Shima Seiki Mfg : Integrated Report 2022 Financial Section

Integrated Report 2022

Financial Section

Year Ended March 31, 2022

Contents

• Five-YearFinancial Summary
  ２ MD&A
  ６ Consolidated Financial Statements

• Consolidated Balance Sheets

• Consolidated Statements of Income

• Consolidated Statements of Comprehensive Income
  10 Consolidated Statements of Changes in Net Assets
  11 Consolidated Statements of Cash Flows

1. Notes to the Consolidated Financial Statements

1. Independent Auditor's Report

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Management's Discussion and Analysis (MD&A)

of Financial Conditions and Results of Operations

SHIMA SEIKI MFG., LTD. and Consolidated Subsidiaries Years ended March 31

Overview

For the current consolidated fiscal year, amid the prolonged infection of COVID-19, inflation remained unchanged in the United States because of the increasing demand associated with the resurgence of economic activities while the stagnant economy gets worse in China because of the lockdown for preventing the spread of infection and increased resource prices. In Europe, economic activities are being normalized as a result of the release of behavioral restrictions while business confidence rapidly gets worse because of the Russian invasion of Ukraine. In Japan, the economy remains weak because of the delayed recovery in consumer spending and increased raw material prices. Economic prospects remain uncertain.

During such economic conditions, our group focused on proposal activities for products/services/solutions to realize the reform of the business model and sustainable manufacturing, particular WHOLEGARMENT® flat knitting machines, which increase the potential for knitted products, and Design Systems, which make it possible to rapidly increase efficiency in the process of product planning using virtual samples for solving issues of customers and the industry around the world.

For the current consolidated fiscal year, the Flat Knitting Machine segment increased sales of WHOLEGARMENT flat knitting machines because capital spending was active in the Chinese and European markets because of the resurgence of economic activities. The Design System segment increased sales volume because of the sales increase in the flat knitting machine business. The Glove and Sock Knitting Machine segment also increased sales because of steady capital spending by Japanese and overseas major users.

As a result of the above, net sales amounted to 30,998 million yen (up 26.6% YoY) for the current consolidated fiscal year. Operating loss improved to 4,296 million yen (9,143

million yen for the previous period) and ordinary loss and net loss attributable to owners of the parent amounted to 3,400 million yen (7,273 million yen for the previous period) and 3,589 million yen

(17,866 million yen for the previous period) because the gross profit margin is on a recovery trend because of an increased operating rate for plants despite the impact of increased logistics and raw material costs, and additionally, selling, general and administrative (SGA) expenses were controlled.

Net Sales

Our core Flat Knitting Machine segment progressed the shift from OEM production to manufacturing of high value- added products for the domestic apparel market in China in the Asian region. Concurrently, the segment enjoyed increased introductions of WHOLEGARMENT flat knitting machines for fine gauge as the movement was strong for a reduction in lead time and labor savings arising from increasing labor costs and a labor shortage as the EC

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market expands. In addition, the segment also increased sales of WHOLEGARMENT flat knitting machines in the South Korean market. In Europe, capital spending became active in the Italian market with an advantage in the development of high value-added products because of the resurgence of economic activities. Demand increased mainly for WHOLEGARMENT flat knitting machines and molding knitting machines that made it possible to exercise sophisticated design. Also, in the Turkish market of the Middle East, capital spending was active for the third quarter to the fourth quarter because of orders received from overseas apparel makers, and net sales increased mainly in computerized flat knitting machines. In the Japanese market, the sales volume of WHOLEGARMENT flat knitting machines increased from the previous period. As a result of the above, the Flat Knitting Machine segment generated net sales of 20,692 million yen (up 33.1% YoY).

In the Design System segment, sales volume of the apparel design system SDS®-ONE APEX4 increased mainly in overseas markets due to the sales increase in the Flat Knitting Machine segment. For APEXFiz®, the software fully released in this period, its licensing agreements increased mainly with Western and Japanese apparel brands. Also, for the automatic fabric cutting machine P-CAM®, demand showed a recovery trend mainly in Japan. As a result of the above, the Design System segment generated net sales of 2,869 million yen (up 14.4% YoY).

The Glove and Sock Knitting Machine segment generated net sales of 2,446 million yen (up 24.2% YoY) because of steady growth in capital spending of Japanese and major overseas users.

The Other Business segment generated net sales of 4,989 million yen (up 11.8% YoY) from sale of maintenance parts and woolen yarn.

All these segments generated overseas net sales of 24,069 million yen (up 27.5% YoY). The ratio of overseas net sales to net sales stood at 77.6% (up 0.5 points YoY). By region, Asia, Europe, the Middle East, and other regions accounted for 36.7% of overseas net sales (46.7% for the previous period), 28.3% (21.0% for the previous period), 7.1% (3.9% for the previous period), and 5.5% (5.4% for the previous period), respectively. Capital spending calmed down in the Asian markets while net sales showed a recovery

in regions other than Asia. In the Japanese market, net sales amounted to 6,928 million yen (up 23.5% YoY) as sales remain steady for WHOLEGARMENT flat knitting machines.

Cost of Sales and Selling, General, and Administrative Expenses

The cost of sales increased to 20,796 million yen from the previous period because of increased net sales. The gross margin increased to 10,201 million yen, up 71.1% YoY, and the gross profit margin stood at 32.9% (24.3% for the previous period) because of an increased operating rate for plants. SGA expenses decreased to 14,498 million yen, down 4.0% YoY, because of a decrease in the provision of an allowance for doubtful accounts. SGA ratio to sales stood at 46.8%, down 14.9 points YoY.

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Operating Income

Operating loss amounted to 4,296 million yen (9,143 million yen for the previous period) as a result of an increased operating rate for plants and control of SGA, in addition to a recovery in net sales. By business segment, operating income amounted to 588 million yen (operating loss of 3,281 million yen for the previous year) in the Flat Knitting Machine Segment, 732 million yen (113 million yen for the previous year) in the Design System Segment, 14 million yen (operating loss of 242 million yen for the previous year) in the Glove and Sock Knitting Machine Segment, and 528 million yen (12 million yen for the previous year) in the Other Business Segment. As a result of deducing corporate expenses 6,159 million yen from total operating income of business segments, operating loss amounted to 4,296 million yen in the consolidated financial statements.

Other Revenue and Expenses

Other revenue net of other expenses was 896 million yen in profit (1,870 million yen in profit for the previous period).

Net Income Attributable to Owners of the Parent

Net loss before income taxes amounted to 3,368 million yen (17,610 million yen for the previous period). Corporate income tax, corporate inhabitant tax, and enterprise tax were 308 million yen, up 196 million yen YoY. As a result of income taxes-deferred of -88 million yen (142 million yen for the previous period), tax expenses after application of tax effect accounting were 219 million yen, down 35 million yen YoY. As a result of the above, net loss attributable to owners of the parent amounted to 3,589 million yen (17,866 million yen for the previous period).

Liquidity and Fund Sources

Cash and cash equivalents decreased 1,311 million yen YoY to 24,271 million yen at the end of the current period. For the period, cash flow from operating activities increased 6,196 million yen because of a decrease in trade receivables and inventories despite recording of net loss before income taxes. Cash flow from investment activities decreased 1,023 million yen mainly because of acquisition of property, plant, and equipment. Cash flow from financial activities decreased 7,759 million yen mainly because of payment of short-term borrowings and dividends. In raising funds, our group strives to secure funds at low cost and stably by combining a wide variety of financing methods that include cash flow generated from operating activities and borrowings from financial institutions. The equity ratio and the current ratio, indicators showing financial security, stood at 87.2% and 910.3% at the end of the current period, respectively. The financial status remains extremely sound. We think it is possible to sufficiently raise working capital and funds for capital spending and investments for product development necessary for our group to hold a strong position as a global leader and keep stable growth in future because of the sound financial position and operating activities.

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