NEC Capital : INTEGRATED REPORT 2022（Financial Section） 877KB (2022/09/01)

Integrated Report 2022 (Financial Section)

Publication: September 2022 (Published annually)

NEC Capital Solutions Limited

https://www.necap.co.jp/english/

CONTENTS

Operating and Financial Review	3
Consolidated Balance Sheets	7
Consolidated Statements of Income and Comprehensive Income	9
Consolidated Statements of Changes in Net Assets	10
Consolidated Statements of Cash Flows	13
Notes to Consolidated Financial Statements	15
Independent Auditor's Report	54

© NEC Capital Solutions Limited 2022

2

NEC Capital Solutions Limited Integrated Report 2022(Financial Section)

Operating and Financial Review

1. Business Results

In the fiscal year ended March 31, 2022, the Japanese economy continued to face severe conditions, especially in the restaurant and tourism industry due to the impact of the COVID-19 pandemic. In addition, the semiconductor shortage caused by disruptions in supply chain led to a decrease in production in the automobile industry, which extensively affected a wide range of companies across industries. Furthermore, Russia's invasion of Ukraine broke out in February 2022, which caused the commodities prices such as crude oil and grains to soar and central banks across the world were forced to respond with monetary tightening policies including an increase in interest rates. This brought a rapidly growing sense of uncertainty about the future. These changes in the global economic environment have provoked a strong selling pressure on Japanese yen as Japan is a country with no natural resources and its government continues to pursue low interest rate policies, and there remain concerns about the future impact of volatility in exchange rates. The Company considers necessary to monitor the outlook for future economic activities more closely than ever along with the circumstances of COVID- 19 pandemic and the situation of Ukraine.

The leasing industry, in which the NEC Capital Solutions Group (hereinafter, the "Group") operates, the total value of leasing contracts of the leasing industry for the fiscal year ended Mach 31, 2022 has been ¥4,218.6 billion, which represents a decrease by 8.1% compared with the previous fiscal year (based on Lease Statics published on May 30, 2022, by the Japan Leasing Association).

Under these circumstances, the contract execution volume and contract volume decreased by 10.8% and 20.8%, respectively, compared with the previous fiscal year in the Leasing Business of NEC Capital Solutions Limited (hereafter, the "Company"). Although both the contract execution volume and contract volume fell below those in the previous fiscal year, this was mainly due to the special demand for products related to GIGA school programs in response to the COVID-19 pandemic in the previous fiscal year, which was also incorporated in the initial plan for the current fiscal year.

In the Finance Business both the contract execution volume and contract volume fell below those in the previous fiscal year mainly due to a decline in individual factoring transactions which mainly comprise short- term loans. This was mainly attributable to a decrease of factoring-related receivable balance affected by a decline in customer's accounts receivables and other receivables, and a decline in the number of large-scale projects.

In the Investment Business revenue and operating income significantly increased compared with the previous fiscal year, which was mainly due to gain on large-scale sales of operational investment securities recognized in the current fiscal year.

In the Other Business, it turned into a profit in the current fiscal year mainly due to an increase in revenue from healthcare-related leasing, revenue from solar power generation business, and fee income from PFI.

Regarding business results, both revenue and gross profit increased from the previous fiscal year due to the growth in the Leasing Business and the Investment Business, despite of a year-on-year decline in the Finance Business. Although selling, general, and administrative expenses increased because of the posting of credit- related costs, operating income, ordinary income, and profit attributable to owners of parent, all exceeded those in the previous fiscal year due to a year-on-year increase in gross profit.

As a result of the Group's initiative, total revenues increased by 12.9% to ¥249,907 million ($2,041,557 thousand) on a consolidated basis for the fiscal year under review. Operating income increased by 75.1% to ¥10,447 million ($85,344 thousand), ordinary income increased by 87.6% to ¥11,422 million ($93,309 thousand) and profit attributable to owners of parent increased by 68.5% to ¥6,939 million ($56,687 thousand).

The Group has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) starting from the beginning of the fiscal year ended March 31, 2022.

3

NEC Capital Solutions Limited Integrated Report 2022(Financial Section)

A description of outcomes by business segment is provided below. The figures for the previous fiscal year have been reclassified to reflect the changes made to the reportable segments.

(i) Leasing Business

Total revenue in this segment increased by 8.8% from the previous fiscal year to ¥224,200 million ($1,831,550 thousand) and operating income increased by ¥2,641 million ($21,575 thousand) to ¥7,120 million ($58,165 thousand), due in part to large-scale sales of leased assets as well as a rise in the balance of operating assets.

(ii) Finance Business

Total revenue in this segment decreased by 21.6% from the previous fiscal year to ¥5,219 million ($42,635 thousand), due in part to a decrease in interest income, etc. Operating income decreased by ¥3,054 million ($24,949 thousand) from the previous fiscal year, and this segment recorded operating loss of ¥655 million ($5,351 thousand), due in part to the posting of provision of allowance for doubtful accounts.

(iii) Investment Business

Total revenue in this segment increased by 140.6% from the previous year, to ¥16,366 million ($133,698 thousand) and operating income increased by ¥4,661 million ($38,077 thousand) from the previous year, to ¥5,395 million ($44,073 thousand), due in part to large-scale sales of operational investment securities by funds in the current fiscal year.

(iv) Other Business

Total revenue in this segment increased by 139.4% from the previous year, to ¥4,180 million ($34,148 thousand) and operating income by ¥304 million ($2,483 thousand) to ¥275 million ($2,247 thousand), due in part to an increase in rental revenue from healthcare-related properties, and revenue from sales of solar power electricity as well as sales of healthcare-related properties in the current fiscal year.

2. Forecasts for Fiscal Year Ending March 31, 2023

The Japanese economy is anticipated to be continuously impacted by the COVID-19 pandemic and the situation of Ukraine in the fiscal year ending March 31, 2023. Although a sense of uncertainty about the future persists based on concerns over the resurgence of COVID-19 due to virus variant inside and outside Japan, adaptations to the coexistence with COVID-19 and post COVID-19 have gradually been made along with the progress of vaccination and the ICT infrastructure development towards the "New Normal". On the other hand, Russia's invasion of Ukraine broke out in February 2022, caused the commodities prices such as crude oil and grains to soar and central banks across the world were forced to respond with monetary tightening policies including a rise in interest rates. These changes in the global economic environment have provoked a strong selling pressure on Japanese yen as Japan is a country with no natural resources and its government continues to pursue low interest rate policies. In the absence of any change in these monetary policies by the government, Japanese yen is anticipated to continue to depreciate.

Along with these new circumstances, the Company will follow the policies set out in the "Mid-Term Plan 2020", which was announced in July 2020, to carry outs its operating in the fiscal year ending March 31, 2023. The COVID-19, which has spread all over the world since late January 2020, has been significantly affecting the way of doing business and people's daily life and such situation is anticipated to continue. While the society as a whole is facing irreversible changes caused by a destruction of existing rules and paradigm shifts in existing concepts, a variety of risks may arise in the Company's business activities. On the other hand, it may become an opportunity for the Company to create new social values as well. The Company believes that the know-how it has been accumulating as a financial service company of the NEC Group may become greatly helpful in resolving social issues arising from coexistence with COVID-19 and post COVID-19 such as non-contact,non-face-to-face, and avoidance of the Three Cs. The Company is aimed to become a "corporation to lead social changes with finance and ICT" mentioned in "Mid-Term Plan 2020" based on the business environment of coexistence with COVID-19 and post COVID-19 and achieve steady growth while resolving social issues.

Based on the policies mentioned above, although the Group intends to achieve sustainable growth in the Leasing Business and monetize new businesses, as affected by an advance in schedule of the revenue recognition in the Investment Business, forecasts ordinary income of ¥11.0 billion and profit attributable to owners of the parent of ¥6.5 billion on a consolidated basis in the fiscal year ending March 31, 2023, a 3.7% and 6.3% decrease compared with the current fiscal year, respectively. Although the Group anticipates that the profit level in the

4

NEC Capital Solutions Limited Integrated Report 2022(Financial Section)

year ending March 31, 2023 would be lower than that of the current fiscal year, it anticipates achieving the original plan with respect to accumulated profit targets for the three years mentioned in "Mid-Term Plan 2020".

The forecast for annual dividends will be the same level as the current fiscal year of ¥74 per share (including interim dividend of ¥37), taking into consideration for the profit forecast, based on the Company's dividend policy, which is maintaining stable dividends as the basic policy.

Meanwhile, unless otherwise specified, information concerning the future presented herein are forecasts based on our decisions, targets, certain premises, or assumptions as of the last day (March 31, 2022) of the consolidated fiscal year and may differ materially from the actual results for a number of reasons.

3. Assets, Liabilities, and Net Assets

Total assets at the end of this fiscal year under review decreased by ¥27,036 million ($220,864thousand) year on year, to ¥1,030,617 million ($8,419,386thousand). This decrease mainly reflected an decrease of ¥16,887 million ($137,954thousand) in loans, an decrease of ¥5,698 million ($46,548thousand) in leased assets.

Liabilities at the end of this fiscal year under review decreased by ¥34,891 million ($285,034thousand) year on year, to ¥908,876 million ($7,424,851thousand). This decrease mainly reflected an decrease of ¥34,000 million ($ 277,755thousand) in commercial papers.

Net assets at the end of this fiscal year under review increased by ¥7,855 million ($64,170thousand) year on year, to ¥121,740 million ($994,527thousand). This increase mainly reflected an increase of ¥5,602 million ($45,764thousand) in profit attributable to owners of parent and an increase of ¥966 million ($7,892thousand) in retained foreign currency translation adjustments and an increase of ¥865 million ($7,066thousand) in retained net unrealized gain on marketable securities.

4. Cash Flow Status

Cash and cash equivalents at the end of this fiscal year under review were ¥37,467 million ($thousand). The following is a description of cash flows and significant factors:

(Cash Flows from Operating Activities)

Net cash provided by operating activities was ¥46,815 million ($382,444thousand), compared with net cash used in operating activities of ¥28,770 million for the previous fiscal year. This was primarily attributable to decrease in loans of ¥17,407 million ($142,202thousand) and increase in advances received of ¥14,587 million ($119,165thousand).

(Cash Flows from Investing Activities)

Net cash used in investing activities was ¥501 million ($4,093thousand), compared with net cash used in investing activities of ¥6,699 million for the previous fiscal year. This was primarily attributable to proceeds from redemption of investment securities of ¥10,874 million ($88,833thousand) and purchases of investment securities of ¥12,449 million ($101,699thousand).

(Cash Flows from Financing Activities)

Net cash used in financing activities was ¥46,932 million ($383,400thousand), compared with net cash provided by financing activities of ¥30,956 million for the previous fiscal year. This was primarily attributable to increase in long-term debt of ¥103,298 million ($843,869thousand), offsetting repayment of long-term debt of ¥102,909 million ($840,691thousand).

5