ENDO Lighting : Overview of Business Performance for the first half ended September 30, 2022

1. Qualitative Information on Business Performance for the First Half Ended September 30, 2022

(1) Analysis of Business Performance

The Japanese economy during the first half ended September 30, 2022 approached normalization of economic activities due to the easing of COVID-19-induced activity restrictions, but the economic condition was recovered only at a sluggish pace, impacted by rising prices against a backdrop of weaker yen. On the global economic front, the outlook also remained uncertain due to soaring raw material and energy prices caused by the prolongation of Russian-Ukraine situation as well as significant fluctuations in exchange rates and stock prices as each central bank raised its policy interest rate to curb inflation.

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, and providing new values to create lighting of the future friendly to the Earth and humans, with the belief that it is the manufacturers' responsibility to continuously improve energy efficiencies of products.

In manufacturing departments, although the Group endeavored to promote continuous activities for product quality improvement and cost reduction with the aim of providing environment-friendly products, while reducing selling, general and administrative expenses on a company-wide basis, the business performance was affected by the sharp appreciation of the US dollar, the soaring cost of raw materials, and other factors.

As a result, the Group's net sales for the first half ended September 30, 2022 increased 11.8% from a year earlier to ¥21,187 million, operating profit decreased 28.9% from a year earlier to ¥1,166 million, ordinary profit decreased 8.3% from a year earlier to ¥1,706 million, and profit attributable to owners of parent decreased 29.9% from a year earlier to ¥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. In the environment where calls for power saving were growing due to electricity rate hikes and concerns over power shortages, 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 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 run active sales promotions leveraging the Synca U/X Lab, the interactive Tokyo office.

As announced in the press release on October 12, 2022, Synca U/X Lab has received both the Good Design Award 2022 and the Grand Prix du Design Awards 2022.

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, including affluent housing, targeting architect offices.

As a result, the Lighting Fixtures segment's net sales for the first half ended September 30, 2022 increased 13.8% from a year earlier to ¥19,007 million (including intersegment sales; hereinafter the same applies), and segment profit (operating profit; hereinafter the same applies) decreased 32.7% from a year earlier to ¥1,275 million.

2) Environment-related Business Segment

In the Environment-related Business segment, we focused on proposal activities particular for retail stores including grocery stores to create stores where visitors can feel "fun and comfort" through the effects of lighting and signage, based on the theme of "a personalized and exciting store." Our proposals have received acclaim for their consideration to comfort and power consumption savings, which led to the adoption of Synca, the next-generation wireless light and color modulating series.

We also 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 increase in both rental contracts and device sales from a year earlier.

As a result, the Environment-related Business segment's net sales for the first half ended September 30, 2022 increased 10.4% from a year earlier to ¥3,900 million, and segment profit rose 41.1% from a year earlier to ¥385 million.

3) Interior Furniture Segment

In the Interior Furniture segment, we focused our efforts on developing the office market mainly by utilizing the Abita Style 12 catalog, and expanded our activities to establish our brand recognition in this market.

On the sales front, we focused on revitalizing sales visits as well as developing new products, while reducing overall costs to cope with soaring raw material and logistics costs.

As a result, the Interior Furniture segment's net sales for the first half ended September 30, 2022 decreased 9.5% from a year earlier to ¥422 million. A segment loss of ¥58 million was recorded against the segment loss of ¥36 million in the same period of the previous fiscal year.

(2) Analysis of Financial Position

1. Status of Assets, Liabilities and Net Assets a. Assets
   The Group's consolidated assets at the end of the second quarter under review increased ¥50 million from the end of the previous fiscal year to ¥55,645 million
   The primary factors included an increase of ¥327 million in notes and accounts receivable - trade, an increase of ¥196 million in property, plant and equipment, and a decrease of ¥426 million in inventories.

b. Liabilities

The Group's consolidated liabilities at the end of the second quarter under review decreased ¥2,408 million from the end of the previous fiscal year to ¥24,943 million.

The primary factors included a decrease of ¥1,401 million in notes and accounts payable - trade and a decrease of ¥865 million in interest-bearing debt.

c. Net assets

The Group's consolidated net assets at the end of the second quarter under review increased ¥2,458 million from the end of the previous fiscal year to ¥30,702 million.

This was primarily due to profit attributable to owners of parent of ¥962 million, an increase of ¥1,724 million in foreign currency translation adjustment, a decrease of ¥15 million in deferred gains or losses on hedges, and a decrease of ¥221 million due to the payment of dividends.

2) Status of Cash Flow

The Group's consolidated cash and cash equivalents at the end of the second quarter under review amounted to ¥10,628 million, compared with ¥10,553 million at the end of the same period of the previous fiscal year.

a. Cash flows from operating activities

Net cash provided by operating activities during the first half ended September 30, 2022 was ¥1,283 million, compared with net cash provided by operating activities of ¥2,299 million for the same period of the previous fiscal year.

The primary factor was ¥1,459 million of depreciation.

b. Cash flows from investing activities

Net cash used in investing activities during the first half ended September 30, 2022 was ¥1,159 million, compared with net cash used in investing activities of ¥1,368 million for the same period of the previous fiscal year.

The primary factors included purchase of property, plant and equipment of ¥1,332 million.

c. Cash flows from financing activities

Net cash used in financing activities during the first half ended September 30, 2022 was ¥1,097 million, compared with net cash used in financing activities of ¥781 million for the same period of the previous fiscal year.

The primary cash increasing factors included proceeds from long-term borrowings of ¥1,700 million. The primary cash decreasing factors included repayments of long-term borrowings of ¥2,442 million.

(3) Analysis of Future Prospects such as the Forecast of Consolidated Financial Results

There is no change to the full-year forecast of consolidated financial results in the "Consolidated Financial Results for the Fiscal Year Ended March 31, 2022" announced on April 28, 2022.

If it becomes necessary to revise the forecast, we will disclose the revision promptly.