ENDO Lighting : Overview of Business Performance for the Nine Months Ended December 31, 2022

1. Qualitative Information on Business Performance for the Third Quarter Ended December 31, 2022

(1) Analysis of Business Performance

During this third quarter consolidated cumulative period ended December 31, 2022, the Japanese economy approached normalization of economic activities due to the easing of COVID-19-induced activity restrictions, but the pace of the economic recovery weakened by rising prices. On the global economic front, the outlook also remained uncertain due to soaring raw material and energy prices primarily caused by the prolongation of Russian-Ukraine situation as well as abrupt fluctuations in exchange rates on account of observing the inflation slowdown in the U.S. since November.

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, business performance was affected by the sharp fluctuations in exchange rates, the soaring cost of raw materials, and other factors.

As a result, the Group's net sales for the nine months ended December 31, 2022 increased 14.8% from a year earlier to ¥32,881 million, operating profit decreased 30.4% from a year earlier to ¥1,715 million, ordinary profit decreased 27.3% from a year earlier to ¥2,062 million, and profit attributable to owners of parent decreased 50.0% from a year earlier to ¥1,065 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 received both the Good Design Award 2022 and the Grand Prix du Design Awards 2022.

Furthermore, as announced in the press release on October 13, 2022, the "Coping Light," the top rail built in LED lighting fixture co-developed with building materials manufacturers, also received the Good Design Award 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 the 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 nine months ended December 31, 2022 increased 16.6% from a year earlier to ¥29,597 million (including intersegment sales; hereinafter the same applies), and segment profit (operating profit; hereinafter the same applies) decreased 35.4% from a year earlier to ¥1,886 million.

2) Environment-related Business Segment

In the Environment-related Business segment, we focused on proposal activities, particularly for LED lighting renewal 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 significantly reducing power consumption.

By utilizing "Synca," which can reproduce a variety of light, from candlelight to blue sky light, we contributed to the creation of sales areas that had an unprecedented and enjoyable atmosphere through lighting, such as producing colors that match regional specialty items and the concept colors of respective sales areas.

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 an 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 nine months ended December 31, 2022 increased 16.2% from a year earlier to ¥6,098 million, and segment profit rose 58.8% from a year earlier to ¥580 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," a 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 efforts to further enhance recognition of the Abita Style brand.

In addition, we worked to shorten delivery times by strengthening made-to-order products in Japan and to reduce overall costs to cope with soaring raw material and logistics costs.

As a result, the Interior Furniture segment's net sales for the nine months ended December 31, 2022 decreased 8.2% from a year earlier to ¥645 million. A segment loss of ¥96 million was recorded against the segment loss of ¥88 million in the same period of the previous fiscal year.

(2) Analysis of Financial Position

Status of Assets, Liabilities and Net Assets a. Assets

The Group's consolidated assets at the end of the third quarter under review increased ¥1,830 million from the end of the previous fiscal year to ¥57,426 million.

The primary factors included an increase of ¥776 million in notes and accounts receivable - trade, an increase of ¥412 million in inventories, and an increase of ¥383 million in property, plant and equipment.

b. Liabilities

The Group's consolidated liabilities at the end of the third quarter under review decreased ¥887 million from the end of the previous fiscal year to ¥26,465 million.

The primary factors included an increase of ¥225 million in interest-bearing debt and a decrease of ¥1,265 million in notes and accounts payable - trade.

c. Net assets

The Group's consolidated net assets at the end of the third quarter under review increased ¥2,717 million from the end of the previous fiscal year to ¥30,960 million.

This was primarily due to profit attributable to owners of parent of ¥1,065 million, an increase of ¥2,392 million in foreign currency translation adjustment, a decrease of ¥313 million in deferred gains or losses on hedges, and a decrease of ¥443 million due to the payment of dividends.

(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.