ENDO Lighting : Overview of Business Performance for the Fiscal Year Ended March 31, 2023

1. Overview of Business Performance, etc.

(1) Overview of Business Performance for the Fiscal Year under Review

The Japanese economy during the consolidated fiscal year ended March 31, 2023 progressed normalization of economic activities due to the easing of COVID-induced activity restrictions, despite of anxiety factors such as rising prices and exchange rate fluctuation risks. However, on the global economic front, the outlook remained uncertain due to soaring prices of raw materials and energy on account of the prolongation of Russian-Ukraine situation, as well as the sharp fluctuations in exchange rates influenced by U.S. interest rate trends, and other factors.

Amid these conditions, the Endo Lighting Corporation Group (the "Group"), as a corporate group that creates high value-added spaces, has focused on the development, manufacture, and sales of new products that offer enhanced quality of light to create customer value in addition to excellent power-saving performance, aiming to realize a sustainable and better society.

Since converting our products to LED as the pioneer in the business field, we have been developing lighting fixtures with higher efficiency with the belief that it is the manufacturers' responsibility to continuously improve energy efficiencies of products. We have also newly established the Sustainability Committee in efforts to promote sustainability management to create the future of lighting friendly to the Earth and humans.

Additionally, in manufacturing departments, the Group endeavored to promote continuous activities for product quality improvement and cost reduction with the aim of providing environment-friendly products, as well as to reduce selling, general and administrative expenses. However, the business performance was impacted by sharp fluctuations in exchange rates and soaring raw material prices, and other factors.

As a result, the Group's net sales for the fiscal year ended March 31, 2023 recorded the highest ever and increased 12.5% from a year earlier to ¥45,731 million, and operating profit decreased 19.2% from a year earlier to ¥3,092 million. The Group's ordinary profit decreased 14.6% from a year earlier to ¥3,630 million, and profit attributable to owners of parent decreased 11.0% from a year earlier to ¥2,962 million.

The Group's business performance by segment was as follows.

1) Lighting Fixtures Segment

The Group achieved to offer the industry's widest variety of products in the field of LED lighting fixtures for business use and strived to establish high brand recognition.

In the domestic market, we published the catalog, LEDZ Pro. 5, and focused on sales promotions for the wireless lighting control system, Smart LEDZ Fit/Fit Plus and the wireless light and color modulating fixture, Tunable LEDZ. Against a backdrop of electricity rate hikes and social demand for sustainability, we reinforced measures to capture demand from newly constructed commercial facilities and other large-scale facilities such as offices, in addition to the demand for the replacement of existing lighting fixtures.

In addition, we greatly expanded to the product lineup for Synca, the next-generation wireless light and color modulating fixture series, in which three functions are incorporated: natural light, color production and tone modulation, and leveraging the Synca U/X Lab, the interactive Tokyo office. Synca U/X Lab received both the Good Design Award 2022 and Grand Prix du Design Awards 2022.

In response to the impact on the cost of sales due to the rapid depreciation of the yen and the steep rise in raw material prices, we revised prices and continued our efforts to reduce costs and selling, general and administrative expenses.

In overseas markets, we published the catalog, S15, and bolstered customer-oriented sales efforts in the United Kingdom. In Asia, we strived to cultivate existing customers and promoted sales activities through sync products for Asian market and our strategic Synca products to open up the luxury building market, targeting architect offices. In India, in particular, we opened our own showroom and strengthened sales efforts for high-end housing.

As a result, the Lighting Fixtures segment's net sales for the fiscal year ended March 31, 2023 increased 13.4% from a year earlier to ¥40,806 million (including intersegment sales; hereinafter the same applies), and segment profit (operating profit; hereinafter the same applies) decreased 24.7% from a year earlier to ¥3,249 million.

2) Environment-Related Business Segment

In the Environment-Related Business segment, we focused on proposal for LED lighting update particularly for retail stores.

In order to solve the issues of recent rapid hike in electricity rates and maintenance costs for initial-type LED

lighting, we proposed replacement of existing LED lighting with the latest LEDs, which contributed to enhancing the store experience value and to reducing power consumption. In particular, our proposal to replace LED lighting in existing stores by the light and color modulation to change the color and brightness of light in the period of time: morning, noon, and night, received acclaim as a solution considered both comfort and power consumption savings, which led to the adoption of Synca, our next-generation wireless light and color modulating system.

In addition, we focused on sales activities that took advantage of digital tools, such as the redistribution of the presentation video played at an exhibition. Our efforts to streamline sales operations led to have a strong record in both rental contracts and device sales.

As a result, the Environment-Related Business segment's net sales for the fiscal year ended March 31, 2023 increased 15.6% from a year earlier to ¥8,841 million, and segment profit rose 36.1% from a year earlier to ¥822 million.

3) Interior Furniture Segment

In the Interior Furniture segment, we focused our efforts on developing the office market, and expanded our activities to establish our brand recognition in this market. We also produced original furniture, cultivated new suppliers, and then proposed products made of eco-friendly materials.

In December 2022, we published the "Abita Style 12 Revised Edition," the catalog featuring a wider range of office-friendly tables and chairs, original stools produced in collaboration with other manufacturers, products made of eco-friendly materials, and other items, in an effort to further enhance recognition of the Abita Style brand.

In addition, in response to the trend of increasing hotel-related queries as population flow recovery attributed to the easing of restrictions on activities, we have actively promoted activities to win orders.

In addition, we worked to shorten delivery times by strengthening made-to-order products in Japan and to revise prices in response to soaring raw material and logistics costs, and to cut costs by reusing packaging materials and streamlining logistics through a review of transport methods.

As a result, the Interior Furniture segment's net sales for the fiscal year ended March 31, 2023 decreased 20.0% from a year earlier to ¥943 million. A segment loss of ¥98 million was recorded against the previous fiscal year's segment loss of ¥2 million.

(2) Overview of Financial Position for the Fiscal Year under Review

Status of Assets, Liabilities and Net Assets a. Assets

The Group's consolidated assets at the end of the fiscal year under review increased ¥1,747 million from the end of the previous fiscal year to ¥57,343 million.

The primary factors contributing to this result included an increase of ¥1,263 million in cash and deposits, an increase of ¥859 million in notes and accounts receivable - trade, and a decrease of ¥391 million in inventories.

b. Liabilities

The Group's consolidated liabilities at the end of the fiscal year under review decreased ¥1,544 million from the end of the previous fiscal year to ¥25,807 million.

The primary factors contributing to this result included a decrease of ¥776 million in notes and accounts payable - trade, a decrease of ¥402 million in deferred tax liabilities, and a decrease of ¥334 million in provision for retirement benefits for directors (and other officers).

c. Net Assets

The Group's consolidated net assets at the end of the fiscal year under review increased ¥3,292 million from the end of the previous fiscal year to ¥31,535 million.

This was primarily due to profit attributable to owners of parent of ¥2,962 million, an increase of ¥997 million in foreign currency translation adjustment, and a decrease of ¥443 million due to the payment of dividends.

(3) Overview of Cash Flows for the Fiscal Year under Review

The Group's consolidated cash and cash equivalents at the end of the fiscal year under review amounted to ¥11,847 million, compared with ¥10,602 million at the end of the previous fiscal year.

1. Cash flows from operating activities
   Net cash provided by operating activities during the fiscal year under review was ¥3,901 million, compared with

net cash provided by operating activities of ¥5,034 million for the previous fiscal year.

The primary cash increasing factors included a ¥3,294 million profit before income taxes and ¥2,927 million in depreciation. The primary cash decreasing factor was a ¥946 million increase in trade payables.

1. Cash flows from investing activities
   Net cash used in investing activities during the fiscal year under review was ¥2,789 million, compared with net

cash used in investing activities of ¥3,062 million for the previous fiscal year.

The primary factor included purchase of property, plant and equipment of ¥2,893 million.

1. Cash flows from financing activities
   Net cash used in financing activities during the fiscal year under review was ¥461 million, compared with net

cash used in financing activities of ¥2,131 million for the previous fiscal year.

The primary cash increasing factors included proceeds from long-term borrowings of ¥4,770 million. The

primary cash decreasing factors included repayments of long-term borrowings of ¥5,004 million and dividends paid of ¥443 million.

(4) Future Outlook

Amid rising social demands for sustainability, we expect demand for high energy-saving LED lighting fixtures and lighting solutions related to wellbeing to remain strong, given soaring energy prices and progress in society's efforts toward zero-carbon emissions. However, the market competition for LED lighting fixtures is expected to be intense in the future.

In addition, the global surge of raw material prices and tight supply-demand balance, as well as sharp exchange rate fluctuations are risk factors for our supply chain, in the prospect of the unstable situation for the foreseeable future.

Under these circumstances, the Lighting Fixtures segment will focus its efforts on developing new products that appeal to the market, as represented by the next-generation wireless light and color modulating fixture series Synca, in which three functions are incorporated: natural light, color production and tone modulation. The Group will also

continue a commitment to conducting stringent cost control and expense management to establish a stable business revenue base.

In the domestic market, the Group will actively promote the development of unique LED lighting fixtures to expand sales of those lighting fixtures targeted at commercial facilities, and will continue to press on with establishment of a business structure to accommodate the demand for lighting fixtures throughout the lighting market. Overseas, the Group will actively invest management resources to reinforce its business foundation, in effort to secure appropriate positions in the respective markets.

For the Environment-Related Business segment, the Group will move forward on developing products through collaboration with the field of peripheral lighting and the network, while reinforcing activities to propose solutions for each customer and further developing the market for distribution stores.

For the Interior Furniture segment, we will strive to unearth new markets by proactively pushing forward with development into new fields such as offices, while striving to acquire projects from commercial facilities.

For the fiscal year ending March 31, 2024, the Company forecasts net sales of ¥48,500 million, an increase of

6.1 % from a year earlier, operating profit of ¥4,800 million, an increase of 55.2% from a year earlier, ordinary profit of ¥4,500 million, an increase of 23.9% from a year earlier, and profit attributable to owners of parent of ¥3,200 million, an increase of 8.0% from a year earlier.

2. Basic Policy Regarding Selection of Accounting Standards

Taking into account the comparability of consolidated financial statements between periods and companies, the Group intends to prepare consolidated financial statements in accordance with the Japanese standards in the foreseeable future.

Regarding the adoption of International Financial Reporting Standards, we intend to respond appropriately in consideration of various circumstances at home and abroad.