F i n anc ial Rep o r t

Review of BusinessResults for Fiscal Year
Ended March 31, 2023 andOutlook for Fiscal YearEnding March 31, 2024

Noboru Watanabe, Executive Officer

Introduction

Strategies for Value Creation● Overview of consolidated business results(billions of yen)

Revenues

FY2023/3

YoY change

10.4

11.7

+12.1%

6.4

-7.5%

249.9

Operating income
Ordinary income

FY2022/3

258.1

11.4

12.4

Net income per share 322.37 yen

298.14 yen

Profit attributable toowners of parent

6.9

ordinary income (billions of yen)

FY����/��.�

Valuation of foreign exchange, etc.

�GP in the Other Business

Amid increasingly uncertain businesscircumstances, Japan’s leasing industry
experienced an increase in transactions on ayear-on-year basis

During the fiscal year ended March 31, 2023, the Japanese
economy saw a year of progress in resuming economic
activities as society moved toward a post-COVID-19 world,
despite the lingering effects of COVID-19. On the other hand,
the Russian invasion of Ukraine that began in February 2022
has become prolonged, triggering soaring prices of crudeoil, grains, and other commodities. In response, central
banks around the world began tightening their monetary
policies to combat inflation. These situations aggravatedthe uncertainty. In December, there were movements inJapan suggesting revisions to monetary easing, such as
the Bank of Japan expanding the permitted fluctuation
range for long-term interest rates to 0.5% under its yield
curve control. Considering these changes in the domestic
and international environment, we will need to pay closer
attention to the outlook for future economic activities.
In this environment, leasing transactions in the Japaneseleasing industry for the fiscal year ended March 31,2023 expanded 2.2% year on year, to 4,310.6 billion yen,according to the Japan Leasing Association’s Lease
Statistics published on May 29, 2023.
Business results

Revenues increased, but net profit fell below
the previous fiscal year’s record highRegarding the Group’s business results in the fiscal year
ended March 31, 2023, revenues were mostly flat in theLeasing Business, where sales of large-scale leased assets

39－Non-controlling interests *�

Personnel costs and other SGA *were posted in the previous fiscal year. On the other hand,
growth was seen in the Finance Business, Investment
Business, and Other Business, and revenues increased year
on year. Moreover, operating income and ordinary income
surpassed those of the previous fiscal year due mainly to
improvements in credit costs. Profit attributable to ownersof parent dropped compared to the previous fiscal year
due to an increase in profit attributable to non-controllinginterests.
Regarding factors that caused changes in ordinary
income, while there were fluctuations by business, grossprofit increased by 0.2 billion yen year on year. Selling,
general, and administrative expenses also improved by 1.1
billion yen year on year due to a significant improvementin credit costs, despite an increase in personnel expenses
caused by a rise in performance-based bonuses. Regarding
credit costs, there was a significant improvement year
on year due to the posting of large-scale credit costs inthe fourth quarter of the previous fiscal year, but theposting of an unexpected amount in the current year’s
fourth quarter became a factor in the downward revisionof the forecast for the period. In terms of non-operatingincome and expenses, valuation of foreign exchange saw
a decrease in earnings of 0.8 billion yen year on year, while
gain on investment in partnerships increased by 0.5 billion
yen. All of these results are mainly due to the effects of
the initiatives of RISA Partners, Inc. Gain on investment
in partnerships is posted in non-operating income andexpenses for accounting purposes, and is not includedin the gross profit of the Investment Business. Foreignexchange was a factor that decreased earnings year onyear, because while we posted a gain on valuation offoreign exchange in the previous fiscal year, we posted aloss on valuation of foreign exchange in the current fiscalyear.

+8.9%● Main reasons for changes in consolidated

GP*� in the Investment Business

Trends in the business environment and leasing industry+3.3%

Gain on investment in partnerships

-�.�

+�.�

+�.�

+�.�

Financial/Corporate Data

Operating asset balance reached a new highDespite large asset sales in the Leasing Business in thesecond quarter, the balance of operating assets was kept
at a high level even in the absence of special demand, suchas Windows 10 updates and GIGA school projects, thanks
to steady sales activities. In the Finance Business, thebalance of operating assets increased year on year due toan increase in factoring and assets such as corporate loans.
In the Investment Business, the balance of operating assets
rose year on year due to the acquisition of investment
projects, despite the sale of large-scale real estate forsale in the first quarter. In Other Business, we steadily
accumulated assets in new businesses such as healthcareand solar power. As a result of the above, operating asset
balance reached a new high.
● Consolidate revenue by business (billions of yen)-�.�Credit costs

�.�

��.�

-�.�

GP in the Finance Business

FY����/��.�

Foundation for Value Creation+�.�

�.� ��.�

Non-controlling interests*1 Non-controlling interests: profit attributable to non-controllinginterests in fund revenue, etc.
*2 GP: Gross profit*3 SGA: Selling, general, and administrative expenses

Business results by business

Operating income in the Leasing Businessand the Investment Business, which bothgrew in the previous fiscal year, decreasedyear on year

In the mainstay Leasing Business, revenues were down year
on year until the third quarter due to the effects of large
asset sales in the previous fiscal year, but for the full year,
revenues and gross profit remained at the same level as theprevious year. Meanwhile, operating income decreased year
on year due to an increase in credit costs and an increase
in selling, general and administrative expenses, including
personnel expenses. In the Finance Business, revenues roseyear on year due mainly to an increase in interest revenues.
Moreover, operating income improved significantly year
on year due to the posting of large-scale credit costs in theprevious fiscal year. In the Investment Business, revenuesrose significantly year on year due to the sale of large scale
real estate for sale in the first quarter. In contrast, profits
decreased year on year due to multiple exits of venture
funds in the previous fiscal year, as well as the posting ofcredit costs in the fourth quarter. In the Other Business,
which mainly includes new businesses, revenues andincome rose due to the considerable advances made inefforts for healthcare, solar power, PFI, etc.

Leasing
Business

Revenues

FinanceBusinessRevenues

FY2022/3 FY2023/3 YoY change

Gross profit

Operating income
Gross profit

Operating income

224.2

224.3

7.1

6.4

16.6+0.0%

16.6

5.2+0.2%-10.6%

6.6

4.1+25.9%

4.8-0.7+16.6%

2.2-Investment Revenues
Business
Gross profit

16.4

22.8+39.4%

Other
Business

5.4
4.2

4.4

-18.2%

1.7+15.6%
+3.3%

Total

Operating income
Revenues

Gross profit

Operating income

9.6

8.8
4.5

1.5
0.3

+6.8%

0.5Revenues

249.9

258.1

Operating income10.4

11.7

Gross profit-7.7%

31.7+79.3%

31.9+0.7%+12.1%* Figures exclude adjustments from segment summary information.

● Consolidated operating asset balance (billions of yen)

■Leasing Business ■Finance Business■Investment Business ■Other Business

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End of Mar. ����*End of Mar. ����End of Mar. ����* In connection with the revision of reportable segments, the data
presented was retrospectively modified for the segments after therevision.

NEC Capital Solutions Limited Integrated Report 2023 40

Financial Report

Introduction

Fund procurement

Interest-bearing debt increased year on year,
and the impact of the rise in funding cost
ratio on business was limited

Cost of Yen funding remained stable at a low level dueto the Bank of Japan’s continuation of unprecedented
monetary easing. However, it was decided at the Bank ofJapan’s Monetary Policy Meeting held in December 2022
that the permissible fluctuation range for the yield curve
control would be expanded. In addition, we recognize
the necessity to keep a close eye on the fund-raising
environment, such as the financial instability that occurredin the United States and Switzerland in March 2023.
Under these circumstances, the Group’s interest-bearing
debt for the fiscal year ended March 31, 2023 increased
year on year, mainly centered on commercial paper. The
funding cost ratio was up year on year given the increase
in interest rates for foreign currency-denominated funding.
However, the interest rate change has a minor impact on
our financial results, given that a majority of our foreign
currency-denominated assets are under floating interest
rate contracts. There are no issues on capital resources andthe fund liquidity, and cash flows are normal.
● Consolidated interest-bearing debt

composition (left axis) and funding cost ratio(right axis)

Funding cost ratio (%) =Funding costs ÷ Average balance of interest-bearing debt

■Payables under securitized lease receivable ■Bonds ■Commercial paper■Long-term debt ■Short-term borrowings (left axis)
ー Funding cost ratio (right axis)（%）�.�

���（%）

�.�

���.��

���.��

�� FY����/��.��

FY����/��.�
Directfundingratio
40.4%

����.�FY����/�End of Mar. ���� End of Mar. ���� End of Mar. �����.�
�Forecast for the fiscal year ending March 31, 2024

Aiming to secure a new record highFor the fiscal year ending March 31, 2024, on a consolidated
basis, we forecast revenues at 260.0 billion yen, operating
income at 12.0 billion yen, ordinary income at 12.5 billion

41

yen and profit attributable to owners of parent at 7.5billion yen. In addition to sustainable growth in the Leasing

Business and Finance Business, we are also striving toincrease revenue in the Investment Business, aiming fora new record high. Moreover, we are working to increase
revenue over the medium to long term.
As mentioned at the beginning, we are aware that thebusiness environment will remain uncertain going forward
due to factors such as the prolonged Russian invasion of
Ukraine and changes in the policies of central banks aroundthe world. Although there are concerns about increases
in credit costs, increases in prices of leased assets, andincreases in fund procurement costs, transactions withsmall and medium-sized businesses, which are at anincreased risk of bankruptcy due to the end of COVID-19
emergency loans, account for a low proportion of theGroup’s overall business. Moreover, we believe that theimpact of these concerns on our business will be limited,as the situation is such that customers are aware of therise in prices and interest rates, and can easily gain anunderstanding of the shift of the costs on to lease rent, etc.

The annual dividend for the fiscal year ending
March 31, 2024 is planned to be 130 yen, anincrease of 20 yen from the previous fiscal year
For the fiscal year ended March 31, 2023, we increased theyear-end dividend by 36 yen from the initially planned levelof 74 yen. The annual dividend thus stood at 110 yen pershare.
For the fiscal year ending March 31, 2024, we plan topay an annual dividend of 130 yen per share (including aninterim dividend of 65 yen), which represents an increaseof 20 yen. While upholding our basic policy of maintaining
a stable dividend, we have taken into account that thedividend payout ratios of other companies in the same
industry have been continuously increasing and that theGroup’s equity ratio has been maintained at 10%, and, inthe formulation of our Medium-term Plan, decided on aprofit return plan after consideration of the future outlook.
● Business results for the fiscal year underreview and forecasts for the next fiscal year

(billions of yen)

Revenues

Operating income
Ordinary income

Profit attributable toowners of parent

Net income per share

Annual dividends per share

FY2023/3
Results

FY2024/3
Forecast

11.7

12.0

258.1

260.0

12.4

12.5

298.14 yen

348.37 yen

6.4

110.00 yen

7.5

130.00 yen* Forecast is as of April 28, 2023.

Strategies for Value Creation

Foundation for Value Creation

Financial/Corporate Data

Measures to realize management with an awareness of the cost of capital and stock prices

Aiming to achieve sustainable improvement in
profitability and enhance PBR
To achieve sustainable growth and improve corporate
value over the medium- to long-term, the Group placesemphasis on management with an awareness of returnon capital, which involves formulating and implementing
revenue plans and capital policies based on an accurate
understanding of the company’s cost of capital. To achievethis, we appropriately consider the review of our businessportfolio and the allocation of management resources,
including investments in human capital and systems, inconjunction with the formulation of our Medium-term Plan
and annual budget, and reflect them in our business plan.
In FY2023/3, the Group reached the final year of its
previous Group Vision and Mid-Term Plan 2020. Accordingly,
we formulated our new Group Vision, “Be a solution
company leading the next-generation circular economy,”with FY2024/3 as the first year, and we also formulated andannounced our “Medium-term Plan 2025.”
When formulating the Medium-Term Plan 2025, we
deemed it essential to secure a level of revenue that would
sustainably exceed the cost of capital to improve market
valuation, including PBR and PER. We also determinedthat sustainably increasing profitability would lead tofurther improvement in corporate value. In formulating aconcrete profit plan, in addition to increasing the absoluteamount of profits, we held repeated discussions on theprofitability that the Company should aim for, with a focus
on sustainably increasing profitability. As a result, we set
an ROE target of 8% for FY2026/3, the final year of ourMedium-term Plan 2025, and a target of 10.0 billion yenfor profit attributable to owners of parent. In addition toimproving profitability (improve ROE), we will carry out
return measures in line with our profit level while drawing
up growth strategies unique to the Group, such as grasping

revenue opportunities through our strengths in ICT andsound risk-taking capabilities. In doing so, we hope tocapture growth expectations from the market (improvePER) and improve PBR, which is calculated using theformula ROE x PER.
Moreover, the Group has formulated and announced
non-financial indicators that go alongside the financial
indicators in the Medium-term Plan 2025. In addition toinitiatives related to environmental and social issues,
we will work to improve employee engagement bystrengthening investments and initiatives related to humancapital. This will lead to an improvement in profitability
through the accumulation of non-financial capital.
While weighted average cost of capital (WACC) andcost of shareholders’ equity represent typical indicators
used in the analysis of cost of capital, the Group uses costof shareholders’ equity from the perspective of placing
importance on investors’ expected returns, and undertakes
analysis by comparing it with ROE.
[Related information]

Group Vision 2030 and Medium-term Plan 2025
(FY2024/3-2026/3)
Published on April 28, 2023
P.14

3. Aim in Medium-term Plan 2025

P.16

5. Medium-term Plan 2025
(Business Strategy 1/2)

P.15

P.17

4. Management objectives (financial andnon-financial)
5. Medium-term Plan 2025
(Business Strategy 2/2)

IR-related information

Please see our website for detailed financial information.

▶︎ Investor Relations

https://www.necap.co.jp/english/ir/index.html▶︎ IR Library (Financial Results, Presentation Materials *on a quarterly basis)

https://www.necap.co.jp/english/ir/library/index.html▶︎ Annual securities report for the 53rd fiscal year (April 1, 2022 to March 2023)

https://pdf.irpocket.com/C8793/KSWQ/QTGY/a0wi.pdf (in Japanese)

NEC Capital Solutions Limited Integrated Report 2023 42