Watch customer trends closely to meet demand

Major customers overseas

Image sensor business

Pupil lens modules (mass-produced products)

Progress

2) FA Image Processing Business: Progress and Future

• • At this stage, the prototype is complete and commercialization is finished. Going forward, we will conduct product sales expansion verification, aiming to expand the scale of business. (Phase 1)

• • Depending on the situation of phase 1, conduct verification of applications in fields other than gears. Aim to open up new markets. (Phase 2)

Creation and commercialization of prototypes

• • Joint development with customers

• • Feature evaluation from prospective customers: High

IA

for gearsGear manufacturer

FA image

processors

[Phase 1]

Business establishment (present)

◎

• • Sales of FA image processors

• • Expand sales to gear-related companies

• • Need for picking robots for full automation

Gear-related companies

[Phase 2]

Applications other than gears (future)

3) Laser Processing Equipment Business: Progress and Future

• • At this stage, market research and the selection of a processing method and materials is completed. Going forward, we will conduct product development verification to determine if the hypothesis is correct. (Phase 1)

• • Depending on the situation of phase 1, proceed with verification. We will focus on product development, aiming for commercialization. (Phase 2)

Market research and decision on processing methods

[Phase 1]

Proof of hypothesis and development verification (present)

• • Conduct interviews with companies and market research

• • Focus on non-thermal processing (ablation processing)

• • High potential for use in ceramic processing

Ceramic processing companies

IA

• • Inquiries from several major companies

• • Verification for commercialization through repeated "test item provision → feedback → correction, test item provided again"

Repeat

IA

Several ceramic processing companies

Development and commercialize new products (future)

[Phase 2]

• • Start product development and provision, build business foundation

• • After building foundation, verify that sales can be expanded

Complete!

Ceramic processing companies

After building business foundation

New customers:

Survey

4) Included in the JPX-Nikkei Mid and Small Cap Index

• • Included in the JPX-Nikkei Mid and Small Cap Index*, which is jointly calculated by Tokyo Stock Exchange, Inc. and Nikkei Inc., for fiscal 2020 (November 30, 2020 to August 30, 2021).

* The JPX-Nikkei Mid and Small Cap Index applies the same concept to companies with middle and small market capitalization as the JPX-Nikkei Index 400, which is composed of "companies that are highly appealing to investors," and selects companies that make effective use of capital and conduct management with an awareness of investors.

Appendix: Company Profile

Company Profile

Trade name:INTER ACTION CorporationEstablished:June 25, 1992

Listed on:

Tokyo Stock Exchange,

First SectionSecurities code:

7725

Representative:Nobuo Kiji, CEO & President

Fiscal year:June 1 to May 31

Capital stock:

1,760 million yen

URL:

http://www.inter-action.co.jpEmployees:

139 (Group-wide as of May 31, 2020)Head office:Yokohama Kanazawa High-Tech Center 14F 1-1 Fukuura, Kanazawa-ku

Yokohama-shi, Kanagawa

Tel: [phone] Fax: [phone]

Offices:

Naka-ku, Yokohama-shi; Koshi-shi, KumamotoGroup companies:Air Gases Technos Co., Ltd. Meiritz Seiki Co., Ltd.

Tokyo Technical Instruments Inc.

Xian INTER ACTION Solar Technology Corporation Shaanxi Chaoyangyitong Precision Device Co., Ltd. MEIRITZ KOREA CO.,LTD.

Taiwan Tokyo Technical Instruments Corp.

TOKYO TECHNICAL INSTRUMENTS (SHANGHAI) CO.,LTD. Lastech Co., Ltd.

Strategy

Key benchmarksEquity spread ROE

Weighted average cost of capital (WACC)Dividend policyTotal return ratio of 30%Focus on fields of growth and potential growth.

M&A strategy

Focus on fields where we can pursue business development by leveraging technologies and expertise built up thus far.

Achieve positive net present value calculated on the basis of estimated cash flows for five years using WACC as the discount rate.

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Investor Relations Division

Business Administration Group

Inter Action Corporation

10F, Sangyo Boeki Center Bldg.,

2 Yamashita-cho, Naka-ku, Yokohama, Kanagawa

Tel: [phone]

http://www.inter-action.co.jp/inquiry/

Please contact us through the Inquiries page of the

Inter Action website (in Japanese).

Notes

This document contains forward-looking statements particularly regarding Inter Action's future performance. The Inter Action Group has formed its outlook encompassing potential risks and uncertainties based on information available at the time of disclosure. Accordingly, please be advised that actual financial results may vary substantially from the forecasts presented, given that they are subject to economic circumstances surrounding areas of business going forward, market trends, and other such factors.

Whereas every effort has been taken to ensure the accuracy and completeness of the provided in this document, we make no guarantee in that regard.

Furthermore, please be advised that the information in this document is subject to revision or retraction without prior notice.

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