Vario Secure : Non-consolidated Financial Results for the Nine Months Ended November 30, 2021

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the Japanese original shall prevail.

Non-consolidated Financial Results

for the Nine Months Ended November 30, 2021

[IFRS]

January 12, 2022

Company name: Vario Secure Inc.

Stock exchange listing: Tokyo Stock Exchange

Code number: 4494

URL: https://www.variosecure.net/

Representative: Yoshihiko Inami, CEO

Contact: Hideko Isoe, Director, General Manager, Office of the President

Phone: [phone]

Scheduled date of filing interim securities report: January 14, 2022

Scheduled date of commencing dividend payments: ―

Availability of supplementary briefing material on interim financial results: Available

Schedule of interim financial results briefing session: Not scheduled

(Amounts of less than one million yen are rounded down.)

1. Non-consolidated Financial Results for the Nine Months Ended November 30, 2021 (March 1, 2021 to November 30, 2021)

(1) Non-consolidated Operating Results	(% indicates changes from the previous corresponding period.)
																Total
	Revenue		Operating profit	Profit before tax		Profit		comprehensive
																income
Nine Months Ended	Million yen		%	Million yen		%	Million yen	%	Million yen		%	Million yen		%
November 30, 2021	1,923		0.8		555		(7.2)	516	(7.0)		357		(7.2)	357		(7.2)
November 30, 2020	1,907		1.5		598		(3.1)	556	(2.1)		385		(2.0)	385		(2.0)
	Basic earnings per share		Diluted earnings per share
Nine Months Ended						Yen						Yen
November 30, 2021						94.69					90.81
November 30, 2020						103.52					97.07
(2) Non-Consolidated Financial Position
				Total assets			Total equity	Total equity ratio
						Million yen				Million yen				%
As of November 30, 2021				7,011				4,175				59.6
As of February 28, 2021				7,216				3,949				54.7

2. Dividends

						Annual dividends
		1st		2nd		3rd		Year-end	Total
		quarter-end		quarter-end		quarter-end
		Yen		Yen		Yen		Yen	Yen
Fiscal year ended		－	0.00			－	39.44		39.44
February 28, 2021
Fiscal year ending		－	0.00			－
February 28, 2022
Fiscal year ending
February 28, 2022								40.44		40.44
(Forecast)
Note: Revision to the forecast for dividends announced most recently: None

3. Non-consolidated Financial Results Forecast for the Fiscal Year Ending February 28, 2022 (March 1, 2021 to February 28, 2022)

(% indicates changes from the previous corresponding period.)

	Revenue		Operating profit	Profit before tax	Profit		Basic earnings
			per share
	Million yen		%	Million yen	%	Million yen	%	Million yen		%	Yen
Full year	2,649		4.1	782	2.4	732	3.4	507		3.3	134.79

Note: Revision to the financial results forecast announced most recently: None

• Notes:
• 1. Changes in accounting policies and changes in accounting estimates
  2. 1. Changes in accounting policies required by IFRS: None
     2. Changes in accounting policies other than those in 1) above: None
     3. Changes in accounting estimates: None
  3. Number of shares issued (common shares)
  1. Total number of issued shares at the end of the period (including treasury shares): As of November 30, 2021: 3,791,013 shares
     As of February 28, 2021: 3,766,620 shares
  2. Total number of treasury shares at the end of the period:

As of November 30, 2021: 29 shares

As of February 28, 2021: - shares

3) Average number of shares during the period:

Nine Months Ended November 30, 2021: 3,779,997 shares

Nine Months Ended November 30, 2020: 3,726,600 shares

• These interim financial results are not subject to interim review by certified public accountants or audit firms
• Explanation of the proper use of financial results forecast and other notesNotes regarding forward-looking statements:
  Financial results forecasts and other forward-looking statements contained in this document are based on information currently available to the Company and certain assumptions that management believes to be reasonable and do not represent a commitment from the Company that they will be achieved. Actual results may differ substantially for various reasons. For the assumptions underlying the financial results forecasts and other notices on the use of financial results forecasts, please refer to "(4) Explanation of Non-consolidated Financial Results Forecast and Other Forward-looking Information" of "1. Qualitative Information on Interim Financial Results for the Period under Review" in the accompanying materials.

Table of Contents
1. Qualitative Information on Interim Financial Results for the Period under Review ................................................	1
(1)	Explanation of Business Results...........................................................................................................................	1
(2)	Explanation of Financial Position.........................................................................................................................	1
(3) Analysis of Cash Flows ........................................................................................................................................	2
(4)	Explanation of Non-consolidated Financial Results Forecast and Other Forward-looking Information .............	2
2. Interim Condensed Non-consolidated Financial Statements and Primary Notes .....................................................	3
(1)	Interim Condensed Non-consolidated Statements of Financial Position..............................................................	3
(2)	Interim Condensed Non-consolidated Statements of Profit or Loss and Comprehensive Income .......................	5
(3)	Interim Condensed Non-consolidated Statements of Changes in Equity .............................................................	6
(4)	Interim Condensed Non-consolidated Statements of Cash Flows........................................................................	7
(5)	Notes to Interim Condensed Non-consolidated Financial Statements..................................................................	8

1. Qualitative Information on Interim Financial Results for the Period under Review

(1) Explanation of Business Results

During the nine months ended November 30, 2021, the Japanese economy was expected to make a recovery, due partly to the effects of various policies and improvements in overseas economies amidst a trend toward normalization of economic and social activities, as a result of an increase in vaccinations for preventing the spread of COVID-19. However, partly due to confirmation of the existence of a new variant, the outlook of the Japanese economy continues to remain uncertain.

As for the environment in the security services market surrounding the Company, the investment demand for corporate security measures has continued expanding due to diversifying cyberattacks and attacks targeting the teleworking environment, which has becoming increasingly common as a measure to prevent the prolonged spread of COVID-19.

Furthermore, amidst major changes in the corporate system network environment as a result of an increase in teleworking due to the impact of COVID-19 and other factors, there has been a tendency for companies that have difficulty operating and managing their security to outsource operations and monitoring to security vendors, which has led to a steady expansion of the market, as a whole.

In such an environment, the Company has expanded sales promotion of Vario Managed EDR, which detects signs of cyberattacks as an endpoint security measure, and data backup services (VDaP) that protect corporate information assets from the growing threat of ransomware attacks (ransom-demanding-type viruses), in addition to conventional gateway security, in order to support the development of a secure and safe business environment through multilayered defense against an increasing array of threats.

In addition, regarding the procurement of materials, the Company may be affected by a global shortage of semiconductors. At the moment, although the Company expects the effect of such a shortage to be minimal for the fiscal year ending February 28, 2022, it is difficult to rationally calculate the effect on the Company's performance for the fiscal year ending February 28, 2023 onward, and the Company will continue to monitor the situation.

As a result of the above, although Integration Services were affected by the prolonged declaration of a state of emergency, the Company reported stable sales, exceeding those of the corresponding period of the previous fiscal year, thanks to the recurring revenue from Managed Security Services and a low cancellation rate (0.78%) (Note). Each level of profit declined year on year, due to an increase in cost of sales in conjunction with the increased revenue, construction costs of a security operation center, and investments for future growth such as recruitment aimed at strengthening of sales and management departments.

As a result, in the financial results on an IFRS basis for the nine months ended November 30, 2021, the Company reported revenue of ¥1,923,815 thousand (a year-on-year increase of 0.8%), operating profit of ¥555,400 thousand (a year-on-year decrease of 7.2%), profit before tax of ¥516,870 thousand (a year-on-year decrease of 7.0%), and profit of ¥357,917 thousand (a year-on-year decrease of 7.2%).

The results by segment are not stated, as the Company's segments comprise the single segment of Internet Security Services.

Note: Cancellation rate (monetary basis) = Cancellation amount for the nine months ended November 30, 2021 / (Monthly revenue at the beginning of each fiscal year × 9)

(2) Explanation of Financial Position

The financial position on an IFRS basis as of November 30, 2021 was as follows. Assets

Total assets as of November 30, 2021 were ¥7,011,662 thousand, a decrease of ¥204,503 thousand from the end of the previous fiscal year. This was primarily due to an increase of ¥62,951 thousand in other current assets and a decrease of ¥268,072 thousand in cash and cash equivalents.

Liabilities

Total liabilities as of November 30, 2021 were ¥2,835,939 thousand, a decrease of ¥430,859 thousand from the end of the previous fiscal year. This was primarily due to an increase of ¥1,509,801 thousand in borrowings under current liabilities, as well as decreases of ¥55,362 thousand in lease liabilities and ¥1,786,677 thousand in borrowings under non-current liabilities.

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