Nippon Kanzai : Consolidated Financial Statements for the First Quarter of the Fiscal Year Ending March 31, 2022

Consolidated Financial Statements

for the First Quarter of the Fiscal Year Ending March 31, 2022 [J-GAAP]

NIPPON KANZAI Co., Ltd.		August 3, 2021
Listed exchanges:	Tokyo Stock Exchange, First Section
Code number:	9728	URL:https://www.nkanzai.co.jp/en/
Representative:	Shintaro Fukuda, President and Representative Director
Contact:	Shigeki Okamoto, Senior Executive Officer and Head of Finance & Accounting Dept.
Telephone:	[phone]
Filing date of quarterly report:		August 10, 2021
Date to start dividends distribution:		―
Supplementary materials for quarterly results:	None
Quarterly results briefing meeting held:	None

*Amounts below one million yen have been rounded down.

1. Consolidated results for the first quarter ended June 30, 2021 (April 1, 2021 to June 30, 2021)

(1) Consolidated business results

(Percentage figures indicate the rate of change from the same period in the previous fiscal year.)
	Net Sales		Operating Income		Ordinary Income
	Millions of yen	%	Millions of yen	%	Millions of yen	%
Three months ended June 30, 2021	23,662	(3.1)	1,692	15.4	1,805	25.3
Three months ended June 30, 2020	24,419	(3.3)	1,466	(7.0)	1,440	(7.1)

(Note) Comprehensive income:Three months ended June 30, 2021:	¥1,644 million [176.5%]
Three months ended June 30, 2020:	¥594 million [-25.7%]
	Profit Attributable to		Profit per Share	Diluted Profit per Share
	Owners of Parent
	Millions of yen		%	Yen	Yen
Three months ended June 30, 2021	1,123		27.0	30.06	―
Three months ended June 30, 2020	884		(6.6)	23.67	―

(2) Consolidated financial position

	Total Assets	Net Assets	Equity Ratio
	Millions of yen	Millions of yen	%
As of June 30, 2021	77,358	57,786	73.2
As of March 31, 2021	81,759	57,143	68.3

(Reference) Equity:	As of June 30, 2021:	¥56,594 million
	As of March 31, 2021:	¥55,862 million

2. Dividends

				Annual dividends
		First	Second	Third	Year-end	Total
		Quarter-end	Quarter-end	Quarter-end
		Yen	Yen	Yen	Yen	Yen
Fiscal year ended March 31, 2021		―	25.00	―	27.00	52.00
Fiscal year ending March 31, 2022		―
Fiscal year ending March 31, 2022			27.00	―	27.00	54.00
(forecast)
(Note) Revisions to the most recently announced forecast of cash dividends in the current quarter: None

3. Consolidated business forecasts for the fiscal year ending March 31, 2022 (April 1, 2021 to March 31, 2022)

(Percentage figures for the full year indicate the rate of change from the previous fiscal year. Percentage figures for the first six months indicate the rate of change from the same period of the previous fiscal year)

	Net Sales		Operating Income	Ordinary Income	Profit Attributable to	Profit per
		Owners of Parent	Share
	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%	Yen
First half	51,000	3.1	3,500	17.4	3,700	23.6	2,500	26.2	66.87
Full year	106,000	1.8	7,700	2.0	8,300	2.1	5,600	6.0	149.80

(Note) Revisions to the most recently announced consolidated business forecasts in the current quarter: None

* Notes

1. Changes of significant subsidiaries during the period (changes in specific subsidiaries associated with changes in scope of consolidation): None
2. Adoption of specific accounting methods for preparation of the quarterly consolidated financial statements: None
3. Changes in accounting policies, accounting estimates and restatement of revisions

1)	Changes in accounting policies due to revisions of accounting standards, etc.:	Yes
2)	Changes in accounting policies other than 1) above:	None
3)	Changes in accounting estimates:	None
4)	Restatement of revisions:	None

1. Number of shares issued and outstanding (common stock)
2. 1. Number of shares issued and outstanding (including treasury stock)
   2. Number of treasury stock
   3. Average number of shares issued and outstanding

1)	As of June 30, 2021	41,180,306 shares	As of March 31, 2021	41,180,306 shares
2)	As of June 30, 2021	3,796,818 shares	As of March 31, 2021	3,796,818 shares
3)	First three months ended	37,383,488 shares	First three months ended	37,383,548 shares
June 30, 2021	June 30, 2020

• This quarterly financial report is not included in the quarterly review by certified public accountants or audit corporations
• Explanation regarding the appropriate use of business forecasts and other notes (Notes to forward-looking statements)
  The business forecasts reported herein were prepared based on information the Company had in its possession as of the time this report was prepared and on certain assumptions judged to be reasonable. Actual results may differ significantly from forecasts due to various factors. Please refer to the disclaimers provided under "1. Qualitative information on financial statements; (3) Explanation regarding information on future forecasts including consolidated business forecasts, etc." on page 3 of the Attached Document of this quarterly financial report regarding assumptions upon which forecasts are based and the use of forecasts.

NIPPON KANZAI Co., Ltd. (9728) Consolidated Financial Statements for the First Quarter of the Fiscal Year Ending March 31, 2022

Table of Contents for the Attached Document

1. Qualitative information on financial statements .........................................................................................................	2
(1)	Explanation regarding business results....................................................................................................................	2
(2)	Explanation regarding financial position.................................................................................................................	3
(3)	Explanation regarding information on future forecasts including consolidated business forecasts, etc..................	3
2. Quarterly consolidated financial statements and key notes ........................................................................................	4
(1)	Quarterly consolidated balance sheets.....................................................................................................................	4
(2) Quarterly consolidated statements of income and quarterly consolidated statements of comprehensive income .......	6
	Quarterly consolidated statements of income..........................................................................................................	6
	Quarterly consolidated statements of comprehensive income.................................................................................	7
(3)	Notes on quarterly consolidated financial statements..............................................................................................	8
	(Notes on going concern assumption) .....................................................................................................................	8
	(Notes on significant changes in the amount of shareholders' equity) ....................................................................	8
	(Changes in accounting policies).............................................................................................................................	8
	(Segment information, etc.).....................................................................................................................................	9

1

NIPPON KANZAI Co., Ltd. (9728) Consolidated Financial Statements for the First Quarter of the Fiscal Year Ending March 31, 2022

1. Qualitative information on financial statements

(1) Explanation regarding business results

During the first three months of the fiscal year ending March 31, 2022, normalization of economic activities was expected for the Japanese economy due to the start of vaccination while the impact of COVID-19 continued to be seen, but repeated declarations of a state of emergency attributable to the pandemic and spread of variants continues to cast uncertainty over the future.

In the real estate services industry, with a shift from an urban-intensive society to a decentralized one due to measures such as the introduction of remote working and establishment of satellite offices in the suburbs as countermeasures against COVID-19, the vacancy rates of office and retail facilities are turning toward an upward trend with the exception of some areas. In addition, due to concerns over the increasing cost-consciousness of clients, a severe business environment is expected to continue going forward.

In such a business environment, the Nippon Kanzai Group (hereinafter "the Group") sought to continuously provide high-quality services that address customer needs by unremittingly pursuing "optimal building management" through its advanced technologies and responsiveness, endeavoring to enhance the asset value of buildings.

The Group has also exerted itself to further strengthen and improve building management and operations, its core business, while proactively developing peripheral business areas including private finance initiatives (PFI) and public facilities management.

Consolidated net sales for the first three months of the fiscal year ending March 31, 2022, decreased by 3.1% year on year to 23,662 million yen due to sluggish growth in orders for construction-related work.

In terms of profit, efforts to secure profits including fee revisions and the review of the content of specifications and work efficiency resulted in operating income increasing by 15.4% year on year to 1,692 million yen, ordinary income increasing by 25.3% year on year to 1,805 million yen, and profit attributable to owners of parent increasing by 27.0% year on year to 1,123 million yen.

The "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020; hereinafter, the "Revenue Recognition Accounting Standard"), etc. has been applied from the beginning of the first quarter of the fiscal year ending March 31, 2022, and net sales decreased by 36 million yen, cost of sales by 31 million yen, and operating income and ordinary income by 4 million yen each in the first three months of the fiscal year ending March 31, 2022. For details, please refer to "2. Quarterly consolidated financial statements and key notes (3) Notes on quarterly consolidated financial statements (Changes in Accounting Policies)."

The following are the results by segment.

Segment income (loss) has been adjusted to operating income described in quarterly consolidated statements of income.

Building Management and Operations

With regard to Building Management and Operations, the Group's core business that focuses on building management and security services, sluggish growth in orders for construction-related work resulted in net sales for the segment for the first three months of the fiscal year ending March 31, 2022, decreasing by 6.6% year on year to 16,451 million yen.

In terms of profit, despite efforts in cost reduction, sluggish growth in net sales resulted in segment income decreasing by 3.3% year on year to 2,060 million yen.

The application of the Revenue Recognition Accounting Standard, etc. resulted in net sales decreasing by 37 million yen, cost of sales decreasing by 33 million yen and segment income decreasing by 4 million yen.

Residential Management and Operations

With regard to Residential Management and Operations, which mainly consists of managing rental apartment buildings and condominiums as well as public housing, the entrustment of new management projects and an increase in orders for construction-related work resulted in net sales for the segment for the first three months of the fiscal year ending March 31, 2022, increasing by 3.6% year on year to 3,891 million yen.

In terms of profit, efforts to review the cost ratio and reduce costs resulted in segment income increasing by 42.2% year on year to 434 million yen.

The application of the Revenue Recognition Accounting Standard, etc. has minimal impact on net sales and profits.

Environmental Facilities Management

With regard to Environmental Facilities Management, which mainly consists of managing water treatment, sewage disposal, and other public facilities related to the overall living environment, the entrustment of new management projects and steady contract renewals resulted in net sales for the segment for the first three months of the fiscal year ending March 31, 2022, increasing by 7.2% year on year to 2,742 million yen.

In terms of profit, segment income increased by 29.6% year on year to 462 million yen as a result of the Group's efforts in cost reduction with a focus on appropriate personnel assignments.

The application of the Revenue Recognition Accounting Standard, etc. has minimal impact on net sales and profits.

2

NIPPON KANZAI Co., Ltd. (9728) Consolidated Financial Statements for the First Quarter of the Fiscal Year Ending March 31, 2022

Real Estate Fund Management

With regard to Real Estate Fund Management, which mainly consists of asset management (i.e., arrangement and asset management of real estate funds) and handling of investments in silent partnership, a decrease in acquisition fee associated with the launch of a new fund resulted in net sales for the segment for the first three months of the fiscal year ending March 31, 2022, decreasing by 3.2% year on year to 215 million yen.

In terms of profit, an increase in personnel expenses resulted in segment loss of 13 million yen (6 million yen of income in the same quarter of the previous year).

The application of the Revenue Recognition Accounting Standard, etc. does not have any impact on net sales and profits.

Other Businesses

For Other Businesses, which mainly consists of event planning and management, printing, and design, the entrustment of highly profitable businesses resulted in net sales for the segment for the first three months of the fiscal year ending March 31, 2022, increasing by 20.6% year on year to 437 million yen and segment income increasing significantly by 165.7% year on year to 136 million yen.

The application of the Revenue Recognition Accounting Standard, etc. does not have any impact on net sales and profits.

1. Explanation regarding financial position
   Total assets at the end of the first quarter of the fiscal year ending March 31, 2022, decreased by 4,401 million yen, or 5.4%, from the end of the previous fiscal year to 77,358 million yen, mainly due to a decrease in accounts receivable－ trade from collection of trade receivables.
   Liabilities decreased by 5,044 million yen, or 20.5%, from the end of the previous fiscal year to 19,571 million yen due to payment of trade accounts payable and income taxes payable.
   Net assets increased by 643 million yen, or 1.1%, from the end of the previous fiscal year to 57,786 million yen due to an increase resulting from foreign currency translation adjustment and quarterly net income attributable to parent company. The equity ratio increased by 4.9 percentage points from the end of the previous fiscal year to 73.2%.
2. Explanation regarding information on future forecasts including consolidated business forecasts, etc. The Group remains cautious of the future business environment which continues to be unpredictable.
   The Group's business performance has been generally in line with the forecasts announced on May 10, 2021, and there are no changes to the full-year business forecasts.

3