Vario Secure : Non-consolidated Financial Results for the Six Months Ended August 31, 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 Six Months Ended August 31, 2021

[IFRS]

October 13, 2021

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: October 15, 2021

Scheduled date of commencing dividend payments: ―

Availability of supplementary briefing material on interim financial results: Available

Schedule of interim financial results briefing session: Scheduled (for institutional investors and analysts, and individual investors)

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

1. Non-consolidated Financial Results for the Six Months Ended August 31, 2021 (March 1, 2021 to August 31, 2021)

(1) Non-consolidated Operating Results		(% indicates changes from the previous corresponding period.)
														Total
		Revenue	Operating profit	Profit before tax		Profit		comprehensive
														income
Six months	Million yen	%	Million yen		%	Million yen	%	Million yen		%	Million yen		%
ended
August 31, 2021	1,283	1.7	363	(14.2)	337	(14.5)	233		(14.6)	233		(14.6)
August 31, 2020	1,262	0.6	423		5.5	394	7.3	273		7.5	273		7.5
		Basic earnings per share			Diluted earnings per share
Six months				Yen					Yen
ended
August 31, 2021				61.86					59.20
August 31, 2020				73.41					73.41
(2) Non-Consolidated Financial Position
			Total assets				Total equity				Total equity ratio
				Million yen				Million yen				%
As of August 31,				7,060				4,049					57.4
2021
As of February 28,			7,216				3,949					54.7
2021

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		－		0.00
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 August 31, 2021: 3,788,433 shares
     As of February 28, 2021: 3,766,620 shares
  2. Total number of treasury shares at the end of the period:

As of August 31, 2021: 29 shares

As of February 28, 2021: - shares

3) Average number of shares during the period:

Six months ended August 31, 2021: 3,774,875 shares

Six months ended August 31, 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 six months ended August 31, 2021, there had been expectations for an economic recovery through an increase in vaccinations for preventing the spread of COVID-19. However, with the repeated and extended declaration of a state of emergency, no end of the pandemic was yet in sight. The outlook of the Japanese economy continues to remain uncertain, on the back of significant restrictions on economic activities both in Japan and overseas, due to the prolonged pandemic.

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 become increasingly common as a measure to prevent the prolonged spread of COVID-19.

In particular, in conjunction with the nationwide expansion of teleworking needs, demand not only from super-large and large companies, which had previously been the drivers of such demand, but also new demand for adoption from mid-sized companies and SMEs, which were relatively reluctant toward security measures in the past, has increased. 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 addition, regarding the procurement of materials, the Company August be affected by a global shortage of semiconductors. Although it is difficult to rationally calculate the effect on the Company's performance at the moment, the Company will continue to monitor the situation.

In such an environment, 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 of the above, in the financial results on an IFRS basis for the six months ended August 31, 2021, the Company reported revenue of ¥1,283,709 thousand (a year-on-year increase of 1.7%), operating profit of ¥363,058 thousand (a year-on-year decrease of 14.2%), profit before tax of ¥337,217 thousand (a year-on- year decrease of 14.5%), and profit of ¥233,521 thousand (a year-on-year decrease of 14.6%).

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) = Cancelation amount for the six months ended August 31, 2021 / (Monthly revenue at the beginning of each fiscal year × 6)

(2) Explanation of Financial Position

The financial position on an IFRS basis as of August 31, 2021 was as follows. Assets

Total assets as of August 31, 2021 was ¥7,060,004 thousand, a decrease of ¥156,160 thousand from the end of the previous fiscal year. This was primarily due to increases of ¥28,472 thousand in inventories and ¥31,481 thousand in intangible assets, as well as decreases of ¥179,389 thousand in cash and cash equivalents and ¥41,216 thousand in property, plant and equipment.

Liabilities

Total liabilities as of August 31, 2021 was ¥3,010,383 thousand, a decrease of ¥256,414 thousand from the end of the previous fiscal year. This was primarily due to an increase of ¥1,602,390 thousand in borrowings under current liabilities, as well as decreases of ¥36,872 thousand in lease liabilities and ¥1,786,677 thousand in borrowings under non-current liabilities.

Equity

Total equity as of August 31, 2021 was ¥4,049,621 thousand, an increase of ¥100,254 thousand from the end of the previous fiscal year. This was primarily due to an increase of ¥233,521 thousand in retained earnings as a result of reporting profit, and a decrease in retained earnings as a result of reporting dividends of ¥148,555 thousand.

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