Kokuyo : Financial Results for the three months ended September 30, 2023 （279KB）

October 30, 2023

KOKUYO CO., LTD.

FINANCIAL RESULTS

(Consolidated)

Results for the nine months ended September 30, 2023

Company name: KOKUYO Co., Ltd

Stock listings: Tokyo Stock Exchange (Prime)

Stock code: 7984 (URL https://www.kokuyo.com)

Representative: Hidekuni Kuroda, President

For further information, please contact: Naotaka Umeda, Managing Officer, Financial Administration Division

Telephone: [phone] (general)

Date for submission of securities report: November 6, 2023

Commencement date for dividend payments: −

Supplemental material of quarterly results: None

Convening briefing of quarterly results: Yes (for institutional investors and securities analysts)

(Figure less than ¥1 million have been omitted.)

1. Results for the nine months ended September 30, 2023 (January 1, 2023 to September 30, 2023)

(1) Consolidated operating results

	Net sales	Operating income	Ordinary income
		% change from			% change from			% change from
	Millions of yen	the previous	Millions of yen		the previous	Millions of yen		the previous
		year				year			year
9 months ended	248,813	10.6	19,677			31.5	21,667		23.4
September 30, 2023
9 months ended	224,899	−	14,963			−	17,555		−
September 30, 2022
(Note) Comprehensive income:
For the nine months ended September 30, 2023 ¥21,155 million	[33.3%]
For the nine months ended September 30, 2022¥15,868 million	[−%]
	Profit attributable to owners of	Earnings per share	Diluted earnings per share
	parent
	Millions of yen	% change from	Yen			Yen
	the previous year
9 months ended	14,874	14.0				128.91			−
September 30, 2023
9 months ended	13,053	−				112.91			−
September 30, 2022

(Note) Starting from the first quarter of the fiscal year ended December 2022, we have applied the ASBJ Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020). The standard has been retroactively applied to the corresponding period of the previous fiscal year. However, the percentage change between the two periods is not shown.

(2) Consolidated financial position

	Total assets	Net assets	Equity ratio	Net assets per share
	Millions of yen	Millions of yen	%	Yen
September 30, 2023		351,248	253,704	71.8	2,189.38
December 31, 2022		337,538	239,617	70.4	2,058.11
(Reference) Equity:
September 30, 2023	¥252,048 million
December 31, 2022	¥237,744 million

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(Note) During the first half (six months ended June 30, 2023), we finalized provisional amounts that we had used to account for a business combination. The finalized amounts have been incorporated into the results for the previous fiscal year (ended December 31, 2022).

2. Dividends

					Dividend per share
		March 31		June 30		September 30		Year-end		Full-year
					dividend		dividend
		Yen		Yen		Yen		Yen		Yen
Fiscal period ended December		−	28.00		−	29.00	57.00
31, 2022
Fiscal period ending December		−	32.50		−
31, 2023
Fiscal period ending December							32.50	65.00
31, 2023 (forecast)
(Note) Revisions to estimated dividends published most recently: None

3. Consolidated Forecasts for the Fiscal Period Ending December 31, 2023 (January 1, 2023 to December 31, 2023)

	Net sales	Operating income	Ordinary income
		% change from		% change from		% change from
	Millions of yen	the previous	Millions of yen	the previous	Millions of yen	the previous
		year		year		year
Full-year forecast	337,000	12.0	23,000	20.2	25,200	19.1
(Jan-Dec 2023)
	Profit attributable to owners of	Earnings per share
	parent
	Millions of yen	% change from	Yen
	the previous year
Full-year forecast	18,500	1.4		160.15
(Jan-Dec 2023)

(Note) Revisions to financial forecasts published most recently: None

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* Others

1. Significant changes in subsidiaries during the period under review (changes in certain specified subsidiaries accompanying revised scope of consolidation): None

New: −

Removed: −

1. Application of particular accounts procedures to the preparation of quarterly consolidated financial statements: Yes

(Note) See page 14 of the reference document (2. Consolidated Financial Statements, (4) Notes: Application of particular accounts procedures to the preparation of quarterly consolidated financial statements).

1. Changes in accounting principles, procedures and methods of presentation relating to preparation of the consolidated financial statements
2. 1. Changes due to revision of accounting standards: Yes
   2. Changes other than those under above: None
   3. Changes in accounting estimates: None
   4. Restatement: None

(Note) See page 14 of the reference document (2. Consolidated Financial Statements, (4) Notes: Changes in accounting principles).

(4) Number of shares of common stock issued

1. Number of shares of common stock (including treasury stock) issued at:

September 30, 2023	121,542,463
December 31, 2022	128,742,463

1. Number of shares of treasury stock held at:

September 30, 2023	6,419,642
December 31, 2022	13,226,417

1. Number of shares of average stock during a term held at:

September 30, 2023	115,387,489
September 30, 2022	115,608,512

• This quarterly financial summary is not subject to a review by a certified public account or independent auditor.
• Advice relating to appropriate use of financial forecasts and other relevant information
  This document contains performance forecasts and other forward-looking statements. Such statements are based on information available at the time and, in part, on what are deemed to be reasonable assumptions. They are not guarantees of future performance. Actual results may differ markedly from what the forward-looking statements suggest due to a plethora of variables.

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4. Qualitative Information and Financial Statements, etc.

All forward-looking statements in this document are based on assumptions deemed reasonable as of the end of the period under review.

On July 21, 2022, we merged with HNI Hong Kong Limited (now Kokuyo Hong Kong Limited). During the previous fiscal year (ended December 31, 2022), we accounted for this business combination using provisional amounts. We finalized these amounts during the first half (six months ended June 30, 2023). To enable year-on-year comparisons and analysis, we have incorporated into the results for the previous fiscal year a material change to the initial purchase price allocation.

(1) Business Results

			(Millions of yen)
	9 months ended	9 months ended	% change from the
	September 30, 2022	September 30, 2023	previous year
Net sales	224,899	248,813	+10.6
Operating income	14,963	19,677	+31.5
Ordinary income	17,555	21,667	+23.4
Profit attributable to owners of parent	13,053	14,874	+14.0

During the nine months ended September 30, 2023, the Japanese economy continued on the normalization path that began with the easing of Covid restrictions, but uncertainties prevailed with fears of economic downturn abroad, the prolonged conflict in Ukraine, and soaring costs of energy and raw materials.

Against this backdrop, we continued working on our third medium-term plan, Field Expansion 2024, in which we tweak existing business and expand our business fields as part of our long-term vision, CCC 2030. To expand business fields, we reallocated resources from existing businesses, actively deployed strategic expenditures, and stepped up our global expansion efforts.

Despite a turbulent business climate, we maintained our competitiveness by flexibly adapting to the changing business conditions and shifting customer needs.

Net sales reached ¥248.8 billion (up 10.6% year on year). This year-on-year growth reflects the success of the furniture business in capturing office renovation demand. It also reflects the contribution of Kokuyo Hong Kong Limited following our full acquisition of the company last year. Gross profit increased to ¥96.7 billion (up 10.9% year on year) and gross profit ratio came to 38.9% (on par with the result for the nine months ended September 30, 2022). Selling, general and administrative expenses increased to ¥77.0 billion (up 6.6% year on year), reflecting the proactive increase in strategic expenditures for expanding the business fields. Expense ratio (selling, general, and administrative expenses to net sales) came to 31.0% (down 1.2 percentage point year on year).

Reflecting these results, operating income reached ¥19.6 billion (up 31.5% year on year). Ordinary income reached ¥21.6 billion (up 23.4% year on year). Profit attributable to owners of parent reached ¥14.8 billion (up 14.0% year on year).

Segment

As part of our long-term vision, CCC 2030, we have redefined our role in society as that of a "Work & Life Style Company," and committed to being an organization that creates life-affirming solutions, alongside tangible stationery and furniture, in the domain of work and the domain of learning and daily life.

In the workstyle field, the pandemic has entrenched the dispersed workplace and diverse working patterns. Against this backdrop, we target emerging needs related to the rise of hybrid work.

In the lifestyle field, we target the rising demand for authentic self-expression in learning and lifestyle tools. The following table shows the segment-specific results for the period under review.

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					(Millions of yen)
			9 months ended	9 months ended	% change from the
			September 30, 2022	September 30, 2023	previous year
Workstyle field	Net sales	172,222	190,906	+10.8
Operating income	15,111	20,772	+37.5
	Furniture	Net sales	100,357	117,464	+17.0
	Operating income	12,795	17,872	+39.7
	Business supply	Net sales	71,864	73,442	+2.2
	distribution	Operating income	2,315	2,900	+25.3
Lifestyle field	Net sales	72,452	78,934	+8.9
Operating income	5,939	5,827	(1.9)
	Stationery	Net sales	58,312	63,968	+9.7
	Operating income	5,230	5,322	+1.7
	Interior retail	Net sales	14,140	14,966	+5.8
	Operating income	708	504	(28.8)
	Others	Net sales	292	306	+5.0
	Operating income	(95)	(193)	−
	Reconciliation	Net sales	(20,067)	(21,335)	−
	Operating income	(5,992)	(6,728)	−
	Total	Net sales	224,899	248,813	+10.6
	Operating income	14,963	19,677	+31.5

Workstyle field

• Furniture

For our furniture businesses, we target the burgeoning demand for office renovation driven by these changes. Meanwhile, Kokuyo Hong Kong Limited spearheads our overseas business expansion. In this way, we drive earnings growth for our organization as a whole.

In Japan, we targeted the demand for office relocation and the brisk demand for office renovation amid the large growth in the supply of office buildings in the Tokyo Metropolitan Area. We pitched workstyle-focused office solutions for customers' strategic challenges. Our track record grew and our profits improved.

In China and ASEAN, we seek to expand in these markets by cross-selling and production integration, with Kokuyo Hong Kong Limited playing the central role. The Chinese economic outlook is uncertain.

Under such circumstances, the segment's net sales increased to ¥117.4 billion (up 17.0% year on year). Operating income increased to ¥17.8 billion (up 39.7% year on year).

• Business supply distribution

To expand business supply distribution, we are streamlining operations by integrating Kaunet with our wholesale distribution operations. We are also using system investment to improve user interface and user experience design, thereby enhancing customer value.

In the period under review, the retailer saw strong sales to large employers, with higher average revenue per unit thanks to the recovery in office attendance along with pricing revisions.

Under these circumstances, the segment's net sales came to ¥73.4 billion (up 2.2% year on year). Operating income increased to ¥2.9 billion (up 25.3% year on year).

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Lifestyle field

• Stationery

For our stationery businesses, we aim to increase revenue and profit through a global expansion. To that end, we focus on the growing market for value-added stationery, which is driven by the demand for self-expression (as exemplified by social media). We have also committed to the radical organizational change in order to prepare for global expansion.

In Japan, business has been hit hard by sluggish demand and high raw material prices. Amid these circumstances, we work to improve the bottom line by optimally allocating business resources.

In China, we saw strong demand for stationery among secondary school girls. However, China's economic downturn continues to shroud the business outlook.

In India, we spent the period under review overhauling our business activities, strengthening merchandise, and improving business productivity. Consequently, business results were pleasing.

Under these circumstances, the segment's net sales increased to ¥63.9 billion (up 9.7% year on year). Operating income increased to ¥5.3 billion (up 1.7% year on year).

• Interior retail

To capture emerging living-space needs, Actus has committed to following an online-merged-with-offline strategy to integrate its online store with its brick-and-mortar stores.

During the third quarter, we made good progress in our online marketing efforts, offsetting a decline in stay- at- home demand. However, we recorded less profit because of the low yen and because we were unable to absorb the increase in SG&A expenses.

Under these circumstances, the segment's net sales increased to ¥14.9 billion (up 5.8% year on year). Operating income decreased to ¥0.5 billion (down 28.8% year on year).

1. Qualitative and Other Information Related to Consolidated Financial Position 1) Assets, liabilities, and net assets

Total assets at September 30, 2023, amounted to ¥351.2 billion, up ¥13.7 billion from December 31, 2022, the end of the previous fiscal year.

Current assets increased by ¥6.9 billion to ¥221.9 billion. The main factors were an increase of ¥14.4 billion in cash and deposits, which more than offset a decrease of ¥5.0 billion in notes and accounts receivable and contract assets, and a decrease of ¥1.6 billion in merchandise and finished goods.

Non-current assets increased by ¥6.7 billion to ¥129.3 billion. The main factor was an increase of ¥6.0 billion in investments securities.

Liabilities at September 30, 2023, amounted to ¥97.5 billion, down ¥0.3 billion from December 31, 2022, the end of the previous fiscal year. The main factors were a decrease of ¥5.4 billion in notes and accounts payable - trade, which more than offset an increase of ¥3.7 billion in income taxes payable and an increase of ¥2.0 billion in provision for bonuses.

Net assets at September 30, 2023, came to a total of ¥253.7 billion, up ¥14.0 billion from December 31, 2022, the end of the previous fiscal year. The main factors were an increase of ¥9.6 billion in disposal of treasury shares and an increase of ¥3.5 billion in valuation difference on available-for-sale securities.

2) Cash Flows

On a consolidated basis, cash and cash equivalents (hereafter referred to as cash) as of September 30, 2023 totaled ¥112.6 billion, an increase of ¥14.3 billion from the previous fiscal year-end.

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Cash flows from operating activities

Net cash provided by operating activities was ¥27.7 billion (up ¥22.9 billion year on year). The main positive cash flows were ¥21.9 billion in profit before income taxes, ¥5.6 billion in decrease in notes and accounts receivable - trade, ¥5.5 billion in depreciation, and ¥2.0 billion in increase in provision for bonuses. The main negative cash flows were ¥5.9 billion in decrease in notes and accounts payable - trade and ¥2.1 billion in income taxes paid.

Cash flows from investing activities

Net cash used by investing activities was ¥3.3 billion (down ¥6.6 billion year on year). The main positive cash flow was ¥2.0 billion in proceeds from sales and redemption of investment securities. The main negative cash flows were ¥4.6 billion in capital expenditure and ¥0.6 billion in acquisition of non-consolidated subsidiary stock.

Cash flows from financing activities

Net cash used in financing activities was ¥10.7 billion (up ¥2.4 billion year on year). The main negative cash flows were ¥7.0 billion in cash dividends paid, ¥1.1 billion in repayments of lease obligations, ¥1.0 billion in increase in cash segregated as deposits for purchase of treasury shares, ¥0.7 billion in purchase of treasury shares, and ¥0.5 billion in payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation.

(3) Qualitative Information Related to Consolidated Forecasts

The forecasts for the fiscal period ending December 31, 2023, remain unchanged from those announced on July 31, 2023.

If we do have to change the forecasts, we will disclose the details without delay.

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5. Consolidated Financial Statements

(1) Consolidated Balance Sheets

				(Millions of yen)
			As of December 31, 2022	As of September, 2023
	Assets
	Current assets
	Cash and deposits		68,467	82,941
	Notes and accounts receivable and contract assets	68,997	63,997
	Securities		29,996	29,996
	Merchandise and finished goods	31,822	30,150
	Work in process		2,394	2,770
	Raw materials and supplies	5,789	6,165
	Other		7,639	6,024
	Allowance for doubtful accounts	(106)	(100)
	Total current assets		215,001	221,945
	Non-current assets
	Property, plant and equipment
	Buildings and structures, net	20,569	21,173
	Land		28,298	28,316
	Other, net	12,237	12,102
	Total property, plant and equipment		61,105	61,592
	Intangible assets
	Goodwill		5,316	5,487
	Other	11,189	11,177
	Total intangible assets		16,505	16,664
	Investments and other assets
	Investment securities		35,574	41,591
	Retirement benefit asset	4,002	4,120
	Other		5,722	5,698
	Allowance for doubtful accounts	(373)	(365)
	Total investments and other assets		44,926	51,045
	Total non-current assets		122,537	129,302
	Total assets		337,538	351,248

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				(Millions of yen)
			As of December 31, 2022	As of September, 2023
	Liabilities
	Current liabilities
	Notes and accounts payable - trade		53,971	48,488
	Short-term loans payable	4,329	4,399
	Current portion of long-term loans payable		138	5,000
	Income taxes payable	818	4,618
	Provision for bonuses		1,158	3,252
	Other	19,077	17,299
	Total current liabilities		79,494	83,057
	Non-current liabilities
	Long-term loans payable		5,000	−
	Retirement benefit liability	82	84
	Other		13,344	14,402
	Total non-current liabilities		18,426	14,486
	Total liabilities		97,920	97,544
	Net assets
	Shareholders' equity
	Capital stock	15,847	15,847
	Capital surplus		18,127	18,136
	Retained earnings	207,772	206,483
	Treasury shares		(19,215)	(9,568)
	Total shareholders' equity		222,532	230,899
	Accumulated other comprehensive income
	Valuation difference on available-for-sale securities	13,109	16,685
	Deferred gains or losses on hedges		(34)	150
	Foreign currency translation adjustment	1,755	3,988
	Remeasurements of defined benefit plans		380	324
	Total accumulated other comprehensive income		15,212	21,148
	Non-controlling interests		1,873	1,655
	Total net assets		239,617	253,704
	Total liabilities and net assets		337,538	351,248

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1. Quarterly Consolidated Statements of Income and Comprehensive Income
   Consolidated Statements of Income for the Nine Months Ended September 30, 2023

					(Millions of yen)
			Nine months ended September	Nine months ended September
		30, 2022		30, 2023
	Net sales		224,899		248,813
	Cost of sales	137,652		152,075
	Gross profit		87,246		96,737
	Selling, general and administrative expenses		72,283		77,059
	Operating income		14,963		19,677
	Non-operating income
	Interest income		71		106
	Dividend income	471		404
	Real estate rent		669		629
	Share of profit of entities accounted for using equity	512		173
	method
	Foreign exchange gains		1,078		830
	Other	257		293
	Total non-operating income		3,062		2,439
	Non-operating expenses
	Interest expenses		117		150
	Rent expenses on real estate	142		146
	Other		208		152
	Total non-operating expenses		469		449
	Ordinary income		17,555		21,667

Extraordinary income

Gain on sales of non-current assets

Gain on sales of investment securities

Reversal of allowance for doubtful accounts

Reversal of provision for loss on business of subsidiaries and associates

	304		77
	1,022	283
	8		−
	8	2

	Subsidy income		108	−
	Total extraordinary income		1,451	363
	Extraordinary losses
	Loss on valuation of investment securities	33	14
	Provision of allowance for doubtful accounts		20	29
	Costs for addressing IT system failure		−	60
	Total extraordinary losses		53	104
	Profit before income taxes		18,954	21,926
	Income taxes - current		5,745	6,860
	Profit		13,208	15,066
	Profit attributable to non-controlling interests		154	191
	Profit attributable to owners of parent		13,053	14,874

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